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 811-00816 --------------------------------------------- AMERICAN CENTURY MUTUAL FUNDS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 816-531-5575 ----------------------------- Date of fiscal year end: 10-31 ------------------------------------------------------- Date of reporting period: 10-31-2008 -------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS ULTRA® FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/ Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9 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 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Approval of Management Agreement for Ultra. . . . . . . . . . . . . . 32 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 36 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 37 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of chief investment officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Ultra Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date INVESTOR CLASS -38.02% -3.03% -0.77% 10.55% 11/2/81 RUSSELL 1000 GROWTH INDEX(1) -36.95% -1.29% -2.10% 9.37%(2) -- S&P 500 INDEX(1) -36.10% 0.26% 0.40% 10.96%(2) -- Institutional Class -37.89% -2.83% -0.57% 2.10% 11/14/96 A Class(3) No sales charge* -38.19% -3.27% -1.01% 1.97% With sales charge* -41.74% -4.41% -1.59% 1.48% 10/2/96 B Class No sales charge* -38.64% -- -- -32.67% With sales charge* -42.64% -- -- -36.48% 9/28/07 C Class -38.63% -3.99% -- -2.85% 10/29/01 R Class -38.35% -3.51% -- -2.57% 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%. 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. ©2008 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. 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 Ultra Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 37.94% 9.81% -31.44% -12.99% 19.50% 4.46% 6.81% -1.51% 25.89% -38.02% Russell 1000 Growth Index 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23% -36.95% S&P 500 Index 25.67% 6.09% -24.90% -15.11% 20.80% 9.42% 8.72% 16.34% 14.56% -36.10% 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 Ultra Portfolio Managers: Tom Telford and Steve Lurito PERFORMANCE SUMMARY Reflecting the sharp decline in the U.S. stock market, Ultra returned - -38.02%* for the year ended October 31, 2008. By comparison, the fund's benchmark, the Russell 1000 Growth Index, returned -36.95%, and the broad S&P 500 Index returned -36.10%. In addition to the extreme market volatility, the fund faced additional performance headwinds during the one-year period. Large-cap stocks underperformed their small-cap counterparts, growth stocks trailed value shares in the large-cap segment of the market, and our investment style--emphasizing accelerating growth and price momentum--was out of favor for much of the period. Furthermore, we tilted the portfolio toward larger, higher-quality companies that we believed were more likely to hold up well in an economic downturn. This positioning worked against us for the bulk of the period and only began to add value in the last few months. As a result, the fund lagged its benchmark index and the broader equity market, but its underperformance was fairly modest given the difficult environment. With one notable exception, stock selection was generally positive across most sectors of the portfolio. TECHNOLOGY UNDERPERFORMED From a sector perspective, just one segment of the portfolio had a significant negative impact on performance compared with the Russell 1000 Growth Index--information technology. Stock selection was the key factor behind our underperformance in this sector, most notably among software makers and communications equipment makers. Research in Motion (RIM), which makes the popular Blackberry devices, was the biggest individual detractor in the portfolio. Smartphones have become a larger part of the cell phone market, and RIM has been increasing its market share in this lucrative segment. However, the slowing economy put downward pressure on the stock, as did the company's decision to lower its profit margins in an effort to capture additional market share. Although we remain positive on the outlook for RIM over the long term, we trimmed our position in the stock during the period. Another noteworthy decliner in the technology sector was MEMC Electronic Materials, which makes silicon wafers used in semiconductors and solar panels. Demand for silicon wafers was exceeding the company's production capabilities, so MEMC moved to expand its production capacity. Unfortunately, the expansion took longer and cost more than originally planned, and by the time it was up and running, demand for semiconductors--and, to a lesser extent, solar panels--had fallen. Top Ten Holdings as of October 31, 2008 % of net assets as of % of net assets as of 10/31/08 4/30/08 Wal-Mart Stores, Inc. 5.0% 1.8% Apple, Inc. 3.3% 2.3% QUALCOMM, Inc. 2.8% 0.7% Abbott Laboratories 2.3% 1.0% Cisco Systems, Inc. 2.3% 3.2% Union Pacific Corp. 2.2% 1.9% Express Scripts, Inc. 2.0% 1.4% Staples, Inc. 2.0% 0.5% McDonald's Corp. 1.9% 1.8% Philip Morris International, Inc. 1.9% 1.3% * All fund returns referenced in this commentary are for Investor Class shares. - ------ 5 Ultra CONSUMER AND HEALTH CARE STOCKS OUTPERFORMED Although every sector of the portfolio declined on an absolute basis, the portfolio's consumer and health care stocks added the most value relative to the benchmark index. The main theme among the top relative performance contributors in the consumer sectors was "trading down" as consumers shifted to lower-priced shopping destinations. One beneficiary was discount retailer Wal-Mart, which successfully allocated its capital more efficiently, boosting cash flows and enabling the company to remodel many of its stores. Fast-food chain McDonald's also benefited from store remodels, as well as improved drive-thru efficiency and revamped menus. The TJX Companies, which owns the T.J. Maxx and Marshalls apparel chains, and warehouse retailer Costco Wholesale were other beneficiaries of the trading down trend. In the health care sector, the top relative performance contributor was pharmacy benefits manager Express Scripts. Increasing use of generic drugs and mail-order prescriptions enhanced the company's profitability. The portfolio's biotechnology holdings also held up well, led by a trio of companies with new products in successful niches--Genzyme, which produces medications for rare chronic genetic diseases; Gilead Sciences, which focuses on HIV drugs; and Celgene, which develops therapeutic treatments for cancer. A LOOK AHEAD We do not expect a rapid recovery in the equity market. Stocks will continue to face challenges as the financial sector deleverages and the economy struggles through a recession. Despite the fund's recent underperformance versus its benchmark, it outperformed the Russell 1000 Growth Index over the past decade, which featured the full spectrum of the economic cycle--recession and expansion. Consequently, we remain confident that our investment approach will generate favorable results over the long term. Top Five Industries as of October 31, 2008 % of net assets as of % of net assets as of 10/31/08 4/30/08 Food & Staples Retailing 7.0% 2.7% Biotechnology 6.5% 2.7% Software 5.9% 5.3% Communications Equipment 5.8% 6.6% Oil, Gas & Consumable Fuels 5.2% 6.8% Types of Investments in Portfolio % of net assets as of % of net assets as of 10/31/08 4/30/08 Domestic Common Stocks 94.8% 90.4% Foreign Common Stocks(1) 3.5% 7.9% TOTAL COMMON STOCKS 98.3% 98.3% Temporary Cash Investments 1.7% 2.5% Other Assets and Liabilities --(2) (0.8)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Category is less than 0.005%. - ------ 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 7 Expenses Paid Beginning Ending During Period* Annualized Account Account Value 5/1/08 - Expense Value 5/1/08 10/31/08 10/31/08 Ratio* ACTUAL Investor Class $1,000 $694.30 $4.22 0.99% Institutional Class $1,000 $695.00 $3.37 0.79% A Class $1,000 $693.20 $5.28 1.24% B Class $1,000 $690.60 $8.46 1.99% C Class $1,000 $690.80 $8.46 1.99% R Class $1,000 $692.40 $6.34 1.49% HYPOTHETICAL Investor Class $1,000 $1,020.16 $5.03 0.99% Institutional Class $1,000 $1,021.17 $4.01 0.79% A Class $1,000 $1,018.90 $6.29 1.24% B Class $1,000 $1,015.13 $10.08 1.99% C Class $1,000 $1,015.13 $10.08 1.99% R Class $1,000 $1,017.65 $7.56 1.49% * 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 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS Ultra OCTOBER 31, 2008 Shares Value Common Stocks -- 98.3% AEROSPACE & DEFENSE -- 2.8% 421,000 Boeing Co. $ 22,005,670 1,202,000 General Dynamics Corp. 72,504,640 666,000 Lockheed Martin Corp. 56,643,300 -------------- 151,153,610 -------------- AIR FREIGHT & LOGISTICS -- 0.3% 316,000 United Parcel Service, Inc., Class B 16,678,480 -------------- BEVERAGES -- 3.0% 1,630,000 Coca-Cola Co. (The) 71,817,800 1,622,000 PepsiCo, Inc. 92,470,220 -------------- 164,288,020 -------------- BIOTECHNOLOGY -- 6.5% 519,000 Amgen, Inc.(1) 31,082,910 1,375,000 Celgene Corp.(1) 88,357,500 866,000 Genentech, Inc.(1) 71,826,040 1,112,000 Genzyme Corp.(1) 81,042,560 1,731,000 Gilead Sciences, Inc.(1) 79,366,350 -------------- 351,675,360 -------------- CAPITAL MARKETS -- 2.6% 90,000 BlackRock, Inc. 11,820,600 3,997,000 Charles Schwab Corp. (The) 76,422,640 583,000 Goldman Sachs Group, Inc. (The) 53,927,500 -------------- 142,170,740 -------------- CHEMICALS -- 2.4% 145,000 Air Products & Chemicals, Inc. 8,428,850 620,000 Celanese Corp., Series A 8,593,200 1,052,000 Monsanto Co. 93,606,960 213,000 Praxair, Inc. 13,876,950 279,000 Valspar Corp. 5,705,550 -------------- 130,211,510 -------------- COMMERCIAL BANKS -- 0.8% 272,000 Cullen/Frost Bankers, Inc. 15,223,840 163,000 PNC Financial Services Group, Inc. 10,867,210 488,000 Wells Fargo & Co. 16,616,400 -------------- 42,707,450 -------------- COMMUNICATIONS EQUIPMENT -- 5.8% 6,970,000 Cisco Systems, Inc.(1) 123,856,900 3,954,000 QUALCOMM, Inc. 151,280,040 821,000 Research In Motion Ltd.(1) 41,403,030 -------------- 316,539,970 -------------- Shares Value COMPUTERS & PERIPHERALS -- 4.6% 1,651,000 Apple, Inc.(1) $ 177,631,090 1,747,000 EMC Corp.(1) 20,579,660 1,297,000 Hewlett-Packard Co. 49,649,160 -------------- 247,859,910 -------------- CONSUMER FINANCE -- 0.3% 416,000 Capital One Financial Corp. 16,273,920 -------------- DIVERSIFIED -- 0.2% 167,000 iShares Russell Midcap Index Fund 10,791,540 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.6% 1,055,000 Bank of America Corp. 25,499,350 1,437,000 JPMorgan Chase & Co. 59,276,250 -------------- 84,775,600 -------------- ELECTRICAL EQUIPMENT -- 1.4% 738,000 ABB Ltd. 9,758,057 218,000 ABB Ltd. ADR 2,866,700 2,000,000 Emerson Electric Co. 65,460,000 -------------- 78,084,757 -------------- ENERGY EQUIPMENT & SERVICES -- 2.8% 400,000 Baker Hughes, Inc. 13,980,000 306,000 Diamond Offshore Drilling, Inc. 27,172,800 877,000 National Oilwell Varco, Inc.(1) 26,213,530 969,000 Noble Corp. 31,211,490 1,074,000 Schlumberger Ltd. 55,472,100 -------------- 154,049,920 -------------- FOOD & STAPLES RETAILING -- 7.0% 599,000 Costco Wholesale Corp. 34,148,990 2,729,000 Kroger Co. (The) 74,938,340 4,911,000 Wal-Mart Stores, Inc. 274,082,910 -------------- 383,170,240 -------------- FOOD PRODUCTS -- 3.0% 1,267,000 General Mills, Inc. 85,826,580 745,000 Kellogg Co. 37,562,900 985,000 Nestle SA 38,394,769 -------------- 161,784,249 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 3.8% 1,556,000 Baxter International, Inc. 94,122,440 561,000 Becton, Dickinson & Co. 38,933,400 1,830,000 Medtronic, Inc. 73,803,900 -------------- 206,859,740 -------------- HEALTH CARE PROVIDERS & SERVICES -- 2.0% 1,812,000 Express Scripts, Inc.(1) 109,825,320 -------------- - ------ 9 Ultra Shares Value HOTELS, RESTAURANTS & LEISURE -- 3.0% 1,831,000 McDonald's Corp. $ 106,069,830 1,969,000 Yum! Brands, Inc. 57,120,690 -------------- 163,190,520 -------------- HOUSEHOLD PRODUCTS -- 0.5% 475,000 Colgate-Palmolive Co. 29,811,000 -------------- INSURANCE -- 0.3% 351,000 AON Corp. 14,847,300 -------------- INTERNET & CATALOG RETAIL -- 0.4% 385,000 Amazon.com, Inc.(1) 22,037,400 -------------- INTERNET SOFTWARE & SERVICES -- 2.0% 62,000 Baidu.com, Inc. ADR(1) 12,772,000 275,000 Google, Inc., Class A(1) 98,824,000 -------------- 111,596,000 -------------- IT SERVICES -- 2.9% 890,000 Accenture Ltd., Class A 29,414,500 128,000 Global Payments, Inc. 5,185,280 565,000 International Business Machines Corp. 52,528,050 167,000 MasterCard, Inc., Class A 24,685,940 398,000 Visa, Inc., Class A 22,029,300 1,756,000 Western Union Co. (The) 26,796,560 -------------- 160,639,630 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.0% 1,911,000 Hasbro, Inc. 55,552,770 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.4% 209,000 Covance, Inc.(1) 10,450,000 1,639,000 Thermo Fisher Scientific, Inc.(1) 66,543,400 -------------- 76,993,400 -------------- MACHINERY -- 1.2% 1,145,000 Cummins, Inc. 29,598,250 464,000 Eaton Corp. 20,694,400 421,000 Parker-Hannifin Corp. 16,322,170 -------------- 66,614,820 -------------- METALS & MINING -- 1.0% 211,000 BHP Billiton Ltd. ADR 8,203,680 565,000 Freeport-McMoRan Copper & Gold, Inc. 16,441,500 405,000 Newmont Mining Corp. 10,667,700 437,000 Nucor Corp. 17,702,870 -------------- 53,015,750 -------------- MULTI-INDUSTRY -- 0.3% 275,000 Energy Select Sector SPDR Fund 14,135,000 -------------- MULTILINE RETAIL -- 1.2% 1,830,000 Kohl's Corp.(1) 64,287,900 -------------- Shares Value OIL, GAS & CONSUMABLE FUELS -- 5.2% 325,000 Apache Corp. $ 26,757,250 811,000 EOG Resources, Inc. 65,626,120 461,000 Exxon Mobil Corp. 34,169,320 731,000 Hess Corp. 44,013,510 702,000 Noble Energy, Inc. 36,377,640 773,000 Occidental Petroleum Corp. 42,932,420 116,000 Petroleo Brasileiro SA ADR 3,119,240 518,000 Plains Exploration & Production Co.(1) 14,607,600 302,000 Ultra Petroleum Corp.(1) 14,058,100 -------------- 281,661,200 -------------- PHARMACEUTICALS -- 4.5% 2,316,000 Abbott Laboratories 127,727,400 299,000 Allergan, Inc. 11,861,330 64,000 AstraZeneca plc 2,720,966 198,000 AstraZeneca plc ADR 8,407,080 526,000 Bristol-Myers Squibb Co. 10,809,300 1,066,000 Johnson & Johnson 65,388,440 221,000 Novartis AG 11,180,090 159,000 Novartis AG ADR 8,107,410 -------------- 246,202,016 -------------- ROAD & RAIL -- 3.3% 1,035,000 Norfolk Southern Corp. 62,037,900 1,762,000 Union Pacific Corp. 117,648,740 -------------- 179,686,640 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.6% 3,010,000 Altera Corp. 52,223,500 668,000 ASML Holding NV 11,657,642 4,167,000 Intel Corp. 66,672,000 456,000 Lam Research Corp.(1) 10,196,160 2,213,000 Linear Technology Corp. 50,190,840 237,000 MEMC Electronic Materials, Inc.(1) 4,356,060 2,156,000 Microchip Technology, Inc. 53,102,280 -------------- 248,398,482 -------------- SOFTWARE -- 5.9% 3,351,000 Activision Blizzard, Inc.(1) 41,753,460 2,888,000 Adobe Systems, Inc.(1) 76,936,320 1,517,000 McAfee, Inc.(1) 49,378,350 4,049,000 Microsoft Corp. 90,414,170 2,084,000 Oracle Corp.(1) 38,116,360 706,000 salesforce.com, inc.(1) 21,857,760 127,000 VMware, Inc., Class A(1) 3,937,000 -------------- 322,393,420 -------------- - ------ 10 Ultra Shares Value SPECIALTY RETAIL -- 4.1% 972,000 Lowe's Cos., Inc. $ 21,092,400 409,000 PetSmart, Inc. 8,053,210 192,000 Sherwin-Williams Co. (The) 10,926,720 5,628,000 Staples, Inc. 109,352,040 2,790,000 TJX Cos., Inc. (The) 74,660,400 -------------- 224,084,770 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.4% 141,000 Coach, Inc.(1) 2,904,600 1,251,000 NIKE, Inc., Class B 72,095,130 -------------- 74,999,730 -------------- THRIFTS & MORTGAGE FINANCE -- 0.3% 792,000 People's United Financial, Inc. 13,860,000 -------------- TOBACCO -- 1.9% 2,412,000 Philip Morris International, Inc. 104,849,640 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.0% 698,000 W.W. Grainger, Inc. 54,841,860 -------------- TOTAL COMMON STOCKS (Cost $5,695,300,211) 5,352,599,584 -------------- Shares/Principal Amount Value Temporary Cash Investments -- 1.7% $45,350,000 FHLB Discount Notes, 0.40%, 11/5/08(2) $ 45,349,547 86,982 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 86,982 Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 8.125%, 8/15/19, valued at $47,181,211), in a joint trading account at 0.01%, dated 10/31/08, due 11/3/08 (Delivery value $46,200,039) 46,200,000 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $91,634,967) 91,636,529 -------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $5,786,935,178) 5,444,236,113 -------------- OTHER ASSETS AND LIABILITIES(3) (2,131,206) -------------- TOTAL NET ASSETS -- 100.0% $5,442,104,907 ============== Forward Foreign Currency Exchange Contracts Unrealized Gain Contracts to Sell Settlement Date Value (Loss) 27,085,233 CHF for USD 11/28/08 $23,361,825 $496,360 4,358,700 Euro for USD 11/28/08 5,550,499 73,902 ----------- -------- $28,912,324 $570,262 =========== ======== (Value on Settlement Date $29,482,586) Notes to Schedule of Investments ADR = American Depositary Receipt CHF = Swiss Franc FHLB = Federal Home Loan Bank SPDR = Standard & Poor's Depositary Receipts USD = United States Dollar (1) Non-income producing. (2) The rate indicated is the yield to maturity at purchase. (3) Category is less than 0.005%. As of October 31, 2008, securities with an aggregate value of $73,711,524, which represented 1.4% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 11 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $5,786,935,178) $5,444,236,113 Receivable for investments sold 209,941,001 Receivable for forward foreign currency exchange contracts 570,262 Receivable for capital shares sold 989,530 Dividends and interest receivable 6,252,498 -------------- 5,661,989,404 -------------- LIABILITIES Disbursements in excess of demand deposit cash 75,292 Payable for investments purchased 206,580,490 Payable for capital shares redeemed 8,610,780 Accrued management fees 4,597,291 Service fees (and distribution fees -- A Class and R Class) payable 20,027 Distribution fees payable 617 -------------- 219,884,497 -------------- NET ASSETS $5,442,104,907 ============== See Notes to Financial Statements. - ------ 12 OCTOBER 31, 2008 NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $6,134,184,165 Undistributed net investment income 25,735,002 Accumulated net realized loss on investment and foreign currency transactions (375,511,971) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (342,302,289) -------------- $5,442,104,907 ============== INVESTOR CLASS, $0.01 PAR VALUE Net assets $5,275,836,038 Shares outstanding 336,703,553 Net asset value per share $15.67 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $76,338,522 Shares outstanding 4,766,262 Net asset value per share $16.02 A CLASS, $0.01 PAR VALUE Net assets $85,722,822 Shares outstanding 5,627,870 Net asset value per share $15.23 Maximum offering price (net asset value divided by 0.9425) $16.16 B CLASS, $0.01 PAR VALUE Net assets $40,507 Shares outstanding 2,615 Net asset value per share $15.49 C CLASS, $0.01 PAR VALUE Net assets $891,130 Shares outstanding 62,238 Net asset value per share $14.32 R CLASS, $0.01 PAR VALUE Net assets $3,275,888 Shares outstanding 215,905 Net asset value per share $15.17 See Notes to Financial Statements. - ------ 13 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $1,241,007) $ 105,527,691 Interest 4,145,003 Securities lending, net 1,314,100 ---------------- 110,986,794 ---------------- EXPENSES: Management fees 81,238,791 Distribution fees: B Class 352 C Class 11,848 Service fees: B Class 117 C Class 3,949 Distribution and service fees: A Class 396,280 R Class 25,979 Directors' fees and expenses 221,240 Other expenses 23,248 ---------------- 81,921,804 ---------------- NET INVESTMENT INCOME (LOSS) 29,064,990 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (363,366,519) Foreign currency transactions (5,205,201) ---------------- (368,571,720) ---------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (3,219,330,581) Translation of assets and liabilities in foreign currencies 2,274,544 ---------------- (3,217,056,037) ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (3,585,627,757) ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(3,556,562,767) ================ See Notes to Financial Statements. - ------ 14 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $ 29,064,990 $ (4,015,646) Net realized gain (loss) (368,571,720) 3,112,565,031 Change in net unrealized appreciation (depreciation) (3,217,056,037) (479,633,923) --------------- --------------- Net increase (decrease) in net assets resulting from operations (3,556,562,767) 2,628,915,462 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS From net realized gains: Investor Class (2,312,270,157) (903,904,830) Institutional Class (65,091,994) (69,893,181) A Class (50,919,711) (26,545,325) B Class (11,669) -- C Class (533,319) (210,990) R Class (1,501,522) (578,901) --------------- --------------- Decrease in net assets from distributions (2,430,328,372) (1,001,133,227) --------------- --------------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 794,859,566 (5,966,539,859) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS (5,192,031,573) (4,338,757,624) NET ASSETS Beginning of period 10,634,136,480 14,972,894,104 --------------- --------------- End of period $ 5,442,104,907 $10,634,136,480 =============== =============== Undistributed net investment income $25,735,002 $1,874,213 =============== =============== See Notes to Financial Statements. - ------ 15 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, the B Class, and 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 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 income earned, net of any rebates or fees, is included in the Statement of Operations. 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 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 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 each 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule 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. The effective annual management fee for each class of the fund for the year ended October 31, 2008 was 0.99% for the Investor Class, A Class, B Class, C Class and R Class, and 0.79% for the Institutional 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%. The fees are computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2008, 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 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 js an equity investor in ACC. Prior to December 12, 2007, the fund had a bank line of credit agreement with JPMorgan Chase Bank (JPMCB). The fund has a securities lending agreement with 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, 2008, were $12,387,917,945 and $13,921,630,735, respectively. - ------ 18 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the fund were as follows: Year ended October 31, 2008 Year ended October 31, 2007(1) Shares Amount Shares Amount INVESTOR CLASS/SHARES AUTHORIZED 3,500,000,000 3,500,000,000 ============= ============== Sold 15,047,819 $ 349,727,360 15,640,310 $ 449,268,460 Issued in reinvestment of distributions 91,021,431 2,229,114,850 31,578,213 862,400,995 Redeemed (70,022,806) (1,625,259,696) (218,773,176) (6,268,934,963) ------------- --------------- ------------- ---------------- 36,046,444 953,582,514 (171,554,653) (4,957,265,508) ------------- --------------- ------------- ---------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 200,000,000 200,000,000 ============= ============== Sold 1,768,195 41,370,627 5,102,384 149,551,045 Issued in reinvestment of distributions 2,567,071 64,151,093 2,452,199 67,876,857 Redeemed (9,133,416) (232,001,615) (35,145,354) (1,017,687,602) ------------- --------------- ------------- ---------------- (4,798,150) (126,479,895) (27,590,771) (800,259,700) ------------- --------------- ------------- ---------------- A CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 ============= ============== Sold 1,495,972 34,046,242 1,553,608 44,553,790 Issued in reinvestment of distributions 2,076,111 49,536,018 961,764 25,823,362 Redeemed (5,107,987) (116,870,252) (9,767,093) (274,240,889) ------------- --------------- ------------- ---------------- (1,535,904) (33,287,992) (7,251,721) (203,863,737) ------------- --------------- ------------- ---------------- B CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============= ============== Sold 1,429 39,247 790 25,000 Issued in reinvestment of distributions 478 11,669 -- -- Redeemed (82) (1,808) -- -- ------------- --------------- ------------- ---------------- 1,825 49,108 790 25,000 ------------- --------------- ------------- ---------------- C CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============= ============== Sold 18,798 403,824 7,068 191,037 Issued in reinvestment of distributions 22,734 513,343 7,494 194,552 Redeemed (46,798) (965,829) (69,636) (1,880,114) ------------- --------------- ------------- ---------------- (5,266) (48,662) (55,074) (1,494,525) ------------- --------------- ------------- ---------------- R CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============= ============== Sold 104,389 2,462,123 81,270 2,326,954 Issued in reinvestment of distributions 56,879 1,354,849 20,532 551,893 Redeemed (127,380) (2,772,479) (236,741) (6,560,236) ------------- --------------- ------------- ---------------- 33,888 1,044,493 (134,939) (3,681,389) ------------- --------------- ------------- ---------------- Net increase (decrease) 29,742,837 $ 794,859,566 (206,586,368) $(5,966,539,859) ============= =============== ============= ================ (1) September 28, 2007 (commencement of sale) through October 31, 2007 for the B Class. 5. SECURITIES LENDING As of October 31, 2008, the fund did not have any securities on loan. 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 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. Investments made with cash collateral may decline in value. - ------ 19 6. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from either line during the year ended October 31, 2008. 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, 2008 and October 31, 2007 were as follows: 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income -- -- Long-term capital gains $2,430,328,372 $1,001,133,227 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, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $5,961,236,585 ============== Gross tax appreciation of investments $ 303,584,914 Gross tax depreciation of investments (820,585,386) -------------- Net tax appreciation (depreciation) of investments $(517,000,472) ============== Net tax appreciation (depreciation) on translation of assets and liabilities in foreign currencies $ (173,486) -------------- Net tax appreciation (depreciation) $(517,173,958) ============== Undistributed ordinary income $26,305,264 Accumulated capital losses $(201,210,564) 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 2016. - ------ 20 9. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board (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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 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 $2,430,328,372, or up to the maximum amount allowable, of long-term capital gains distributions for the fiscal year ended October 31, 2008. - ------ 21 FINANCIAL HIGHLIGHTS Ultra Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $33.48 $28.55 $29.02 $27.17 $26.01 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) 0.08 (0.01) (0.06) 0.02 (0.05) Net Realized and Unrealized Gain (Loss) (9.95) 6.95 (0.37) 1.83 1.21 ------ ------ ------ ------ ------ Total From Investment Operations (9.87) 6.94 (0.43) 1.85 1.16 ------ ------ ------ ------ ------ Distributions From Net Investment Income -- -- (0.04) -- -- From Net Realized Gains (7.94) (2.01) -- -- -- ------ ------ ------ ------ ------ Total Distributions (7.94) (2.01) (0.04) -- -- ------ ------ ------ ------ ------ Net Asset Value, End of Period $15.67 $33.48 $28.55 $29.02 $27.17 ====== ====== ====== ====== ====== TOTAL RETURN(2) (38.02)% 25.89% (1.51)% 6.81% 4.46% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.99% 0.99% 0.99% 0.99% 0.99% Ratio of Net Investment Income (Loss) to Average Net Assets 0.36% (0.04)% (0.15)% 0.09% (0.20)% Portfolio Turnover Rate 152% 93% 62% 33% 34% Net Assets, End of Period (in millions) $5,276 $10,066 $13,482 $18,904 $20,708 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $33.98 $28.90 $29.38 $27.44 $26.22 ------- ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) 0.15 0.05 --(2) 0.07 --(2) Net Realized and Unrealized Gain (Loss) (10.17) 7.04 (0.38) 1.87 1.22 ------- ------ ------ ------ ------ Total From Investment Operations (10.02) 7.09 (0.38) 1.94 1.22 ------- ------ ------ ------ ------ Distributions From Net Investment Income -- -- (0.10) -- -- From Net Realized Gains (7.94) (2.01) -- -- -- ------- ------ ------ ------ ------ Total Distributions (7.94) (2.01) (0.10) -- -- ------- ------ ------ ------ ------ Net Asset Value, End of Period $16.02 $33.98 $28.90 $29.38 $27.44 ======= ====== ====== ====== ====== TOTAL RETURN(3) (37.89)% 26.14% (1.33)% 7.07% 4.65% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.79% 0.79% 0.79% 0.79% 0.79% Ratio of Net Investment Income (Loss) to Average Net Assets 0.56% 0.16% 0.05% 0.29% 0.00% Portfolio Turnover Rate 152% 93% 62% 33% 34% Net Assets, End of Period (in thousands) $76,339 $325,035 $1,073,767 $1,460,343 $1,055,145 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $32.83 $28.11 $28.61 $26.85 $25.77 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) 0.03 (0.08) (0.13) (0.05) (0.12) Net Realized and Unrealized Gain (Loss) (9.69) 6.81 (0.37) 1.81 1.20 ------ ------ ------ ------ ------ Total From Investment Operations (9.66) 6.73 (0.50) 1.76 1.08 ------ ------ ------ ------ ------ Distributions From Net Realized Gains (7.94) (2.01) -- -- -- ------ ------ ------ ------ ------ Net Asset Value, End of Period $15.23 $32.83 $28.11 $28.61 $26.85 ====== ====== ====== ====== ====== TOTAL RETURN(3) (38.19)% 25.56% (1.75)% 6.55% 4.19% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.24% 1.24% 1.24% 1.24% 1.24% Ratio of Net Investment Income (Loss) to Average Net Assets 0.11% (0.29)% (0.40)% (0.16)% (0.45)% Portfolio Turnover Rate 152% 93% 62% 33% 34% Net Assets, End of Period (in thousands) $85,723 $235,217 $405,173 $639,792 $738,032 (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 Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $33.45 $31.63 ------- ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.16) (0.04) Net Realized and Unrealized Gain (Loss) (9.86) 1.86 ------- ------ Total From Investment Operations (10.02) 1.82 ------- ------ Distributions From Net Realized Gains (7.94) -- ------- ------ Net Asset Value, End of Period $15.49 $33.45 ======= ====== TOTAL RETURN(3) (38.64)% 5.75% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.99% 1.99%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.64)% (1.53)%(4) Portfolio Turnover Rate 152% 93%(5) Net Assets, End of Period (in thousands) $41 $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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $31.54 $27.26 $27.96 $26.44 $25.57 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) (0.13) (0.29) (0.34) (0.26) (0.32) Net Realized and Unrealized Gain (Loss) (9.15) 6.58 (0.36) 1.78 1.19 ------ ------ ------ ------ ------ Total From Investment Operations (9.28) 6.29 (0.70) 1.52 0.87 ------ ------ ------ ------ ------ Distributions From Net Realized Gains (7.94) (2.01) -- -- -- ------ ------ ------ ------ ------ Net Asset Value, End of Period $14.32 $31.54 $27.26 $27.96 $26.44 ====== ====== ====== ====== ====== TOTAL RETURN(2) (38.63)% 24.64% (2.50)% 5.75% 3.40% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.99% 1.99% 1.99% 1.99% 1.99% Ratio of Net Investment Income (Loss) to Average Net Assets (0.64)% (1.04)% (1.15)% (0.91)% (1.20)% Portfolio Turnover Rate 152% 93% 62% 33% 34% Net Assets, End of Period (in thousands) $891 $2,129 $3,342 $5,601 $4,836 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $32.80 $28.15 $28.72 $27.01 $25.99 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) (0.03) (0.15) (0.21) (0.12) (0.22) Net Realized and Unrealized Gain (Loss) (9.66) 6.81 (0.36) 1.83 1.24 ------ ------ ------ ------ ------ Total From Investment Operations (9.69) 6.66 (0.57) 1.71 1.02 ------ ------ ------ ------ ------ Distributions From Net Realized Gains (7.94) (2.01) -- -- -- ------ ------ ------ ------ ------ Net Asset Value, End of Period $15.17 $32.80 $28.15 $28.72 $27.01 ====== ====== ====== ====== ====== TOTAL RETURN(2) (38.35)% 25.26% (1.98)% 6.33% 3.92% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49% 1.49% 1.49% 1.44%(3) 1.49% Ratio of Net Investment Income (Loss) to Average Net Assets (0.14)% (0.54)% (0.65)% (0.36)%(3) (0.70)% Portfolio Turnover Rate 152% 93% 62% 33% 34% Net Assets, End of Period (in thousands) $3,276 $5,971 $8,922 $8,367 $4,545 (1) Computed using average shares outstanding throughout the period. (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. 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. (3) 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. 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, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 28 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 29 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 30 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 31 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 or trustees (the "Directors") each year. At American Century Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 32 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. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 the services provided by the advisor 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 to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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 - ------ 33 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 was above the median for 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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 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. - ------ 34 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. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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 board, including all of 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. - ------ 35 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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. - ------ 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 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 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 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 - ------ 40 [back cover] [american century investments logo and text logo ®] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE. . . . . . . . . . . . . . . . . 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE. . . . . . . . . . . . . . 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS. . . . . . . . . . . . . . . . . . 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS . .. . . . . . . . . . . . . . . . . . . . . . . . . . 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES. . . . . . . . 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF. . . . . . . . . . . 1-800-634-4113 AMERICAN CENTURY 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62717S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] American Century Investments GROWTH FUND VISTA(SM) FUND PRESIDENT'S LETTER [photo of Jonathan Thomas] JONATHAN THOMAS Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 VISTA Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . 10 Types of Investments in Portfolio . . . . . . . . . . . . . . . . . 10 Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . 11 FINANCIAL STATEMENTS Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . 13 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. . . . . . . 38 OTHER INFORMATION Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Approval of Management Agreements for Growth and Vista . . . . . . . 42 Additional Information . . . . . . . . . . . . . . . . . . . . . . . 47 Index Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 48 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained frozen. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Growth Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date INVESTOR CLASS -33.86% 0.62% -0.02% 13.21% 6/30/71(1) RUSSELL 1000 GROWTH INDEX(2) -36.95% -1.29% -2.10% N/A(3) -- Institutional Class -33.71% 0.83% 0.20% 2.41% 6/16/97 Advisor Class -34.03% 0.37% -0.28% 2.42% 6/4/97 R Class -34.21% 0.12% -- 0.90% 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. ©2008 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. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. 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, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 36.31% 11.49% -34.14% -17.09% 16.62% 6.78% 7.47% 11.51% 21.86% -33.86% Russell 1000 Growth Index 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23% -36.95% 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 returned -33.86%* during the 12 months ended October 31, 2008. By comparison, Growth outperformed its benchmark--the Russell 1000 Growth Index--and the Lipper Large-Cap Growth Funds category average, which returned - -36.95% and -38.55%,** respectively. See the previous page for the portfolio's long-term performance compared with its benchmark. The portfolio declined in a year of unprecedented turmoil in financial markets. No sector contributed positively to absolute returns; information technology shares detracted most. Growth held up better than the Russell index thanks to contributions from a number of sectors, led by consumer discretionary, financials, and materials shares. Information technology and industrials were the only sectors to detract from relative results. CONSUMER DISCRETIONARY CONTRIBUTED MOST Outperformance in the consumer discretionary sector was driven by stock picks in the multiline and specialty retail industries. The sector was home to the number-one overall contributor to relative results, an overweight position in Family Dollar Stores. In the specialty retail segment, performance benefited from larger-than-benchmark weightings in Urban Outfitters and The TJX Companies, which operates the T.J. Maxx and Marshalls chains, among others. Having exposure to these and other discount retailers during the period benefited portfolio performance in this difficult economic environment. For example, in the consumer staples sector, Wal-Mart saw increased customer traffic while continuing to make progress on its turnaround. Wal-Mart was a top-five contributor to portfolio performance. OTHER KEY CONTRIBUTORS Financials shares also helped relative performance, thanks to stock selection in the insurance space, as well as underweight positions in consumer finance and thrifts. The key contribution to relative results came from an overweight position in Chubb Corporation. Chubb had an essentially flat return during an otherwise very difficult year for financials stocks because it's seen as a well-capitalized, higher-quality name. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Apple, Inc. 3.4% 3.4% Wal-Mart Stores, Inc. 3.1% 2.1% Procter & Gamble Co. (The) 3.0% 1.3% Cisco Systems, Inc. 3.0% 1.6% QUALCOMM, Inc. 2.8% 2.5% Coca-Cola Co. (The) 2.8% 2.2% Google, Inc., Class A 2.3% 0.9% Oracle Corp. 2.3% 0.8% Raytheon Co. 2.3% 1.9% Union Pacific Corp. 2.2% 0.4% * All fund returns referenced in this commentary are for Investor Class shares. ** The Lipper Large-Cap Growth Funds category average returns for the five- and 10-year periods ended October 31, 2008, were -1.58% and -0.71%, respectively. - ------ 5 Growth Materials shares also helped relative performance, led by stock selection. Monsanto, the world's largest seed producer, was the leading contributor in this space. It also helped to be underweight in the chemicals and metals and mining industries, which suffered from falling commodity prices and the outlook for slower economic growth and tighter credit. The portfolio had no exposure to the poorest-performing fertilizer and steel companies, led by Mosaic and U.S. Steel, respectively. IT, INDUSTRIALS DETRACTED The information technology sector was the largest detractor from relative return. Stock selection in the software industry hurt performance, behind an underweight position in Microsoft, which was seen as a "safe haven" during the market turmoil. An underweight position and stock selection in IT services also detracted. Here it hurt to be underrepresented in IBM, another big safe-haven play, and overweight in Western Union and DST Systems during the period. The industrial sector underperformed due to positioning in the electrical equipment, commercial services, road and rail, and building products industries. Stock selection was mixed, but allocation detracted--the portfolio was overweight the poor-performing electrical equipment companies, and underrepresented in the other industry segments, which held up better. OUTLOOK The Growth team's investment process focuses on large companies exhibiting sustainable improvement in their businesses. The managers have a thesis on each stock they own and devote their entire research effort toward identifying the companies in each sector and industry that they feel are likely to outperform. It is the managers' belief that owning such companies will generate outperformance over time versus the Russell 1000 Growth Index and the other funds in the large-growth peer group. As a result, the portfolio's sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2008, they found opportunity in the health care and consumer discretionary sectors, the portfolio's largest overweight positions. The most notable sector underweights were in information technology and energy shares. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Health Care Equipment & Supplies 8.1% 8.2% Software 6.7% 4.4% Communications Equipment 5.7% 8.1% Semiconductors & Semiconductor Equipment 5.3% 5.7% Oil, Gas & Consumable Fuels 5.1% 6.4% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 94.1% 93.1% Foreign Common Stocks(1) 4.6% 6.3% TOTAL COMMON STOCKS 98.7% 99.4% Temporary Cash Investments 1.3% 0.5% Other Assets and Liabilities(2) --(3) 0.1% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Includes securities lending collateral and other assets and liabilities. (3) Category is less than 0.05% of total net assets. - ------ 6 PERFORMANCE Vista Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date INVESTOR CLASS -43.58% 2.85% 8.39% 8.85% 11/25/83 RUSSELL MIDCAP GROWTH INDEX(1) -42.65% -0.18% 2.20% N/A(2) -- Institutional Class -43.50% 3.04% 8.59% 3.79% 11/14/96 Advisor Class -43.72% 2.59% 8.13% 2.71% 10/2/96 R Class -43.87% -- -- -3.67% 7/29/05 (1) Data provided by Lipper Inc. - A Reuters Company. ©2008 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. - ------ 7 Vista Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 66.24% 66.16% -37.48% -12.90% 29.41% 9.77% 14.08% 9.07% 49.39% -43.58% Russell Midcap Growth Index 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72% -42.65% 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. - ------ 8 PORTFOLIO COMMENTARY Vista Portfolio Managers: Glenn Fogle and Brad Eixmann PERFORMANCE SUMMARY Vista returned -43.58%* for the 12 months ended October 31, 2008, underperforming the -42.65% return of its benchmark, the Russell Midcap Growth Index. As discussed in the Market Perspective on page 2, equity markets declined during the reporting period against a backdrop of extreme market volatility as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. Within the portfolio, poor security selection in the information technology sector and an underweight allocation to the energy sector accounted for the bulk of Vista's underperformance relative to the benchmark. An overweight allocation and poor stock selection in the telecommunications sector and an overweight allocation to the materials sector further trimmed returns. Effective stock selection in the consumer discretionary and health care sectors helped to offset those losses. ENERGY, INFORMATION TECHNOLOGY LED DETRACTORS Vista's underweight allocation to the energy sector weighed on relative performance as oil and natural gas prices remained high for much of the period, although energy prices declined sharply late in the period. Within the sector, a stake in oil field services company Weatherford International detracted from returns as its share price sank 48%. Within the information technology sector, poor stock selection trimmed portfolio returns. In the communications equipment and semiconductor industries, in particular, the portfolio held overweight stakes in several laggards. TELECOMMUNICATIONS, MATERIALS LAGGED, BUT SOME HOLDINGS GAINED An overweight stake and stock selection in the telecommunications sector also curbed relative returns. Within the wireless telecommunications industry, the portfolio maintained an overweight in NII Holdings, Inc., which provides cellular service in burgeoning Latin American markets. Although it has benefited performance in the past, NII detracted from returns during the reporting period. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Dollar Tree, Inc. 3.1% -- SBA Communications Corp., Class A 2.5% 2.5% Thermo Fisher Scientific, Inc. 2.5% 3.0% Midcap SPDR Trust Series 1 2.3% -- Express Scripts, Inc. 2.3% 2.2% ITT Educational Services, Inc. 2.3% 0.2% Ross Stores, Inc. 2.2% -- Medco Health Solutions, Inc. 2.2% 2.2% Quanta Services, Inc. 2.2% 1.2% Covidien Ltd. 2.0% -- * All fund returns referenced in this commentary are for Investor Class shares. - ------ 9 Vista A higher standard of living in emerging markets, lower availability of farmland, and greater global focus on biofuels have translated into growing global demand for agriculture in recent reporting periods, leading to a rise in commodities prices that benefited select chemicals companies in the portfolio. During the reporting period, though, most of those holdings saw share price declines amid falling commodity prices. However, Monsanto, which is a producer of genetically modified corn seed and pesticides, benefited relative performance. Not a constituent of the benchmark, Monsanto experienced relatively modest share price declines during the reporting period. Declining commodity prices drove down the share price of fertilizer company Mosaic. Because the investment team reduced portfolio exposure to the holding, Mosaic contributed to relative performance, although it weighed on absolute returns. INDUSTRIALS HOLDINGS DECLINED In the industrials sector, we maintained an overweight position in the construction and engineering industry. Here, overweight holding Foster Wheeler declined on fears that weakening energy prices would reduce engineering and construction activity. Aerospace and defense industry overweight BE Aerospace also trimmed relative returns. The portfolio no longer holds these two positions. CONSUMER DISCRETIONARY, HEALTH CARE CONTRIBUTED Effective stock selection within the consumer discretionary sector partially offset relative losses derived in other sectors. Notably, an overweight stake in discount variety retailer Dollar Tree, Inc. represented the single largest contributor to Vista's relative performance. Within the health care sector, an overweight position in the health care providers group benefited relative returns. Here, stakes in Express Scripts and Medco Health Solutions added to performance relative to the benchmark. OUTLOOK 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. The reporting period was a difficult environment for growth- and momentum-oriented investment styles. Looking ahead, we remain confident in our investment beliefs that stocks which exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Specialty Retail 7.4% 5.2% Oil, Gas & Consumable Fuels 6.4% 6.2% Health Care Providers & Services 6.1% 4.9% Diversified Consumer Services 5.1% 0.9% Multiline Retail 5.0% -- Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 91.7% 83.3% Foreign Common Stocks(1) 6.3% 14.4% TOTAL COMMON STOCKS 98.0% 97.7% Temporary Cash Investments 2.1% 6.0% Other Assets and Liabilities (0.1)% (3.7)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 10 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 11 Ending Expenses Paid Beginning Account During Period* Annualized Account Value Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* Growth ACTUAL Investor Class $1,000 $704.50 $4.28 1.00% Institutional Class $1,000 $705.60 $3.43 0.80% Advisor Class $1,000 $703.50 $5.35 1.25% R Class $1,000 $702.70 $6.42 1.50% HYPOTHETICAL Investor Class $1,000 $1,020.11 $5.08 1.00% Institutional Class $1,000 $1,021.11 $4.06 0.80% Advisor Class $1,000 $1,018.85 $6.34 1.25% R Class $1,000 $1,017.60 $7.61 1.50% Vista ACTUAL Investor Class $1,000 $643.40 $4.17 1.01% Institutional Class $1,000 $643.70 $3.35 0.81% Advisor Class $1,000 $642.70 $5.20 1.26% R Class $1,000 $641.80 $6.23 1.51% HYPOTHETICAL Investor Class $1,000 $1,020.06 $5.13 1.01% Institutional Class $1,000 $1,021.06 $4.12 0.81% Advisor Class $1,000 $1,018.80 $6.39 1.26% R Class $1,000 $1,017.55 $7.66 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 366, to reflect the one-half year period. - ------ 12 SCHEDULE OF INVESTMENTS Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 98.7% AEROSPACE & DEFENSE -- 3.7% 1,426,500 Honeywell International, Inc. $ 43,436,925 1,373,100 Raytheon Co. 70,179,141 -------------- 113,616,066 -------------- AIR FREIGHT & LOGISTICS -- 1.2% 708,700 United Parcel Service, Inc., Class B 37,405,186 -------------- AUTO COMPONENTS -- 0.7% 962,000 BorgWarner, Inc. 21,616,140 -------------- BEVERAGES -- 4.3% 1,914,100 Coca-Cola Co. (The) 84,335,246 825,600 PepsiCo, Inc. 47,067,456 -------------- 131,402,702 -------------- BIOTECHNOLOGY -- 3.1% 379,300 Alexion Pharmaceuticals, Inc.(1) 15,456,475 393,300 Genentech, Inc.(1) 32,620,302 1,002,500 Gilead Sciences, Inc.(1) 45,964,625 -------------- 94,041,402 -------------- CAPITAL MARKETS -- 1.3% 620,200 Northern Trust Corp. 34,923,462 211,400 Waddell & Reed Financial, Inc., Class A 3,069,528 -------------- 37,992,990 -------------- CHEMICALS -- 2.2% 738,200 Monsanto Co. 65,685,036 -------------- COMMUNICATIONS EQUIPMENT -- 5.7% 5,092,000 Cisco Systems, Inc.(1) 90,484,840 2,207,700 QUALCOMM, Inc. 84,466,602 -------------- 174,951,442 -------------- COMPUTERS & PERIPHERALS -- 4.5% 950,100 Apple, Inc.(1) 102,221,259 3,025,400 EMC Corp.(1) 35,639,212 -------------- 137,860,471 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.5% 391,600 Bank of America Corp. 9,464,972 526,100 Citigroup, Inc. 7,181,265 348,100 IntercontinentalExchange, Inc.(1) 29,783,436 -------------- 46,429,673 -------------- ELECTRIC UTILITIES -- 1.3% 803,500 FPL Group, Inc. 37,957,340 -------------- Shares Value ELECTRICAL EQUIPMENT -- 4.1% 1,322,500 Cooper Industries Ltd., Class A $ 40,931,375 1,649,800 Emerson Electric Co. 53,997,954 356,200 Energy Conversion Devices, Inc.(1) 12,160,668 117,700 First Solar, Inc.(1) 16,913,490 -------------- 124,003,487 -------------- ENERGY EQUIPMENT & SERVICES -- 2.6% 493,200 National Oilwell Varco, Inc.(1) 14,741,748 365,200 Schlumberger Ltd. 18,862,580 556,400 Transocean, Inc.(1) 45,808,412 -------------- 79,412,740 -------------- FOOD & STAPLES RETAILING -- 3.1% 1,685,700 Wal-Mart Stores, Inc. 94,078,917 -------------- FOOD PRODUCTS -- 2.1% 341,500 Kellogg Co. 17,218,430 1,212,800 Nestle SA 47,274,289 -------------- 64,492,719 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.1% 180,700 Alcon, Inc. 15,923,284 660,800 Baxter International, Inc. 39,971,792 894,700 Becton, Dickinson & Co. 62,092,180 365,900 C.R. Bard, Inc. 32,290,675 692,800 DENTSPLY International, Inc. 21,047,264 234,900 Gen-Probe, Inc.(1) 11,054,394 125,500 Intuitive Surgical, Inc.(1) 21,685,145 703,500 Medtronic, Inc. 28,372,155 179,200 Mettler Toledo International, Inc.(1) 13,715,968 -------------- 246,152,857 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.7% 625,700 Express Scripts, Inc.(1) 37,923,677 290,100 UnitedHealth Group, Inc. 6,884,073 449,200 VCA Antech, Inc.(1) 8,130,520 -------------- 52,938,270 -------------- HOUSEHOLD DURABLES -- 1.3% 1,310,300 KB Home 21,868,907 391,200 Mohawk Industries, Inc.(1) 18,926,256 -------------- 40,795,163 -------------- HOUSEHOLD PRODUCTS -- 3.0% 1,418,700 Procter & Gamble Co. (The) 91,562,898 -------------- INSURANCE -- 1.1% 658,000 Chubb Corp. 34,097,560 -------------- INTERNET & CATALOG RETAIL -- 0.4% 193,600 Amazon.com, Inc.(1) 11,081,664 -------------- - ------ 13 Growth Shares Value INTERNET SOFTWARE & SERVICES -- 2.3% 198,300 Google, Inc., Class A(1) $ 71,261,088 -------------- IT SERVICES -- 1.9% 803,000 Global Payments, Inc. 32,529,530 1,551,700 Western Union Co. (The) 23,678,942 -------------- 56,208,472 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.6% 556,400 QIAGEN NV(1) 7,934,264 994,100 Thermo Fisher Scientific, Inc.(1) 40,360,460 -------------- 48,294,724 -------------- MACHINERY -- 0.6% 343,000 Valmont Industries, Inc. 18,789,540 -------------- MEDIA -- 2.7% 2,279,300 DIRECTV Group, Inc. (The)(1) 49,893,877 1,107,900 Scripps Networks Interactive, Inc., Class A 31,464,360 -------------- 81,358,237 -------------- METALS & MINING -- 0.2% 277,800 Newmont Mining Corp. 7,317,252 -------------- MULTILINE RETAIL -- 3.0% 1,548,900 Family Dollar Stores, Inc. 41,680,899 1,378,000 Kohl's Corp.(1) 48,409,140 -------------- 90,090,039 -------------- MULTI-UTILITIES -- 0.6% 618,200 Public Service Enterprise Group, Inc. 17,402,330 -------------- OIL, GAS & CONSUMABLE FUELS -- 5.1% 337,700 Alpha Natural Resources, Inc.(1) 12,079,529 213,700 Apache Corp. 17,593,921 637,500 Devon Energy Corp. 51,548,250 421,500 EOG Resources, Inc. 34,107,780 732,400 Occidental Petroleum Corp. 40,677,496 -------------- 156,006,976 -------------- PERSONAL PRODUCTS -- 0.8% 662,900 Estee Lauder Cos., Inc. (The), Class A 23,890,916 -------------- PHARMACEUTICALS -- 3.1% 601,500 Allergan, Inc. 23,861,505 188,300 Johnson & Johnson 11,550,322 861,800 Novo Nordisk AS, B Shares 46,132,622 352,300 Wyeth 11,337,014 -------------- 92,881,463 -------------- Shares Value REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.6% 579,100 Digital Realty Trust, Inc. $ 19,388,268 -------------- ROAD & RAIL -- 2.2% 1,003,500 Union Pacific Corp. 67,003,695 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.3% 2,076,500 Altera Corp. 36,027,275 1,511,300 Intel Corp. 24,180,800 1,237,900 Linear Technology Corp. 28,075,572 3,170,900 Marvell Technology Group Ltd.(1) 22,069,464 1,400,600 Texas Instruments, Inc. 27,395,736 1,332,300 Xilinx, Inc. 24,540,966 -------------- 162,289,813 -------------- SOFTWARE -- 6.7% 1,768,800 Activision Blizzard, Inc.(1) 22,039,248 830,600 Adobe Systems, Inc.(1) 22,127,184 2,608,100 Microsoft Corp. 58,238,873 3,857,500 Oracle Corp.(1) 70,553,675 433,400 salesforce.com, inc.(1) 13,418,064 1,458,800 Symantec Corp.(1) 18,351,704 -------------- 204,728,748 -------------- SPECIALTY RETAIL -- 2.8% 510,100 Advance Auto Parts, Inc. 15,915,120 275,300 AnnTaylor Stores Corp.(1) 3,460,521 2,031,600 Lowe's Cos., Inc. 44,085,720 838,300 O'Reilly Automotive, Inc.(1) 22,726,313 -------------- 86,187,674 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.2% 2,064,700 American Tower Corp., Class A(1) 66,710,457 -------------- TOTAL COMMON STOCKS (Cost $3,502,652,532) 3,007,384,415 -------------- - ------ 14 Growth Shares Value Temporary Cash Investments -- 1.3% 27,036 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares $ 27,036 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, value at $40,714,536), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $40,000,167) 40,000,000 -------------- Value TOTAL TEMPORARY CASH INVESTMENTS (Cost $40,027,036) $ 40,027,036 -------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $3,542,679,568) 3,047,411,451 -------------- OTHER ASSETS AND LIABILITIES(2) 873,393 -------------- TOTAL NET ASSETS -- 100.0% $3,048,284,844 ============== Forward Foreign Currency Exchange Contracts Settlement Unrealized Contracts to Sell Date Value Gain (Loss) 48,332,506 CHF for USD 11/28/08 $ 41,688,236 $894,861 220,597,676 DKK for USD 11/28/08 37,691,445 423,456 ------------ ------------- $ 79,379,681 $1,318,317 ============ ============= (Value on Settlement Date $80,697,998) Notes to Schedule of Investments CHF = Swiss Franc DKK = Danish Krone USD = United States Dollar (1) Non-income producing. (2) Category is less than 0.05% of total net assets. As of October 31, 2008, securities with an aggregate value of $93,406,911, which represented 3.1% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 15 Vista OCTOBER 31, 2008 Shares Value Common Stocks -- 98.0% AIRLINES -- 2.7% 1,578,000 AMR Corp.(1) $16,111,380 950,000 Continental Airlines, Inc., Class B(1) 17,974,000 2,509,000 Delta Air Lines, Inc.(1) 27,548,820 -------------- 61,634,200 -------------- BIOTECHNOLOGY -- 2.7% 535,000 Alexion Pharmaceuticals, Inc.(1) 21,801,250 173,000 Celgene Corp.(1) 11,116,980 262,000 Cephalon, Inc.(1) 18,790,640 451,000 CSL Ltd. 10,992,376 -------------- 62,701,246 -------------- CAPITAL MARKETS -- 3.4% 85,000 BlackRock, Inc. 11,163,900 866,000 Charles Schwab Corp. (The) 16,557,920 732,000 Lazard Ltd., Class A 22,084,440 699,000 Raymond James Financial, Inc. 16,279,710 282,000 Stifel Financial Corp.(1) 12,309,300 -------------- 78,395,270 -------------- CHEMICALS -- 3.0% 491,000 Monsanto Co. 43,689,180 134,000 Syngenta AG 24,991,548 -------------- 68,680,728 -------------- COMMERCIAL BANKS -- 1.8% 250,000 Hancock Holding Co. 11,040,000 1,104,000 TCF Financial Corp. 19,584,960 227,000 UMB Financial Corp. 10,289,910 -------------- 40,914,870 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.9% 365,000 Copart, Inc.(1) 12,738,500 933,000 Waste Connections, Inc.(1) 31,582,050 -------------- 44,320,550 -------------- COMPUTERS & PERIPHERALS -- 0.5% 367,000 Diebold, Inc. 10,907,240 -------------- CONSTRUCTION & ENGINEERING -- 2.2% 2,558,000 Quanta Services, Inc.(1) 50,546,080 -------------- CONTAINERS & PACKAGING -- 1.8% 1,553,977 Crown Holdings, Inc.(1) 31,359,256 434,000 Pactiv Corp.(1) 10,225,040 -------------- 41,584,296 -------------- Shares Value DIVERSIFIED -- 2.3% 519,000 Midcap SPDR Trust Series 1 $53,664,600 -------------- DIVERSIFIED CONSUMER SERVICES -- 5.1% 238,000 Apollo Group, Inc., Class A(1) 16,543,380 1,265,000 Corinthian Colleges, Inc.(1) 18,064,200 328,000 DeVry, Inc. 18,594,320 599,000 ITT Educational Services, Inc.(1) 52,502,350 50,000 Strayer Education, Inc. 11,313,500 -------------- 117,017,750 -------------- ELECTRICAL EQUIPMENT -- 1.1% 366,000 Energy Conversion Devices, Inc.(1) 12,495,240 95,000 First Solar, Inc.(1) 13,651,500 -------------- 26,146,740 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6% 486,000 Amphenol Corp., Class A 13,923,900 -------------- ENERGY EQUIPMENT & SERVICES -- 2.5% 278,000 CARBO Ceramics, Inc. 12,029,060 571,000 Dresser-Rand Group, Inc.(1) 12,790,400 196,000 Helmerich & Payne, Inc. 6,724,760 378,000 Smith International, Inc. 13,033,440 806,000 Weatherford International Ltd.(1) 13,605,280 -------------- 58,182,940 -------------- FOOD & STAPLES RETAILING -- 0.5% 394,000 Kroger Co. (The) 10,819,240 -------------- FOOD PRODUCTS -- 4.3% 276,000 Campbell Soup Co. 10,474,200 565,000 Dean Foods Co.(1) 12,350,900 977,000 H.J. Heinz Co. 42,812,140 205,000 Kellogg Co. 10,336,100 258,000 Ralcorp Holdings, Inc.(1) 17,461,440 230,000 TreeHouse Foods, Inc.(1) 6,959,800 -------------- 100,394,580 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 4.4% 1,055,000 Covidien Ltd. 46,725,950 449,000 Edwards Lifesciences Corp.(1) 23,725,160 466,000 St. Jude Medical, Inc.(1) 17,721,980 273,000 Varian Medical Systems, Inc.(1) 12,424,230 -------------- 100,597,320 -------------- HEALTH CARE PROVIDERS & SERVICES -- 6.1% 883,000 Express Scripts, Inc.(1) 53,518,630 1,334,000 Medco Health Solutions, Inc.(1) 50,625,300 1,313,849 Omnicare, Inc. 36,222,817 -------------- 140,366,747 -------------- - ------ 16 Vista Shares Value HOTELS, RESTAURANTS & LEISURE -- 1.2% 615,000 Panera Bread Co., Class A(1) $27,748,800 -------------- HOUSEHOLD DURABLES -- 1.5% 705,000 Leggett & Platt, Inc. 12,238,800 20,000 NVR, Inc.(1) 9,804,200 518,000 Toll Brothers, Inc.(1) 11,976,160 -------------- 34,019,160 -------------- INSURANCE -- 2.0% 193,000 ACE Ltd. 11,070,480 308,000 AON Corp. 13,028,400 183,000 Axis Capital Holdings Ltd. 5,211,840 443,000 Marsh & McLennan Cos., Inc. 12,988,760 77,000 PartnerRe Ltd. 5,212,130 -------------- 47,511,610 -------------- INTERNET SOFTWARE & SERVICES -- 2.5% 89,000 Equinix, Inc.(1) 5,555,380 1,067,000 Netease.com, Inc. ADR(1) 24,007,500 526,000 Sohu.com, Inc.(1) 28,898,440 -------------- 58,461,320 -------------- IT SERVICES -- 0.2% 412,000 Perot Systems Corp., Class A(1) 5,928,680 -------------- LIFE SCIENCES TOOLS & SERVICES -- 2.5% 1,396,000 Thermo Fisher Scientific, Inc.(1) 56,677,600 -------------- MACHINERY -- 1.0% 830,000 Briggs & Stratton Corp. 13,080,800 178,000 Flowserve Corp. 10,131,760 -------------- 23,212,560 -------------- MULTILINE RETAIL -- 5.0% 741,000 Big Lots, Inc.(1) 18,102,630 1,854,000 Dollar Tree, Inc.(1) 70,489,080 991,000 Family Dollar Stores, Inc. 26,667,810 -------------- 115,259,520 -------------- OIL, GAS & CONSUMABLE FUELS -- 6.4% 428,000 Alpha Natural Resources, Inc.(1) 15,309,560 489,000 Continental Resources, Inc.(1) 15,838,710 2,406,000 PetroHawk Energy Corp.(1) 45,593,700 515,000 Plains Exploration & Production Co.(1) 14,523,000 301,000 Range Resources Corp. 12,708,220 507,000 Southwestern Energy Co.(1) 18,059,340 230,000 Ultra Petroleum Corp.(1) 10,706,500 288,000 Whiting Petroleum Corp.(1) 14,973,120 -------------- 147,712,150 -------------- Shares Value PERSONAL PRODUCTS -- 0.8% 249,000 Chattem, Inc.(1) $ 18,841,830 -------------- PHARMACEUTICALS -- 1.5% 993,000 Perrigo Co. 33,762,000 -------------- PROFESSIONAL SERVICES -- 1.0% 387,000 FTI Consulting, Inc.(1) 22,542,750 -------------- ROAD & RAIL -- 4.4% 602,000 CSX Corp. 27,523,440 596,000 Norfolk Southern Corp. 35,724,240 561,000 Union Pacific Corp. 37,457,970 -------------- 100,705,650 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.1% 1,075,000 Altera Corp. 18,651,250 900,000 Broadcom Corp., Class A(1) 15,372,000 668,000 LDK Solar Co., Ltd.(1) 12,130,880 1,174,376 Microsemi Corp.(1) 25,530,934 -------------- 71,685,064 -------------- SOFTWARE -- 3.6% 3,270,000 Activision Blizzard, Inc.(1) 40,744,200 280,000 Cerner Corp.(1) 10,424,400 552,000 McAfee, Inc.(1) 17,967,600 1,222,000 Symantec Corp.(1) 15,372,760 -------------- 84,508,960 -------------- SPECIALTY RETAIL -- 7.4% 818,000 Children's Place Retail Stores, Inc. (The)(1) 27,345,740 800,000 Collective Brands, Inc.(1) 10,232,000 818,000 Foot Locker, Inc. 11,959,160 206,000 GameStop Corp., Class A(1) 5,642,340 325,000 Hibbett Sports, Inc.(1) 5,788,250 894,000 PetSmart, Inc. 17,602,860 1,574,000 Ross Stores, Inc. 51,454,060 1,334,000 TJX Cos., Inc. (The) 35,697,840 244,000 Urban Outfitters, Inc.(1) 5,304,560 -------------- 171,026,810 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.9% 549,000 Carter's, Inc.(1) 11,660,760 308,000 Warnaco Group, Inc. (The)(1) 9,181,480 -------------- 20,842,240 -------------- THRIFTS & MORTGAGE FINANCE -- 1.2% 1,422,000 Hudson City Bancorp., Inc. 26,747,820 -------------- - ------ 17 Vista Shares Value TRADING COMPANIES & DISTRIBUTORS -- 0.8% 233,000 W.W. Grainger, Inc. $18,306,810 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 4.1% 522,000 American Tower Corp., Class A(1) 16,865,820 755,000 NII Holdings, Inc.(1) 19,448,800 2,735,000 SBA Communications Corp., Class A(1) 57,407,650 -------------- 93,722,270 -------------- TOTAL COMMON STOCKS (Cost $2,477,945,957) 2,260,021,901 -------------- Shares/Principal Amount Value Temporary Cash Investments -- 2.1% $49,300,000 FHLB Discount Notes, 0.01%, 11/3/08(2) $ 49,300,000 79,233 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 79,233 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $49,379,206) 49,379,233 -------------- TOTAL INVESTMENT SECURITIES -- 100.1% (Cost $2,527,325,163) 2,309,401,134 -------------- OTHER ASSETS AND LIABILITIES -- (0.1)% (1,406,013) -------------- TOTAL NET ASSETS -- 100.0% $2,307,995,121 ============== Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 12,237,885 AUD for USD 11/28/08 $ 8,113,106 $ 84,322 23,634,828 CHF for USD 11/28/08 20,385,747 426,163 ------------ ------------- $28,498,853 $510,485 ============ ============= (Value on Settlement Date $29,009,338) Notes to Schedule of Investments ADR = American Depositary Receipt AUD = Australian Dollar CHF = Swiss Franc FHLB = Federal Home Loan Bank SPDR = Standard & Poor's Depositary Receipts USD = United States Dollar (1) Non-income producing. (2) The rate indicated is the yield to maturity at purchase. As of October 31, 2008, securities with an aggregate value of $35,983,924, which represented 1.6% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 18 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 Growth Vista ASSETS Investment securities, at value (cost of $3,542,679,568 and $2,527,325,163, respectively) $3,047,411,451 $2,309,401,134 Cash 4,381 -- Receivable for investments sold 29,069,795 75,931,383 Receivable for forward foreign currency exchange contracts 1,318,317 510,485 Receivable for capital shares sold 8,455,477 2,213,495 Dividends and interest receivable 1,823,190 1,306,073 -------------- -------------- 3,088,082,611 2,389,362,570 -------------- -------------- LIABILITIES Disbursements in excess of demand deposit cash -- 36,512 Payable for investments purchased 35,860,901 77,432,783 Payable for capital shares redeemed 1,384,806 1,960,823 Accrued management fees 2,522,011 1,879,701 Distribution and service fees payable 30,049 57,630 -------------- -------------- 39,797,767 81,367,449 -------------- -------------- NET ASSETS $3,048,284,844 $2,307,995,121 ============== ============== See Notes to Financial Statements. - ------ 19 OCTOBER 31, 2008 Growth Vista NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $3,861,271,744 $2,832,250,263 Accumulated undistributed net investment income (loss) 14,384,583 (510,485) Accumulated net realized loss on investment and foreign currency transactions (333,431,559) (306,311,713) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (493,939,924) (217,432,944) -------------- -------------- $3,048,284,844 $2,307,995,121 ============== ============== INVESTOR CLASS, $0.01 PAR VALUE Net assets $2,617,301,907 $1,800,787,976 Shares outstanding 147,932,530 144,911,329 Net asset value per share $17.69 $12.43 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $286,261,718 $238,727,198 Shares outstanding 16,030,871 18,759,669 Net asset value per share $17.86 $12.73 ADVISOR CLASS, $0.01 PAR VALUE Net assets $141,441,097 $257,057,144 Shares outstanding 8,131,010 21,264,547 Net asset value per share $17.40 $12.09 R CLASS, $0.01 PAR VALUE Net assets $3,280,122 $11,422,803 Shares outstanding 189,017 934,994 Net asset value per share $17.35 $12.22 See Notes to Financial Statements. - ------ 20 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 Growth Vista INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $245,995 and $278,042, respectively) $ 46,126,023 $ 12,155,993 Interest 753,566 1,577,328 Securities lending, net 274,982 -- ---------------- ---------------- 47,154,571 13,733,321 ---------------- ---------------- EXPENSES: Management fees 39,862,749 31,090,495 Distribution fees: Advisor Class 40,572 -- C Class 939 4,185 Service fees: Advisor Class 40,572 -- C Class 313 1,395 Distribution and service fees: Advisor Class 422,088 876,355 R Class 14,117 39,936 Directors' fees and expenses 112,271 92,489 Other expenses 11,404 10,982 ---------------- ---------------- 40,505,025 32,115,837 ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 6,649,546 (18,382,516) ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (162,500,919) (300,756,208) Foreign currency transactions 8,115,692 5,571,938 ---------------- ---------------- (154,385,227) (295,184,270) ---------------- ---------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (1,417,176,588) (1,399,144,208) Translation of assets and liabilities in foreign currencies 1,477,190 740,715 ---------------- ---------------- (1,415,699,398) (1,398,403,493) ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (1,570,084,625) (1,693,587,763) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,563,435,079) $(1,711,970,279) ================ ================ See Notes to Financial Statements. - ------ 21 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Growth Vista Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 6,649,546 $ 8,565,562 $(18,382,516) $ (16,538,483) Net realized gain (loss) (154,385,227) 737,622,135 (295,184,270) 328,007,590 Change in net unrealized appreciation (depreciation) (1,415,699,398) 215,035,112 (1,398,403,493) 795,623,414 --------------- --------------- --------------- -------------- Net increase (decrease) in net assets resulting from operations (1,563,435,079) 961,222,809 (1,711,970,279) 1,107,092,521 --------------- --------------- --------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (5,142,411) (2,635,083) -- -- Institutional Class (895,366) (2,056,902) -- -- From net realized gains: Investor Class -- -- (254,880,472) (15,549,310) Institutional Class -- -- (21,928,910) (1,008,670) Advisor Class -- -- (35,302,295) (1,649,953) C Class -- -- -- (26,987) R Class -- -- (388,974) (2,660) --------------- --------------- --------------- -------------- Decrease in net assets from distributions (6,037,777) (4,691,985) (312,500,651) (18,237,580) --------------- --------------- --------------- -------------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (10,334,134) (1,121,480,853) 766,730,513 165,576,023 --------------- --------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS (1,579,806,990) (164,950,029) (1,257,740,417) 1,254,430,964 NET ASSETS Beginning of period 4,628,091,834 4,793,041,863 3,565,735,538 2,311,304,574 --------------- --------------- --------------- -------------- End of period $3,048,284,844 $4,628,091,834 $2,307,995,121 $3,565,735,538 =============== =============== =============== ============== Accumulated undistributed net investment income (loss) $14,384,583 $5,778,262 $(510,485) $135,602 =============== =============== =============== ============== See Notes to Financial Statements. - ------ 22 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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. 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. Growth generally invests in larger-sized companies that management believes will increase in value but may purchase companies of any size. Vista generally 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 and the R Class. Prior to December 3, 2007, the funds were authorized to issue the C Class (see Note 9). The share classes differ principally in their respective 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. 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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. 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. SECURITIES ON LOAN -- Growth may lend portfolio securities through its lending agent to certain approved borrowers in order to earn additional income. The income earned, net of any rebates or fees, is included in the Statement of Operations. Growth continues to recognize any gain or loss in the market price of the securities loaned and records any interest earned or dividends declared. - ------ 23 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 2. FEES AND TRANSACTIONS WITH RELATED PARTIES On September 25, 2007, the Advisor Class shareholders of Growth 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 December 3, 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule for Growth ranges from 0.80% to 1.00% for the Investor Class, Advisor Class, C Class and R Class. Prior to December 3, 2007, the Advisor Class was 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. The effective annual management fee for each class of each fund for the year ended October 31, 2008, was as follows: Growth Vista Investor 1.00% 1.00% Institutional 0.80% 0.80% Advisor 0.98% 1.00% R 1.00% 1.00% DISTRIBUTION AND SERVICE FEES -- The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the Advisor Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the Advisor Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. Prior to December 3, 2007, the Board of Directors had adopted a Master Distribution and Shareholder Services Plan, pursuant to Rule 12b-1 of the 1940 Act, which provided that the Advisor Class of Growth would pay ACIS an annual distribution fee of 0.25% and service fee of 0.25%. The plans provide that the C Class paid 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2008, 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 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 js an equity investor in ACC. Growth has a securities lending agreement with JPMorgan Chase Bank (JPMCB). Prior to December 12, 2007, the funds had a bank line of credit agreement with JPMCB. JPMCB is a custodian of the funds and a wholly owned subsidiary of JPM. - ------ 25 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended October 31, 2008, were as follows: Growth Vista Purchases $5,256,982,467 $5,696,631,304 Proceeds from sales $5,268,302,805 $5,225,272,355 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows: Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount Growth INVESTOR CLASS/SHARES AUTHORIZED 800,000,000 800,000,000 ============ ============ Sold 12,836,527 $300,950,250 16,976,807 $ 399,134,867 Issued in reinvestment of distributions 177,027 4,567,294 108,333 2,425,571 Redeemed (19,382,053) (453,420,723) (42,268,248) (1,005,443,921) ------------ ------------- ------------ ---------------- (6,368,499) (147,903,179) (25,183,108) (603,883,483) ------------ ------------- ------------ ---------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 150,000,000 150,000,000 ============ ============ Sold 9,611,676 230,187,708 10,007,473 248,497,432 Issued in reinvestment of distributions 34,450 895,366 91,175 2,056,902 Redeemed (4,148,451) (99,365,649) (33,807,486) (861,252,969) ------------ ------------- ------------ ---------------- 5,497,675 131,717,425 (23,708,838) (610,698,635) ------------ ------------- ------------ ---------------- ADVISOR CLASS/SHARES AUTHORIZED 310,000,000 210,000,000 ============ ============ Sold 2,322,369 51,515,155 5,728,920 134,469,921 Issued in connection with reclassification (Note 9) 61,986 1,519,904 -- -- Redeemed (2,098,624) (47,812,210) (1,847,995) (43,503,786) ------------ ------------- ------------ ---------------- 285,731 5,222,849 3,880,925 90,966,135 ------------ ------------- ------------ ---------------- C CLASS/SHARES AUTHORIZED N/A 100,000,000 ============ ============ Sold 117 2,858 33,264 762,257 Issued in connection with reclassification (Note 9) (61,986) (1,519,904) -- -- Redeemed (1,377) (32,865) (15,025) (349,075) ------------ ------------- ------------ ---------------- (63,246) (1,549,911) 18,239 413,182 ------------ ------------- ------------ ---------------- R CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============ ============ Sold 138,140 3,100,669 94,157 2,147,094 Redeemed (39,513) (921,987) (18,497) (425,146) ------------ ------------- ------------ ---------------- 98,627 2,178,682 75,660 1,721,948 ------------ ------------- ------------ ---------------- Net increase (decrease) (549,712) $(10,334,134) (44,917,122) $(1,121,480,853) ============ ============= ============ ================ - ------ 26 Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount Vista INVESTOR CLASS/SHARES AUTHORIZED 800,000,000 800,000,000 ============ ============ Sold 45,528,430 $848,307,407 29,032,048 $594,313,388 Issued in reinvestment of distributions 10,942,528 228,589,393 817,264 14,040,588 Redeemed (32,057,988) (575,840,072) (29,523,877) (567,312,331) ------------ ------------- ------------ ------------- 24,412,970 501,056,728 325,435 41,041,645 ------------ ------------- ------------ ------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 80,000,000 80,000,000 ============ ============ Sold 13,601,031 248,188,626 5,631,084 115,870,016 Issued in reinvestment of distributions 1,026,634 21,928,910 57,617 1,008,292 Redeemed (6,162,698) (116,233,467) (3,345,045) (63,192,246) ------------ ------------- ------------ ------------- 8,464,967 153,884,069 2,343,656 53,686,062 ------------ ------------- ------------ ------------- ADVISOR CLASS/SHARES AUTHORIZED 310,000,000 210,000,000 ============ ============ Sold 11,477,175 206,951,884 7,905,928 161,043,591 Issued in connection with reclassification (Note 9) 298,623 6,537,776 -- -- Issued in reinvestment of distributions 1,717,908 34,993,776 96,989 1,632,335 Redeemed (8,290,080) (144,859,203) (5,081,285) (95,833,752) ------------ ------------- ------------ ------------- 5,203,626 103,624,233 2,921,632 66,842,174 ------------ ------------- ------------ ------------- C CLASS/SHARES AUTHORIZED N/A 100,000,000 ============ ============ Sold 6,353 139,449 197,808 3,787,658 Issued in reinvestment of distributions -- -- 1,736 25,006 Issued in connection with reclassification (Note 9) (298,623) (6,537,776) -- -- Redeemed (30,349) (630,821) (69,921) (1,288,863) ------------ ------------- ------------ ------------- (322,619) (7,029,148) 129,623 2,523,801 ------------ ------------- ------------ ------------- R CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ============ ============ Sold 1,019,466 18,305,579 189,380 3,673,020 Issued in reinvestment of distributions 18,855 388,974 -- -- Redeemed (203,365) (3,499,922) (110,041) (2,190,679) ------------ ------------- ------------ ------------- 834,956 15,194,631 79,339 1,482,341 ------------ ------------- ------------ ------------- Net increase (decrease) 38,593,900 $766,730,513 5,799,685 $165,576,023 ============ ============= ============ ============= 5. SECURITIES LENDING As of October 31, 2008, Growth did not have any securities on loan. 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. 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 the fund may be delayed or limited. Investments made with cash collateral may decline in value. - ------ 27 6. BANK LINE OF CREDIT Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The funds did not borrow from either line during the year ended October 31, 2008. 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, 2008 and October 31, 2007 were as follows: Growth Vista 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $6,037,777 $4,691,985 $ 91,105,580 -- Long-term capital gains -- -- $221,395,071 $18,237,580 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, 2008, 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 $3,584,172,756 $2,583,470,461 =============== ============== Gross tax appreciation of investments $104,738,476 $ 88,130,374 Gross tax depreciation of investments (641,499,781) (362,199,701) --------------- -------------- Net tax appreciation (depreciation) of investments $(536,761,305) $(274,069,327) =============== ============== Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies $433,331 $(19,400) --------------- -------------- Net tax appreciation (depreciation) $(536,327,974) $(274,088,727) =============== ============== Undistributed ordinary income $15,279,445 -- Accumulated capital losses $(291,938,371) $(250,166,415) 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 exchange contracts. - ------ 28 The accumulated capital losses on the previous page represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: 2010 2011 2012 2013 2014 2015 2016 Growth $(168,744,439) -- -- -- -- -- $(123,193,932) Vista -- -- -- -- -- -- $(250,166,415) 9. CORPORATE EVENT On July 27, 2007, the C Class shareholders of each fund approved a reclassification of C Class shares into Advisor Class shares of that fund. The change was approved by the Board of Directors on November 29, 2006 and March 7, 2007. The reclassification was effective December 3, 2007. 10. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. 11. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. Growth and Vista designate up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2008. For corporate taxpayers, Growth and Vista hereby designate ordinary income distributions of $6,037,777 and $3,360,198, respectively, or up to the maximum amount allowable, as qualified for the corporate dividends received deduction for the fiscal year ended October 31, 2008. Vista hereby designates $221,395,071, or up to the maximum amount allowable, as long-term capital gains distributions for the fiscal year ended October 31, 2008. Vista hereby designates $91,105,580 of distributions as qualified short-term capital gains for purposes of Internal Revenue Code Section 871. - ------ 29 FINANCIAL HIGHLIGHTS Growth Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $26.78 $21.99 $19.80 $18.43 $17.26 -------- ------ ------ ------ ------- Income From Investment Operations Net Investment Income (Loss)(1) 0.04 0.04 0.02 0.08 (0.01) Net Realized and Unrealized Gain (Loss) (9.10) 4.76 2.26 1.30 1.18 -------- ------ ------ ------ ------- Total From Investment Operations (9.06) 4.80 2.28 1.38 1.17 -------- ------ ------ ------ ------- Distributions From Net Investment Income (0.03) (0.01) (0.09) (0.01) -- -------- ------ ------ ------ ------- Net Asset Value, End of Period $17.69 $26.78 $21.99 $19.80 $18.43 ======== ====== ====== ====== ======= TOTAL RETURN(2) (33.86)% 21.86% 11.51% 7.47% 6.78% 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 0.16% 0.15% 0.09% 0.38% (0.07)% Portfolio Turnover Rate 129% 112% 127% 77% 131% Net Assets, End of Period (in millions) $2,617 $4,133 $3,946 $4,008 $4,176 (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. - ------ 30 Growth Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $27.03 $22.19 $19.98 $18.59 $17.38 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.08 0.09 0.06 0.11 0.02 Net Realized and Unrealized Gain (Loss) (9.17) 4.81 2.27 1.33 1.19 -------- -------- -------- -------- -------- Total From Investment Operations (9.09) 4.90 2.33 1.44 1.21 -------- -------- -------- -------- -------- Distributions From Net Investment Income (0.08) (0.06) (0.12) (0.05) -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $17.86 $27.03 $22.19 $19.98 $18.59 ======== ======== ======== ======== ======== TOTAL RETURN(2) (33.71)% 22.13% 11.70% 7.72% 6.96% 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% 0.35% 0.29% 0.58% 0.13% Portfolio Turnover Rate 129% 112% 127% 77% 131% Net Assets, End of Period (in thousands) $286,262 $284,695 $759,816 $689,983 $685,090 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $26.36 $21.68 $19.53 $18.22 $17.11 -------- -------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.02) (0.04) (0.03) 0.02 (0.06) Net Realized and Unrealized Gain (Loss) (8.94) 4.72 2.22 1.29 1.17 -------- -------- ------- ------- ------- Total From Investment Operations (8.96) 4.68 2.19 1.31 1.11 -------- -------- ------- ------- ------- Distributions From Net Investment Income -- -- (0.04) -- -- Net Asset Value, End of Period $17.40 $26.36 $21.68 $19.53 $18.22 ======== ======== ======= ======= ======= TOTAL RETURN(2) (34.03)% 21.59% 11.23% 7.19% 6.49% 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 (0.09)% (0.10)% (0.16)% 0.13% (0.32)% Portfolio Turnover Rate 129% 112% 127% 77% 131% Net Assets, End of Period (in thousands) $141,441 $206,837 $85,953 $86,303 $76,962 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns are calculated based on the net asset value on the last business day. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 32 Growth R Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $26.37 $21.74 $19.59 $18.32 $17.25 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.08) (0.10) (0.11) (0.07) (0.13) Net Realized and Unrealized Gain (Loss) (8.94) 4.73 2.26 1.34 1.20 -------- ------- ------- ------- ------- Total From Investment Operations (9.02) 4.63 2.15 1.27 1.07 -------- ------- ------- ------- ------- Net Asset Value, End of Period $17.35 $26.37 $21.74 $19.59 $18.32 ======== ======= ======= ======= ======= TOTAL RETURN(2) (34.21)% 21.30% 10.97% 6.93% 6.20% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (0.34)% (0.35)% (0.41)% (0.12)% (0.57)% Portfolio Turnover Rate 129% 112% 127% 77% 131% Net Assets, End of Period (in thousands) $3,280 $2,383 $298 $49 $12 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 33 Vista Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $24.24 $16.35 $14.99 $13.14 $11.97 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.11) (0.12) (0.04) (0.04) (0.06) Net Realized and Unrealized Gain (Loss) (9.61) 8.14 1.40 1.89 1.23 -------- ------- ------- ------- ------- Total From Investment Operations (9.72) 8.02 1.36 1.85 1.17 -------- ------- ------- ------- ------- Distributions From Net Realized Gains (2.09) (0.13) -- -- -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $12.43 $24.24 $16.35 $14.99 $13.14 ======== ======= ======= ======= ======= TOTAL RETURN(2) (43.58)% 49.39% 9.07% 14.08% 9.77% 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)% (0.60)% (0.23)% (0.26)% (0.48)% Portfolio Turnover Rate 167% 121% 234% 284% 255% Net Assets, End of Period (in millions) $1,801 $2,921 $1,965 $1,902 $1,418 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 34 Vista Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $24.72 $16.64 $15.22 $13.32 $12.11 -------- -------- -------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.07) (0.08) (0.01) (0.01) (0.04) Net Realized and Unrealized Gain (Loss) (9.83) 8.29 1.43 1.91 1.25 -------- -------- -------- ------- ------- Total From Investment Operations (9.90) 8.21 1.42 1.90 1.21 -------- -------- -------- ------- ------- Distributions From Net Realized Gains (2.09) (0.13) -- -- -- -------- -------- -------- ------- ------- Net Asset Value, End of Period $12.73 $24.72 $16.64 $15.22 $13.32 ======== ======== ======== ======= ======= TOTAL RETURN(2) (43.50)% 49.68% 9.33% 14.26% 9.99% 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)% (0.40)% (0.03)% (0.06)% (0.28)% Portfolio Turnover Rate 167% 121% 234% 284% 255% Net Assets, End of Period (in thousands) $238,727 $254,528 $132,325 $98,439 $42,747 (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. - ------ 35 Vista Advisor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $23.69 $16.03 $14.73 $12.95 $11.82 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) (0.15) (0.16) (0.08) (0.08) (0.11) Net Realized and Unrealized Gain (Loss) (9.36) 7.95 1.38 1.86 1.24 -------- -------- -------- -------- -------- Total From Investment Operations (9.51) 7.79 1.30 1.78 1.13 -------- -------- -------- -------- -------- Distributions From Net Realized Gains (2.09) (0.13) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $12.09 $23.69 $16.03 $14.73 $12.95 ======== ======== ======== ======== ======== TOTAL RETURN(2) (43.72)% 48.94% 8.83% 13.75% 9.56% 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)% (0.85)% (0.48)% (0.51)% (0.73)% Portfolio Turnover Rate 167% 121% 234% 284% 255% Net Assets, End of Period (in thousands) $257,057 $380,555 $210,576 $190,635 $106,750 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 36 Vista R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $23.98 $16.25 $14.97 $15.32 -------- ------- ------- --------- Income From Investment Operations Net Investment Income (Loss)(2) (0.18) (0.21) (0.16) (0.04) Net Realized and Unrealized Gain (Loss) (9.49) 8.07 1.44 (0.31) -------- ------- ------- --------- Total From Investment Operations (9.67) 7.86 1.28 (0.35) -------- ------- ------- --------- Distributions From Net Realized Gains (2.09) (0.13) -- -- -------- ------- ------- --------- Net Asset Value, End of Period $12.22 $23.98 $16.25 $14.97 ======== ======= ======= ========= TOTAL RETURN(3) (43.87)% 48.71% 8.55% (2.28)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50% 1.50% 1.50%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (1.06)% (1.10)% (0.73)% (0.92)%(4) Portfolio Turnover Rate 167% 121% 234% 284%(5) Net Assets, End of Period (in thousands) $11,423 $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. - ------ 37 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, two of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation'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 Corporation 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 Corporation'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, 2008, 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 respective financial positions of Growth Fund and Vista Fund, two of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 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 16, 2008 - ------ 38 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 39 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 40 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 41 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 or trustees (the "Directors") each year. At American Century Investments, 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 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 funds; * reports on the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 42 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. In connection with their review of the funds, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 funds. 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 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 the services provided by the advisor 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. - ------ 43 INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided to the funds is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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. 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. The funds' 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. 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 agreement, and the reasonableness of the current management fee. The board concluded that the advisor's profits were reasonable in light of the services provided to the funds. ETHICS. 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. - ------ 44 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 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. 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 groups. 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 ratios of its peer group. The board concluded that the management fee paid by the funds to the advisor was reasonable in light of the services provided to the funds. 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. - ------ 45 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 board, including all of 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. - ------ 46 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The 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. - ------ 47 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 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 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 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. - ------ 48 [back cover] [american century investments logo and text logo ®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62719S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS GIFTRUST FUND PROSPECTUS SUPPLEMENT ENCLOSED PRESIDENT'S LETTER [photo of Jonathan Thomas] JONATHAN THOMAS Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan S. Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 FINANCIAL STATEMENTS Schedule of Investments. . . . . . . . . . . . . . . . . . . . . 9 Statement of Assets and Liabilities. . . . . . . . . . . . . . . 13 Statement of Operations. . . . . . . . . . . . . . . . . . . . . 14 Statement of Changes in Net Assets . . . . . . . . . . . . . . . 15 Notes to Financial Statements. . . . . . . . . . . . . . . . . . 16 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . 20 Report of Independent Registered Public Accounting Firm. . . . . 21 OTHER INFORMATION 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of chief investment officer] By Steve J. Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Giftrust Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date GIFTRUST -39.49% 6.32%(1) 4.40%(1) 10.82% 11/25/83 Russell Midcap Growth Index(2) -42.65% -0.18% 2.20% --(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. ©2008 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. - ------ 3 Giftrust Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Giftrust 59.05% 63.10% -56.36% -15.38% 18.18% -1.64%* 25.13% 16.49% 56.63% -39.49% Russell Midcap Growth Index 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72% -42.65% *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. - ------ 4 PORTFOLIO COMMENTARY Giftrust Portfolio Managers: David Hollond and Greg Walsh PERFORMANCE SUMMARY Giftrust returned -39.49% for the 12 months ended October 31, 2008, which compares favorably to the -42.65% return of the portfolio's benchmark, the Russell Midcap Growth Index. As discussed in the Market Perspective on page 2, equity markets declined significantly during the reporting period as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. The portfolio's relative performance was helped in particular by holdings in the materials, consumer discretionary, industrials and health care sectors. The main detractors from performance were holdings in the information technology sector, as well as allocations and stock selection in the telecommunications services and consumer staples sectors. INFORMATION TECHNOLOGY, TELECOMMUNICATIONS SERVICES DETRACTED Stock selection in the information technology sector weighed on absolute and relative performance. The semiconductor industry, in particular, was home to several detractors from returns. Giftrust held an overweight stake in MEMC, a global supplier of polysilicon, a raw material used in the production of solar cells. MEMC's share price fell 75%, due to poor company execution in ramping-up polysilicon production capacity. Weightings and stock selection in the telecommunications sector also curbed relative returns. Within the wireless telecom industry, the portfolio maintained an overweight in NII Holdings, Inc., which provides cellular service in burgeoning Latin American markets. Although it has benefited performance in the past, NII detracted from returns during the reporting period. CONSUMER DISCRETIONARY, INDUSTRIALS CONTRIBUTED, BUT CERTAIN HOLDINGS LAGGED Effective stock selection within the consumer discretionary sector helped returns relative to the benchmark. Here, overweighted investment positions in discount retailers such as Dollar Tree and Family Dollar Stores helped performance. Companies in this category have benefited from the weak economy, which caused consumers to trade down in their buying habits. Underweighting or altogether sidestepping most of the other companies in the sector further aided relative returns. Elsewhere in the consumer discretionary sector, an overweight stake in ITT Educational Services hindered performance as the private education company suffered from the fallout from the credit crunch. As with the subprime mortgage industry, private education firms experienced a loss of liquidity as investors shied away from student loans. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Monsanto Co. 2.5% 3.2% CSL Ltd. 2.5% 3.6% Express Scripts, Inc. 2.1% 2.4% Activision Blizzard, Inc.* 2.0% 1.4% Apple, Inc. 1.8% 1.6% Ubisoft Entertainment SA 1.7% 1.1% Omnicare, Inc. 1.7% -- Grifols SA 1.6% -- Petrohawk Energy Corp. 1.5% 2.3% Celgene Corp. 1.5% 0.8% *Formerly Activision, Inc. - ------ 5 Giftrust Within the industrials sector, Giftrust benefited mainly from overweight positions in railroad companies, including Norfolk Southern and Union Pacific. This industry experienced improving fundamentals as higher fuel prices created an advantage for the more fuel-efficient railroads versus trucking companies, and as coal shipments continued to increase. Also within the industrials sector, Giftrust's investment in machinery company Flowserve Corp. benefited relative performance. This manufacturer of pumps, seals, and valves has experienced improving fundamentals because of its sales to customers in the oil and gas, chemical, and water industries. Flowserve was a key contributor to relative portfolio performance, although its 27% share-price decline hurt absolute returns. MATERIALS GAINED A higher standard of living in emerging markets and greater focus on biofuels translated into growing demand for agricultural products. That in turn drove up commodity prices, benefiting select agricultural chemical companies within the portfolio during the reporting period. Within this group, Monsanto, which is a producer of corn seed, benefited from escalating corn prices while agricultural chemicals company K+S Agriculture was helped by higher demand for its fertilizer products. Since neither of these were members of the benchmark, both companies were substantial contributors to relative performance as their share prices experienced only modest declines. OUTLOOK Giftrust's investment process focuses on medium-sized companies with accelerating revenue and earnings growth rates that are also exhibiting share-price strength. We believe that active investing in such companies will generate attractive absolute and relative investment performance over time. Despite the volatility and difficult investment environment, we will remain focused on implementing our time-tested process. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Oil, Gas & Consumable Fuels 7.2% 5.2% Software 6.9% 6.1% Biotechnology 5.6% 5.9% Health Care Providers & Services 5.5% 3.3% Specialty Retail 5.1% 5.5% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 86.3% 81.5% Foreign Common Stocks* 11.5% 18.1% TOTAL COMMON STOCKS 97.8% 99.6% Temporary Cash Investments 3.5% 0.9% Other Assets and Liabilities (1.3)% (0.5)% *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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 7 Beginning Ending Expenses Paid Account Value Account Value During Period* Annualized 5/1/08 10/31/08 5/1/08 - 10/31/08 Expense Ratio* Actual $1,000 $657.70 $4.17 1.00% Hypothetical $1,000 $1,020.11 $5.08 1.00% *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS Giftrust OCTOBER 31, 2008 Shares Value Common Stocks -- 97.8% AEROSPACE & DEFENSE -- 1.5% 83,400 Alliant Techsystems, Inc.(1) $ 6,883,836 59,700 Lockheed Martin Corp. 5,077,485 ------------ 11,961,321 ------------ AIR FREIGHT & LOGISTICS -- 0.8% 120,000 C.H. Robinson Worldwide, Inc. 6,213,600 ------------ AIRLINES -- 1.1% 218,000 AMR Corp.(1) 2,225,780 118,900 Continental Airlines, Inc., Class B(1) 2,249,588 211,900 Delta Air Lines, Inc.(1) 2,326,662 375,500 JetBlue Airways Corp.(1) 2,084,025 ------------ 8,886,055 ------------ BIOTECHNOLOGY -- 5.6% 191,400 Celgene Corp.(1) 12,299,364 815,397 CSL Ltd. 19,873,949 637,700 Grifols SA 12,723,638 ------------ 44,896,951 ------------ CAPITAL MARKETS -- 2.6% 224,200 Charles Schwab Corp. (The) 4,286,704 130,138 Lazard Ltd., Class A 3,926,263 189,500 Merrill Lynch & Co., Inc. 3,522,805 62,400 Morgan Stanley 1,090,128 330,250 Raymond James Financial, Inc. 7,691,523 ------------ 20,517,423 ------------ CHEMICALS -- 2.8% 228,840 Monsanto Co. 20,362,183 23,300 Potash Corp of Saskatchewan 1,986,558 ------------ 22,348,741 ------------ COMMERCIAL BANKS -- 0.9% 170,300 KeyCorp 2,082,769 90,000 Marshall & Ilsley Corp. 1,622,700 117,500 Synovus Financial Corp. 1,213,775 42,400 TCF Financial Corp. 752,176 49,000 Zions Bancorp. 1,867,390 ------------ 7,538,810 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.5% 112,200 Copart, Inc.(1) 3,915,780 ------------ COMMUNICATIONS EQUIPMENT -- 0.6% 266,100 Juniper Networks, Inc.(1) 4,986,714 ------------ COMPUTERS & PERIPHERALS -- 1.8% 138,030 Apple, Inc.(1) 14,850,648 ------------ Shares Value CONSTRUCTION & ENGINEERING -- 1.4% 90,600 KBR, Inc. $ 1,344,504 503,800 Quanta Services, Inc.(1) 9,955,088 ------------ 11,299,592 ------------ CONTAINERS & PACKAGING -- 1.4% 508,600 Crown Holdings, Inc.(1) 10,263,548 28,487 Rock-Tenn Co., Class A 866,290 ------------ 11,129,838 ------------ DISTRIBUTORS -- 0.4% 298,300 LKQ Corp.(1) 3,412,552 ------------ DIVERSIFIED -- 1.2% 98,100 Standard & Poor's 500 Depositary Receipt, Series 1 9,499,023 ------------ DIVERSIFIED CONSUMER SERVICES -- 5.1% 128,823 Apollo Group, Inc., Class A(1) 8,954,487 200,083 DeVry, Inc. 11,342,705 493,676 H&R Block, Inc. 9,735,291 106,500 New Oriental Education & Technology Group ADR(1) 6,810,675 16,600 Strayer Education, Inc. 3,756,082 ------------ 40,599,240 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.2% 6,900 CME Group, Inc. 1,946,835 ------------ ELECTRICAL EQUIPMENT -- 1.0% 88,273 Energy Conversion Devices, Inc.(1) 3,013,640 21,838 First Solar, Inc.(1) 3,138,120 53,200 Vestas Wind Systems AS(1) 2,189,794 ------------ 8,341,554 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.2% 111,650 Dolby Laboratories, Inc., Class A(1) 3,524,790 185,500 FLIR Systems, Inc.(1) 5,954,550 ------------ 9,479,340 ------------ ENERGY EQUIPMENT & SERVICES -- 1.8% 107,600 Dresser-Rand Group, Inc.(1) 2,410,240 138,900 Pride International, Inc.(1) 2,609,931 61,300 Smith International, Inc. 2,113,624 44,300 Transocean, Inc.(1) 3,647,219 231,200 Weatherford International Ltd.(1) 3,902,656 ------------ 14,683,670 ------------ FOOD & STAPLES RETAILING -- 0.8% 179,200 BJ's Wholesale Club, Inc.(1) 6,307,840 ------------ - ------ 9 Giftrust Shares Value FOOD PRODUCTS -- 1.6% 127,000 H.J. Heinz Co. $ 5,565,140 71,200 Kellogg Co. 3,589,904 345,900 Sara Lee Corp. 3,867,162 ------------ 13,022,206 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 4.4% 108,200 Baxter International, Inc. 6,545,018 167,100 Covidien Ltd. 7,400,859 81,700 Edwards Lifesciences Corp(1) 4,317,028 50,100 Mettler Toledo International, Inc.(1) 3,834,654 171,000 Thoratec Corp.(1) 4,210,020 206,600 Varian Medical Systems, Inc.(1) 9,402,366 ------------ 35,709,945 ------------ HEALTH CARE PROVIDERS & SERVICES -- 5.5% 284,400 Express Scripts, Inc.(1) 17,237,484 275,000 Medco Health Solutions, Inc.(1) 10,436,250 481,700 Omnicare, Inc. 13,280,469 96,700 UnitedHealth Group, Inc. 2,294,691 19,000 WellPoint, Inc.(1) 738,530 ------------ 43,987,424 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.6% 100,383 Bally Technologies, Inc.(1) 2,223,483 37,400 Chipotle Mexican Grill, Inc., Class A(1) 1,898,050 39,700 Chipotle Mexican Grill, Inc., Class B(1) 1,697,969 87,900 Panera Bread Co., Class A(1) 3,966,048 853 Royal Caribbean Cruises Ltd. 11,567 114,300 WMS Industries, Inc.(1) 2,857,500 ------------ 12,654,617 ------------ HOUSEHOLD DURABLES -- 0.3% 83,100 KB Home 1,386,939 112,200 Pulte Homes, Inc. 1,249,908 ------------ 2,636,847 ------------ INSURANCE -- 2.2% 34,600 ACE Ltd. 1,984,656 144,500 AON Corp. 6,112,350 67,600 Axis Capital Holdings Ltd. 1,925,248 10,400 Everest Re Group Ltd. 776,880 141,300 Marsh & McLennan Cos., Inc. 4,142,916 288,500 XL Capital Ltd., Class A 2,798,450 ------------ 17,740,500 ------------ INTERNET & CATALOG RETAIL -- 0.5% 83,408 priceline.com, Inc.(1) 4,389,763 ------------ Shares Value INTERNET SOFTWARE & SERVICES -- 2.3% 529,734 Ariba, Inc.(1) $ 5,668,154 118,500 Digital River, Inc.(1) 2,936,430 74,300 Equinix, Inc.(1) 4,637,806 226,300 Netease.com, Inc. ADR(1) 5,091,750 ------------ 18,334,140 ------------ IT SERVICES -- 1.8% 157,900 Global Payments, Inc. 6,396,529 55,300 MasterCard, Inc., Class A 8,174,446 ------------ 14,570,975 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.5% 89,985 Covance, Inc.(1) 4,499,250 190,900 Thermo Fisher Scientific, Inc.(1) 7,750,540 ------------ 12,249,790 ------------ MACHINERY -- 1.5% 138,984 Flowserve Corp. 7,910,969 115,900 Parker-Hannifin Corp. 4,493,443 ------------ 12,404,412 ------------ MEDIA -- 0.7% 263,900 DIRECTV Group, Inc. (The)(1) 5,776,771 ------------ MULTI-INDUSTRY -- 1.0% 469,800 Financial Select Sector SPDR Fund 7,295,994 ------------ MULTILINE RETAIL -- 2.7% 210,700 Big Lots, Inc.(1) 5,147,401 285,100 Dollar Tree, Inc.(1) 10,839,502 207,300 Family Dollar Stores, Inc. 5,578,443 ------------ 21,565,346 ------------ OIL, GAS & CONSUMABLE FUELS -- 7.2% 49,800 Alpha Natural Resources, Inc.(1) 1,781,346 191,070 Arena Resources, Inc.(1) 5,823,814 104,600 CONSOL Energy, Inc. 3,283,394 103,000 Continental Resources, Inc.(1) 3,336,170 131,800 Equitable Resources, Inc. 4,574,778 139,500 Peabody Energy Corp. 4,814,145 649,755 Petrohawk Energy Corp.(1) 12,312,857 132,700 Plains Exploration & Production Co.(1) 3,742,140 147,900 Range Resources Corp. 6,244,338 217,400 Southwestern Energy Co.(1) 7,743,788 81,553 Whiting Petroleum Corp.(1) 4,239,940 ------------ 57,896,710 ------------ PERSONAL PRODUCTS -- 0.8% 121,200 Avon Products, Inc. 3,009,396 86,200 Estee Lauder Cos., Inc. (The), Class A 3,106,648 ------------ 6,116,044 ------------ - ------ 10 Giftrust Shares Value PROFESSIONAL SERVICES -- 1.3% 90,700 FTI Consulting, Inc.(1) $ 5,283,275 96,104 Huron Consulting Group, Inc.(1) 5,225,174 ------------ 10,508,449 ------------ ROAD & RAIL -- 4.1% 103,200 Canadian National Railway Co. 4,464,432 190,500 CSX Corp. 8,709,660 188,500 Norfolk Southern Corp. 11,298,690 122,400 Union Pacific Corp. 8,172,648 ------------ 32,645,430 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.1% 221,900 Altera Corp. 3,849,965 139,000 Analog Devices, Inc. 2,969,040 281,415 Broadcom Corp., Class A(1) 4,806,568 196,300 Linear Technology Corp. 4,452,084 280,700 Marvell Technology Group Ltd.(1) 1,953,672 77,900 National Semiconductor Corp. 1,025,943 401,100 NVIDIA Corp.(1) 3,513,636 650,000 ON Semiconductor Corp.(1) 3,321,500 215,500 Semiconductor HOLDRs Trust 4,471,625 102,965 Silicon Laboratories, Inc.(1) 2,672,972 ------------ 33,037,005 ------------ SOFTWARE -- 6.9% 1,266,842 Activision Blizzard, Inc.(1) 15,784,851 297,222 McAfee, Inc.(1) 9,674,576 38,400 Nintendo Co. Ltd. 12,111,250 149,400 Sybase, Inc.(1) 3,978,522 264,582 Ubisoft Entertainment SA(1) 13,982,779 ------------ 55,531,978 ------------ SPECIALTY RETAIL -- 5.1% 317,000 American Eagle Outfitters, Inc. 3,525,040 244,400 Children's Place Retail Stores, Inc. (The)(1) 8,170,292 276,600 Guess?, Inc. 6,021,582 214,000 Limited Brands, Inc. 2,563,720 181,500 PetSmart, Inc. 3,573,735 249,200 Ross Stores, Inc. 8,146,348 408,900 Urban Outfitters, Inc.(1) 8,889,486 ------------ 40,890,203 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 3.8% 197,200 Carter's, Inc.(1) 4,188,528 90,700 NIKE, Inc., Class B 5,227,041 165,800 Polo Ralph Lauren Corp. 7,820,786 127,034 True Religion Apparel, Inc.(1) 2,127,820 130,800 Under Armour, Inc., Class A(1) 3,400,800 258,000 Warnaco Group, Inc. (The)(1) 7,690,980 ------------ 30,455,955 ------------ Shares Value THRIFTS & MORTGAGE FINANCE -- 0.9% 378,000 Hudson City Bancorp., Inc. $ 7,110,180 ------------ TOBACCO -- 1.3% 158,200 Lorillard, Inc. 10,419,052 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.4% 75,200 Fastenal Co. 3,027,552 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 1.6% 59,900 American Tower Corp., Class A(1) 1,935,369 454,600 MetroPCS Communications, Inc.(1) 6,246,204 110,705 NII Holdings, Inc.(1) 2,851,761 101,400 SBA Communications Corp., Class A(1) 2,128,386 ------------ 13,161,720 ------------ TOTAL COMMON STOCKS (Cost $851,695,542) 785,954,535 ------------ Temporary Cash Investments -- 3.5% 40,552 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 40,552 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $29,110,894), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $28,600,119) 28,600,000 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $28,640,552) 28,640,552 ------------ TOTAL INVESTMENT SECURITIES -- 101.3% (Cost $880,336,094) 814,595,087 ------------ OTHER ASSETS AND LIABILITIES -- (1.3)% (10,824,339) ------------ TOTAL NET ASSETS -- 100.0% $803,770,748 ============ Geographic Diversification (as a % of net assets) United States 86.3% Australia 2.5% France 1.7% Spain 1.6% Japan 1.5% China 1.5% Bermuda 1.4% Canada 0.8% Denmark 0.3% Switzerland 0.2% Cash and Equivalents* 2.2% *Includes temporary cash investments and other assets and liabilities. - ------ 11 Giftrust Forward Foreign Currency Exchange Contracts Settlement Unrealized Contracts to Sell Date Value Gain (Loss) 23,600,851 AUD for USD 11/28/08 $15,646,184 $162,615 6,310,761 CAD for USD 11/28/08 5,234,453 (35,708) 9,208,011 DKK for USD 11/28/08 1,573,286 15,888 16,316,368 EUR for USD 11/28/08 20,777,753 293,411 610,849,740 JPY for USD 11/28/08 6,206,199 56,879 ----------- ---------- $49,437,875 $493,085 =========== ========== (Value on Settlement Date $49,930,960) Notes to Schedule of Investments ADR = American Depositary Receipt AUD = Australian Dollar CAD = Canadian Dollar DKK = Danish Krone EUR = Euro HOLDRs = Holding Company Depositary Receipts JPY = Japanese Yen SPDR = Standard & Poor's Depositary Receipts USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $60,881,410, which represented 7.6% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 12 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $880,336,094) $814,595,087 Receivable for investments sold 20,713,846 Receivable for forward foreign currency exchange contracts 528,793 Receivable for capital shares sold 19,182 Dividends and interest receivable 399,334 ------------ 836,256,242 ----------- LIABILITIES Disbursements in excess of demand deposit cash 29,103 Payable for investments purchased 31,672,326 Payable for capital shares redeemed 68,376 Payable for forward foreign currency exchange contracts 35,708 Accrued management fees 679,981 ------------ 32,485,494 ------------ NET ASSETS $803,770,748 ============ CAPITAL SHARES, $0.01 PAR VALUE Authorized 200,000,000 ============ Outstanding 42,128,731 ============ NET ASSET VALUE PER SHARE $19.08 ============ NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $897,161,740 Undistributed net investment income 585,494 Accumulated net realized loss on investment and foreign currency transactions (28,747,154) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (65,229,332) ------------ $803,770,748 ============ See Notes to Financial Statements. - ------ 13 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $113,803) $ 6,002,926 Interest 406,232 -------------- 6,409,158 -------------- EXPENSES: Management fees 12,209,669 Directors' fees and expenses 32,109 Other expenses 5,874 -------------- 12,247,652 -------------- NET INVESTMENT INCOME (LOSS) (5,838,494) -------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (23,026,155) Foreign currency transactions 10,973,344 Futures transactions (1,291,531) -------------- (13,344,342) -------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (516,069,380) Translation of assets and liabilities in foreign currencies 765,774 -------------- (515,303,606) -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (528,647,948) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(534,486,442) ============== See Notes to Financial Statements. - ------ 14 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $ (5,838,494) $(6,683,330) Net realized gain (loss) (13,344,342) 252,077,446 Change in net unrealized appreciation (depreciation) (515,303,606) 286,275,760 ------------- -------------- Net increase (decrease) in net assets resulting from operations (534,486,442) 531,669,876 ------------- -------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 10,453,508 11,497,937 Payments for shares redeemed (93,410,238) (106,533,236) ------------- -------------- Net increase (decrease) in net assets from capital share transactions (82,956,730) (95,035,299) ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS (617,443,172) 436,634,577 NET ASSETS Beginning of period 1,421,213,920 984,579,343 ------------- -------------- End of period $ 803,770,748 $1,421,213,920 ============= ============== Undistributed net investment income $585,494 $122,505 ============= ============== TRANSACTIONS IN SHARES OF THE FUND Sold 377,995 468,391 Redeemed (3,326,738) (4,291,934) ------------- -------------- Net increase (decrease) in shares of the fund (2,948,743) (3,823,543) ============= ============== See Notes to Financial Statements. - ------ 15 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 that management believes will increase in value over time. Effective March 1, 2009, the fund may invest in companies of any size. 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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. 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. 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. - ------ 16 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 transactions and unrealized appreciation (depreciation) on futures, respectively. 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. 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 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. 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 js an equity investor in ACC. Prior to December 12, 2007, the fund had a 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 ended October 31, 2008, were $2,069,460,124 and $2,157,916,035, respectively. 4. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from either line during the year ended October 31, 2008. 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 also 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. 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 undistributed net investment income to capital paid in and in addition, reduce the total distributions paid to current shareholders. There were no distributions paid by the fund during the years ended October 31, 2008 and October 31, 2007. - ------ 18 As of October 31, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $899,371,242 ============= Gross tax appreciation of investments $41,588,364 Gross tax depreciation of investments (126,364,519) ------------- Net tax appreciation (depreciation) of investments $(84,776,155) ============= Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies $34,478 ------------- Net tax appreciation (depreciation) $(84,741,677) ============= Undistributed ordinary income $1,062,691 Accumulated capital losses $(9,712,006) 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 exchange contracts. The accumulated capital losses listed in the chart represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Capital loss carryovers of $(2,183,412) expire in 2011 and $(7,528,594) expire in 2016. 7. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. - ------ 19 FINANCIAL HIGHLIGHTS Giftrust For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $31.53 $20.13 $17.28 $13.81 $14.04 -------- ------- ------- ------- ---------- Income From Investment Operations Net Investment Income (Loss)(1) (0.13) (0.14) (0.05) (0.08) (0.01) Net Realized and Unrealized Gain (Loss) (12.32) 11.54 2.90 3.55 (0.22) -------- ------- ------- ------- ---------- Total From Investment Operations (12.45) 11.40 2.85 3.47 (0.23) -------- ------- ------- ------- ---------- Net Asset Value, End of Period $19.08 $31.53 $20.13 $17.28 $13.81 ======== ======= ======= ======= ========== TOTAL RETURN(2) (39.49)% 56.63% 16.49% 25.13% (1.64)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.00% 1.00% 1.00% 1.00% 0.49%(3) Ratio of Net Investment Income (Loss) to Average Net Assets (0.48)% (0.57)% (0.22)% (0.46)% (0.09)%(3) Portfolio Turnover Rate 171% 147% 229% 223% 260% Net Assets, End of Period (in millions) $804 $1,421 $985 $927 $865 (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. - ------ 20 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, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 22 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. - ------ 23 OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 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 Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 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. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 the services provided by the advisor 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 to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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 - ------ 26 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 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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 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. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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 board, including all of 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. - ------ 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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 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 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 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. - ------ 30 NOTES - ------ 31 NOTES - ------ 32 [back cover] [american century investments logo and text logo ®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62715S-SUP
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS SELECT FUND CAPITAL GROWTH FUND FOCUSED GROWTH FUND FUNDAMENTAL EQUITY FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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. . . . . . . . . . . . . . . . . . . . . . . . . 6 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6 CAPITAL GROWTH Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 10 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 10 FOCUSED GROWTH Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 13 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 14 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 14 FUNDAMENTAL EQUITY Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 17 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 18 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 18 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 19 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 22 Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 33 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 35 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 36 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 38 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 48 Report of Independent Registered Public Accounting Firm . . . . . . . 72 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Approval of Management Agreements for Select, Capital Growth, Focused Growth and Fundamental Equity. . . . . . . . . . . . . . . . 76 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 81 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 82 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Select Total Returns as of October 31, 2008 Average Annual Returns 5 10 Since Inception 1 year years years Inception Date INVESTOR CLASS -37.71% -2.85% -1.69% 11.80% 6/30/71(1) RUSSELL 1000 GROWTH INDEX(2) -36.95% -1.29% -2.10% N/A(3) -- Institutional Class -37.60% -2.66% -1.49% 2.01% 3/13/97 A Class(4) No sales charge* -37.88% -3.09% -1.93% -0.15% With sales charge* -41.45% -4.23% -2.51% -0.68% 8/8/97 B Class No sales charge* -38.36% -3.83% -- -0.11% With sales charge* -42.36% -4.06% -- -0.28% 1/31/03 C Class -38.34% -3.82% -- -0.09% 1/31/03 R Class -38.03% -- -- -8.51% 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%. 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. ©2008 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. (4) 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. 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. - ------ 3 Select Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 31.22% 7.64% -28.93% -17.11% 17.11% 3.05% 6.67% -1.55% 28.37% -37.71% Russell 1000 Growth Index 34.25% 9.33% -39.95% -19.62% 21.81% 3.38% 8.81% 10.84% 19.23% -36.95% 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. - ------ 4 PORTFOLIO COMMENTARY Select Portfolio Managers: Keith Lee and Michael Li PERFORMANCE SUMMARY Select returned -37.71* for the 12 months ended October 31, 2008, compared with the -36.95% return of its benchmark, the Russell 1000 Growth Index, and the -36.10%** return of the S&P 500 Index, a broader market measure. As discussed in the Market Perspective on page 2, equity markets declined during the reporting period against a backdrop of extreme market volatility, as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. Within the portfolio, poor security selection in the industrials and information technology sectors accounted for the bulk of Select's underperformance relative to the benchmark. An underweight allocation and stock selection in the health care sector also trimmed relative returns. Effective stock selection in the consumer discretionary and energy sectors helped to offset those losses. INDUSTRIALS LED DECLINE The industrials sector is home to several holdings involved with alternative energy. Although holdings in this group have delivered gains in previous reporting periods, they suffered from market volatility and slowing demand as energy prices fell during the reporting period. Solar cell maker Q-Cells AG, which is not a constituent of the benchmark, declined 70% and detracted from absolute and relative performance. A stake in Denmark-based Vestas Wind Systems AS, which is not a benchmark constituent, also hurt absolute and relative returns. The developer of wind power systems that harness wind energy to create electricity experienced a 54% share price decline as demand for alternative energy slowed. The portfolio maintained an overweight stake in the construction and engineering industry, where we focused on companies involved in heavy construction areas, including the construction of power plants and offshore oil platforms. Within this group, overweight holding Foster Wheeler declined on fears that weaker energy prices would reduce engineering and construction activity. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Wal-Mart Stores, Inc. 3.4% 2.0% Apple, Inc. 2.9% 2.6% Cisco Systems, Inc. 2.7% 2.7% Coca-Cola Co. (The) 2.7% 1.9% Hewlett-Packard Co. 2.7% 2.2% Microsoft Corp. 2.6% 3.4% Google, Inc., Class A 2.6% 1.8% McDonald's Corp. 2.6% 2.2% EMC Corp. 2.4% 2.0% Occidental Petroleum Corp. 2.3% 2.4% * All fund returns referenced in this commentary are for Investor Class shares. ** The S&P 500 Index returns for the five- and 10-year periods ended October 31, 2008, were 0.26% and 0.40%, respectively. - ------ 5 Select INFORMATION TECHNOLOGY, HEALTH CARE LAGGED, BUT CERTAIN HOLDINGS HELPED Select maintained an overweight stake in information technology holding MEMC, a global supplier of polysilicon, a raw material used in the production of solar cells. MEMC was the primary detractor within the sector, due to poor company execution in ramping up polysilicon production capacity. In the health care sector, an overweight position in Schering-Plough substantially underperformed due to cautious reviews of its cholesterol lowering drug Vytorin by the American College of Cardiology and New England Journal of Medicine. Although we had previously viewed market concerns over this drug as unsubstantiated, the Select team ultimately exited the position given this development. Overweight stakes in biotechnology holding Genzyme and health care equipment company Baxter International contributed to Select's relative performance. Baxter's share price increased 2.2% while Genzyme's declined a modest 4.1% during the volatile reporting period. CONSUMER DISCRETIONARY, ENERGY CONTRIBUTED Stock selection in the consumer discretionary sector aided the portfolio's performance relative to the benchmark. Here, holdings within the hotels, restaurants, and leisure industry were key contributors to relative gains. McDonald's Corporation, which posted positive returns, and Yum! Brands, in particular, which declined relatively modestly, benefited relative returns. The energy sector was also a source of strength relative to the benchmark, although it detracted from absolute returns. Stock selection in the oil, gas, and consumable fuels group helped relative returns as the portfolio avoided a number of laggards while holding relative outperformers. Occidental Petroleum, in particular, was a meaningful contributor to relative returns. STARTING POINT FOR NEXT REPORTING PERIOD The reporting period was a very difficult environment for growth- and momentum-oriented investment styles. Select's investment process, which emphasizes these characteristics, experienced a significant headwind as a result. Going forward, we remain confident in our investment beliefs that stocks which exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Computers & Peripherals 7.9% 6.9% Software 7.7% 7.3% Food & Staples Retailing 5.3% 4.4% Biotechnology 5.3% 4.5% Beverages 5.2% 4.6% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 87.1% 84.4% Foreign Common Stocks(1) 10.5% 13.1% TOTAL COMMON STOCKS 97.6% 97.5% Temporary Cash Investments 2.3% 2.0% Other Assets and Liabilities 0.1% 0.5% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 6 PERFORMANCE Capital Growth Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year Inception Date A CLASS No sales charge* -33.88% -1.19% With sales charge* -37.67% -2.43% 2/27/04 RUSSELL 1000 GROWTH INDEX(1) -36.95% -2.86% -- Investor Class -33.67% -3.74% 7/29/05 Institutional Class -33.57% -3.55% 7/29/05 B Class No sales charge* -34.36% -1.93% With sales charge* -38.36% -2.39% 2/27/04 C Class -34.36% -1.93% 2/27/04 R Class -34.01% -4.22% 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%. 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. ©2008 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. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. 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. 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. - ------ 7 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 2008 A Class (no sales charge) -1.10% 7.08% 11.24% 21.40% -33.88% Russell 1000 Growth Index -3.70% 8.81% 10.84% 19.23% -36.95% * 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. 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. - ------ 8 PORTFOLIO COMMENTARY Capital Growth Portfolio Managers: Greg Woodhams and Prescott LeGard PERFORMANCE SUMMARY Capital Growth returned -33.88%* during the 12 months ended October 31, 2008. By comparison, Capital Growth outperformed its benchmark--the Russell 1000 Growth Index--and the Lipper Large-Cap Growth Funds category average, which returned -36.95% and -38.55%, respectively. See the previous page for the portfolio's long-term performance compared with its benchmark. The portfolio declined in a year of unprecedented turmoil in financial markets. No sector contributed positively to absolute returns; information technology shares detracted most. Capital Growth held up better than the Russell index thanks to contributions from a number of sectors, led by consumer discretionary, financials, and materials shares. Information technology and industrials were the only sectors to detract from relative results. CONSUMER DISCRETIONARY CONTRIBUTED MOST Outperformance in the consumer discretionary sector was driven by stock picks in the multiline and specialty retail industries. The sector was home to the number-one overall contributor to relative results, an overweight position in Family Dollar Stores. In the specialty retail segment, performance benefited from larger-than-benchmark weightings in Urban Outfitters and The TJX Companies, which operates the T.J. Maxx and Marshalls chains, among others. Having exposure to these and other discount retailers during the period benefited portfolio performance in this difficult economic environment. For example, in the consumer staples sector, Wal-Mart saw increased customer traffic while continuing to make progress on its turnaround. Wal-Mart was a top-five contributor to portfolio performance. OTHER KEY CONTRIBUTORS Materials shares also helped relative performance, led by stock selection. Monsanto, the world's largest seed producer, was the leading contributor in this space. It also helped to be underweight in the chemicals and metals and mining industries, which suffered from falling commodity prices and the outlook for slower economic growth and tighter credit. The portfolio had no exposure to the poorest-performing fertilizer and steel companies, led by Mosaic and U.S. Steel, respectively. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Apple, Inc. 3.4% 3.3% Wal-Mart Stores, Inc. 3.1% 2.1% Procter & Gamble Co. (The) 3.0% 1.3% Cisco Systems, Inc. 3.0% 1.5% QUALCOMM, Inc. 2.8% 2.5% Coca-Cola Co. (The) 2.8% 2.2% Google, Inc., Class A 2.3% 0.9% Oracle Corp. 2.3% 0.8% Raytheon Co. 2.3% 1.9% Union Pacific Corp. 2.2% 0.4% * 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. - ------ 9 Capital Growth Financials shares contributed to relative performance thanks to stock selection in the insurance space, as well as underweight positions in consumer finance and thrifts. The key contribution to relative results came from an overweight position in Chubb Corporation. Chubb had an essentially flat return during an otherwise very difficult year for financials stocks because it's seen as a well-capitalized, higher-quality name. IT, INDUSTRIALS DETRACTED The information technology sector was the largest detractor from relative return. Stock selection in the software industry hurt performance, behind an underweight position in Microsoft, which was seen as a "safe haven" during the market turmoil. An underweight position and stock selection in IT services also detracted. Here it hurt to be underrepresented in IBM, another big safe-haven play, and overweight in Western Union and DST Systems during the period. The industrials sector underperformed due to positioning in the electrical equipment, commercial services, road and rail, and building products industries. Stock selection was mixed, but allocation detracted--the portfolio was overweight in the poor-performing electrical equipment companies, and underrepresented in the other industry segments, which held up better. OUTLOOK The Capital Growth team's investment process focuses on large companies exhibiting sustainable improvement in their businesses. The managers have a thesis on each stock they own and devote their entire research effort toward identifying the companies in each sector and industry that they feel are likely to outperform. It is the managers' belief that owning such companies will generate outperformance over time versus the Russell 1000 Growth Index and the other funds in the large-growth peer group. As a result, the portfolio's sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2008, they found opportunity in the health care and consumer discretionary sectors, the portfolio's largest overweight positions. The most notable sector underweights were in information technology and energy shares. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Health Care Equipment & Supplies 8.0% 8.0% Software 6.7% 4.2% Communications Equipment 5.7% 7.9% Semiconductors & Semiconductor Equipment 5.2% 5.5% Oil, Gas & Consumable Fuels 5.1% 6.3% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 97.3% 91.8% Foreign Common Stocks(1) 1.4% 6.1% TOTAL COMMON STOCKS 98.7% 97.9% Temporary Cash Investments 0.9% -- Other Assets and Liabilities(2) 0.4% 2.1% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Includes securities lending collateral and other assets and liabilities. - ------ 10 PERFORMANCE Focused Growth Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year Inception Date INVESTOR CLASS -32.19% -2.76% 2/28/05 RUSSELL 1000 GROWTH INDEX(1)(2) -36.95% -3.93% -- BLENDED INDEX -36.51% -3.90% -- S&P 500 INDEX(1) -36.10% -3.91% -- Institutional Class -32.09% -28.08% 9/28/07 A Class No sales charge* -32.37% -28.40% With sales charge* -36.27% -32.19% 9/28/07 B Class No sales charge* -32.87% -28.94% With sales charge* -36.87% -32.73% 9/28/07 C Class -32.87% -28.94% 9/28/07 R Class -32.56% -28.58% 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%. 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. ©2008 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. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. 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) In March of 2008, the fund's benchmark changed from the blended index to the Russell 1000 Growth Index. The fund's investment advisor believes this index better represents the fund's portfolio composition. 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 approach may also result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors. 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. - ------ 11 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 2008 Investor Class 5.30% 9.13% 15.78% -32.19% Russell 1000 Growth Index 3.62% 10.84% 19.23% -36.95% Blended index 2.53% 13.57% 16.88% -36.51% S&P 500 Index 1.44% 16.34% 14.56% -36.10% *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'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. 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. - ------ 12 PORTFOLIO COMMENTARY Focused Growth Portfolio Managers: Greg Woodhams and Joe Reiland PERFORMANCE SUMMARY Focused Growth returned -32.19%* during the 12 months ended October 31, 2008. By comparison, the fund's benchmark--the Russell 1000 Growth Index--and Lipper Large-Cap Growth Funds category average returned -36.95% and -38.55%, respectively. See the previous page for the portfolio's long-term performance compared with its benchmark. Focused Growth outperformed the Russell 1000 Growth Index thanks to stock selection across a number of sectors, led by financials and energy. Information technology stocks detracted most from both relative and absolute results. On an absolute basis, however, the portfolio declined in a year of unprecedented turmoil in financial markets. No sector contributed positively to absolute returns. FINANCIALS, ENERGY LED CONTRIBUTORS Financials shares contributed most to relative performance, thanks to stock selection among insurance and capital market shares. The leading contributor to relative results in the sector was an overweight position in Chubb Corporation. Chubb had an essentially flat return during an otherwise very difficult year for financial stocks because it is seen as a well-capitalized, higher-quality name. Stock selection in the capital market space was another source of strength. It helped to favor asset managers and custody banks--led by Northern Trust and INVESCO--over poor-performing investment banks and brokers. Energy shares were also key contributors to return. Two of the top-five contributors to relative results were Apache and Devon Energy, which held up better than the average oil, gas, and consumable fuels stock in the index. Their performance was driven by big gains early in the reporting period as oil reached a record high in July before giving ground in recent months. OTHER CONTRIBUTORS: HEALTH CARE, CONSUMER DISCRETIONARY Health care stocks helped the portfolio's return relative to the benchmark thanks to health care equipment and supplies firms Baxter International; Becton, Dickinson & Co.; Alcon; C.R. Bard; and DENTSPLY International. Consumer discretionary shares also contributed to relative return, driven by stock picks in the multiline and specialty retail industries. The sector was home to the number-two overall contributor to relative results, Family Dollar Stores. In the specialty retail segment, TJX Companies was another notable contributor. These companies operate discount retail chains that have seen business pick up in the difficult economic environment. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Wal-Mart Stores, Inc. 4.9% -- Procter & Gamble Co. (The) 4.2% 3.0% Coca-Cola Co. (The) 3.9% 1.7% QUALCOMM, Inc. 3.8% 3.2% Union Pacific Corp. 3.2% -- Raytheon Co. 3.1% 2.3% American Tower Corp., Class A 3.1% 0.6% Becton, Dickinson & Co. 3.0% 2.6% Emerson Electric Co. 2.9% 2.7% Chubb Corp. 2.9% 2.6% *All fund returns referenced in this commentary are for Investor Class shares. - ------ 13 Focused Growth LEADING DETRACTORS The information technology sector was the largest detractor from relative return. Positioning in the IT services industry drove the underperformance, as it hurt to be underrepresented in Western Union, IBM, and Accenture, and overweight in DST Systems and Visa. In terms of individual stocks, the largest detractor from relative performance was oil and gas driller Helmerich & Payne, which lagged because of the sharp slide in energy prices. Focused Growth's management team reduced the position over concern about the company's exposure to land-based drilling. Auto parts maker BorgWarner was the number-two detractor, hurt by the sharp slowdown in the automotive industry. Fund managers trimmed their exposure to the stock; nevertheless, they maintained a position because they believe the company's prospects are bolstered by the need more fuel-efficient and higher-performance engines. OUTLOOK The Focused Growth team's investment process focuses on large companies exhibiting sustainable improvement in their businesses. The managers have a thesis on each stock they own and devote their entire research effort toward identifying the companies in each sector and industry that they feel are likely to outperform. It is the managers' belief that owning such companies will generate outperformance over time versus the Russell 1000 Growth Index and the other funds in the large-growth peer group. As a result, the portfolio's sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2008, they found opportunity in the telecommunication services and industrials sectors, the portfolio's largest overweight positions. The most notable sector underweight was in information technology shares. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Health Care Equipment & Supplies 8.4% 8.5% Communications Equipment 6.6% 7.5% Software 6.5% 4.1% Semiconductors & Semiconductor Equipment 6.1% 5.7% Aerospace & Defense 5.7% 8.3% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 93.3% 92.1% Foreign Common Stocks(1) 4.2% 5.8% TOTAL COMMON STOCKS 97.5% 97.9% Temporary Cash Investments 4.2% 3.0% Other Assets and Liabilities(2) (1.7)% (0.9)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Includes securities lending collateral and other assets and liabilities. - ------ 14 PERFORMANCE Fundamental Equity Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year Inception Date A CLASS No sales charge* -34.73% 1.77% With sales charge* -38.46% 0.25% 11/30/04 S&P 500 INDEX(1) -36.10% -2.93% -- Investor Class -34.56% -0.23% 7/29/05 Institutional Class -34.45% -0.05% 7/29/05 B Class No sales charge* -35.23% 0.99% With sales charge* -39.23% 0.24% 11/30/04 C Class -35.20% 1.02% 11/30/04 R Class -34.92% -0.74% 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%. 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. ©2008 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. - ------ 15 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 2008 A Class (no sales charge) 10.30% 20.12% 23.88% -34.73% S&P 500 Index 4.49% 16.34% 14.56% -36.10% * 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. - ------ 16 PORTFOLIO COMMENTARY Fundamental Equity In June 2008, Gregory J. Woodhams, E.A. Prescott LeGard, Justin M. Brown and Joe Reiland were named portfolio managers of the fund following the departure of Jerry Sullivan and Rob Brookby. PERFORMANCE SUMMARY Fundamental Equity returned -34.73%* for the 12 months ended October 31, 2008. Its benchmark, the S&P 500 Index, returned -36.10% over the same time frame. As discussed in the Market Perspective on page 2, equity markets declined during the reporting period against a backdrop of extreme market volatility, as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and value-oriented shares outperformed growth stocks. Within the portfolio, effective security selection in the information technology and energy sectors accounted for the bulk of outperformance relative to the benchmark. An underweight allocation to financials further aided relative performance, although stock selection in the group trimmed those relative gains. Holdings in the industrials sector weighed on absolute and relative returns. INDUSTRIALS HINDERED Within the industrials sector, the portfolio held an underweight allocation to the road and rail industry, which trimmed returns for the reporting period. Individual holdings in the group further detracted from performance. Also in the industrials sector, an overweight allocation and holdings in the electrical equipment industry detracted from absolute and relative performance. This group is home to companies that have benefited in the past from increased global demand from end users in the technology and energy areas. During the reporting period, though, companies in the group collectively declined amid shrinking demand. Emerson Electric and electronics maker Belden, in particular, detracted from absolute and relative returns. ENERGY, FINANCIALS CONTRIBUTED, BUT CERTAIN HOLDINGS LAGGED Effective stock selection in the energy sector helped relative performance, although an underweight allocation to the group trimmed returns. Within the energy equipment and services industry, the portfolio benefited from sidestepping a number of companies that experienced sharp declines, and selling others before energy prices collapsed beginning in the late summer, such as Schlumberger. An overweight stake in Halliburton, meanwhile, also yielded relative gains. Within the oil, gas, and consumable fuels industry, though, underweight stakes in ConocoPhillips and Exxon Mobil hurt relative performance. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Exxon Mobil Corp. 3.7% 3.1% Wal-Mart Stores, Inc. 2.9% 1.8% AT&T, Inc. 2.7% 2.0% Johnson & Johnson 2.7% 1.7% Procter & Gamble Co. (The) 2.7% 1.8% Oracle Corp. 2.6% 1.7% Baxter International, Inc. 2.4% 1.7% Chevron Corp. 2.3% 3.1% H.J. Heinz Co. 2.1% 1.3% Occidental Petroleum Corp. 1.8% 1.3% * 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. - ------ 17 Fundamental Equity Although the portfolio's holdings in the financials sector declined, an underweight stake helped Fundamental Equity to outperform its benchmark within the sector. The most significant relative advantage came from an underweight allocation to the thrifts and mortgage finance industry altogether, a group whose constituents declined an average 92% within the benchmark for the reporting period. Within the group, the portfolio completely avoided many casualties of the credit crisis, including Fannie Mae, Freddie Mac, and Washington Mutual. Within the insurance group, Fundamental Equity held an overweight position in ACE Ltd., whose share price fell a modest 3% during the reporting period. An overweight stake in commercial bank Wachovia Corp., however, hurt relative performance, as the bank's share price slid 85%. TECHNOLOGY HELPED Stock selection in the technology sector benefited Fundamental Equity's relative performance. Within the computers and peripherals industry, the portfolio avoided a number of benchmark constituents altogether, including Dell Inc., whose share price fell 60% during the reporting period. An underweight allocation to Apple Inc. also helped relative returns. In the software group, the portfolio succeeded in holding overweight stakes in companies whose share prices experienced relatively modest declines, while avoiding those companies that saw more severe share price declines. Notably, an overweight stake in Oracle Corporation helped relative performance, although it weighed on absolute returns. OUTLOOK Fundamental Equity generally invests in larger-sized companies, although it may invest in companies of any size. The current management team uses a quantitative model that combines fundamental measures of a stock's value and growth potential. The fund seeks to provide better returns than, and a dividend yield comparable to, its benchmark, the S&P 500 Index, without taking on significant additional risk. Regardless of the current market volatility and difficult environment, we will remain focused on our methodology of identifying attractively valued companies. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Oil, Gas & Consumable Fuels 10.7% 9.9% Pharmaceuticals 6.9% 5.6% Aerospace & Defense 4.8% 6.0% Capital Markets 4.7% 4.6% Food & Staples Retailing 4.0% 3.1% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks & Futures 95.2% 92.6% Foreign Common Stocks(1) 2.3% 5.5% TOTAL COMMON STOCKS 97.5% 98.1% Temporary Cash Investments 2.5% 2.8% Other Assets and Liabilities(2) --(3) (0.9)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Includes securities lending collateral and other assets and liabilities. (3) Category is less than 0.05% of total net assets. - ------ 18 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 19 Beginning Ending Expenses Paid Account Account During Period* Annualized Value Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* Select ACTUAL Investor Class $1,000 $687.50 $4.24 1.00% Institutional Class $1,000 $688.20 $3.39 0.80% A Class $1,000 $686.80 $5.30 1.25% B Class $1,000 $684.00 $8.47 2.00% C Class $1,000 $684.10 $8.47 2.00% R Class $1,000 $685.90 $6.36 1.50% HYPOTHETICAL Investor Class $1,000 $1,020.11 $5.08 1.00% Institutional Class $1,000 $1,021.11 $4.06 0.80% A Class $1,000 $1,018.85 $6.34 1.25% B Class $1,000 $1,015.08 $10.13 2.00% C Class $1,000 $1,015.08 $10.13 2.00% R Class $1,000 $1,017.60 $7.61 1.50% Capital Growth ACTUAL Investor Class $1,000 $706.70 $4.33 1.01% Institutional Class $1,000 $707.60 $3.48 0.81% A Class $1,000 $705.40 $5.40 1.26% B Class $1,000 $702.80 $8.60 2.01% C Class $1,000 $702.80 $8.60 2.01% R Class $1,000 $704.90 $6.47 1.51% HYPOTHETICAL Investor Class $1,000 $1,020.06 $5.13 1.01% Institutional Class $1,000 $1,021.06 $4.12 0.81% A Class $1,000 $1,018.80 $6.39 1.26% B Class $1,000 $1,015.03 $10.18 2.01% C Class $1,000 $1,015.03 $10.18 2.01% R Class $1,000 $1,017.55 $7.66 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 366, to reflect the one-half year period. - ------ 20 Beginning Ending Expenses Paid Account Account During Period* Annualized Value Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* Focused Growth ACTUAL Investor Class $1,000 $705.90 $4.29 1.00% Institutional Class $1,000 $706.60 $3.43 0.80% A Class $1,000 $705.30 $5.36 1.25% B Class $1,000 $702.70 $8.56 2.00% C Class $1,000 $702.70 $8.56 2.00% R Class $1,000 $704.00 $6.42 1.50% HYPOTHETICAL Investor Class $1,000 $1,020.11 $5.08 1.00% Institutional Class $1,000 $1,021.11 $4.06 0.80% A Class $1,000 $1,018.85 $6.34 1.25% B Class $1,000 $1,015.08 $10.13 2.00% C Class $1,000 $1,015.08 $10.13 2.00% R Class $1,000 $1,017.60 $7.61 1.50% Fundamental Equity ACTUAL Investor Class $1,000 $717.50 $4.36 1.01% Institutional Class $1,000 $718.20 $3.50 0.81% A Class $1,000 $716.60 $5.44 1.26% B Class $1,000 $713.90 $8.66 2.01% C Class $1,000 $714.60 $8.66 2.01% R Class $1,000 $715.90 $6.51 1.51% HYPOTHETICAL Investor Class $1,000 $1,020.06 $5.13 1.01% Institutional Class $1,000 $1,021.06 $4.12 0.81% A Class $1,000 $1,018.80 $6.39 1.26% B Class $1,000 $1,015.03 $10.18 2.01% C Class $1,000 $1,015.03 $10.18 2.01% R Class $1,000 $1,017.55 $7.66 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 366, to reflect the one-half year period. - ------ 21 SCHEDULE OF INVESTMENTS Select OCTOBER 31, 2008 Shares Value Common Stocks -- 97.6% AEROSPACE & DEFENSE -- 3.0% 530,425 General Dynamics Corp. $ 31,995,236 379,602 Rockwell Collins, Inc. 14,132,582 -------------- 46,127,818 -------------- BEVERAGES -- 5.2% 965,326 Coca-Cola Co. (The) 42,532,264 1,242,497 Diageo plc 19,031,661 339,702 PepsiCo, Inc. 19,366,411 -------------- 80,930,336 -------------- BIOTECHNOLOGY -- 5.3% 203,048 Genentech, Inc.(1) 16,840,801 483,515 Genzyme Corp.(1) 35,238,573 682,922 Gilead Sciences, Inc.(1) 31,311,974 -------------- 83,391,348 -------------- CAPITAL MARKETS -- 3.4% 881,624 Bank of New York Mellon Corp. (The) 28,740,942 350,303 Franklin Resources, Inc. 23,820,604 -------------- 52,561,546 -------------- CHEMICALS -- 2.2% 255,132 Monsanto Co. 22,701,645 127,953 Potash Corp of Saskatchewan 10,909,273 -------------- 33,610,918 -------------- COMMUNICATIONS EQUIPMENT -- 4.5% 2,412,336 Cisco Systems, Inc.(1) 42,867,211 737,488 QUALCOMM, Inc. 28,216,291 -------------- 71,083,502 -------------- COMPUTERS & PERIPHERALS -- 7.9% 427,493 Apple, Inc.(1) 45,993,972 3,124,067 EMC Corp.(1) 36,801,509 1,086,378 Hewlett-Packard Co. 41,586,550 -------------- 124,382,031 -------------- CONSTRUCTION & ENGINEERING -- 0.6% 244,919 Fluor Corp. 9,779,616 -------------- DIVERSIFIED FINANCIAL SERVICES -- 2.0% 301,264 Citigroup, Inc. 4,112,254 537,000 Hong Kong Exchanges and Clearing Ltd. 5,489,577 506,630 JPMorgan Chase & Co. 20,898,487 -------------- 30,500,318 -------------- ELECTRIC UTILITIES -- 1.2% 340,138 Exelon Corp. 18,449,085 -------------- Shares Value ELECTRICAL EQUIPMENT -- 4.5% 1,871,625 ABB Ltd. ADR $ 24,611,869 889,353 Emerson Electric Co. 29,108,524 324,397 Q-Cells AG(1) 12,760,349 77,743 Vestas Wind Systems AS(1) 3,200,021 -------------- 69,680,763 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3% 161,706 Dolby Laboratories, Inc., Class A(1) 5,105,058 -------------- ENERGY EQUIPMENT & SERVICES -- 3.9% 399,373 National Oilwell Varco, Inc.(1) 11,937,259 444,976 Schlumberger Ltd. 22,983,010 319,980 Transocean, Inc.(1) 26,343,954 -------------- 61,264,223 -------------- FOOD & STAPLES RETAILING -- 5.3% 969,193 CVS/Caremark Corp. 29,705,765 964,218 Wal-Mart Stores, Inc. 53,813,007 -------------- 83,518,772 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 3.7% 365,148 Baxter International, Inc. 22,087,803 897,922 Medtronic, Inc. 36,213,194 -------------- 58,300,997 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.6% 642,126 Medco Health Solutions, Inc.(1) 24,368,682 -------------- HOTELS, RESTAURANTS & LEISURE -- 4.6% 689,340 McDonald's Corp. 39,933,466 1,108,811 Yum! Brands, Inc. 32,166,607 -------------- 72,100,073 -------------- HOUSEHOLD PRODUCTS -- 1.3% 329,059 Colgate-Palmolive Co. 20,651,743 -------------- INTERNET SOFTWARE & SERVICES -- 3.2% 42,850 Baidu.com, Inc. ADR(1) 8,827,100 114,182 Google, Inc., Class A(1) 41,032,444 -------------- 49,859,544 -------------- IT SERVICES -- 0.7% 77,949 MasterCard, Inc., Class A 11,522,421 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.2% 654,453 Hasbro, Inc. 19,024,949 -------------- - ------ 22 Select Shares Value LIFE SCIENCES TOOLS & SERVICES -- 1.4% 525,242 Thermo Fisher Scientific, Inc.(1) $ 21,324,825 -------------- MACHINERY -- 0.7% 300,631 Parker-Hannifin Corp. 11,655,464 -------------- MEDIA -- 1.8% 1,093,367 Walt Disney Co. (The) 28,318,205 -------------- METALS & MINING -- 0.6% 318,435 Freeport-McMoRan Copper & Gold, Inc. 9,266,458 -------------- MULTILINE RETAIL -- 1.2% 515,238 Kohl's Corp.(1) 18,100,311 -------------- OIL, GAS & CONSUMABLE FUELS -- 4.6% 307,733 EnCana Corp. 15,666,687 241,689 EOG Resources, Inc. 19,557,474 652,347 Occidental Petroleum Corp. 36,231,352 -------------- 71,455,513 -------------- PHARMACEUTICALS -- 3.3% 562,503 Allergan, Inc. 22,314,494 484,807 Johnson & Johnson 29,738,061 -------------- 52,052,555 -------------- PROFESSIONAL SERVICES -- 0.9% 776,251 Robert Half International, Inc. 14,647,856 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.1% 1,500,582 Intel Corp. 24,009,312 1,193,038 Linear Technology Corp. 27,058,102 751,434 MEMC Electronic Materials, Inc.(1) 13,811,357 -------------- 64,878,771 -------------- SOFTWARE -- 7.7% 854,229 Adobe Systems, Inc.(1) 22,756,661 1,857,112 Microsoft Corp. 41,469,311 101,600 Nintendo Co. Ltd. 32,044,348 1,305,263 Oracle Corp.(1) 23,873,260 -------------- 120,143,580 -------------- SPECIALTY RETAIL -- 1.7% 1,019,430 TJX Cos., Inc. (The) 27,279,947 -------------- Shares Value TOBACCO -- 2.0% 728,454 Philip Morris International, Inc. $ 31,665,895 -------------- TRANSPORTATION INFRASTRUCTURE -- 0.6% 1,516,313 China Merchants Holdings International Co. Ltd. 3,585,388 8,974,500 Hopewell Highway Infrastructure Ltd. 5,832,268 -------------- 9,417,656 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.4% 748,339 Rogers Communications, Inc., Class B 21,724,369 -------------- TOTAL COMMON STOCKS (Cost $1,853,289,422) 1,528,145,148 -------------- Temporary Cash Investments -- 2.3% 74,020 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 74,020 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $22,901,927), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $22,500,094) 22,500,000 Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 8.125%, 8/15/19, valued at $13,582,470), in a joint trading account at 0.01%, dated 10/31/08, due 11/3/08 (Delivery value $13,300,011) 13,300,000 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $35,874,020) 35,874,020 -------------- TOTAL INVESTMENT SECURITIES -- 99.9% (Cost $1,889,163,442) 1,564,019,168 -------------- OTHER ASSETS AND LIABILITIES -- 0.1% 1,836,601 -------------- TOTAL NET ASSETS -- 100.0% $1,565,855,769 ============== - ------ 23 Select Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 20,064,839 CAD for USD 11/28/08 $16,642,756 $(118,620) 12,614,986 DKK for USD 11/28/08 2,155,404 21,767 6,907,223 Euro for USD 11/28/08 8,795,865 101,762 8,694,373 GBP for USD 11/28/08 13,971,422 260,199 1,616,206,604 JPY for USD 11/28/08 16,420,569 150,494 ----------- ----------- $57,986,016 $ 415,602 =========== =========== (Value on Settlement Date $58,401,618) Notes to Schedule of Investments ADR = American Depositary Receipt CAD = Canadian Dollar DKK = Danish Krone GBP = British Pound JPY = Japanese Yen USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $81,943,612, which represented 5.2% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 24 Capital Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 98.7% AEROSPACE & DEFENSE -- 3.7% 5,488 Honeywell International, Inc. $ 167,110 5,283 Raytheon Co. 270,014 ----------- 437,124 ----------- AIR FREIGHT & LOGISTICS -- 1.2% 2,726 United Parcel Service, Inc., Class B 143,878 ----------- AUTO COMPONENTS -- 0.7% 3,531 BorgWarner, Inc. 79,342 ----------- BEVERAGES -- 4.3% 7,364 Coca-Cola Co. (The) 324,458 3,176 PepsiCo, Inc. 181,064 ----------- 505,522 ----------- BIOTECHNOLOGY -- 3.0% 1,429 Alexion Pharmaceuticals, Inc.(1) 58,232 1,463 Genentech, Inc.(1) 121,341 3,770 Gilead Sciences, Inc.(1) 172,854 ----------- 352,427 ----------- CAPITAL MARKETS -- 1.2% 2,333 Northern Trust Corp. 131,371 813 Waddell & Reed Financial, Inc., Class A 11,805 ----------- 143,176 ----------- CHEMICALS -- 2.2% 2,840 Monsanto Co. 252,703 ----------- COMMUNICATIONS EQUIPMENT -- 5.7% 19,590 Cisco Systems, Inc.(1) 348,114 8,493 QUALCOMM, Inc. 324,942 ----------- 673,056 ----------- COMPUTERS & PERIPHERALS -- 4.5% 3,655 Apple, Inc.(1) 393,241 11,378 EMC Corp.(1) 134,033 ----------- 527,274 ----------- DIVERSIFIED -- 1.3% 3,678 iShares Russell 1000 Growth Index Fund 147,304 ----------- DIVERSIFIED FINANCIAL SERVICES -- 1.5% 1,377 Bank of America Corp. 33,282 1,850 Citigroup, Inc. 25,253 1,316 IntercontinentalExchange, Inc.(1) 112,597 ----------- 171,132 ----------- ELECTRIC UTILITIES -- 1.2% 3,091 FPL Group, Inc. 146,019 ----------- Shares Value ELECTRICAL EQUIPMENT -- 4.0% 5,088 Cooper Industries Ltd., Class A $ 157,473 6,205 Emerson Electric Co. 203,090 1,293 Energy Conversion Devices, Inc.(1) 44,143 453 First Solar, Inc.(1) 65,096 ----------- 469,802 ----------- ENERGY EQUIPMENT & SERVICES -- 2.5% 1,749 National Oilwell Varco, Inc.(1) 52,278 1,350 Schlumberger Ltd. 69,727 2,141 Transocean, Inc.(1) 176,269 ----------- 298,274 ----------- FOOD & STAPLES RETAILING -- 3.1% 6,485 Wal-Mart Stores, Inc. 361,928 ----------- FOOD PRODUCTS -- 2.1% 1,291 Kellogg Co. 65,092 4,586 Nestle SA 178,760 ----------- 243,852 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.0% 695 Alcon, Inc. 61,243 2,542 Baxter International, Inc. 153,766 3,442 Becton, Dickinson & Co. 238,875 1,400 C.R. Bard, Inc. 123,550 2,665 DENTSPLY International, Inc. 80,963 904 Gen-Probe, Inc.(1) 42,542 464 Intuitive Surgical, Inc.(1) 80,175 2,616 Medtronic, Inc. 105,503 646 Mettler Toledo International, Inc.(1) 49,445 ----------- 936,062 ----------- HEALTH CARE PROVIDERS & SERVICES -- 1.7% 2,407 Express Scripts, Inc.(1) 145,888 979 UnitedHealth Group, Inc. 23,232 1,728 VCA Antech, Inc.(1) 31,277 ----------- 200,397 ----------- HOUSEHOLD DURABLES -- 1.3% 5,041 KB Home 84,134 1,409 Mohawk Industries, Inc.(1) 68,168 ----------- 152,302 ----------- HOUSEHOLD PRODUCTS -- 3.0% 5,458 Procter & Gamble Co. (The) 352,259 ----------- INSURANCE -- 1.1% 2,447 Chubb Corp. 126,804 ----------- INTERNET & CATALOG RETAIL -- 0.4% 729 Amazon.com, Inc.(1) 41,728 ----------- - ------ 25 Capital Growth Shares Value INTERNET SOFTWARE & SERVICES -- 2.3% 763 Google, Inc., Class A(1) $ 274,192 ----------- IT SERVICES -- 1.8% 3,020 Global Payments, Inc. 122,340 5,735 Western Union Co. (The) 87,516 ----------- 209,856 ----------- LIFE SCIENCES TOOLS & SERVICES -- 1.5% 1,877 QIAGEN NV(1) 26,766 3,824 Thermo Fisher Scientific, Inc.(1) 155,254 ----------- 182,020 ----------- MACHINERY -- 0.6% 1,320 Valmont Industries, Inc. 72,310 ----------- MEDIA -- 2.6% 8,619 DIRECTV Group, Inc. (The)(1) 188,670 4,190 Scripps Networks Interactive, Inc. 118,996 ----------- 307,666 ----------- METALS & MINING -- 0.2% 954 Newmont Mining Corp. 25,128 ----------- MULTILINE RETAIL -- 2.9% 5,825 Family Dollar Stores, Inc. 156,751 5,301 Kohl's Corp.(1) 186,224 ----------- 342,975 ----------- MULTI-UTILITIES -- 0.5% 2,299 Public Service Enterprise Group, Inc. 64,717 ----------- OIL, GAS & CONSUMABLE FUELS -- 5.1% 1,299 Alpha Natural Resources, Inc.(1) 46,465 804 Apache Corp. 66,193 2,411 Devon Energy Corp. 194,953 1,594 EOG Resources, Inc. 128,987 2,818 Occidental Petroleum Corp. 156,512 ----------- 593,110 ----------- PERSONAL PRODUCTS -- 0.8% 2,497 Estee Lauder Cos., Inc. (The), Class A 89,992 ----------- PHARMACEUTICALS -- 3.0% 2,223 Allergan, Inc. 88,186 700 Johnson & Johnson 42,938 3,315 Novo Nordisk AS B Shares 177,454 1,302 Wyeth 41,898 ----------- 350,476 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.6% 2,228 Digital Realty Trust, Inc. 74,593 ----------- Shares Value ROAD & RAIL -- 2.2% 3,861 Union Pacific Corp. $ 257,799 ----------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.2% 7,853 Altera Corp. 136,250 5,547 Intel Corp. 88,752 4,656 Linear Technology Corp. 105,598 11,792 Marvell Technology Group Ltd.(1) 82,072 5,268 Texas Instruments, Inc. 103,042 4,891 Xilinx, Inc. 90,092 ----------- 605,806 ----------- SOFTWARE -- 6.7% 6,662 Activision Blizzard, Inc.(1) 83,008 3,195 Adobe Systems, Inc.(1) 85,115 10,034 Microsoft Corp. 224,059 14,840 Oracle Corp.(1) 271,424 1,550 salesforce.com, inc.(1) 47,988 5,612 Symantec Corp.(1) 70,599 ----------- 782,193 ----------- SPECIALTY RETAIL -- 2.8% 1,962 Advance Auto Parts, Inc. 61,214 1,059 AnnTaylor Stores Corp.(1) 13,312 7,816 Lowe's Cos., Inc. 169,607 3,170 O'Reilly Automotive, Inc.(1) 85,939 ----------- 330,072 ----------- WIRELESS TELECOMMUNICATION SERVICES -- 2.2% 7,943 American Tower Corp., Class A(1) 256,638 ----------- TOTAL COMMON STOCKS (Cost $13,670,064) 11,581,908 ----------- Temporary Cash Investments -- 0.9% 11,006 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 11,006 Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 6.125%, 11/15/27, valued at $101,841), in a joint trading account at 0.10%, dated 10/31/08, due 11/3/08 (Delivery value $100,001) 100,000 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $111,006) 111,006 ----------- TOTAL INVESTMENT SECURITIES -- 99.6% (Cost $13,781,070) 11,692,914 ----------- OTHER ASSETS AND LIABILITIES -- 0.4% 41,342 ----------- TOTAL NET ASSETS -- 100.0% $11,734,256 =========== - ------ 26 Capital Growth Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 179,327 CHF for USD 11/28/08 $154,674 $3,291 820,394 DKK for USD 11/28/08 140,173 1,575 --------- --------- $294,847 $4,866 ========= ========= (Value on Settlement Date $299,713) Notes to Schedule of Investments CHF = Swiss Franc DKK = Danish Krone USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $356,214, which represented 3.0% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 27 Focused Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 97.5% AEROSPACE & DEFENSE -- 5.7% 7,887 Honeywell International, Inc. $ 240,159 5,595 Raytheon Co. 285,961 ---------- 526,120 ---------- AUTO COMPONENTS -- 1.3% 5,639 BorgWarner, Inc. 126,708 ---------- BEVERAGES -- 4.0% 8,160 Coca-Cola Co. (The) 359,530 130 PepsiCo, Inc. 7,411 ---------- 366,941 ---------- BIOTECHNOLOGY -- 0.4% 879 Gilead Sciences, Inc.(1) 40,302 ---------- CAPITAL MARKETS -- 1.4% 1,467 Northern Trust Corp. 82,607 3,635 Waddell & Reed Financial, Inc., Class A 52,780 ---------- 135,387 ---------- CHEMICALS -- 2.0% 2,088 Monsanto Co. 185,790 ---------- COMMUNICATIONS EQUIPMENT -- 6.6% 14,444 Cisco Systems, Inc.(1) 256,670 9,081 QUALCOMM, Inc. 347,439 ---------- 604,109 ---------- COMPUTERS & PERIPHERALS -- 3.3% 2,227 Apple, Inc.(1) 239,603 5,497 EMC Corp.(1) 64,755 ---------- 304,358 ---------- DIVERSIFIED FINANCIAL SERVICES -- 0.2% 184 IntercontinentalExchange, Inc.(1) 15,743 ---------- ELECTRIC UTILITIES -- 0.7% 1,461 FPL Group, Inc. 69,018 ---------- ELECTRICAL EQUIPMENT -- 5.4% 7,301 Cooper Industries Ltd., Class A 225,966 8,229 Emerson Electric Co. 269,335 ---------- 495,301 ---------- ENERGY EQUIPMENT & SERVICES -- 2.1% 2,721 National Oilwell Varco, Inc.(1) 81,331 1,326 Transocean, Inc.(1) 109,169 ---------- 190,500 ---------- FOOD & STAPLES RETAILING -- 4.9% 7,990 Wal-Mart Stores, Inc. 445,922 ---------- Shares Value FOOD PRODUCTS -- 1.3% 3,006 Nestle SA $ 117,172 ---------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.4% 3,447 Baxter International, Inc. 208,509 3,972 Becton, Dickinson & Co. 275,657 1,495 C.R. Bard, Inc. 131,934 4,840 DENTSPLY International, Inc. 147,039 69 Intuitive Surgical, Inc.(1) 11,922 ---------- 775,061 ---------- HEALTH CARE PROVIDERS & SERVICES -- 0.4% 550 Express Scripts, Inc.(1) 33,335 ---------- HOUSEHOLD DURABLES -- 0.2% 837 KB Home 13,969 ---------- HOUSEHOLD PRODUCTS -- 4.2% 6,040 Procter & Gamble Co. (The) 389,822 ---------- INSURANCE -- 2.9% 5,129 Chubb Corp. 265,785 ---------- INTERNET SOFTWARE & SERVICES -- 1.5% 391 Google, Inc., Class A(1) 140,510 ---------- IT SERVICES -- 2.8% 3,652 Global Payments, Inc. 147,943 6,993 Western Union Co. (The) 106,713 ---------- 254,656 ---------- LIFE SCIENCES TOOLS & SERVICES -- 2.5% 5,694 Thermo Fisher Scientific, Inc.(1) 231,176 ---------- MACHINERY -- 0.5% 902 Valmont Industries, Inc. 49,412 ---------- MEDIA -- 2.7% 7,958 DIRECTV Group, Inc. (The)(1) 174,201 2,463 Scripps Networks Interactive, Inc. 69,949 ---------- 244,150 ---------- MULTILINE RETAIL -- 2.9% 9,388 Family Dollar Stores, Inc. 252,631 399 Kohl's Corp.(1) 14,017 ---------- 266,648 ---------- MULTI-UTILITIES -- 0.1% 331 Public Service Enterprise Group, Inc. 9,318 ---------- - ------ 28 Focused Growth Shares Value OIL, GAS & CONSUMABLE FUELS -- 4.6% 505 Alpha Natural Resources, Inc.(1) $ 18,064 2,056 Apache Corp. 169,270 2,907 Devon Energy Corp. 235,060 ---------- 422,394 ---------- PHARMACEUTICALS -- 3.9% 3,268 Allergan, Inc. 129,642 4,202 Novo Nordisk AS B Shares 224,935 ---------- 354,577 ---------- ROAD & RAIL -- 3.2% 4,364 Union Pacific Corp. 291,384 ---------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.1% 9,627 Altera Corp. 167,028 3,865 Intel Corp. 61,840 9,985 Linear Technology Corp. 226,460 5,868 Marvell Technology Group Ltd.(1) 40,841 3,656 Xilinx, Inc. 67,344 ---------- 563,513 ---------- SOFTWARE -- 6.5% 11,700 Activision Blizzard, Inc.(1) 145,782 4,670 Adobe Systems, Inc.(1) 124,409 11,494 Oracle Corp.(1) 210,225 2,917 salesforce.com, inc.(1) 90,310 1,865 Symantec Corp.(1) 23,462 ---------- 594,188 ---------- Shares Value SPECIALTY RETAIL -- 1.7% 2,734 Advance Auto Parts, Inc. $ 85,301 364 AnnTaylor Stores Corp.(1) 4,576 3,022 Lowe's Cos., Inc. 65,577 ---------- 155,454 ---------- WIRELESS TELECOMMUNICATION SERVICES -- 3.1% 8,678 American Tower Corp., Class A(1) 280,386 ---------- TOTAL COMMON STOCKS (Cost $11,038,849) 8,959,109 ---------- Temporary Cash Investments -- 4.2% 87,008 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 87,008 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $305,359), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $300,001) 300,000 ---------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $387,008) 387,008 ---------- TOTAL INVESTMENT SECURITIES -- 101.7% (Cost $11,425,857) 9,346,117 ---------- OTHER ASSETS AND LIABILITIES -- (1.7)% (153,484) ---------- TOTAL NET ASSETS -- 100.0% $9,192,633 ========== Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 118,713 CHF for USD 11/28/08 $102,393 $2,214 1,075,599 DKK for USD 11/28/08 183,778 2,065 -------- -------- $286,171 $4,279 ======== ======== (Value on Settlement Date $290,450) Notes to Schedule of Investments CHF = Swiss Franc DKK = Danish Krone USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $342,107, which represented 3.7% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 29 Fundamental Equity OCTOBER 31, 2008 Shares Value Common Stocks -- 92.3% AEROSPACE & DEFENSE -- 4.8% 43,000 General Dynamics Corp. $ 2,593,760 158,000 Honeywell International, Inc. 4,811,100 38,473 Lockheed Martin Corp. 3,272,129 49,864 United Technologies Corp. 2,740,525 ------------ 13,417,514 ------------ AIRLINES -- 1.2% 287,364 Southwest Airlines Co. 3,385,148 ------------ AUTO COMPONENTS -- 0.7% 111,000 Johnson Controls, Inc. 1,968,030 ------------ BEVERAGES -- 0.2% 3,573 Anheuser-Busch Cos., Inc. 221,633 61,000 Coca-Cola Enterprises, Inc. 613,050 ------------ 834,683 ------------ BIOTECHNOLOGY -- 1.7% 54,162 Amgen, Inc.(1) 3,243,762 33,461 Gilead Sciences, Inc.(1) 1,534,187 ------------ 4,777,949 ------------ CAPITAL MARKETS -- 4.7% 113,000 Ameriprise Financial, Inc. 2,440,800 148,024 Bank of New York Mellon Corp. (The) 4,825,582 8,655 BlackRock, Inc. 1,136,748 141,033 Charles Schwab Corp. (The) 2,696,551 97,959 Invesco Ltd. 1,460,569 32,708 Knight Capital Group, Inc., Class A(1) 472,957 ------------ 13,033,207 ------------ CHEMICALS -- 1.1% 44,662 E.I. du Pont de Nemours & Co. 1,429,184 38,035 International Flavors & Fragrances, Inc. 1,212,556 4,376 Monsanto Co. 389,377 3,825 Mosaic Co. (The) 150,743 ------------ 3,181,860 ------------ COMMERCIAL BANKS -- 1.5% 20,875 Bank of Hawaii Corp. 1,058,571 66,553 Regions Financial Corp. 738,073 61,131 SunTrust Banks, Inc. 2,453,798 ------------ 4,250,442 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.6% 78,131 Republic Services, Inc. 1,851,705 ------------ Shares Value COMMUNICATIONS EQUIPMENT -- 2.4% 280,000 Cisco Systems, Inc.(1)(2) $ 4,975,600 47,513 QUALCOMM, Inc. 1,817,847 ------------ 6,793,447 ------------ COMPUTERS & PERIPHERALS -- 1.7% 8,985 Apple, Inc.(1) 966,696 96,668 Hewlett-Packard Co. 3,700,451 ------------ 4,667,147 ------------ CONSTRUCTION & ENGINEERING -- 0.3% 19,492 Fluor Corp. 778,316 ------------ CONSUMER FINANCE -- 0.9% 37,355 Capital One Financial Corp. 1,461,328 97,837 Discover Financial Services 1,198,503 ------------ 2,659,831 ------------ CONTAINERS & PACKAGING -- 0.9% 120,000 Crown Holdings, Inc.(1) 2,421,600 ------------ DIVERSIFIED FINANCIAL SERVICES -- 2.6% 169,089 Bank of America Corp. 4,086,881 102,120 NYSE Euronext 3,081,982 ------------ 7,168,863 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.0% 280,000 AT&T, Inc. 7,495,600 323,366 Qwest Communications International, Inc. 924,827 ------------ 8,420,427 ------------ ELECTRIC UTILITIES -- 1.0% 65,647 Duke Energy Corp. 1,075,298 81,000 Pepco Holdings, Inc. 1,672,650 ------------ 2,747,948 ------------ ELECTRICAL EQUIPMENT -- 1.9% 20,361 Belden, Inc. 424,323 144,150 Emerson Electric Co. 4,718,030 32,090 GrafTech International Ltd.(1) 260,250 ------------ 5,402,603 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3% 44,929 Avnet, Inc.(1) 752,111 ------------ ENERGY EQUIPMENT & SERVICES -- 0.4% 19,395 Baker Hughes, Inc. 677,855 4,773 Halliburton Co. 94,458 13,878 National Oilwell Varco, Inc.(1) 414,813 ------------ 1,187,126 ------------ - ------ 30 Fundamental Equity Shares Value FOOD & STAPLES RETAILING -- 4.0% 83,909 CVS/Caremark Corp. $ 2,571,811 21,123 SUPERVALU, INC. 300,791 148,000 Wal-Mart Stores, Inc. 8,259,880 ------------ 11,132,482 ------------ FOOD PRODUCTS -- 2.9% 134,000 H.J. Heinz Co. 5,871,880 74,736 Kraft Foods, Inc., Class A 2,177,807 ------------ 8,049,687 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 3.1% 111,815 Baxter International, Inc. 6,763,689 60,000 STERIS Corp. 2,042,400 ------------ 8,806,089 ------------ HEALTH CARE PROVIDERS & SERVICES -- 0.6% 59,300 Aetna, Inc. 1,474,791 3,564 McKesson Corp. 131,120 ------------ 1,605,911 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.0% 28,048 Bally Technologies, Inc.(1) 621,263 66,259 Darden Restaurants, Inc. 1,468,962 60,000 McDonald's Corp. 3,475,800 29,858 WMS Industries, Inc.(1) 746,450 68,000 Yum! Brands, Inc. 1,972,680 ------------ 8,285,155 ------------ HOUSEHOLD PRODUCTS -- 2.7% 115,036 Procter & Gamble Co. (The) 7,424,423 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.2% 88,680 Reliant Energy, Inc.(1) 465,570 ------------ INDUSTRIAL CONGLOMERATES -- 0.5% 71,037 General Electric Co. 1,385,932 ------------ INSURANCE -- 2.4% 81,000 ACE Ltd. 4,646,160 4,853 Prudential Financial, Inc. 145,590 124,000 Unum Group 1,953,000 ------------ 6,744,750 ------------ INTERNET SOFTWARE & SERVICES -- 0.1% 784 Google, Inc., Class A(1) 281,738 8,097 Yahoo!, Inc.(1) 103,804 ------------ 385,542 ------------ IT SERVICES -- 3.8% 58,006 Accenture Ltd., Class A 1,917,098 50,000 Affiliated Computer Services, Inc., Class A(1) 2,050,000 Shares Value 46,245 International Business Machines Corp. $ 4,299,398 147,000 Western Union Co. (The) 2,243,220 ------------ 10,509,716 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.4% 37,720 Hasbro, Inc. 1,096,520 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.3% 92,000 Thermo Fisher Scientific, Inc.(1) 3,735,200 ------------ MACHINERY -- 0.9% 23,027 Caterpillar, Inc. 878,941 45,000 Parker-Hannifin Corp. 1,744,650 ------------ 2,623,591 ------------ MARINE -- 0.6% 46,473 Kirby Corp.(1) 1,594,953 ------------ MEDIA -- 1.5% 46,255 Omnicom Group, Inc. 1,366,373 111,396 Walt Disney Co. (The) 2,885,156 ------------ 4,251,529 ------------ METALS & MINING -- 1.1% 16,000 Freeport-McMoRan Copper & Gold, Inc. 465,600 42,843 Nucor Corp. 1,735,570 40,449 Reliance Steel & Aluminum Co. 1,012,843 ------------ 3,214,013 ------------ MULTILINE RETAIL -- 0.5% 59,327 Big Lots, Inc.(1) 1,449,359 ------------ OIL, GAS & CONSUMABLE FUELS -- 10.7% 87,857 Chevron Corp. 6,554,132 80,619 ConocoPhillips 4,193,800 33,826 Devon Energy Corp. 2,735,170 139,798 Exxon Mobil Corp. 10,361,828 17,601 Murphy Oil Corp. 891,315 90,725 Occidental Petroleum Corp. 5,038,867 11,598 Valero Energy Corp. 238,687 ------------ 30,013,799 ------------ PHARMACEUTICALS -- 6.9% 47,216 Abbott Laboratories 2,603,963 63,000 Eli Lilly & Co. 2,130,660 122,000 Johnson & Johnson 7,483,480 69,357 Merck & Co., Inc. 2,146,599 137,000 Pfizer, Inc. 2,426,270 75,000 Wyeth 2,413,500 ------------ 19,204,472 ------------ REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.8% 27,033 Public Storage 2,203,190 ------------ ROAD & RAIL -- 0.6% 43,379 Ryder System, Inc. 1,718,676 ------------ - ------ 31 Fundamental Equity Shares Value SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.2% 85,745 Altera Corp. $ 1,487,676 119,573 Atmel Corp.(1) 496,228 54,360 Broadcom Corp., Class A(1) 928,469 225,000 Intel Corp. 3,600,000 98,447 National Semiconductor Corp. 1,296,547 59,287 Xilinx, Inc. 1,092,066 ------------ 8,900,986 ------------ SOFTWARE -- 3.8% 153,607 Microsoft Corp. 3,430,044 392,000 Oracle Corp.(1) 7,169,680 ------------ 10,599,724 ------------ SPECIALTY RETAIL -- 1.8% 68,000 Best Buy Co., Inc. 1,823,080 9,090 GameStop Corp., Class A(1) 248,975 159,271 Gap, Inc. (The) 2,060,967 15,235 Genesco, Inc.(1) 377,980 28,381 Urban Outfitters, Inc.(1) 617,003 ------------ 5,128,005 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.3% 15,676 Coach, Inc.(1) 322,926 11,497 NIKE, Inc., Class B 662,572 ------------ 985,498 ------------ THRIFTS & MORTGAGE FINANCE -- 0.4% 58,714 Hudson City Bancorp., Inc. 1,104,410 ------------ TOBACCO -- 1.8% 259,891 Altria Group, Inc. 4,987,308 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.4% 103,562 United Rentals, Inc.(1) 1,061,510 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.1% 5,421 American Tower Corp., Class A(1) 175,153 60,780 Sprint Nextel Corp. 190,241 ------------ 365,394 ------------ TOTAL COMMON STOCKS (Cost $332,609,541) 258,733,351 ------------ Shares Value Temporary Cash Investments -- Segregated for Futures -- 5.2% Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $14,046,515), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $13,800,058) $ 13,800,000 Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 8.125%, 8/15/19, valued at $719,973), in a joint trading account at 0.01%, dated 10/31/08, due 11/3/08 (Delivery value $705,001) 705,000 ------------ TOTAL TEMPORARY CASH INVESTMENTS -- SEGREGATED FOR FUTURES (Cost $14,505,000) 14,505,000 ------------ Temporary Cash Investments -- 2.5% 35,344 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 35,344 Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 8.125%, 8/15/19, valued at $7,041,438), in a joint trading account at 0.01%, dated 10/31/08, due 11/3/08 (Delivery value $6,895,006) 6,895,000 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $6,930,344) 6,930,344 ------------ TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $354,044,885) 280,168,695 ------------ OTHER ASSETS AND LIABILITIES(3) (97,704) ------------ TOTAL NET ASSETS -- 100.0% $280,070,991 ============ Futures Contracts Unrealized Expiration Underlying Face Amount Gain Contracts Purchased Date at Value (Loss) 294 S&P 500 E-Mini December 2008 Futures $14,219,310 $(785,131) ============= ============= Notes to Schedule of Investments (1) Non-income producing. (2) Security, or a portion thereof, has been segregated for futures contracts. (3) Category is less than 0.05% of total net assets. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 32 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 Capital Focused Fundamental Select Growth Growth Equity ASSETS Investment securities, at value (cost of $1,889,163,442, $13,781,070, $11,425,857 and $354,044,885, respectively) $1,564,019,168 $11,692,914 $9,346,117 $280,168,695 Cash -- 67,419 -- -- Foreign currency holdings, at value (cost of $-, $102, $- and $-, respectively) -- 102 -- -- Receivable for investments sold 10,053,546 98,115 31,803 -- Receivable for forward foreign currency exchange contracts 534,222 4,866 4,279 -- Receivable for capital shares sold 144,806 258,086 1,633 566,477 Receivable for variation margin on futures contracts -- -- -- 85,260 Dividends and interest receivable 1,917,403 5,883 5,314 393,547 -------------- ----------- ---------- ------------ 1,576,669,145 12,127,385 9,389,146 281,213,979 -------------- ----------- ---------- ------------ LIABILITIES Disbursements in excess of demand deposit cash 9,489 -- 75,561 9,046 Payable for investments purchased 9,027,243 379,473 113,242 -- Payable for forward foreign currency exchange contracts 118,620 -- -- -- Payable for capital shares redeemed 326,007 1,568 -- 825,106 Accrued management fees 1,325,217 9,212 7,576 241,692 Service fees (and distribution fees - A Class and R Class) payable 4,860 1,884 67 52,315 Distribution fees payable 1,940 992 67 14,829 -------------- ----------- ---------- ------------ 10,813,376 393,129 196,513 1,142,988 -------------- ----------- ---------- ------------ NET ASSETS $1,565,855,769 $11,734,256 $9,192,633 $280,070,991 ============== =========== ========== ============ See Notes to Financial Statements. - ------ 33 OCTOBER 31, 2008 Capital Focused Fundamental Select Growth Growth Equity NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $1,898,101,936 $14,995,259 $11,944,320 $408,107,352 Undistributed net investment income 14,926,494 11,900 43,333 2,338,066 Accumulated net realized loss on investment and foreign currency transactions (22,495,122) (1,189,582) (719,559) (55,713,106) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (324,677,539) (2,083,321) (2,075,461) (74,661,321) -------------- ----------- ----------- ------------ $1,565,855,769 $11,734,256 $ 9,192,633 $280,070,991 ============== =========== =========== ============ INVESTOR CLASS, $0.01 PAR VALUE Net assets $1,448,954,426 $2,252,023 $8,813,522 $37,535,217 Shares outstanding 55,190,463 258,912 1,140,576 3,779,931 Net asset value per share $26.25 $8.70 $7.73 $9.93 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $94,419,186 $128,089 $17,431 $588,723 Shares outstanding 3,555,480 14,627 2,256 59,202 Net asset value per share $26.56 $8.76 $7.73 $9.94 A CLASS, $0.01 PAR VALUE Net assets $19,450,201 $7,678,679 $241,442 $218,469,204 Shares outstanding 752,351 890,646 31,233 22,036,108 Net asset value per share $25.85 $8.62 $7.73 $9.91 Maximum offering price (net asset value divided by 0.9425) $27.43 $9.15 $8.20 $10.51 B CLASS, $0.01 PAR VALUE Net assets $2,605,479 $760,455 $30,193 $4,194,796 Shares outstanding 104,112 91,609 3,907 428,768 Net asset value per share $25.03 $8.30 $7.73 $9.78 C CLASS, $0.01 PAR VALUE Net assets $394,004 $831,090 $72,747 $18,918,647 Shares outstanding 15,726 100,118 9,412 1,933,080 Net asset value per share $25.05 $8.30 $7.73 $9.79 R CLASS, $0.01 PAR VALUE Net assets $32,473 $83,920 $17,298 $364,404 Shares outstanding 1,251 9,818 2,238 36,874 Net asset value per share $25.96 $8.55 $7.73 $9.88 See Notes to Financial Statements. - ------ 34 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 Capital Focused Fundamental Select Growth Growth Equity INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $361,862, $420, $668 and $36,512, respectively) $ 26,469,988 $ 90,101 $ 141,764 $ 7,961,127 Interest 926,535 3,070 6,125 232,855 Securities lending, net 104,330 1,511 700 90,469 -------------- ------------ ------------ -------------- 27,500,853 94,682 148,589 8,284,451 -------------- ------------ ------------ -------------- EXPENSES: Management fees 22,788,211 81,441 122,232 3,829,383 Distribution fees: B Class 31,830 6,807 193 39,406 C Class 5,497 6,634 596 203,474 Service fees: B Class 10,610 2,269 64 13,135 C Class 1,832 2,211 199 67,825 Distribution and service fees: A Class 80,834 10,864 196 733,176 R Class 139 260 117 2,276 Directors' fees and expenses 61,615 416 328 19,384 Other expenses 8,449 31 65 1,775 -------------- ------------ ------------ -------------- 22,989,017 110,933 123,990 4,909,834 -------------- ------------ ------------ -------------- NET INVESTMENT INCOME (LOSS) 4,511,836 (16,251) 24,599 3,374,617 -------------- ------------ ------------ -------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (16,074,847) (1,164,962) (719,248) (55,573,188) Foreign currency transactions 9,924,970 28,477 23,593 (45,827) -------------- ------------ ------------ -------------- (6,149,877) (1,136,485) (695,655) (55,619,015) -------------- ------------ ------------ -------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (981,442,992) (3,064,237) (3,677,582) (99,940,048) Translation of assets and liabilities in foreign currencies 1,089,042 4,995 5,194 18,208 -------------- ------------ ------------ -------------- (980,353,950) (3,059,242) (3,672,388) (99,921,840) -------------- ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (986,503,827) (4,195,727) (4,368,043) (155,540,855) -------------- ------------ ------------ -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(981,991,991) $(4,211,978) $(4,343,444) $(152,166,238) ============== ============ ============ ============== See Notes to Financial Statements. - ------ 35 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Select Capital Growth Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 4,511,836 $ 2,931,467 $ (16,251) $ (19,033) Net realized gain (loss) (6,149,877) 199,860,391 (1,136,485) 481,849 Change in net unrealized appreciation (depreciation) (980,353,950) 461,001,866 (3,059,242) 544,596 --------------- -------------- ----------- ---------- Net increase (decrease) in net assets resulting from operations (981,991,991) 663,793,724 (4,211,978) 1,007,412 --------------- -------------- ----------- ---------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class -- (10,981,848) -- -- Institutional Class -- (951,224) -- -- A Class -- (39,351) -- -- A Class (old) (Note 9) -- (47,590) -- -- From net realized gains: Investor Class (182,640,492) (39,672,127) (106,995) (1,045) Institutional Class (12,086,566) (2,344,204) (2,469) (331) A Class (3,075,006) (343,121) (239,050) (27,475) A Class (old) (Note 9) -- (414,970) -- -- B Class (404,171) (92,435) (71,895) (11,734) C Class (75,080) (19,786) (55,027) (10,342) R Class (2,305) (381) (2,746) (331) --------------- -------------- ----------- ---------- Decrease in net assets from distributions (198,283,620) (54,907,037) (478,182) (51,258) --------------- -------------- ----------- ---------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (21,933,432) (622,635,475) 10,484,948 896,296 --------------- -------------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS (1,202,209,043) (13,748,788) 5,794,788 1,852,450 NET ASSETS Beginning of period 2,768,064,812 2,781,813,600 5,939,468 4,087,018 --------------- -------------- ----------- ---------- End of period $1,565,855,769 $2,768,064,812 $11,734,256 $5,939,468 =============== ============== =========== ========== Undistributed net investment income $14,926,494 $489,688 $11,900 -- =============== ============== =========== ========== See Notes to Financial Statements. - ------ 36 YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Focused Growth Fundamental Equity Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 24,599 $ 45,727 $ 3,374,617 $ 1,103,561 Net realized gain (loss) (695,655) 1,532,515 (55,619,015) 8,179,496 Change in net unrealized appreciation (depreciation) (3,672,388) 418,442 (99,921,840) 22,198,609 ----------- ----------- ------------- ------------ Net increase (decrease) in net assets resulting from operations (4,343,444) 1,996,684 (152,166,238) 31,481,666 ----------- ----------- ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (7,155) (54,114) (460,415) (24,444) Institutional Class (63) -- (2,800) (256) A Class -- -- (1,508,022) (137,443) R Class -- -- (1,563) (4) From net realized gains: Investor Class (1,516,407) (299,286) (1,329,674) (59,454) Institutional Class (2,904) -- (6,528) (447) A Class (2,856) -- (6,205,227) (657,564) B Class (2,673) -- (119,040) (25,167) C Class (7,928) -- (598,169) (83,263) R Class (2,795) -- (11,182) (489) ----------- ----------- ------------- ------------ Decrease in net assets from distributions (1,542,781) (353,400) (10,242,620) (988,531) ----------- ----------- ------------- ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 1,519,415 (3,920,671) 112,091,766 252,655,161 ----------- ----------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS (4,366,810) (2,277,387) (50,317,092) 283,148,296 NET ASSETS Beginning of period 13,559,443 15,836,830 330,388,083 47,239,787 ----------- ----------- ------------- ------------ End of period $ 9,192,633 $13,559,443 $280,070,991 $330,388,083 =========== =========== ============= ============ Undistributed net investment income $43,333 $1,393 $2,338,066 $915,406 =========== =========== ============= ============ See Notes to Financial Statements. - ------ 37 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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. The funds are diversified under the 1940 Act. Prior to March 1, 2008, Focused Growth was nondiversified. 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 generally invests in larger-sized companies using a quantitative model that combines fundamental measures of a stock's value and growth potential. 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 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 -- The funds may lend portfolio securities through their lending agent to certain approved borrowers in order to earn additional income. The income earned, net of any rebates or fees, is included in the Statement of Operations. 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 - ------ 38 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. FUTURES CONTRACTS -- The funds may enter into futures contracts in order to manage the funds' exposure to changes in market conditions. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. The funds recognize a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investment transactions and unrealized appreciation (depreciation) on investments, respectively. FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. For assets and liabilities, other than investments in securities, net realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates. 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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. - ------ 39 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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. The effective annual management fee for each class of the funds for the year ended October 31, 2008, was 1.00% for the Investor Class, A Class, B Class, C Class and R Class and 0.80% for the Institutional 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 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%. The fees are computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2008, 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 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 securities lending agreement with JPMorgan Chase Bank (JPMCB). Prior to December 12, 2007, the funds had a bank line of credit 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, 2008, were as follows: Capital Focused Fundamental Select Growth Growth Equity Purchases $1,458,351,230 $20,532,639 $15,579,650 $445,886,272 Proceeds from sales $1,716,447,162 $10,632,152 $15,520,646 $358,927,991 - ------ 40 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows: Year ended Year ended October 31, 2008 October 31, 2007 Shares Amount Shares Amount Select INVESTOR CLASS/SHARES AUTHORIZED 300,000,000 300,000,000 =========== ============ Sold 1,304,514 $ 48,509,921 1,250,472 $ 48,790,315 Issued in reinvestment of distributions 4,320,701 174,988,391 1,304,522 48,241,214 Redeemed (6,380,454) (233,776,220) (17,717,923) (685,347,731) ----------- ------------- ------------ -------------- (755,239) (10,277,908) (15,162,929) (588,316,202) ----------- ------------- ------------ -------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 40,000,000 40,000,000 =========== ============ Sold 34,755 1,327,615 353,624 13,609,415 Issued in reinvestment of distributions 295,584 12,086,426 88,501 3,294,898 Redeemed (437,958) (17,300,838) (849,574) (32,045,945) ----------- ------------- ------------ -------------- (107,619) (3,886,797) (407,449) (15,141,632) ----------- ------------- ------------ -------------- A CLASS/SHARES AUTHORIZED 75,000,000 75,000,000 =========== ============ Sold 118,060 4,363,693 148,523 5,577,259 Issued in connection with reclassification (Note 9) -- -- 506,351 20,436,277 Issued in reinvestment of distributions 75,309 3,009,333 9,421 344,992 Redeemed (390,494) (14,148,255) (314,140) (12,073,334) ----------- ------------- ------------ -------------- (197,125) (6,775,229) 350,155 14,285,194 ----------- ------------- ------------ -------------- A CLASS (OLD)/SHARES AUTHORIZED N/A N/A =========== ============ Sold 37,196 1,415,182 Issued in reinvestment of distributions 12,149 447,803 Redeemed in connection with reclassification (Note 9) (506,351) (20,436,277) Redeemed (330,339) (12,574,066) ------------ -------------- (787,345) (31,147,358) ------------ -------------- B CLASS/SHARES AUTHORIZED 25,000,000 25,000,000 =========== ============ Sold 4,313 147,174 7,203 268,506 Issued in reinvestment of distributions 9,553 372,090 2,401 86,511 Redeemed (36,169) (1,284,825) (50,198) (1,890,695) ----------- ------------- ------------ -------------- (22,303) (765,561) (40,594) (1,535,678) ----------- ------------- ------------ -------------- C CLASS/SHARES AUTHORIZED 25,000,000 25,000,000 =========== ============ Sold 1,687 60,784 714 26,450 Issued in reinvestment of distributions 1,459 56,859 426 15,353 Redeemed (10,144) (359,726) (22,109) (823,182) ----------- ------------- ------------ -------------- (6,998) (242,083) (20,969) (781,379) ----------- ------------- ------------ -------------- R CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 =========== ============ Sold 497 11,841 54 2,087 Issued in reinvestment of distributions 57 2,305 10 381 Redeemed -- -- (23) (888) ----------- ------------- ------------ -------------- 554 14,146 41 1580 ----------- ------------- ------------ -------------- Net increase (decrease) (1,088,730) $(21,933,432) (16,069,090) $(622,635,475) =========== ============= ============ ============== - ------ 41 Year ended Year ended October 31, 2008 October 31, 2007 Shares Amount Shares Amount Capital Growth INVESTOR CLASS/SHARES AUTHORIZED 300,000,000 300,000,000 ============ ============ Sold 215,390 $ 2,431,606 78,738 $ 1,095,962 Issued in reinvestment of distributions 8,465 106,995 88 1,045 Redeemed (45,062) (489,244) (5,954) (79,017) ------------ ------------ ------------ ------------ 178,793 2,049,357 72,872 1,017,990 ------------ ------------ ------------ ------------ INSTITUTIONAL CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============ ============ Sold 12,176 111,615 -- -- Issued in reinvestment of distributions 195 2,469 27 331 Redeemed (86) (751) -- -- ------------ ------------ ------------ ------------ 12,285 113,333 27 331 ------------ ------------ ------------ ------------ A CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 ============ ============ Sold 752,534 8,201,510 123,502 1,513,050 Issued in reinvestment of distributions 16,251 204,109 2,022 23,962 Redeemed (102,560) (1,077,664) (84,101) (1,089,133) ------------ ------------ ------------ ------------ 666,225 7,327,955 41,423 447,879 ------------ ------------ ------------ ------------ B CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 ============ ============ Sold 38,464 429,211 27,689 332,104 Issued in reinvestment of distributions 5,124 62,361 990 11,480 Redeemed (14,941) (159,518) (48,876) (626,062) ------------ ------------ ------------ ------------ 28,647 332,054 (20,197) (282,478) ------------ ------------ ------------ ------------ C CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 ============ ============ Sold 90,501 1,042,449 20,884 259,074 Issued in reinvestment of distributions 2,288 27,845 809 9,388 Redeemed (43,280) (488,213) (43,150) (558,908) ------------ ------------ ------------ ------------ 49,509 582,081 (21,457) (290,446) ------------ ------------ ------------ ------------ R CLASS/SHARES AUTHORIZED 60,000,000 60,000,000 ============ ============ Sold 7,340 80,595 195 2,713 Issued in reinvestment of distributions 220 2,746 28 331 Redeemed (278) (3,173) (2) (24) ------------ ------------ ------------ ------------ 7,282 80,168 221 3,020 ------------ ------------ ------------ ------------ Net increase (decrease) 942,741 $10,484,948 72,889 $ 896,296 ============ ============ ============ ============ - ------ 42 Year ended Year ended October 31, 2008 October 31, 2007 Shares Amount Shares Amount Focused Growth INVESTOR CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ========== ========== Sold 336,040 $ 3,456,085 252,879 $ 2,955,714 Issued in reinvestment of distributions 136,093 1,498,366 29,862 339,826 Redeemed (366,840) (3,763,936) (633,768) (7,391,198) ---------- ------------ ---------- ------------ 105,293 1,190,515 (351,027) (4,095,658) ---------- ------------ ---------- ------------ INSTITUTIONAL CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold -- -- 1,986 25,000 Issued in reinvestment of distributions 270 2,967 -- -- ---------- ------------ ---------- ------------ 270 2,967 1,986 25,000 ---------- ------------ ---------- ------------ A CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 31,644 286,449 1,986 25,000 Issued in reinvestment of distributions 259 2,856 -- -- Redeemed (2,656) (26,633) -- -- ---------- ------------ ---------- ------------ 29,247 262,672 1,986 25,000 ---------- ------------ ---------- ------------ B CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 1,681 17,306 1,986 25,000 Issued in reinvestment of distributions 240 2,673 -- -- ---------- ------------ ---------- ------------ 1,921 19,979 1,986 25,000 ---------- ------------ ---------- ------------ C CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 4,409 45,159 5,892 74,987 Issued in reinvestment of distributions 714 7,928 -- -- Redeemed (1,603) (12,600) -- -- ---------- ------------ ---------- ------------ 3,520 40,487 5,892 74,987 ---------- ------------ ---------- ------------ R CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold -- -- 1,986 25,000 Issued in reinvestment of distributions 252 2,795 -- -- ---------- ------------ ---------- ------------ 252 2,795 1,986 25,000 ---------- ------------ ---------- ------------ Net increase (decrease) 140,503 $1,519,415 (337,191) $(3,920,671) ========== ============ ========== ============ - ------ 43 Year ended Year ended October 31, 2008 October 31, 2007 Shares Amount Shares Amount Fundamental Equity INVESTOR CLASS/SHARES AUTHORIZED 200,000,000 200,000,000 ============ ============ Sold 3,296,777 $ 44,594,062 3,715,748 $53,813,021 Issued in reinvestment of distributions 110,977 1,604,732 5,867 77,738 Redeemed (3,065,757) (38,176,168) (581,646) (8,716,197) ------------ ------------- ------------ ------------- 341,997 8,022,626 3,139,969 45,174,562 ------------ ------------- ------------ ------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 25,000,000 50,000,000 ============ ============ Sold 142,328 1,942,574 15,790 209,743 Issued in reinvestment of distributions 86 1,242 53 703 Redeemed (101,427) (1,214,364) -- -- ------------ ------------- ------------ ------------- 40,987 729,452 15,843 210,446 ------------ ------------- ------------ ------------- A CLASS/SHARES AUTHORIZED 150,000,000 50,000,000 ============ ============ Sold 16,392,959 222,736,346 13,689,196 198,932,845 Issued in reinvestment of distributions 519,284 7,514,042 58,553 776,411 Redeemed (10,612,121) (134,187,154) (915,776) (13,379,165) ------------ ------------- ------------ ------------- 6,300,122 96,063,234 12,831,973 186,330,091 ------------ ------------- ------------ ------------- B CLASS/SHARES AUTHORIZED 25,000,000 50,000,000 ============ ============ Sold 198,253 2,653,019 224,752 3,219,435 Issued in reinvestment of distributions 6,509 93,530 1,357 17,871 Redeemed (92,429) (1,143,924) (27,247) (393,576) ------------ ------------- ------------ ------------- 112,333 1,602,625 198,862 2,843,730 ------------ ------------- ------------ ------------- C CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============ ============ Sold 1,217,499 16,547,716 1,308,090 18,834,090 Issued in reinvestment of distributions 21,262 305,742 3,892 51,300 Redeemed (893,725) (11,302,775) (79,354) (1,139,749) ------------ ------------- ------------ ------------- 345,036 5,550,683 1,232,628 17,745,641 ------------ ------------- ------------ ------------- R CLASS/SHARES AUTHORIZED 10,000,000 60,000,000 ============ ============ Sold 16,662 211,942 33,938 472,163 Issued in reinvestment of distributions 882 12,745 37 493 Redeemed (8,751) (101,541) (8,262) (121,965) ------------ ------------- ------------ ------------- 8,793 123,146 25,713 350,691 ------------ ------------- ------------ ------------- Net increase (decrease) 7,149,268 $112,091,766 17,444,988 $252,655,161 ============ ============= ============ ============= 5. SECURITIES LENDING As of October 31, 2008, the funds did not have any securities on loan. 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 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. Investments made with cash collateral may decline in value. - ------ 44 6. BANK LINE OF CREDIT Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The funds did not borrow from either line during the year ended October 31, 2008. 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. Focused Growth'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. Fundamental Equity's performance may be affected by investments in initial public offerings (IPOs). The impact of IPO's 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, 2008 and October 31, 2007 were as follows: Select Capital Growth 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $79,550,077 $12,020,013 $165,021 -- Long-term capital gains $118,733,543 $42,887,024 $313,161 $51,258 Focused Growth Fundamental Equity 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $1,178,297 $353,400 $9,581,019 $969,242 Long-term capital gains $364,484 -- $661,601 $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. - ------ 45 As of October 31, 2008, 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 $1,896,951,402 $14,201,389 $11,468,132 $356,705,907 ============== ============ ============ ============= Gross tax appreciation of investments $ 23,090,847 $ 97,826 $ 113,557 $ 3,569,721 Gross tax depreciation of investments (356,023,081) (2,606,301) (2,235,572) (80,106,933) -------------- ------------ ------------ ------------- Net tax appreciation (depreciation) of investments $(332,932,234) $(2,508,475) $(2,122,015) $(76,537,212) ============== ============ ============ ============= Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies $72,900 $ 1,564 $ 2,065 -- -------------- ------------ ------------ ------------- Net tax appreciation (depreciation) $(332,859,334) $(2,506,911) $(2,119,950) $(76,537,212) ============== ============ ============ ============= Undistributed ordinary income $15,320,329 $15,171 $45,545 $2,338,066 Accumulated capital losses $(14,707,162) $(769,263) $(677,282) $(53,837,215) 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 exchange 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 2016. 9. 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. 10. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities--an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. - ------ 46 11. 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, 2008. For corporate taxpayers, the funds hereby designate the following ordinary income distributions, or up to the maximum amount allowable, as qualified for the corporate dividends received deduction for the fiscal year ended October 31, 2008. Select Capital Growth Focused Growth Fundamental Equity $20,497,324 $51,623 $129,731 $3,432,586 The funds hereby designate the following long-term capital gain distributions, or up to the maximum amount allowable, for the fiscal year ended October 31, 2008. Select Capital Growth Focused Growth Fundamental Equity $118,733,543 $313,161 $364,484 $661,601 The funds hereby designate the following distributions as qualified short-term capital gains for purposes of Internal Revenue Code Section 871. Select Capital Growth Focused Growth Fundamental Equity $79,550,077 $164,949 $1,172,043 $7,657,791 - ------ 47 FINANCIAL HIGHLIGHTS Select Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $45.58 $36.22 $37.04 $34.80 $33.77 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.07 0.04 0.21 0.15 --(2) Net Realized and Unrealized Gain (Loss) (16.10) 10.06 (0.77) 2.17 1.03 -------- -------- -------- -------- -------- Total From Investment Operations (16.03) 10.10 (0.56) 2.32 1.03 -------- -------- -------- -------- -------- Distributions From Net Investment Income -- (0.16) (0.26) (0.08) -- From Net Realized Gains (3.30) (0.58) -- -- -- -------- -------- -------- -------- -------- Total Distributions (3.30) (0.74) (0.26) (0.08) -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $26.25 $45.58 $36.22 $37.04 $34.80 ======== ======== ======== ======== ======== TOTAL RETURN(3) (37.71)% 28.37% (1.55)% 6.67% 3.05% 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 0.19% 0.11% 0.57% 0.42% (0.01)% Portfolio Turnover Rate 64% 79% 206% 55% 48% Net Assets, End of Period (in millions) $1,449 $2,550 $2,576 $3,329 $3,565 (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. - ------ 48 Select Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $45.98 $36.53 $37.35 $35.09 $33.99 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.15 0.12 0.30 0.24 0.07 Net Realized and Unrealized Gain (Loss) (16.27) 10.15 (0.78) 2.18 1.03 -------- -------- -------- -------- -------- Total From Investment Operations (16.12) 10.27 (0.48) 2.42 1.10 -------- -------- -------- -------- -------- Distributions From Net Investment Income -- (0.24) (0.34) (0.16) -- From Net Realized Gains (3.30) (0.58) -- -- -- -------- -------- -------- -------- -------- Total Distributions (3.30) (0.82) (0.34) (0.16) -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $26.56 $45.98 $36.53 $37.35 $35.09 ======== ======== ======== ======== ======== TOTAL RETURN(2) (37.60)% 28.63% (1.35)% 6.87% 3.24% 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 0.39% 0.31% 0.77% 0.62% 0.19% Portfolio Turnover Rate 64% 79% 206% 55% 48% Net Assets, End of Period (in thousands) $94,419 $168,441 $148,717 $198,212 $234,815 (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. - ------ 49 Select A Class(1) For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $45.05 $35.80 $36.63 $34.43 $33.49 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.02) (0.09) 0.12 0.04 (0.09) Net Realized and Unrealized Gain (Loss) (15.88) 9.99 (0.76) 2.16 1.03 -------- -------- -------- -------- -------- Total From Investment Operations (15.90) 9.90 (0.64) 2.20 0.94 -------- -------- -------- -------- -------- Distributions From Net Investment Income -- (0.07) (0.19) -- -- From Net Realized Gains (3.30) (0.58) -- -- -- -------- -------- -------- -------- -------- Total Distributions (3.30) (0.65) (0.19) -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $25.85 $45.05 $35.80 $36.63 $34.43 ======== ======== ======== ======== ======== TOTAL RETURN(3) (37.88)% 28.07% (1.79)% 6.39% 2.81% 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 (0.06)% (0.14)% 0.32% 0.17% (0.26)% Portfolio Turnover Rate 64% 79% 206% 55% 48% Net Assets, End of Period (in thousands) $19,450 $42,770 $21,455 $27,741 $22,626 (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. - ------ 50 Select B Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $44.03 $35.21 $36.12 $34.21 $33.53 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) (0.29) (0.34) (0.12) (0.22) (0.35) Net Realized and Unrealized Gain (Loss) (15.41) 9.74 (0.79) 2.13 1.03 -------- -------- -------- -------- -------- Total From Investment Operations (15.70) 9.40 (0.91) 1.91 0.68 -------- -------- -------- -------- -------- Distributions From Net Realized Gains (3.30) (0.58) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $25.03 $44.03 $35.21 $36.12 $34.21 ======== ======== ======== ======== ======== TOTAL RETURN(2) (38.36)% 27.07% (2.52)% 5.58% 2.03% 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 (0.81)% (0.89)% (0.43)% (0.58)% (1.01)% Portfolio Turnover Rate 64% 79% 206% 55% 48% Net Assets, End of Period (in thousands) $2,605 $5,567 $5,880 $2,501 $2,273 (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. - ------ 51 Select C Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $44.07 $35.24 $36.15 $34.23 $33.56 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) (0.29) (0.34) (0.16) (0.22) (0.36) Net Realized and Unrealized Gain (Loss) (15.43) 9.75 (0.75) 2.14 1.03 -------- -------- -------- -------- -------- Total From Investment Operations (15.72) 9.41 (0.91) 1.92 0.67 -------- -------- -------- -------- -------- Distributions From Net Realized Gains (3.30) (0.58) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $25.05 $44.07 $35.24 $36.15 $34.23 ======== ======== ======== ======== ======== TOTAL RETURN(2) (38.34)% 27.07% (2.52)% 5.58% 2.03% 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 (0.81)% (0.89)% (0.43)% (0.58)% (1.01)% Portfolio Turnover Rate 64% 79% 206% 55% 48% Net Assets, End of Period (in thousands) $394 $1,001 $1,540 $3,511 $3,733 (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. - ------ 52 Select R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $45.33 $36.05 $37.00 $38.34 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.11) (0.15) 0.03 (0.05) Net Realized and Unrealized Gain (Loss) (15.96) 10.01 (0.77) (1.29) -------- -------- -------- -------- Total From Investment Operations (16.07) 9.86 (0.74) (1.34) -------- -------- -------- -------- Distributions From Net Investment Income -- -- (0.21) -- From Net Realized Gains (3.30) (0.58) -- -- -------- -------- -------- -------- Total Distributions (3.30) (0.58) (0.21) -- -------- -------- -------- -------- Net Asset Value, End of Period $25.96 $45.33 $36.05 $37.00 ======== ======== ======== ======== TOTAL RETURN(3) (38.03)% 27.72% (2.04)% (3.50)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50% 1.50% 1.50%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.31)% (0.39)% 0.07% (0.50)%(4) Portfolio Turnover Rate 64% 79% 206% 55%(5) Net Assets, End of Period (in thousands) $32 $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. - ------ 53 Capital Growth Investor Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $14.21 $11.81 $10.60 $10.80 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.02 --(3) --(3) --(3) Net Realized and Unrealized Gain (Loss) (4.48) 2.54 1.21 (0.20) -------- -------- -------- -------- Total From Investment Operations (4.46) 2.54 1.21 (0.20) -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -------- -------- -------- -------- Net Asset Value, End of Period $8.70 $14.21 $11.81 $10.60 ======== ======== ======== ======== TOTAL RETURN(4) (33.67)% 21.77% 11.42% (1.85)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.01% 1.01% 1.00% 1.00%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.15% 0.15% 0.05% (0.12)%(5) Portfolio Turnover Rate 129% 160% 140% 110%(6) Net Assets, End of Period (in thousands) $2,252 $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. - ------ 54 Capital Growth Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $14.28 $11.84 $10.61 $10.80 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.04 0.04 0.03 --(3) Net Realized and Unrealized Gain (Loss) (4.51) 2.54 1.20 (0.19) -------- -------- -------- -------- Total From Investment Operations (4.47) 2.58 1.23 (0.19) -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -------- -------- -------- -------- Net Asset Value, End of Period $8.76 $14.28 $11.84 $10.61 ======== ======== ======== ======== TOTAL RETURN(4) (33.57)% 22.06% 11.59% (1.76)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.81% 0.81% 0.80% 0.80%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.35% 0.35% 0.25% 0.08%(5) Portfolio Turnover Rate 129% 160% 140% 110%(6) Net Assets, End of Period (in thousands) $128 $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. - ------ 55 Capital Growth A Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005 2004(1) PER-SHARE DATA Net Asset Value, Beginning of Period $14.13 $11.78 $10.59 $9.89 $10.00 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.01) (0.01) (0.02) --(3) (0.03) Net Realized and Unrealized Gain (Loss) (4.45) 2.50 1.21 0.70 (0.08) -------- -------- -------- -------- -------- Total From Investment Operations (4.46) 2.49 1.19 0.70 (0.11) -------- -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $8.62 $14.13 $11.78 $10.59 $9.89 ======== ======== ======== ======== ======== TOTAL RETURN(4) (33.88)% 21.40% 11.24% 7.08% (1.10)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.26% 1.26% 1.25% 1.27% 1.25%(5) Ratio of Net Investment Income (Loss) to Average Net Assets (0.10)% (0.10)% (0.20)% (0.03)% (0.43)%(5) Portfolio Turnover Rate 129% 160% 140% 110% 87% Net Assets, End of Period (in thousands) $7,679 $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. - ------ 56 Capital Growth B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005 2004(1) PER-SHARE DATA Net Asset Value, Beginning of Period $13.74 $11.54 $10.46 $9.84 $10.00 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.09) (0.10) (0.10) (0.08) (0.08) Net Realized and Unrealized Gain (Loss) (4.30) 2.44 1.18 0.70 (0.08) -------- -------- -------- -------- -------- Total From Investment Operations (4.39) 2.34 1.08 0.62 (0.16) -------- -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $8.30 $13.74 $11.54 $10.46 $9.84 ======== ======== ======== ======== ======== TOTAL RETURN(3) (34.36)% 20.54% 10.33% 6.30% (1.60)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.01% 2.01% 2.00% 2.02% 2.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.85)% (0.85)% (0.95)% (0.78)% (1.17)%(4) Portfolio Turnover Rate 129% 160% 140% 110% 87% Net Assets, End of Period (in thousands) $760 $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. - ------ 57 Capital Growth C Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005 2004(1) PER-SHARE DATA Net Asset Value, Beginning of Period $13.74 $11.54 $10.46 $9.84 $10.00 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.09) (0.10) (0.10) (0.08) (0.08) Net Realized and Unrealized Gain (Loss) (4.30) 2.44 1.18 0.70 (0.08) -------- -------- -------- -------- -------- Total From Investment Operations (4.39) 2.34 1.08 0.62 (0.16) -------- -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $8.30 $13.74 $11.54 $10.46 $9.84 ======== ======== ======== ======== ======== TOTAL RETURN(3) (34.36)% 20.54% 10.33% 6.30% (1.60)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.01% 2.01% 2.00% 2.02% 2.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.85)% (0.85)% (0.95)% (0.78)% (1.18)%(4) Portfolio Turnover Rate 129% 160% 140% 110% 87% Net Assets, End of Period (in thousands) $831 $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. - ------ 58 Capital Growth R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $14.05 $11.74 $10.59 $10.80 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.04) (0.04) (0.05) (0.02) Net Realized and Unrealized Gain (Loss) (4.41) 2.49 1.20 (0.19) -------- -------- -------- -------- Total From Investment Operations (4.45) 2.45 1.15 (0.21) -------- -------- -------- -------- Distributions From Net Realized Gains (1.05) (0.14) -- -- -------- -------- -------- -------- Net Asset Value, End of Period $8.55 $14.05 $11.74 $10.59 ======== ======== ======== ======== TOTAL RETURN(3) (34.01)% 21.13% 10.86% (1.94)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.51% 1.51% 1.50% 1.50%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.35)% (0.35)% (0.45)% (0.62)%(4) Portfolio Turnover Rate 129% 160% 140% 110%(5) Net Assets, End of Period (in thousands) $84 $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. - ------ 59 Focused Growth Investor Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.92 $11.42 $10.53 $10.00 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.02 0.04 0.01 --(3) Net Realized and Unrealized Gain (Loss) (3.74) 1.73 0.95 0.53 -------- -------- -------- -------- Total From Investment Operations (3.72) 1.77 0.96 0.53 -------- -------- -------- -------- Distributions From Net Investment Income (0.01) (0.04) --(3) -- From Net Realized Gains (1.46) (0.23) (0.07) -- -------- -------- -------- -------- Total Distributions (1.47) (0.27) (0.07) -- -------- -------- -------- -------- Net Asset Value, End of Period $7.73 $12.92 $11.42 $10.53 ======== ======== ======== ======== TOTAL RETURN(4) (32.19)% 15.78% 9.13% 5.30% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.22% 0.33% 0.07% 0.00%(5) Portfolio Turnover Rate 130% 275% 313% 95% Net Assets, End of Period (in thousands) $8,814 $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. - ------ 60 Focused Growth Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.93 $12.59 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.04 --(3) Net Realized and Unrealized Gain (Loss) (3.75) 0.34 -------- -------- Total From Investment Operations (3.71) 0.34 -------- -------- Distributions From Net Investment Income (0.03) -- From Net Realized Gains (1.46) -- -------- -------- Total Distributions (1.49) -- -------- -------- Net Asset Value, End of Period $7.73 $12.93 ======== ======== TOTAL RETURN(4) (32.09)% 2.70% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.80% 0.80%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.42% (0.40)%(5) Portfolio Turnover Rate 130% 275%(6) Net Assets, End of Period (in thousands) $17 $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. - ------ 61 Focused Growth A Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.92 $12.59 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) --(3) (0.01) Net Realized and Unrealized Gain (Loss) (3.75) 0.34 -------- -------- Total From Investment Operations (3.75) 0.33 -------- -------- Distributions From Net Realized Gains (1.44) -- -------- -------- Net Asset Value, End of Period $7.73 $12.92 ======== ======== TOTAL RETURN(4) (32.37)% 2.62% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.25% 1.25%(5) Ratio of Net Investment Income (Loss) to Average Net Assets (0.03)% (0.85)%(5) Portfolio Turnover Rate 130% 275%(6) Net Assets, End of Period (in thousands) $241 $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, 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. (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 B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.91 $12.59 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.08) (0.02) Net Realized and Unrealized Gain (Loss) (3.75) 0.34 -------- -------- Total From Investment Operations (3.83) 0.32 -------- -------- Distributions From Net Realized Gains (1.35) -- -------- -------- Net Asset Value, End of Period $7.73 $12.91 ======== ======== TOTAL RETURN(3) (32.87)% 2.54% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.00% 2.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.78)% (1.60)%(4) Portfolio Turnover Rate 130% 275%(5) Net Assets, End of Period (in thousands) $30 $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 C Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.91 $12.59 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.08) (0.02) Net Realized and Unrealized Gain (Loss) (3.75) 0.34 -------- -------- Total From Investment Operations (3.83) 0.32 -------- -------- Distributions From Net Realized Gains (1.35) -- -------- -------- Net Asset Value, End of Period $7.73 $12.91 ======== ======== TOTAL RETURN(3) (32.87)% 2.54% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.00% 2.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.78)% (1.52)%(4) Portfolio Turnover Rate 130% 275%(5) Net Assets, End of Period (in thousands) $73 $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. - ------ 64 Focused Growth R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.92 $12.59 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.02) (0.01) Net Realized and Unrealized Gain (Loss) (3.76) 0.34 -------- -------- Total From Investment Operations (3.78) 0.33 -------- -------- Distributions From Net Realized Gains (1.41) -- -------- -------- Net Asset Value, End of Period $7.73 $12.92 ======== ======== TOTAL RETURN(3) (32.56)% 2.62% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.28)% (1.10)%(4) Portfolio Turnover Rate 130% 275%(5) Net Assets, End of Period (in thousands) $17 $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. - ------ 65 Fundamental Equity Investor Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.68 $12.88 $11.04 $10.88 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.15 0.14 0.08 0.02 Net Realized and Unrealized Gain (Loss) (5.42) 2.93 2.12 0.14 -------- -------- -------- -------- Total From Investment Operations (5.27) 3.07 2.20 0.16 -------- -------- -------- -------- Distributions From Net Investment Income (0.12) (0.08) -- -- From Net Realized Gains (0.36) (0.19) (0.36) -- -------- -------- -------- -------- Total Distributions (0.48) (0.27) (0.36) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.93 $15.68 $12.88 $11.04 ======== ======== ======== ======== TOTAL RETURN(3) (34.56)% 24.18% 20.37% 1.47% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.01% 1.00% 1.00% 1.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 1.15% 0.99% 0.74% 0.59%(4) Portfolio Turnover Rate 97% 82% 174% 101%(5) Net Assets, End of Period (in thousands) $37,535 $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. - ------ 66 Fundamental Equity Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.70 $12.90 $11.05 $10.88 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.19 0.19 0.12 0.02 Net Realized and Unrealized Gain (Loss) (5.44) 2.91 2.10 0.15 -------- -------- -------- -------- Total From Investment Operations (5.25) 3.10 2.22 0.17 -------- -------- -------- -------- Distributions From Net Investment Income (0.15) (0.11) -- -- From Net Realized Gains (0.36) (0.19) (0.37) -- -------- -------- -------- -------- Total Distributions (0.51) (0.30) (0.37) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.94 $15.70 $12.90 $11.05 ======== ======== ======== ======== TOTAL RETURN(3) (34.45)% 24.43% 20.51% 1.56% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.81% 0.80% 0.80% 0.80%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 1.35% 1.19% 0.94% 0.79%(4) Portfolio Turnover Rate 97% 82% 174% 101%(5) Net Assets, End of Period (in thousands) $589 $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. - ------ 67 Fundamental Equity A Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.65 $12.85 $11.03 $10.00 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.12 0.11 0.06 0.02 Net Realized and Unrealized Gain (Loss) (5.41) 2.92 2.11 1.01 -------- -------- -------- -------- Total From Investment Operations (5.29) 3.03 2.17 1.03 -------- -------- -------- -------- Distributions From Net Investment Income (0.09) (0.04) -- -- From Net Realized Gains (0.36) (0.19) (0.35) -- -------- -------- -------- -------- Total Distributions (0.45) (0.23) (0.35) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.91 $15.65 $12.85 $11.03 ======== ======== ======== ======== TOTAL RETURN(3) (34.73)% 23.88% 20.12% 10.30% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.26% 1.25% 1.25% 1.28%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 0.90% 0.74% 0.49% 0.17%(4) Portfolio Turnover Rate 97% 82% 174% 101% Net Assets, End of Period (in thousands) $218,469 $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. - ------ 68 Fundamental Equity B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.45 $12.74 $10.96 $10.00 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.02 0.01 (0.02) (0.06) Net Realized and Unrealized Gain (Loss) (5.36) 2.89 2.07 1.02 -------- -------- -------- -------- Total From Investment Operations (5.34) 2.90 2.05 0.96 -------- -------- -------- -------- Distributions From Net Realized Gains (0.33) (0.19) (0.27) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.78 $15.45 $12.74 $10.96 ======== ======== ======== ======== TOTAL RETURN(3) (35.23)% 23.01% 19.04% 9.60% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.01% 2.00% 2.00% 2.03%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 0.15% (0.01)% (0.26)% (0.58)%(4) Portfolio Turnover Rate 97% 82% 174% 101% Net Assets, End of Period (in thousands) $4,195 $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. - ------ 69 Fundamental Equity C Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.46 $12.75 $10.96 $10.00 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.02 --(3) (0.03) (0.06) Net Realized and Unrealized Gain (Loss) (5.36) 2.90 2.09 1.02 -------- -------- -------- -------- Total From Investment Operations (5.34) 2.90 2.06 0.96 -------- -------- -------- -------- Distributions From Net Realized Gains (0.33) (0.19) (0.27) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.79 $15.46 $12.75 $10.96 ======== ======== ======== ======== TOTAL RETURN(4) (35.20)% 22.99% 19.13% 9.60% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.01% 2.00% 2.00% 2.03%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.15% (0.01)% (0.26)% (0.58)%(5) Portfolio Turnover Rate 97% 82% 174% 101% Net Assets, End of Period (in thousands) $18,919 $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. - ------ 70 Fundamental Equity R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006 2005(1) PER-SHARE DATA Net Asset Value, Beginning of Period $15.61 $12.81 $11.03 $10.88 -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) 0.09 0.09 0.04 --(3) Net Realized and Unrealized Gain (Loss) (5.41) 2.90 2.08 0.15 -------- -------- -------- -------- Total From Investment Operations (5.32) 2.99 2.12 0.15 -------- -------- -------- -------- Distributions From Net Investment Income (0.05) --(3) -- -- From Net Realized Gains (0.36) (0.19) (0.34) -- -------- -------- -------- -------- Total Distributions (0.41) (0.19) (0.34) -- -------- -------- -------- -------- Net Asset Value, End of Period $9.88 $15.61 $12.81 $11.03 ======== ======== ======== ======== TOTAL RETURN(4) (34.92)% 23.60% 19.67% 1.38% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.51% 1.50% 1.50% 1.50%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 0.65% 0.49% 0.24% 0.09%(5) Portfolio Turnover Rate 97% 82% 174% 101%(6) Net Assets, End of Period (in thousands) $364 $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. - ------ 71 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, four of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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 respective financial positions of Select Fund, Capital Growth Fund, Focused Growth Fund and Fundamental Equity Fund, four of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 72 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 73 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 74 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 75 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 Investments, 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 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 funds; * reports on the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 76 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. In connection with their review of the funds, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 funds. 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 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 the services provided by the advisor 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 to the funds is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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. At each quarterly meeting the Directors review investment performance - ------ 77 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 performance was above the median for its peer group for the one-year period and below the median for the three-year period. Capital Growth, Focused Growth, 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. 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 agreement, and the reasonableness of the current management fee. The board concluded that the advisor's profits were reasonable in light of the services provided to the funds. ETHICS. 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 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. - ------ 78 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 groups. The unified fee charged to shareholders of Select, Capital Growth, and Focused Growth were below the median of the total expense ratios of their peer groups. The unified fee charged to shareholders of Fundamental Equity was slightly above the median of the total expense ratios of its peer group. The board concluded that the management fee paid by the funds to the advisor was reasonable in light of the services provided to the funds. 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. - ------ 79 CONCLUSIONS OF THE DIRECTORS As a result of this process, the board, including all of 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. - ------ 80 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The 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. - ------ 81 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 was considered the benchmark for Focused Growth prior to March 2008. 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 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 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 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. - ------ 82 NOTES - ------ 83 NOTES - ------ 84 [back cover] [american century investments logo and text logo ®] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE . . . . . . . . . . . . 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS . . . . . . . . . . . . . . . . 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES . . . . . . 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . 1-800-634-4113 AMERICAN CENTURY 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62713S
[front cover] Annual Report OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS HERITAGE FUND NEW OPPORTUNITIES II FUND PRESIDENT'S LETTER [photo of Jonathan Thomas] JONATHAN THOMAS Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 NEW OPPORTUNITIES II Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . 10 Types of Investments in Portfolio . . . . . . . . . . . . . . . . . 10 Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . 11 FINANCIAL STATEMENTS Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . 13 Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . 20 Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . 22 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 23 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 24 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 32 Report of Independent Registered Public Accounting Firm. . . . . . . 44 OTHER INFORMATION Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Approval of Management Agreements for Heritage and New Opportunities II. . . . . . . . . . . . . . . . . . . . . . 48 Additional Information . . . . . . . . . . . . . . . . . . . . . . . 53 Index Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 54 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conversatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Heritage Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date INVESTOR CLASS -39.54% 6.56% 7.60% 10.61% 11/10/87 RUSSELL MIDCAP GROWTH INDEX(1) -42.65% -0.18% 2.20% 9.06%(2) -- RUSSELL MIDCAP INDEX(1) -40.67% 1.76% 4.94% 10.67%(2) -- Institutional Class -39.41% 6.79% 7.83% 6.09% 6/16/97 A Class(3) No sales charge* -39.69% 6.30% 7.32% 5.21% With sales charge* -43.15% 5.06% 6.68% 4.66% 7/11/97 B Class No sales charge* -40.16% -- -- -34.03% With sales charge* -44.16% -- -- -37.85% 9/28/07 C Class -40.16% 5.49% -- 1.41% 6/26/01 R Class -39.86% -- -- -33.71% 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%. 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. ©2008 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. 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 Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 30.71% 62.61% -33.08% -10.07% 18.33% -0.09% 25.16% 16.26% 56.41% -39.54% Russell Midcap Growth Index 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72% -42.65% Russell Midcap Index 17.12% 23.73% -18.02% -8.02% 35.88% 15.09% 18.09% 17.41% 15.24% -40.67% 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: David Hollond and Greg Walsh PERFORMANCE SUMMARY Heritage returned -39.54%* for the 12 months ended October 31, 2008, which compares favorably to the -42.65% return of the portfolio's benchmark, the Russell Midcap Growth Index. As discussed in the Market Perspective on page 2, equity markets declined significantly during the reporting period as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. The portfolio's relative performance was helped in particular by holdings in the materials, consumer discretionary, industrials, and health care sectors. The main detractors from performance were holdings in the information technology sector, as well as allocations and stock selection in the telecommunications services and consumer staples sectors. INFORMATION TECHNOLOGY, TELECOMMUNICATIONS SERVICES DETRACTED Stock selection in the information technology sector weighed on absolute and relative performance. The semiconductor industry, in particular, was home to several detractors from returns. Heritage held an overweight stake in MEMC, a global supplier of polysilicon, a raw material used in the production of solar cells. MEMC's share price fell 75%, due to poor company execution in ramping up polysilicon production capacity. Weightings and stock selection in the telecommunications sector also curbed relative returns. Within the wireless telecom industry, the portfolio maintained an overweight in NII Holdings, Inc., which provides cellular service in burgeoning Latin American markets. Although it has benefited performance in the past, NII detracted from returns during the reporting period. CONSUMER DISCRETIONARY, INDUSTRIALS CONTRIBUTED, BUT CERTAIN HOLDINGS LAGGED Effective stock selection within the consumer discretionary sector helped returns relative to the benchmark. Here, overweighted investment positions in discount retailers such as Dollar Tree and Family Dollar Stores helped performance. Companies in this category have benefited from the weak economy which caused consumers to trade down in their buying habits. Underweighting or altogether sidestepping most of the other companies in the sector further aided relative returns. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Monsanto Co. 2.6% 3.2% CSL Ltd. 2.5% 3.6% Express Scripts, Inc. 2.1% 2.4% Activision Blizzard, Inc. 2.0% 1.4% Apple, Inc. 1.9% 1.6% UbiSoft Entertainment SA 1.8% 1.1% Omnicare, Inc. 1.7% -- Grifols SA 1.6% -- Celgene Corp. 1.6% 0.8% PetroHawk Energy Corp. 1.6% 2.3% *All fund returns referenced in this commentary are for Investor Class shares. - ------ 5 Heritage Elsewhere in the consumer discretionary sector, an overweight stake in ITT Educational Services hindered performance as the private education company suffered from the fallout from the credit crunch. As with the subprime mortgage industry, private education firms experienced a loss of liquidity as investors shied away from student loans. Within the industrials sector, Heritage benefited mainly from overweight positions in railroad companies, including Norfolk Southern and Union Pacific. This industry experienced improving fundamentals as higher fuel prices created an advantage for the more fuel-efficient railroads versus trucking companies, and as coal shipments continued to increase. Also within the industrials sector, Heritage's investment in machinery company Flowserve Corp. benefited relative performance. This manufacturer of pumps, seals, and valves has experienced improving fundamentals because of its sales to customers in the oil and gas, chemical, and water industries. Flowserve was a key contributor to relative portfolio performance, although its 27% share-price decline hurt absolute returns. MATERIALS GAINED A higher standard of living in emerging markets and greater focus on biofuels translated into growing demand for agricultural products. That in turn drove up commodity prices, benefiting select agricultural chemical companies within the portfolio during the reporting period. Within this group, Monsanto, which is a producer of corn seed, benefited from escalating corn prices while agricultural chemicals company K+S Agriculture was helped by higher demand for its fertilizer products. Since neither of these were members of the benchmark, both companies were substantial contributors to relative performance as their share prices experienced only modest declines. OUTLOOK Heritage's investment process focuses on medium-sized companies with accelerating revenue and earnings growth rates that are also exhibiting share-price strength. We believe that active investing in such companies will generate attractive absolute and relative investment performance over time. Despite the volatility and difficult investment environment, we will remain focused on implementing our time-tested process. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Oil, Gas & Consumable Fuels 7.2% 5.2% Software 7.0% 6.0% Biotechnology 5.7% 5.9% Health Care Providers & Services 5.5% 3.3% Specialty Retail 5.1% 5.5% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 85.9% 81.1% Foreign Common Stocks(1) 12.4% 18.1% TOTAL COMMON STOCKS 98.3% 99.2% Temporary Cash Investments 1.6% 1.7% Other Assets and Liabilities 0.1% (0.9)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 6 PERFORMANCE New Opportunities II Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years Inception Date INVESTOR CLASS -40.34% 2.52% 3.63% 6/1/01 RUSSELL 2000 GROWTH INDEX(1) -37.87% -0.13% -1.19% -- Institutional Class -40.19% -- -23.09% 5/18/07 A Class No sales charge* -40.45% 2.28% 7.89% With sales charge* -43.86% 1.07% 6.80% 1/31/03 B Class No sales charge* -40.97% 1.48% 7.06% With sales charge* -44.97% 1.29% 6.94% 1/31/03 C Class -40.91% 1.51% 7.16%(2) 1/31/03 R Class -40.66% -- -35.45% 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%. 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. ©2008 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) Class returns would have been lower if distribution and service fees had not been waived from 2/1/03 to 6/30/03. 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. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund's investment process may involve high portfolio turnover, high commission costs and high capital gains distributions. In addition, its investment approach may involve higher volatility and risk. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. - ------ 7 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 2008 Investor Class -9.60% -8.19% 38.55% 9.39% 10.14% 16.52% 35.22% -40.34% Russell 2000 Growth Index -19.01% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73% -37.87% * 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 involve high portfolio turnover, high commission costs and high capital gains distributions. In addition, its investment approach may involve higher volatility and risk. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. - ------ 8 PORTFOLIO COMMENTARY New Opportunities II Portfolio Managers: Stafford Southwick and Matthew Ferretti PERFORMANCE SUMMARY New Opportunities II returned -40.34%* for the 12 months ended October 31, 2008, reflecting the sharp decline in the U.S. stock market. The fund's performance trailed the -37.87% return of its benchmark, the Russell 2000 Growth Index. In addition to the extreme pessimism that gripped the market, navigating through dramatic shifts in market sentiment and sector rotation was particularly challenging over the past year. In addition, our investment approach, which focuses on accelerating growth and price momentum, was out of favor for most of the period, creating further performance headwinds. As a result, the portfolio underperformed its growth-oriented benchmark index. INDUSTRIALS UNDERPERFORMED Stock selection in the industrials sector had the biggest negative impact on performance compared with the Russell 2000 Growth Index. Our overweight position in dry bulk carriers, which were among the best performers in the portfolio in 2007, weighed on performance during the past 12 months. Dry bulk carriers, which are ships that carry dry goods such as iron ore and coal, saw their day rates collapse as slowing global economic activity led to declining demand for dry goods. Britannia Bulk Holdings, TBS International, and DryShips were among the worst contributors in the portfolio during the period. We shifted our emphasis in the industrials sector during the last half of the period. We significantly reduced our exposure to the dry bulk carriers and other commodity-sensitive stocks, while adding positions in companies that are poised to benefit from lower raw materials costs. HEALTH CARE AND ENERGY ALSO DETRACTED Our underweight position in health care, which was one of the better-performing sectors in the index, weighed on relative results. Stock selection in the health care sector also detracted, particularly among health care equipment makers and contract research organizations (CROs). Kendle International and PAREXEL International, both of which are CROs that perform late-stage clinical research for biotechnology and pharmaceutical companies, were hurt by concerns that capital constraints in the biotech industry will result in fewer clinical trials. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Syniverse Holdings, Inc. 2.4% 1.5% ManTech International Corp., Class A 2.3% 1.6% Sybase, Inc. 1.8% 1.5% Microsemi Corp. 1.8% 1.4% AsiaInfo Holdings, Inc. 1.6% 1.2% Perrigo Co. 1.6% 1.5% TreeHouse Foods, Inc. 1.6% -- CACI International, Inc., Class A 1.5% 1.0% Capstead Mortgage Corp. 1.5% 0.8% Websense, Inc. 1.4% 1.2% *All fund returns referenced in this commentary are for Investor Class shares. - ------ 9 New Opportunities II Other noteworthy decliners during the period included two energy stocks, Alpha Natural Resources and Walter Industries. Both companies produce metallurgical coal, which was in high demand for use in steelmaking, particularly from emerging economies such as China. However, the global economic slowdown and accompanying decline in demand for commodities caused these stocks to fall sharply. CONSUMER AND TELECOM ADDED VALUE The portfolio's consumer discretionary holdings outperformed their counterparts in the benchmark index. The top contributor in this sector was DeVry, which is a for-profit secondary educational institution. As the economic environment worsened and unemployment rose, more and more people returned to school to change careers or improve their ability to find employment. DeVry was a direct beneficiary of this trend. Another theme among our better-performing consumer stocks was a trading down in consumer spending habits to discount retailers, fast-food restaurants, and other lower-cost consumer outlets. The most notable beneficiary of this trend in the portfolio was fast-food chain Burger King, which also enjoyed lower input costs as commodity prices declined. The top performer in the portfolio was telecommunications services company Syniverse, which provides data clearinghouse services that enable wireless carriers to offer and be compensated for roaming and text messaging services. Syniverse employs a transaction-based business model, and the company benefited from increased data traffic during the period. A LOOK AHEAD As we move into 2009, it is clear that we are facing a global recession. The U.S. economy was the first to experience a downturn, so we expect it to be the first to recover. As a result, we are emphasizing companies with domestic end-markets. From a sector standpoint, we are overweight in consumer staples, as well as dividend-paying stocks such as utilities and selected financials. In the materials sector, we are focusing on companies benefiting from lower input costs, while our consumer discretionary holdings have shifted from specialty retailers to discount stores and lower-priced providers. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Health Care Providers & Services 6.3% 2.1% Commercial Banks 5.5% 5.6% IT Services 5.5% 4.3% Health Care Equipment & Supplies 5.4% 2.9% Specialty Retail 5.3% 2.0% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 94.5% 91.8% Foreign Common Stocks(1) 5.3% 7.1% TOTAL COMMON STOCKS 99.8% 98.9% Temporary Cash Investments --(2) 0.8% Other Assets and Liabilities 0.2% 0.3% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Category is less than 0.05% of total net assets. - ------ 10 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 11 Beginning Expenses Paid Account Ending During Period* Annualized Value Account Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* Heritage ACTUAL Investor Class $1,000 $656.80 $4.16 1.00% Institutional Class $1,000 $657.70 $3.33 0.80% A Class $1,000 $656.10 $5.20 1.25% B Class $1,000 $653.80 $8.31 2.00% C Class $1,000 $653.60 $8.31 2.00% R Class $1,000 $655.30 $6.24 1.50% HYPOTHETICAL Investor Class $1,000 $1,020.11 $5.08 1.00% Institutional Class $1,000 $1,021.11 $4.06 0.80% A Class $1,000 $1,018.85 $6.34 1.25% B Class $1,000 $1,015.08 $10.13 2.00% C Class $1,000 $1,015.08 $10.13 2.00% R Class $1,000 $1,017.60 $7.61 1.50% New Opportunities II ACTUAL Investor Class $1,000 $710.50 $5.85 1.36% Institutional Class $1,000 $711.20 $4.99 1.16% A Class $1,000 $709.90 $6.92 1.61% B Class $1,000 $706.30 $10.12 2.36% C Class $1,000 $707.40 $10.13 2.36% R Class $1,000 $708.40 $7.99 1.86% HYPOTHETICAL Investor Class $1,000 $1,018.30 $6.90 1.36% Institutional Class $1,000 $1,019.30 $5.89 1.16% A Class $1,000 $1,017.04 $8.16 1.61% B Class $1,000 $1,013.27 $11.94 2.36% C Class $1,000 $1,013.27 $11.94 2.36% R Class $1,000 $1,015.79 $9.42 1.86% * 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 366, to reflect the one-half year period. - ------ 12 SCHEDULE OF INVESTMENTS Heritage OCTOBER 31, 2008 Shares Value Common Stocks -- 98.3% AEROSPACE & DEFENSE -- 1.5% 182,800 Alliant Techsystems, Inc.(1) $ 15,088,312 130,600 Lockheed Martin Corp. 11,107,530 -------------- 26,195,842 -------------- AIR FREIGHT & LOGISTICS -- 0.8% 259,200 C.H. Robinson Worldwide, Inc. 13,421,376 -------------- AIRLINES -- 1.1% 477,200 AMR Corp.(1) 4,872,212 257,000 Continental Airlines, Inc., Class B(1) 4,862,440 458,300 Delta Air Lines, Inc.(1) 5,032,134 821,300 JetBlue Airways Corp.(1) 4,558,215 -------------- 19,325,001 -------------- BIOTECHNOLOGY -- 5.7% 419,800 Celgene Corp.(1) 26,976,348 1,790,591 CSL Ltd. 43,642,684 1,400,400 Grifols SA 27,941,325 -------------- 98,560,357 -------------- CAPITAL MARKETS -- 2.6% 508,500 Charles Schwab Corp. (The) 9,722,520 285,797 Lazard Ltd., Class A 8,622,495 424,500 Merrill Lynch & Co., Inc. 7,891,455 136,700 Morgan Stanley 2,388,149 718,450 Raymond James Financial, Inc. 16,732,701 -------------- 45,357,320 -------------- CHEMICALS -- 2.8% 501,130 Monsanto Co. 44,590,547 50,400 Potash Corp. of Saskatchewan 4,297,104 -------------- 48,887,651 -------------- COMMERCIAL BANKS -- 0.9% 355,700 KeyCorp 4,350,211 186,800 Marshall & Ilsley Corp. 3,368,004 238,600 Synovus Financial Corp. 2,464,738 93,100 TCF Financial Corp. 1,651,594 102,000 Zions Bancorp. 3,887,220 -------------- 15,721,767 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.5% 242,400 Copart, Inc.(1) 8,459,760 -------------- COMMUNICATIONS EQUIPMENT -- 0.6% 568,100 Juniper Networks, Inc.(1) 10,646,194 -------------- COMPUTERS & PERIPHERALS -- 1.9% 298,927 Apple, Inc.(1) 32,161,556 -------------- Shares Value CONSTRUCTION & ENGINEERING -- 1.4% 198,500 KBR, Inc. $ 2,945,740 1,089,500 Quanta Services, Inc.(1) 21,528,520 -------------- 24,474,260 -------------- CONTAINERS & PACKAGING -- 1.4% 1,112,400 Crown Holdings, Inc.(1) 22,448,232 61,596 Rock-Tenn Co., Class A 1,873,134 -------------- 24,321,366 -------------- DISTRIBUTORS -- 0.4% 644,500 LKQ Corp.(1) 7,373,080 -------------- DIVERSIFIED CONSUMER SERVICES -- 5.1% 289,620 Apollo Group, Inc., Class A(1) 20,131,487 439,051 DeVry, Inc. 24,889,801 1,069,389 H&R Block, Inc. 21,088,351 230,000 New Oriental Education & Technology Group ADR(1) 14,708,500 36,500 Strayer Education, Inc. 8,258,855 -------------- 89,076,994 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.3% 15,000 CME Group, Inc. 4,232,250 -------------- ELECTRICAL EQUIPMENT -- 1.0% 180,581 Energy Conversion Devices, Inc.(1) 6,165,035 47,388 First Solar, Inc.(1) 6,809,656 115,700 Vestas Wind Systems AS(1) 4,762,389 -------------- 17,737,080 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.2% 241,376 Dolby Laboratories, Inc., Class A(1) 7,620,240 400,400 FLIR Systems, Inc.(1) 12,852,840 -------------- 20,473,080 -------------- ENERGY EQUIPMENT & SERVICES -- 2.1% 232,700 Dresser-Rand Group, Inc.(1) 5,212,480 332,700 Pride International, Inc.(1) 6,251,433 1,062,200 Seadrill Ltd. 10,183,928 138,800 Smith International, Inc. 4,785,824 540,700 Weatherford International Ltd.(1) 9,127,016 -------------- 35,560,681 -------------- FOOD & STAPLES RETAILING -- 0.8% 387,500 BJ's Wholesale Club, Inc.(1) 13,640,000 -------------- FOOD PRODUCTS -- 1.6% 278,000 H.J. Heinz Co. 12,181,960 155,800 Kellogg Co. 7,855,436 752,500 Sara Lee Corp. 8,412,950 -------------- 28,450,346 -------------- - ------ 13 Heritage Shares Value HEALTH CARE EQUIPMENT & SUPPLIES -- 4.5% 236,700 Baxter International, Inc. $ 14,317,983 367,000 Covidien Ltd. 16,254,430 191,300 Edwards Lifesciences Corp.(1) 10,108,292 113,300 Mettler Toledo International, Inc.(1) 8,671,982 371,900 Thoratec Corp.(1) 9,156,178 446,300 Varian Medical Systems, Inc.(1) 20,311,113 -------------- 78,819,978 -------------- HEALTH CARE PROVIDERS & SERVICES -- 5.5% 615,100 Express Scripts, Inc.(1) 37,281,211 594,700 Medco Health Solutions, Inc.(1) 22,568,865 1,051,000 Omnicare, Inc. 28,976,070 211,600 UnitedHealth Group, Inc. 5,021,268 41,600 WellPoint, Inc.(1) 1,616,992 -------------- 95,464,406 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.7% 252,910 Bally Technologies, Inc.(1) 5,601,957 81,300 Chipotle Mexican Grill, Inc., Class A(1) 4,125,975 86,700 Chipotle Mexican Grill, Inc., Class B(1) 3,708,159 208,600 Panera Bread Co., Class A(1) 9,412,032 1,868 Royal Caribbean Cruises Ltd. 25,330 258,400 WMS Industries, Inc.(1) 6,460,000 -------------- 29,333,453 -------------- HOUSEHOLD DURABLES -- 0.3% 182,500 KB Home 3,045,925 246,300 Pulte Homes, Inc. 2,743,782 -------------- 5,789,707 -------------- INSURANCE -- 2.2% 74,900 ACE Ltd. 4,296,264 312,500 AON Corp. 13,218,750 146,400 Axis Capital Holdings Ltd. 4,169,472 20,500 Everest Re Group Ltd. 1,531,350 315,800 Marsh & McLennan Cos., Inc. 9,259,256 605,900 XL Capital Ltd., Class A 5,877,230 -------------- 38,352,322 -------------- INTERNET & CATALOG RETAIL -- 0.6% 183,241 priceline.com, Inc.(1) 9,643,974 -------------- INTERNET SOFTWARE & SERVICES -- 2.3% 1,152,414 Ariba, Inc.(1) 12,330,830 256,700 Digital River, Inc.(1) 6,361,026 162,800 Equinix, Inc.(1) 10,161,976 496,000 Netease.com, Inc. ADR(1) 11,160,000 -------------- 40,013,832 -------------- Shares Value IT SERVICES -- 2.0% 371,000 Global Payments, Inc. $ 15,029,210 128,200 MasterCard, Inc., Class A 18,950,524 -------------- 33,979,734 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.5% 196,665 Covance, Inc.(1) 9,833,250 412,500 Thermo Fisher Scientific, Inc.(1) 16,747,500 -------------- 26,580,750 -------------- MACHINERY -- 1.6% 300,387 Flowserve Corp. 17,098,028 254,500 Parker-Hannifin Corp. 9,866,965 -------------- 26,964,993 -------------- MEDIA -- 0.7% 577,700 DIRECTV Group, Inc. (The)(1) 12,645,853 -------------- MULTI-INDUSTRY -- 0.9% 1,022,600 Financial Select Sector SPDR Fund 15,880,978 -------------- MULTILINE RETAIL -- 2.9% 498,600 Big Lots, Inc.(1) 12,180,798 637,200 Dollar Tree, Inc.(1) 24,226,344 493,800 Family Dollar Stores, Inc. 13,288,158 -------------- 49,695,300 -------------- OIL, GAS & CONSUMABLE FUELS -- 7.2% 109,200 Alpha Natural Resources, Inc.(1) 3,906,084 412,711 Arena Resources, Inc.(1) 12,579,431 229,200 CONSOL Energy, Inc. 7,194,588 222,900 Continental Resources, Inc.(1) 7,219,731 284,800 Equitable Resources, Inc. 9,885,408 306,400 Peabody Energy Corp. 10,573,864 1,421,076 PetroHawk Energy Corp.(1) 26,929,390 286,600 Plains Exploration & Production Co.(1) 8,082,120 315,200 Range Resources Corp. 13,307,744 467,100 Southwestern Energy Co.(1) 16,638,102 175,766 Whiting Petroleum Corp.(1) 9,138,075 -------------- 125,454,537 -------------- PERSONAL PRODUCTS -- 0.8% 262,000 Avon Products, Inc. 6,505,460 187,600 Estee Lauder Cos., Inc. (The), Class A 6,761,104 -------------- 13,266,564 -------------- - ------ 14 Heritage Shares Value PROFESSIONAL SERVICES -- 1.3% 191,800 FTI Consulting, Inc.(1) $ 11,172,350 202,684 Huron Consulting Group, Inc.(1) 11,019,929 -------------- 22,192,279 -------------- ROAD & RAIL -- 4.3% 253,100 Canadian National Railway Co. 10,949,106 439,500 CSX Corp. 20,093,940 411,100 Norfolk Southern Corp. 24,641,334 274,400 Union Pacific Corp. 18,321,688 -------------- 74,006,068 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.1% 487,300 Altera Corp. 8,454,655 300,300 Analog Devices, Inc. 6,414,408 600,831 Broadcom Corp., Class A(1) 10,262,194 418,200 Linear Technology Corp. 9,484,776 712,300 Marvell Technology Group Ltd.(1) 4,957,608 168,400 National Semiconductor Corp. 2,217,828 849,800 NVIDIA Corp.(1) 7,444,248 1,395,200 ON Semiconductor Corp.(1) 7,129,472 471,600 Semiconductor HOLDRs Trust 9,785,700 222,401 Silicon Laboratories, Inc.(1) 5,773,530 -------------- 71,924,419 -------------- SOFTWARE -- 7.0% 2,771,348 Activision Blizzard, Inc.(1) 34,530,996 643,822 McAfee, Inc.(1) 20,956,406 83,600 Nintendo Co. Ltd. 26,367,200 325,000 Sybase, Inc.(1) 8,654,750 585,652 UbiSoft Entertainment SA(1) 30,950,868 -------------- 121,460,220 -------------- SPECIALTY RETAIL -- 5.1% 655,200 American Eagle Outfitters, Inc. 7,285,824 517,000 Children's Place Retail Stores, Inc. (The)(1) 17,283,310 607,300 Guess?, Inc. 13,220,921 469,100 Limited Brands, Inc. 5,619,818 405,600 PetSmart, Inc. 7,986,264 545,600 Ross Stores, Inc. 17,835,664 917,800 Urban Outfitters, Inc.(1) 19,952,972 -------------- 89,184,773 -------------- Shares Value TEXTILES, APPAREL & LUXURY GOODS -- 3.8% 431,600 Carter's, Inc.(1) $9,167,184 198,500 NIKE, Inc., Class B 11,439,555 364,100 Polo Ralph Lauren Corp. 17,174,597 265,667 True Religion Apparel, Inc.(1) 4,449,922 286,300 Under Armour, Inc., Class A(1) 7,443,800 565,600 Warnaco Group, Inc. (The)(1) 16,860,536 -------------- 66,535,594 -------------- THRIFTS & MORTGAGE FINANCE -- 0.9% 827,700 Hudson City Bancorp., Inc. 15,569,037 -------------- TOBACCO -- 1.3% 342,600 Lorillard, Inc. 22,563,636 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.4% 163,600 Fastenal Co. 6,586,536 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.7% 129,800 American Tower Corp., Class A(1) 4,193,838 998,400 MetroPCS Communications, Inc.(1) 13,718,016 250,944 NII Holdings, Inc.(1) 6,464,317 219,700 SBA Communications Corp., Class A(1) 4,611,503 -------------- 28,987,674 -------------- TOTAL COMMON STOCKS (Cost $1,879,810,060) 1,704,972,578 -------------- Temporary Cash Investments -- 1.6% 54,375 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 54,375 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $28,805,535), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $28,300,118) 28,300,000 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $28,354,375) 28,354,375 -------------- TOTAL INVESTMENT SECURITIES -- 99.9% (Cost $1,908,164,435) 1,733,326,953 -------------- OTHER ASSETS AND LIABILITIES -- 0.1% 2,331,454 TOTAL NET ASSETS -- 100.0% $1,735,658,407 ============== - ------ 15 Heritage Geographic Diversification (as a % of net assets) United States 85.9% Australia 2.5% Bermuda 2.0% France 1.8% Spain 1.6% Japan 1.5% China 1.5% Canada 0.9% Denmark 0.3% Switzerland 0.3% Cash and Equivalents* 1.7% *Includes temporary cash investments and other assets and liabilities. Forward Foreign Currency Exchange Contracts Settlement Unrealized Contracts to Buy Date Value Gain (Loss) 1,095,750 EUR for USD 11/28/08 $1,395,361 $ 953 ============ ============== (Value on Settlement Date $1,394,408) Settlement Unrealized Gain Contracts to Sell Date Value (Loss) 51,826,866 AUD for USD 11/28/08 $34,358,621 $357,099 14,920,790 CAD for USD 11/28/08 12,376,030 (84,852) 20,025,694 DKK for USD 11/28/08 3,421,601 34,554 37,084,923 EUR for USD 11/28/08 47,225,054 646,059 1,329,870,788 JPY for USD 11/28/08 13,511,413 123,831 49,286,080 NOK for USD 11/28/08 7,303,531 119,793 ------------ -------------- $118,196,250 $1,196,484 ============ ============== (Value on Settlement Date $119,392,734) Notes to Schedule of Investments ADR = American Depositary Receipt AUD = Australian Dollar CAD = Canadian Dollar DKK = Danish Krone EUR = Euro HOLDRs = Holding Company Depositary Receipts JPY = Japanese Yen NOK = Norwegian Krona SPDR = Standard & Poor's Depositary Receipts USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $143,848,394, which represented 8.3% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 16 New Opportunities II OCTOBER 31, 2008 Shares Value Common Stocks -- 99.8% AEROSPACE & DEFENSE -- 1.6% 90,098 Curtiss-Wright Corp. $3,324,616 193,467 Orbital Sciences Corp.(1) 3,964,139 ------------ 7,288,755 ------------ AIRLINES -- 3.2% 120,706 AMR Corp.(1) 1,232,408 425,704 Hawaiian Holdings, Inc.(1) 2,979,928 364,521 UAL Corp. 5,307,426 514,231 US Airways Group, Inc.(1) 5,214,302 ------------ 14,734,064 ------------ BIOTECHNOLOGY -- 4.1% 95,075 Alexion Pharmaceuticals, Inc.(1) 3,874,306 139,732 Cubist Pharmaceuticals, Inc.(1) 3,547,796 71,117 Emergent Biosolutions, Inc.(1) 1,280,817 43,447 Martek Biosciences Corp. 1,296,024 46,665 Myriad Genetics, Inc.(1) 2,944,095 59,748 Onyx Pharmaceuticals, Inc.(1) 1,612,001 62,106 OSI Pharmaceuticals, Inc.(1) 2,356,923 23,471 United Therapeutics Corp.(1) 2,047,375 ------------ 18,959,337 ------------ CAPITAL MARKETS -- 1.2% 287,188 SWS Group, Inc. 5,330,209 ------------ CHEMICALS -- 1.7% 40,988 Airgas, Inc. 1,572,300 62,247 Koppers Holdings, Inc. 1,480,856 220,424 Landec Corp.(1) 2,060,964 106,540 Scotts Miracle-Gro Co. (The), Class A 2,782,825 ------------ 7,896,945 ------------ COMMERCIAL BANKS -- 5.5% 139,889 Bank of the Ozarks, Inc. 4,252,626 60,646 Hancock Holding Co. 2,678,127 151,196 NBT Bancorp, Inc. 4,215,344 94,943 Old Second Bancorp, Inc. 1,281,731 289,751 Oriental Financial Group, Inc. 4,705,556 43,306 Simmons First National Corp., Class A 1,343,352 154,250 Southside Bancshares, Inc. 3,715,883 121,533 WesBanco, Inc. 3,303,267 ------------ 25,495,886 ------------ Shares Value COMMERCIAL SERVICES & SUPPLIES -- 2.6% 85,724 Cornell Cos., Inc.(1) $1,951,936 95,952 Geo Group, Inc. (The)(1) 1,694,512 269,534 Knoll, Inc. 3,897,462 126,177 Waste Connections, Inc.(1) 4,271,091 ------------ 11,815,001 ------------ COMMUNICATIONS EQUIPMENT -- 2.5% 776,176 3Com Corp.(1) 2,118,961 101,812 Polycom, Inc.(1) 2,139,070 195,372 Riverbed Technology, Inc.(1) 2,448,011 252,931 Seachange International, Inc.(1) 1,932,393 239,141 Tekelec(1) 3,034,699 ------------ 11,673,134 ------------ CONSTRUCTION & ENGINEERING -- 0.2% 31,116 Northwest Pipe Co.(1) 893,963 ------------ CONSUMER FINANCE -- 1.2% 356,230 EZCORP, Inc., Class A(1) 5,642,683 ------------ CONTAINERS & PACKAGING -- 0.5% 89,147 Bemis Co., Inc. 2,214,411 ------------ DIVERSIFIED CONSUMER SERVICES -- 3.0% 107,769 DeVry, Inc. 6,109,425 95,926 Matthews International Corp., Class A 4,281,177 15,410 Strayer Education, Inc. 3,486,821 ------------ 13,877,423 ------------ ELECTRIC UTILITIES -- 0.6% 73,090 Central Vermont Public Service Corp. 1,455,222 30,780 ITC Holdings Corp. 1,249,052 2,704,274 ELECTRICAL EQUIPMENT -- 2.9% 471,123 Advanced Battery Technologies, Inc.(1) 1,342,701 53,331 American Superconductor Corp.(1) 667,171 91,139 AZZ, inc.(1) 2,659,436 98,858 Energy Conversion Devices, Inc.(1) 3,375,012 124,841 GrafTech International Ltd.(1) 1,012,461 58,294 Jinpan International Ltd. 1,094,178 110,238 Powell Industries, Inc.(1) 2,040,505 28,267 Sunpower Corp., Class A(1) 1,104,109 ------------ 13,295,573 ------------ - ------ 17 New Opportunities II Shares Value ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3% 145,424 Maxwell Technologies, Inc.(1) $1,318,996 ------------ ENERGY EQUIPMENT & SERVICES -- 1.8% 47,471 Dril-Quip, Inc.(1) 1,172,534 33,375 Lufkin Industries, Inc. 1,746,180 892,211 Parker Drilling Co.(1) 4,568,120 36,790 T-3 Energy Services, Inc.(1) 887,007 ------------ 8,373,841 ------------ FOOD & STAPLES RETAILING -- 2.2% 194,218 Casey's General Stores, Inc. 5,865,383 150,039 Spartan Stores, Inc. 4,049,553 ------------ 9,914,936 ------------ FOOD PRODUCTS -- 2.9% 90,297 JM Smucker Co. (The) 4,023,635 31,618 Ralcorp Holdings, Inc.(1) 2,139,906 239,497 TreeHouse Foods, Inc.(1) 7,247,179 ------------ 13,410,720 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.4% 90,079 Edwards Lifesciences Corp.(1) 4,759,774 19,291 Haemonetics Corp.(1) 1,139,327 71,696 ICU Medical, Inc.(1) 2,296,423 127,997 Immucor, Inc.(1) 3,398,320 58,167 Masimo Corp.(1) 1,860,762 123,727 Merit Medical Systems, Inc.(1) 2,264,204 97,854 Natus Medical, Inc.(1) 1,497,166 42,131 NuVasive, Inc.(1) 1,983,949 63,866 STERIS Corp. 2,173,999 97,512 Syneron Medical Ltd.(1) 917,588 45,682 West Pharmaceutical Services, Inc. 1,823,625 20,635 Zoll Medical Corp.(1) 496,891 ------------ 24,612,028 ------------ HEALTH CARE PROVIDERS & SERVICES -- 6.3% 62,782 Almost Family, Inc.(1) 3,023,581 42,126 Amedisys, Inc.(1) 2,376,328 48,741 AMN Healthcare Services, Inc.(1) 438,181 154,319 Amsurg Corp.(1) 3,848,716 33,038 Animal Health International, Inc.(1) 213,095 144,617 CardioNet, Inc.(1) 3,700,749 93,733 Catalyst Health Solutions, Inc.(1) 1,581,276 172,317 Emergency Medical Services Corp., Class A(1) 5,662,337 132,671 IPC The Hospitalist Co., Inc.(1) 2,701,181 120,681 Owens & Minor, Inc. 5,221,867 ------------ 28,767,311 ------------ Shares Value HOTELS, RESTAURANTS & LEISURE -- 2.2% 324,596 Burger King Holdings, Inc. $6,452,968 437,773 CKE Restaurants, Inc. 3,716,693 ------------ 10,169,661 ------------ HOUSEHOLD DURABLES -- 0.2% 29,009 Tupperware Brands Corp. 733,928 ------------ INSURANCE -- 0.1% 100,400 Amil Participacoes SA 463,420 ------------ INTERNET & CATALOG RETAIL -- 0.2% 21,086 priceline.com, Inc.(1) 1,109,756 ------------ INTERNET SOFTWARE & SERVICES -- 3.8% 685,209 AsiaInfo Holdings, Inc.(1) 7,530,447 182,513 Vocus, Inc.(1) 3,071,694 339,850 Websense, Inc.(1) 6,633,872 ------------ 17,236,013 ------------ IT SERVICES -- 5.5% 167,991 CACI International, Inc., Class A(1) 6,917,869 544,996 Cybersource Corp.(1) 6,621,702 195,997 ManTech International Corp., Class A(1) 10,572,078 156,236 Ness Technologies, Inc.(1) 1,154,584 ------------ 25,266,233 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.2% 28,822 Bio-Rad Laboratories, Inc., Class A(1) 2,460,822 50,594 Kendle International, Inc.(1) 914,234 116,653 PerkinElmer, Inc. 2,092,755 ------------ 5,467,811 ------------ MACHINERY -- 1.7% 96,684 Colfax Corp.(1) 823,748 12,998 K-Tron International, Inc.(1) 1,221,682 144,186 Wabtec Corp. 5,732,835 ------------ 7,778,265 ------------ MARINE -- 0.1% 76,173 Safe Bulkers, Inc. 419,713 ------------ MEDIA -- 1.5% 223,611 VisionChina Media, Inc. ADR(1) 1,788,888 340,977 World Wrestling Entertainment, Inc., Class A 4,855,513 ------------ 6,644,401 ------------ METALS & MINING -- 0.4% 36,293 Compass Minerals International, Inc. 1,993,575 ------------ - ------ 18 New Opportunities II Shares Value OIL, GAS & CONSUMABLE FUELS -- 4.2% 210,107 Approach Resources, Inc.(1) $2,290,166 110,856 Berry Petroleum Co., Class A 2,582,945 65,558 Comstock Resources, Inc.(1) 3,239,876 107,715 Concho Resources, Inc.(1) 2,288,944 134,485 EXCO Resources, Inc.(1) 1,235,917 125,562 Forest Oil Corp.(1) 3,667,666 83,968 Penn Virginia Corp. 3,121,091 191,016 TXCO Resources, Inc.(1) 1,000,924 ------------ 19,427,529 ------------ PERSONAL PRODUCTS -- 0.7% 235,699 American Oriental Bioengineering, Inc.(1) 1,440,121 160,102 Inter Parfums, Inc. 1,866,789 ------------ 3,306,910 ------------ PHARMACEUTICALS -- 3.6% 382,379 Biovail Corp. 3,288,459 259,211 Obagi Medical Products, Inc.(1) 2,156,636 220,718 Perrigo Co. 7,504,412 437,452 Questcor Pharmaceutical, Inc.(1) 3,385,878 ------------ 16,335,385 ------------ PROFESSIONAL SERVICES -- 1.4% 111,482 FTI Consulting, Inc.(1) 6,493,827 ------------ REAL ESTATE INVESTMENT TRUSTS (REITS) -- 3.6% 670,553 Capstead Mortgage Corp. 6,739,057 234,216 Hatteras Financial Corp. 5,105,909 669,752 U-Store-It Trust 4,594,499 ------------ 16,439,465 ------------ ROAD & RAIL -- 0.6% 97,188 J.B. Hunt Transport Services, Inc. 2,763,055 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.1% 266,949 EMCORE Corp.(1) 950,339 108,269 MEMC Electronic Materials, Inc.(1) 1,989,984 377,676 Microsemi Corp.(1) 8,210,676 1,716,599 RF Micro Devices, Inc.(1) 3,416,032 186,086 Supertex, Inc.(1) 4,488,394 ------------ 19,055,425 ------------ SOFTWARE -- 4.5% 393,213 NetScout Systems, Inc.(1) 3,782,709 123,587 Quality Systems, Inc. 4,756,864 37,037 salesforce.com, inc.(1) 1,146,666 311,876 Sybase, Inc.(1) 8,305,258 323,260 Wind River Systems, Inc.(1) 2,825,292 ------------ 20,816,789 ------------ Shares Value SPECIALTY RETAIL -- 5.3% 178,716 Aeropostale, Inc.(1) $4,326,714 74,600 Buckle, Inc. (The) 1,964,951 439,978 Hot Topic, Inc.(1) 2,851,058 219,111 Monro Muffler, Inc. 4,717,460 327,802 RadioShack Corp. 4,149,973 89,618 Tractor Supply Co.(1) 3,724,524 878,961 Wet Seal, Inc. (The), Class A(1) 2,584,145 ------------ 24,318,825 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.9% 35,397 Deckers Outdoor Corp.(1) 3,003,789 44,291 Warnaco Group, Inc. (The)(1) 1,320,315 ------------ 4,324,104 ------------ THRIFTS & MORTGAGE FINANCE -- 0.9% 265,434 First Niagara Financial Group, Inc. 4,185,894 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.7% 181,796 DXP Enterprises, Inc.(1) 2,537,872 64,743 Houston Wire & Cable Co. 745,840 ------------ 3,283,712 ------------ WATER UTILITIES -- 0.3% 211,265 Cascal NV 1,398,574 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 2.4% 583,143 Syniverse Holdings, Inc.(1) 10,963,088 ------------ TOTAL COMMON STOCKS (Cost $496,409,835) 458,614,848 ------------ Temporary Cash Investments(2) 79,312 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares (Cost $79,312) 79,312 ------------ TOTAL INVESTMENT SECURITIES -- 99.8% (Cost $496,489,147) 458,694,160 ------------ OTHER ASSETS AND LIABILITIES -- 0.2% 841,908 ------------ TOTAL NET ASSETS -- 100.0% $459,536,068 ============ Notes to Schedule of Investments ADR = American Depositary Receipt (1) Non-income producing. (2) Category is less than 0.05% of total net assets. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 19 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 Heritage New Opportunities II ASSETS Investment securities, at value (cost of $1,908,164,435 and $496,489,147, respectively) $1,733,326,953 $458,694,160 Foreign currency holdings, at value (cost of $-- and $49,007, respectively) -- 49,007 Receivable for investments sold 53,475,041 19,506,700 Receivable for forward foreign currency exchange contracts 1,282,289 -- Receivable for capital shares sold 2,742,941 869,913 Dividends and interest receivable 929,774 131,681 ----------------- --------------- 1,791,756,998 479,251,461 ----------------- --------------- LIABILITIES Disbursements in excess of demand deposit cash 384,427 824,081 Payable for investments purchased 48,443,470 17,969,394 Payable for forward foreign currency exchange contracts 84,852 -- Payable for capital shares redeemed 5,576,228 358,209 Accrued management fees 1,507,070 522,674 Distribution fees payable 21,673 10,113 Service fees (and distribution fees -- A Class and R Class) payable 80,871 30,922 ----------------- --------------- 56,098,591 19,715,393 ----------------- --------------- NET ASSETS $1,735,658,407 $459,536,068 ================= =============== See Notes to Financial Statements. - ------ 20 OCTOBER 31, 2008 Heritage New Opportunities II NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $2,120,668,023 $814,599,002 Undistributed net investment income 12,271,498 -- Accumulated net realized loss on investment and foreign currency transactions (223,694,439) (317,251,925) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (173,586,675) (37,811,009) ----------------- -------------------- $1,735,658,407 $459,536,068 ================= ==================== INVESTOR CLASS, $0.01 PAR VALUE Net assets $1,261,783,845 $222,016,608 Shares outstanding 95,937,122 39,849,450 Net asset value per share $13.15 $5.57 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $86,834,529 $91,791,057 Shares outstanding 6,475,452 16,423,391 Net asset value per share $13.41 $5.59 A CLASS, $0.01 PAR VALUE Net assets $351,962,041 $129,791,213 Shares outstanding 27,408,772 23,478,489 Net asset value per share $12.84 $5.53 Maximum offering price (net asset value divided by 0.9425) $13.62 $5.87 B CLASS, $0.01 PAR VALUE Net assets $1,770,178 $2,846,052 Shares outstanding 136,037 525,602 Net asset value per share $13.01 $5.41 C CLASS, $0.01 PAR VALUE Net assets $32,811,839 $12,982,930 Shares outstanding 2,704,307 2,387,343 Net asset value per share $12.13 $5.44 R CLASS, $0.01 PAR VALUE Net assets $495,975 $108,208 Shares outstanding 37,911 19,530 Net asset value per share $13.08 $5.54 See Notes to Financial Statements. - ------ 21 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 Heritage New Opportunities II INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $261,641 and $10,262, respectively) $ 12,994,359 $ 4,526,194 Interest 1,307,384 302,239 ---------------- -------------- 14,301,743 4,828,433 ---------------- -------------- EXPENSES: Management fees 26,737,488 7,322,789 Distribution fees: B Class 7,952 28,920 C Class 248,778 123,902 Service fees: B Class 2,650 9,640 C Class 82,926 41,300 Distribution and service fees: A Class 992,236 443,754 R Class 1,240 199 Directors' fees and expenses 83,196 20,291 Other expenses 38,679 1,750 ---------------- -------------- 28,195,145 7,992,545 ---------------- -------------- NET INVESTMENT INCOME (LOSS) (13,893,402) (3,164,112) ---------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (213,028,563) (137,443,352) Foreign currency transactions 25,999,012 43,947 ---------------- -------------- (187,029,551) (137,399,405) ---------------- -------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (1,058,841,002) (137,902,487) Translation of assets and liabilities in foreign currencies 1,775,898 (13,718) ---------------- -------------- (1,057,065,104) (137,916,205) ---------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (1,244,094,655) (275,315,610) ---------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,257,988,057) $(278,479,722) ================ ============== See Notes to Financial Statements. - ------ 22 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Heritage New Opportunities II Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $(13,893,402) $(9,933,053) $(3,164,112) $(2,884,400) Net realized gain (loss) (187,029,551) 146,268,289 (137,399,405) 27,531,246 Change in net unrealized appreciation (depreciation) (1,057,065,104) 661,025,727 (137,916,205) 75,883,152 --------------- -------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (1,257,988,057) 797,360,963 (278,479,722) 100,529,998 --------------- -------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net realized gains: Investor Class (116,021,756) (69,993,372) (2,300,951) (4,743,191) Institutional Class (7,340,538) (3,848,774) (540,870) -- A Class (16,474,408) (4,359,065) (1,726,801) (6,550,114) B Class (12,405) -- (39,168) (271,092) C Class (1,359,296) (167,371) (150,324) (370,839) R Class (1,228) -- (229) -- --------------- -------------- ------------- ------------- Decrease in net assets from distributions (141,209,631) (78,368,582) (4,758,343) (11,935,236) --------------- -------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 187,043,641 1,074,154,725 197,705,326 323,948,017 --------------- -------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS (1,212,154,047) 1,793,147,106 (85,532,739) 412,542,779 NET ASSETS Beginning of period 2,947,812,454 1,154,665,348 545,068,807 132,526,028 --------------- -------------- ------------- ------------- End of period $1,735,658,407 $2,947,812,454 $459,536,068 $545,068,807 =============== =============== ============= ============ Undistributed net investment income $12,271,498 $174,677 -- -- =============== =============== ============= ============ See Notes to Financial Statements. - ------ 23 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 -- 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 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 funds record 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. 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 funds estimate 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. - ------ 24 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 -- 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. - ------ 25 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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 and 0.80% for the Institutional Class. 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 New Opportunities II 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, 2008 was as follows: Investor, A, B, C & R Institutional Heritage 1.00% 0.80% New Opportunities II 1.36% 1.16% 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%. The fees are computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2008, 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 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. Prior to December 12, 2007, the fund had 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. - ------ 26 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended October 31, 2008, were as follows: Heritage New Opportunities II Purchases $4,650,141,126 $1,023,666,842 Proceeds from sales $4,593,076,359 $811,122,287 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows: Year ended Year ended October 31, 2008 October 31, 2007(1) Shares Amount Shares Amount Heritage INVESTOR CLASS/SHARES AUTHORIZED 400,000,000 400,000,000 ============ ============ Sold 31,233,074 $618,004,142 55,747,908 $1,085,083,773 Issued in reinvestment of distributions 5,127,807 109,324,836 4,258,562 67,285,282 Redeemed (48,965,070) (876,451,757) (18,034,415) (331,684,372) ------------ ------------- ------------ -------------- (12,604,189) (149,122,779) 41,972,055 820,684,683 ------------ ------------- ------------ -------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 40,000,000 40,000,000 ============ ============ Sold 4,661,236 93,305,544 4,242,050 81,839,322 Issued in reinvestment of distributions 335,375 7,277,632 209,986 3,366,082 Redeemed (5,236,470) (85,632,543) (1,347,922) (25,109,011) ------------ ------------- ------------ -------------- (239,859) 14,950,633 3,104,114 60,096,393 ------------ ------------- ------------ -------------- A CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 ============ ============ Sold 22,743,450 430,416,225 11,013,744 210,428,398 Issued in reinvestment of distributions 779,682 16,263,842 280,594 4,352,011 Redeemed (9,151,482) (160,662,157) (2,042,060) (37,629,295) ------------ ------------- ------------ -------------- 14,371,650 286,017,910 9,252,278 177,151,114 ------------ ------------- ------------ -------------- B CLASS/SHARES AUTHORIZED 35,000,000 35,000,000 ============ ============ Sold 143,185 2,761,872 3,651 80,038 Issued in reinvestment of distributions 537 11,416 -- -- Redeemed (11,336) (184,696) -- -- ------------ ------------- ------------ -------------- 132,386 2,588,592 3,651 80,038 ------------ ------------- ------------ -------------- C CLASS/SHARES AUTHORIZED 35,000,000 35,000,000 ============ ============ Sold 2,301,879 42,068,427 920,436 17,272,099 Issued in reinvestment of distributions 60,851 1,207,291 10,254 152,781 Redeemed (674,227) (11,344,437) (72,875) (1,307,383) ------------ ------------- ------------ -------------- 1,688,503 31,931,281 857,815 16,117,497 ------------ ------------- ------------ -------------- R CLASS/SHARES AUTHORIZED 30,000,000 30,000,000 ============ ============ Sold 47,915 887,242 1,162 25,000 Issued in reinvestment of distributions 58 1,228 -- -- Redeemed (11,224) (210,466) -- -- 36,749 678,004 1,162 25,000 ------------ ------------- ------------ -------------- Net increase (decrease) 3,385,240 $187,043,641 55,191,075 $1,074,154,725 ============ ============= ============ ============== (1) September 28, 2007 (commencement of sale) through October 31, 2007 for the B Class and R Class. - ------ 27 Year ended Year ended October 31, 2008 October 31, 2007(1) Shares Amount Shares Amount New Opportunities II INVESTOR CLASS/SHARES AUTHORIZED 165,000,000 165,000,000 ============== =========== Sold 14,516,866 $107,524,672 16,509,991 $136,035,975 Issued in connection with acquisition (Note 8) -- -- 11,629,055 90,241,770 Issued in reinvestment of distributions 192,298 1,651,841 485,199 3,454,628 Redeemed (7,044,679)(2) (51,234,905) (3,170,120) (26,089,511)(3) -------------- ------------- ----------- ------------- 7,664,485 57,941,608 25,454,125 203,642,862 -------------- ------------- ----------- ------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============== =========== Sold 17,709,479 141,204,228 1,988,404 17,346,574 Issued in reinvestment of distributions 7,845 67,466 -- -- Redeemed (3,243,291)(4) (23,252,011) (39,046) (344,012)(5) -------------- ------------- ----------- ------------- 14,474,033 118,019,683 1,949,358 17,002,562 -------------- ------------- ----------- ------------- A CLASS/ SHARES AUTHORIZED 100,000,000 100,000,000 ============== =========== Sold 7,874,721 61,062,282 3,296,265 29,060,351 Issued in connection with acquisition (Note 8) -- -- 13,909,669 107,660,863 Issued in reinvestment of distributions 193,819 1,655,219 908,837 6,452,744 Redeemed (6,200,038)(6) (46,433,452) (6,173,894) (49,631,241)(7) -------------- ------------- ----------- ------------- 1,868,502 16,284,049 11,940,877 93,542,717 -------------- ------------- ----------- ------------- B CLASS/ SHARES AUTHORIZED 20,000,000 20,000,000 ============== =========== Sold 120,388 909,810 76,866 633,968 Issued in reinvestment of distributions 4,508 37,960 36,631 258,250 Redeemed (91,032)(8) (657,189) (73,135) (565,516) -------------- ------------- ----------- ------------- 33,864 290,581 40,362 326,702 -------------- ------------- ----------- ------------- C CLASS/ SHARES AUTHORIZED 20,000,000 20,000,000 ============== =========== Sold 1,109,692 8,592,777 629,498 5,317,298 Issued in connection with acquisition (Note 8) -- -- 903,113 6,962,989 Issued in reinvestment of distributions 13,136 111,133 35,779 253,319 Redeemed (501,516)(9) (3,655,747) (390,349) (3,125,432) -------------- ------------- ----------- ------------- 621,312 5,048,163 1,178,041 9,408,174 -------------- ------------- ----------- ------------- R CLASS/ SHARES AUTHORIZED 20,000,000 20,000,000 ============== =========== Sold 20,089 138,869 2,772 25,000 Issued in reinvestment of distributions 27 229 -- -- Redeemed (3,358) (17,856) -- -- -------------- ------------- ----------- ------------- 16,758 121,242 2,772 25,000 -------------- ------------- ----------- ------------- Net increase 24,678,954 $197,705,326 40,565,535 $323,948,017 ============== ============= =========== ============= (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 $174,782. (3) Net of redemption fees of $26,104. (4) Net of redemption fees of $14,858. (5) Net of redemption fees of $5,237. (6) Net of redemption fees of $17,033. (7) Net of redemption fees of $7,198. (8) Net of redemption fees of $249. (9) Net of redemption fees of $923. - ------ 28 5. BANK LINE OF CREDIT Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The funds did not borrow from either line during the year ended October 31, 2008. . 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. 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 ended October 31, 2008 and October 31, 2007 were as follows: Heritage New Opportunities II 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $8,441,706 -- -- $2,458,338 Long-term capital gains $132,767,925 $78,368,582 $4,758,343 $9,476,898 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. - ------ 29 As of October 31, 2008, 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 $1,947,387,870 $509,694,833 ================ ================ Gross tax appreciation of investments $ 94,724,163 $20,932,747 Gross tax depreciation of investments (308,785,080) (71,933,420) ---------------- ---------------- Net tax appreciation (depreciation) of investments $(214,060,917) $(51,000,673) ================ ================ Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies $ 87,922 $ (16,021) Net tax appreciation (depreciation) $(213,972,995) $(51,016,694) ================ ================ Undistributed ordinary income $13,434,383 -- Accumulated capital losses $(184,471,004) $(304,046,240) The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and return of capital dividends received and the realization for tax purposes of unrealized gains or certain forward foreign currency exchange contracts. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: 2011 2012 2013 2014 2015 2016 Heritage -- -- -- -- -- $(184,471,004) New Opportunities II $(13,145,846) $(19,655,453) $(42,248,002) $(103,823,579) -- $(125,173,360) 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 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 reorganization was approved by shareholders of Emerging Growth on January 12, 2007. The 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 -- 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. - ------ 30 9. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the deetermination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 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. Heritage designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2008. For corporate taxpayers, Heritage hereby designates ordinary income distributions of $1,828,292, or up to the maximum amount allowable, as qualified for the corporate dividends received deduction for the fiscal year ended October 31, 2008. Heritage and New Opportunities II hereby designate $132,767,925 and $4,758,343 of long-term capital gains distributions, respectively, or up to the maximum amount allowable, for the fiscal year ended October 31, 2008. Heritage hereby designates $8,427,916 of qualified short-term capital gains distributions for the purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2008. - ------ 31 FINANCIAL HIGHLIGHTS Heritage Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $22.83 $15.58 $13.48 $10.76 $10.78 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.09) (0.10) (0.03) (0.06) (0.05) Net Realized and Unrealized Gain (Loss) (8.53) 8.42 2.22 2.78 0.03 -------- ------- ------- ------- ------- Total From Investment Operations (8.62) 8.32 2.19 2.72 (0.02) -------- ------- ------- ------- ------- Distributions From Net Realized Gains (1.06) (1.07) (0.09) -- -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $13.15 $22.83 $15.58 $13.48 $10.76 ======== ======= ======= ======= ======= TOTAL RETURN(2) (39.54)% 56.41% 16.26% 25.16% (0.09)% 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 (0.47)% (0.56)% (0.22)% (0.46)% (0.44)% Portfolio Turnover Rate 172% 128% 230% 236% 264% Net Assets, End of Period (in millions) $1,262 $2,478 $1,037 $801 $1,148 (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. - ------ 32 Heritage Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $23.21 $15.80 $13.63 $10.87 $10.86 -------- -------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.05) (0.07) --(2) (0.03) (0.03) Net Realized and Unrealized Gain (Loss) (8.69) 8.55 2.26 2.79 0.04 -------- -------- ------- ------- ------- Total From Investment Operations (8.74) 8.48 2.26 2.76 0.01 -------- -------- ------- ------- ------- Distributions From Net Realized Gains (1.06) (1.07) (0.09) -- -- -------- -------- ------- ------- ------- Net Asset Value, End of Period $13.41 $23.21 $15.80 $13.63 $10.87 ======== ======== ======= ======= ======= TOTAL RETURN(3) (39.41)% 56.66% 16.59% 25.39% 0.09% 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 (0.27)% (0.36)% (0.02)% (0.26)% (0.24)% Portfolio Turnover Rate 172% 128% 230% 236% 264% Net Assets, End of Period (in thousands) $86,835 $155,885 $57,039 $43,192 $58,259 (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. - ------ 33 Heritage A Class(1) For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $22.37 $15.32 $13.29 $10.64 $10.68 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(2) (0.13) (0.15) (0.08) (0.09) (0.07) Net Realized and Unrealized Gain (Loss) (8.34) 8.27 2.20 2.74 0.03 -------- ------- ------- ------- ------- Total From Investment Operations (8.47) 8.12 2.12 2.65 (0.04) -------- ------- ------- ------- ------- Distributions From Net Realized Gains (1.06) (1.07) (0.09) -- -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $12.84 $22.37 $15.32 $13.29 $10.64 ======== ======= ======= ======= ======= TOTAL RETURN(3) (39.69)% 56.05% 15.96% 24.91% (0.37)% 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 (0.72)% (0.81)% (0.47)% (0.71)% (0.69)% Portfolio Turnover Rate 172% 128% 230% 236% 264% Net Assets, End of Period (in thousands) $351,962 $291,674 $57,995 $19,953 $15,623 (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. - ------ 34 Heritage B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $22.82 $21.52 -------- ---------- Income From Investment Operations Net Investment Income (Loss)(2) (0.26) (0.03) Net Realized and Unrealized Gain (Loss) (8.49) 1.33 -------- ---------- Total From Investment Operations (8.75) 1.30 -------- ---------- Distributions From Net Realized Gains (1.06) -- -------- ---------- Net Asset Value, End of Period $13.01 $22.82 ======== ========== TOTAL RETURN(3) (40.16)% 6.04% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.00% 2.00%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (1.47)% (1.81)%(4) Portfolio Turnover Rate 172% 128%(5) Net Assets, End of Period (in thousands) $1,770 $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. - ------ 35 Heritage C Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $21.35 $14.77 $12.91 $10.41 $10.54 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.26) (0.29) (0.18) (0.17) (0.15) Net Realized and Unrealized Gain (Loss) (7.90) 7.94 2.13 2.67 0.02 -------- ------- ------- ------- ------- Total From Investment Operations (8.16) 7.65 1.95 2.50 (0.13) -------- ------- ------- ------- ------- Distributions From Net Realized Gains (1.06) (1.07) (0.09) -- -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $12.13 $21.35 $14.77 $12.91 $10.41 ======== ======= ======= ======= ======= TOTAL RETURN(2) (40.16)% 54.88% 15.11% 24.02% (1.23)% 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 (1.47)% (1.56)% (1.22)% (1.46)% (1.44)% Portfolio Turnover Rate 172% 128% 230% 236% 264% Net Assets, End of Period (in thousands) $32,812 $21,692 $2,334 $898 $889 (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. - ------ 36 Heritage R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $22.83 $21.52 -------- ---------- Income From Investment Operations Net Investment Income (Loss)(2) (0.17) (0.02) Net Realized and Unrealized Gain (Loss) (8.52) 1.33 -------- ---------- Total From Investment Operations (8.69) 1.31 -------- ---------- Distributions From Net Realized Gains (1.06) -- -------- ---------- Net Asset Value, End of Period $13.08 $22.83 ======== ========== TOTAL RETURN(3) (39.86)% 6.09% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.97)% (1.22)%(4) Portfolio Turnover Rate 172% 128%(5) Net Assets, End of Period (in thousands) $496 $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. - ------ 37 New Opportunities II Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.42 $7.63 $6.75 $6.29 $5.75 -------- -------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.04) (0.05) (0.06) (0.06) (0.07) Net Realized and Unrealized Gain (Loss) (3.73) 2.52 1.16 0.69 0.61 -------- -------- ------- ------- ------- Total From Investment Operations (3.77) 2.47 1.10 0.63 0.54 -------- -------- ------- ------- ------- Distributions From Net Realized Gains (0.08) (0.68) (0.22) (0.17) -- -------- -------- ------- ------- ------- Net Asset Value, End of Period $5.57 $9.42 $7.63 $6.75 $6.29 ======== ======== ======= ======= ======= TOTAL RETURN(2) (40.34)% 35.22% 16.52% 10.14% 9.39% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.36% 1.41% 1.50% 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (0.49)% (0.70)% (0.80)% (0.93)% (1.09)% Portfolio Turnover Rate 148% 204% 299% 269% 255% Net Assets, End of Period (in thousands) $222,017 $303,189 $51,336 $43,157 $38,917 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ------ 38 New Opportunities II Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $9.43 $8.27 -------- -------- Income From Investment Operations Net Investment Income (Loss)(2) (0.02) (0.03) Net Realized and Unrealized Gain (Loss) (3.74) 1.19 -------- -------- Total From Investment Operations (3.76) 1.16 -------- -------- Distributions From Net Realized Gains (0.08) -- -------- -------- Net Asset Value, End of Period $5.59 $9.43 ======== ======== TOTAL RETURN(3) (40.19)% 14.03% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.16% 1.21%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.29)% (0.65)%(4) Portfolio Turnover Rate 148% 204%(5) Net Assets, End of Period (in thousands) $91,791 $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. - ------ 39 New Opportunities II A Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.37 $7.59 $6.72 $6.26 $5.74 -------- -------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.06) (0.07) (0.08) (0.08) (0.08) Net Realized and Unrealized Gain (Loss) (3.70) 2.51 1.16 0.70 0.60 -------- -------- ------- ------- ------- Total From Investment Operations (3.76) 2.44 1.08 0.62 0.52 -------- -------- ------- ------- ------- Distributions From Net Realized Gains (0.08) (0.66) (0.21) (0.16) -- -------- -------- ------- ------- ------- Net Asset Value, End of Period $5.53 $9.37 $7.59 $6.72 $6.26 ======== ======== ======= ======= ======= TOTAL RETURN(2) (40.45)% 34.91% 16.22% 9.91% 9.06% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.61% 1.66% 1.75% 1.75% 1.75% Ratio of Net Investment Income (Loss) to Average Net Assets (0.74)% (0.95)% (1.05)% (1.18)% (1.34)% Portfolio Turnover Rate 148% 204% 299% 269% 255% Net Assets, End of Period (in thousands) $129,791 $202,515 $73,383 $47,937 $20,337 (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. - ------ 40 New Opportunities II B Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.25 $7.49 $6.63 $6.18 $5.71 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.11) (0.13) (0.14) (0.13) (0.13) Net Realized and Unrealized Gain (Loss) (3.65) 2.49 1.15 0.69 0.60 -------- ------- ------- ------- ------- Total From Investment Operations (3.76) 2.36 1.01 0.56 0.47 -------- ------- ------- ------- ------- Distributions From Net Realized Gains (0.08) (0.60) (0.15) (0.11) -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $5.41 $9.25 $7.49 $6.63 $6.18 ======== ======= ======= ======= ======= TOTAL RETURN(2) (40.97)% 33.84% 15.46% 9.03% 8.23% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.36% 2.41% 2.50% 2.50% 2.50% Ratio of Net Investment Income (Loss) to Average Net Assets (1.49)% (1.70)% (1.80)% (1.93)% (2.09)% Portfolio Turnover Rate 148% 204% 299% 269% 255% Net Assets, End of Period (in thousands) $2,846 $4,549 $3,383 $2,367 $1,163 (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. - ------ 41 New Opportunities II C Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.29 $7.52 $6.66 $6.20 $5.73 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) (0.11) (0.13) (0.14) (0.13) (0.13) Net Realized and Unrealized Gain (Loss) (3.66) 2.50 1.15 0.70 0.60 -------- ------- ------- ------- ------- Total From Investment Operations (3.77) 2.37 1.01 0.57 0.47 -------- ------- ------- ------- ------- Distributions From Net Realized Gains (0.08) (0.60) (0.15) (0.11) -- -------- ------- ------- ------- ------- Net Asset Value, End of Period $5.44 $9.29 $7.52 $6.66 $6.20 ======== ======= ======= ======= ======= TOTAL RETURN(2) (40.91)% 34.02% 15.24% 9.16% 8.20% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.36% 2.41% 2.50% 2.50% 2.50% Ratio of Net Investment Income (Loss) to Average Net Assets (1.49)% (1.70)% (1.80)% (1.93)% (2.09)% Portfolio Turnover Rate 148% 204% 299% 269% 255% Net Assets, End of Period (in thousands) $12,983 $16,406 $4,424 $3,414 $1,294 (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. - ------ 42 New Opportunities II R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007(1) PER-SHARE DATA Net Asset Value, Beginning of Period $9.42 $9.02 -------- ---------- Income From Investment Operations Net Investment Income (Loss)(2) (0.06) (0.01) Net Realized and Unrealized Gain (Loss) (3.74) 0.41 -------- ---------- Total From Investment Operations (3.80) 0.40 -------- ---------- Distributions From Net Realized Gains (0.08) -- -------- ---------- Net Asset Value, End of Period $5.54 $9.42 ======== ========== TOTAL RETURN(3) (40.66)% 4.43% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.86% 1.91%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.99)% (1.61)%(4) Portfolio Turnover Rate 148% 204%(5) Net Assets, End of Period (in thousands) $108 $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. - ------ 43 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, two of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation'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 Corporation 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 Corporation'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, 2008, 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 respective financial positions of Heritage Fund and New Opportunities II Fund, two of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 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 16, 2008 - ------ 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 46 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 47 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 or trustees (the "Directors") each year. At American Century Investments, 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 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 funds; * reports on the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 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. In connection with their review of the funds, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 funds. 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 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 the services provided by the advisor 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. - ------ 49 INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided to the funds is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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. 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. The funds' 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. 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 agreement, and the reasonableness of the current management fee. The board concluded that the advisor's profits were reasonable in light of the services provided to the funds. ETHICS. 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. - ------ 50 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 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. 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 groups. 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 below the median of the total expense ratios of its peer group. The board concluded that the management fee paid by the funds to the advisor was reasonable in light of the services provided to the funds. 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. - ------ 51 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 board, including all of 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. - ------ 52 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The 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. - ------ 53 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 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 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 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. - ------ 54 NOTES - ------ 55 NOTES - ------ 56 [back cover] [american century investments logo and text logo ®] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE . . . . . . . . . . . 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS . . . . . . . . . . . . . . . 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES . . . . . 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . 1-800-634-4113 AMERICAN CENTURY 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. PRSRT STD American Century Investments U.S. POSTAGE PAID P.O. Box 419200 AMERICAN CENTURY Kansas City, MO 64141-6200 COMPANIES American Century Investment Services, Inc., Distributor ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62722S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS NEW OPPORTUNITIES FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9 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 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Approval of Management Agreement for New Opportunities. . . . . . . . 24 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 28 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 29 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE New Opportunities Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date NEW OPPORTUNITIES -40.33% 0.24% 5.65% 4.34% 12/26/96 RUSSELL 2000 GROWTH INDEX(1) -37.87% -0.13% 1.63% 1.14%(2) -- (1) Data provided by Lipper Inc. -- A Reuters Company. ©2008 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. 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 New Opportunities Growth of $10,000 Over 10 Years $10,000 investment made October 31, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 New Opportunities 92.03% 83.28% -53.81% -16.46% 26.18% 0.00% 11.26% 14.39% 33.23% -40.33% Russell 2000 Growth Index 29.28% 16.16% -31.50% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73% -37.87% 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. 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 New Opportunities Portfolio Managers: Stafford Southwick and Matthew Ferretti PERFORMANCE SUMMARY New Opportunities returned -40.33% for the 12 months ended October 31, 2008, reflecting the sharp decline in the U.S. stock market. The fund's performance trailed the -37.87% return of its benchmark, the Russell 2000 Growth Index. In addition to the extreme pessimism that gripped the market, navigating through dramatic shifts in market sentiment and sector rotation was particularly challenging over the past year. In addition, our investment approach, which focuses on accelerating growth and price momentum, was out of favor for most of the period, creating further performance headwinds. As a result, the portfolio underperformed its growth-oriented benchmark index. INDUSTRIALS UNDERPERFORMED Stock selection in the industrials sector had the biggest negative impact on performance compared with the Russell 2000 Growth Index. Our overweight position in dry bulk carriers, which were among the best performers in the portfolio in 2007, weighed on performance during the past 12 months. Dry bulk carriers, which are ships that carry dry goods such as iron ore and coal, saw their day rates collapse as slowing global economic activity led to declining demand for dry goods. Britannia Bulk Holdings, TBS International, and DryShips were among the worst contributors in the portfolio during the period. We shifted our emphasis in the industrials sector during the last half of the period. We significantly reduced our exposure to the dry bulk carriers and other commodity-sensitive stocks, while adding positions in companies that are poised to benefit from lower raw materials costs. HEALTH CARE AND ENERGY ALSO DETRACTED Our underweight position in health care, which was one of the better-performing sectors in the index, weighed on relative results. Stock selection in the health care sector also detracted, particularly among health care equipment makers and contract research organizations (CROs). Kendle International and PAREXEL International, both of which are CROs that perform late-stage clinical research for biotechnology and pharmaceutical companies, were hurt by concerns that capital constraints in the biotech industry will result in fewer clinical trials. Other noteworthy decliners during the period included two energy stocks, Alpha Natural Resources and Walter Industries. Both companies produce metallurgical coal, which was in high demand for use in steelmaking, particularly from emerging economies such as China. However, the global economic slowdown and accompanying decline in demand for commodities caused these stocks to fall sharply. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Syniverse Holdings, Inc. 2.4% 1.5% ManTech International Corp., Class A 2.3% 1.7% Sybase, Inc. 1.8% 1.5% Microsemi Corp. 1.8% 1.4% Perrigo Co. 1.7% 1.5% AsiaInfo Holdings, Inc. 1.7% 1.2% TreeHouse Foods, Inc. 1.6% -- Websense, Inc. 1.5% 1.2% CACI International, Inc., Class A 1.5% 1.1% Capstead Mortgage Corp. 1.5% 0.7% - ------ 5 New Opportunities CONSUMER AND TELECOM ADDED VALUE The portfolio's consumer discretionary holdings outperformed their counterparts in the benchmark index. The top contributor in this sector was DeVry, which is a for-profit secondary educational institution. As the economic environment worsened and unemployment rose, more and more people returned to school to change careers or improve their ability to find employment. DeVry was a direct beneficiary of this trend. Another theme among our better-performing consumer stocks was a trading down in consumer spending habits to discount retailers, fast-food restaurants, and other lower-cost consumer outlets. The most notable beneficiary of this trend in the portfolio was fast-food chain Burger King, which also enjoyed lower input costs as commodity prices declined. Stock selection also added value in the telecommunications services sector. One of the top performers in the portfolio was Syniverse, which provides data clearinghouse services that enable wireless telecom carriers to offer and be compensated for roaming and text messaging services. Syniverse employs a transaction-based business model, and the company benefited from increased data traffic during the period. A LOOK AHEAD As we move into 2009, it is clear that we are facing a global recession. The U.S. economy was the first to experience a downturn, so we expect it to be the first to recover. As a result, we are emphasizing companies with domestic end-markets. From a sector standpoint, we are overweight in consumer staples, as well as dividend-paying stocks such as utilities and selected financials. In the materials sector, we are focusing on companies benefiting from lower input costs, while our consumer discretionary holdings have shifted from specialty retailers to discount stores and lower-priced providers. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Health Care Providers & Services 6.3% 2.1% Commercial Banks 5.5% 5.6% IT Services 5.5% 4.4% Health Care Equipment & Supplies 5.3% 2.9% Specialty Retail 5.2% 2.0% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 94.4% 91.8% Foreign Common Stocks(1) 5.2% 7.2% TOTAL COMMON STOCKS 99.6% 99.0% Temporary Cash Investments 0.1% 0.5% Other Assets and Liabilities 0.3% 0.5% (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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. - ------ 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. Beginning Ending Account Account Expenses Paid Value Value During Period* Annualized 5/1/08 10/31/08 5/1/08 - 10/31/08 Expense Ratio* Actual $1,000 $711.10 $6.45 1.50% Hypothetical $1,000 $1,017.60 $7.61 1.50% * Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS New Opportunities OCTOBER 31, 2008 Shares Value Common Stocks -- 99.6% AEROSPACE & DEFENSE -- 1.6% 28,442 Curtiss-Wright Corp. $ 1,049,510 61,313 Orbital Sciences Corp.(1) 1,256,303 ------------ 2,305,813 ------------ AIRLINES -- 3.2% 37,273 AMR Corp.(1) 380,557 134,883 Hawaiian Holdings, Inc.(1) 944,181 116,729 UAL Corp. 1,699,574 164,670 US Airways Group, Inc.(1) 1,669,754 ------------ 4,694,066 ------------ BIOTECHNOLOGY -- 4.1% 30,219 Alexion Pharmaceuticals, Inc.(1) 1,231,424 44,932 Cubist Pharmaceuticals, Inc.(1) 1,140,823 21,988 Emergent Biosolutions, Inc.(1) 396,004 13,294 Martek Biosciences Corp. 396,560 15,165 Myriad Genetics, Inc.(1) 956,760 19,135 Onyx Pharmaceuticals, Inc.(1) 516,262 19,664 OSI Pharmaceuticals, Inc.(1) 746,249 7,346 United Therapeutics Corp.(1) 640,792 ------------ 6,024,874 ------------ CAPITAL MARKETS -- 1.2% 91,962 SWS Group, Inc. 1,706,815 ------------ CHEMICALS -- 1.7% 13,127 Airgas, Inc. 503,551 19,329 Koppers Holdings, Inc. 459,837 71,065 Landec Corp.(1) 664,458 34,117 Scotts Miracle-Gro Co. (The), Class A 891,136 ------------ 2,518,982 ------------ COMMERCIAL BANKS -- 5.5% 44,398 Bank of the Ozarks, Inc. 1,349,699 19,420 Hancock Holding Co. 857,587 48,426 NBT Bancorp, Inc. 1,350,117 29,410 Old Second Bancorp, Inc. 397,035 91,890 Oriental Financial Group, Inc. 1,492,294 13,405 Simmons First National Corp., Class A 415,823 49,404 Southside Bancshares, Inc. 1,190,143 38,595 WesBanco, Inc. 1,049,012 ------------ 8,101,710 ------------ COMMERCIAL SERVICES & SUPPLIES -- 2.5% 26,746 Cornell Cos., Inc.(1) 609,007 28,999 Geo Group, Inc. (The)(1) 512,122 Shares Value 85,287 Knoll, Inc. $ 1,233,250 40,404 Waste Connections, Inc.(1) 1,367,675 ------------ 3,722,054 ------------ COMMUNICATIONS EQUIPMENT -- 2.5% 248,700 3Com Corp.(1) 678,951 32,602 Polycom, Inc.(1) 684,968 62,563 Riverbed Technology, Inc.(1) 783,914 79,109 Seachange International, Inc.(1) 604,393 75,467 Tekelec(1) 957,676 ------------ 3,709,902 ------------ CONSTRUCTION & ENGINEERING -- 0.2% 9,466 Northwest Pipe Co.(1) 271,958 ------------ CONSUMER FINANCE -- 1.2% 114,074 EZCORP, Inc., Class A(1) 1,806,932 ------------ CONTAINERS & PACKAGING -- 0.5% 28,550 Bemis Co., Inc. 709,182 ------------ DIVERSIFIED CONSUMER SERVICES -- 3.0% 34,266 DeVry, Inc. 1,942,540 30,401 Matthews International Corp., Class A 1,356,797 4,935 Strayer Education, Inc. 1,116,642 ------------ 4,415,979 ------------ ELECTRIC UTILITIES -- 0.6% 22,803 Central Vermont Public Service Corp. 454,008 9,856 ITC Holdings Corp. 399,956 ------------ 853,964 ------------ ELECTRICAL EQUIPMENT -- 2.8% 146,955 Advanced Battery Technologies, Inc.(1) 418,822 15,941 American Superconductor Corp.(1) 199,422 28,735 AZZ, inc.(1) 838,487 31,657 Energy Conversion Devices, Inc.(1) 1,080,770 38,080 GrafTech International Ltd.(1) 308,829 17,328 Jinpan International Ltd. 325,247 35,304 Powell Industries, Inc.(1) 653,477 9,052 Sunpower Corp., Class A(1) 353,571 ------------ 4,178,625 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.3% 45,016 Maxwell Technologies, Inc.(1) 408,295 ------------ ENERGY EQUIPMENT & SERVICES -- 1.8% 14,620 Dril-Quip, Inc.(1) 361,114 10,687 Lufkin Industries, Inc. 559,144 - ------ 9 New Opportunities Shares Value 282,660 Parker Drilling Co.(1) $ 1,447,219 11,562 T-3 Energy Services, Inc.(1) 278,760 ------------ 2,646,237 ------------ FOOD & STAPLES RETAILING -- 2.2% 61,895 Casey's General Stores, Inc. 1,869,229 47,553 Spartan Stores, Inc. 1,283,456 ------------ 3,152,685 ------------ FOOD PRODUCTS -- 2.9% 28,601 JM Smucker Co. (The) 1,274,461 9,936 Ralcorp Holdings, Inc.(1) 672,468 76,500 TreeHouse Foods, Inc.(1) 2,314,890 ------------ 4,261,819 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.3% 28,643 Edwards Lifesciences Corp.(1) 1,513,496 6,178 Haemonetics Corp.(1) 364,873 22,541 ICU Medical, Inc.(1) 721,988 41,440 Immucor, Inc.(1) 1,100,232 18,630 Masimo Corp.(1) 595,974 38,937 Merit Medical Systems, Inc.(1) 712,547 31,338 Natus Medical, Inc.(1) 479,471 13,282 NuVasive, Inc.(1) 625,449 20,451 STERIS Corp. 696,152 29,742 Syneron Medical Ltd.(1) 279,872 14,628 West Pharmaceutical Services, Inc. 583,950 6,608 Zoll Medical Corp.(1) 159,121 ------------ 7,833,125 ------------ HEALTH CARE PROVIDERS & SERVICES -- 6.3% 19,844 Almost Family, Inc.(1) 955,687 13,492 Amedisys, Inc.(1) 761,084 15,608 AMN Healthcare Services, Inc.(1) 140,316 48,851 Amsurg Corp.(1) 1,218,344 10,581 Animal Health International, Inc.(1) 68,248 45,738 CardioNet, Inc.(1) 1,170,435 30,016 Catalyst Health Solutions, Inc.(1) 506,370 55,180 Emergency Medical Services Corp., Class A(1) 1,813,215 46,084 IPC The Hospitalist Co., Inc.(1) 938,270 38,652 Owens & Minor, Inc. 1,672,472 ------------ 9,244,441 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.2% 103,344 Burger King Holdings, Inc. 2,054,479 140,186 CKE Restaurants, Inc. 1,190,179 ------------ 3,244,658 ------------ Shares Value HOUSEHOLD DURABLES -- 0.2% 9,289 Tupperware Brands Corp. $ 235,012 ------------ INSURANCE -- 0.1% 29,400 Amil Participacoes SA 135,703 ------------ INTERNET & CATALOG RETAIL -- 0.2% 6,753 priceline.com, Inc.(1) 355,410 ------------ INTERNET SOFTWARE & SERVICES -- 3.8% 221,617 AsiaInfo Holdings, Inc.(1) 2,435,571 58,445 Vocus, Inc.(1) 983,630 114,139 Websense, Inc.(1) 2,227,993 ------------ 5,647,194 ------------ IT SERVICES -- 5.5% 54,067 CACI International, Inc., Class A(1) 2,226,479 173,351 Cybersource Corp.(1) 2,106,215 62,769 ManTech International Corp., Class A(1) 3,385,760 48,150 Ness Technologies, Inc.(1) 355,828 ------------ 8,074,282 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.2% 9,230 Bio-Rad Laboratories, Inc., Class A(1) 788,057 15,430 Kendle International, Inc.(1) 278,820 37,355 PerkinElmer, Inc. 670,149 ------------ 1,737,026 ------------ MACHINERY -- 1.7% 30,964 Colfax Corp.(1) 263,813 4,034 K-Tron International, Inc.(1) 379,156 45,344 Wabtec Corp. 1,802,877 ------------ 2,445,846 ------------ MARINE -- 0.1% 21,684 Safe Bulkers, Inc. 119,479 ------------ MEDIA -- 1.5% 71,606 VisionChina Media, Inc. ADR(1) 572,848 111,539 World Wrestling Entertainment, Inc., Class A 1,588,315 ------------ 2,161,163 ------------ METALS & MINING -- 0.4% 11,623 Compass Minerals International, Inc. 638,451 ------------ OIL, GAS & CONSUMABLE FUELS -- 4.2% 67,282 Approach Resources, Inc.(1) 733,374 35,499 Berry Petroleum Co., Class A 827,127 20,689 Comstock Resources, Inc.(1) 1,022,450 33,857 Concho Resources, Inc.(1) 719,461 43,070 EXCO Resources, Inc.(1) 395,813 - ------ 10 New Opportunities Shares Value 39,669 Forest Oil Corp.(1) $ 1,158,732 26,487 Penn Virginia Corp. 984,522 61,166 TXCO Resources, Inc.(1) 320,510 ------------ 6,161,989 ------------ PERSONAL PRODUCTS -- 0.7% 73,042 American Oriental Bioengineering, Inc.(1) 446,286 52,092 Inter Parfums, Inc. 607,393 ------------ 1,053,679 ------------ PHARMACEUTICALS -- 3.6% 121,636 Biovail Corp. 1,046,069 83,146 Obagi Medical Products, Inc.(1) 691,775 72,943 Perrigo Co. 2,480,062 141,386 Questcor Pharmaceutical, Inc.(1) 1,094,328 ------------ 5,312,234 ------------ PROFESSIONAL SERVICES -- 1.4% 36,285 FTI Consulting, Inc.(1) 2,113,601 ------------ REAL ESTATE INVESTMENT TRUSTS (REITS) -- 3.6% 218,469 Capstead Mortgage Corp. 2,195,613 76,961 Hatteras Financial Corp. 1,677,750 214,493 U-Store-It Trust 1,471,422 ------------ 5,344,785 ------------ ROAD & RAIL -- 0.6% 30,140 J.B. Hunt Transport Services, Inc. 856,880 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.2% 82,224 EMCORE Corp.(1) 292,717 34,670 MEMC Electronic Materials, Inc.(1) 637,235 120,963 Microsemi Corp.(1) 2,629,736 549,700 RF Micro Devices, Inc.(1) 1,093,903 59,590 Supertex, Inc.(1) 1,437,311 ------------ 6,090,902 ------------ SOFTWARE -- 4.6% 125,929 NetScout Systems, Inc.(1) 1,211,437 40,849 Quality Systems, Inc. 1,572,278 11,385 salesforce.com, inc.(1) 352,479 99,470 Sybase, Inc.(1) 2,648,886 103,513 Wind River Systems, Inc.(1) 904,704 ------------ 6,689,784 ------------ SPECIALTY RETAIL -- 5.2% 56,640 Aeropostale, Inc.(1) 1,371,254 23,379 Buckle, Inc. (The) 615,803 138,803 Hot Topic, Inc.(1) 899,444 69,752 Monro Muffler, Inc. 1,501,761 Shares Value 104,034 RadioShack Corp. $ 1,317,070 28,365 Tractor Supply Co.(1) 1,178,849 271,761 Wet Seal, Inc. (The), Class A(1) 798,977 ------------ 7,683,158 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.9% 11,335 Deckers Outdoor Corp.(1) 961,888 13,672 Warnaco Group, Inc. (The)(1) 407,562 ------------ 1,369,450 ------------ THRIFTS & MORTGAGE FINANCE -- 0.9% 85,014 First Niagara Financial Group, Inc. 1,340,671 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.7% 57,282 DXP Enterprises, Inc.(1) 799,657 19,438 Houston Wire & Cable Co. 223,926 ------------ 1,023,583 ------------ WATER UTILITIES -- 0.3% 67,664 Cascal NV 447,936 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 2.4% 186,770 Syniverse Holdings, Inc.(1) 3,511,276 ------------ TOTAL COMMON STOCKS (Cost $164,352,894) 146,361,610 ------------ Temporary Cash Investments -- 0.1% 7,622 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 7,622 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $203,573), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $200,001) 200,000 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $207,622) 207,622 ------------ TOTAL INVESTMENT SECURITIES -- 99.7% (Cost $164,560,516) 146,569,232 ------------ OTHER ASSETS AND LIABILITIES -- 0.3% 362,476 ------------ TOTAL NET ASSETS -- 100.0% $146,931,708 ============ Notes to Schedule of Investments ADR = American Depositary Receipt (1) Non-income producing. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 11 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $164,560,516) $146,569,232 Cash 144,171 Foreign currency holdings, at value (cost of $16,581) 16,030 Receivable for investments sold 6,143,512 Receivable for capital shares sold 26,230 Dividends and interest receivable 42,141 ------------- 152,941,316 ------------- LIABILITIES Payable for investments purchased 5,754,431 Payable for capital shares redeemed 66,050 Accrued management fees 189,127 ------------- 6,009,608 ------------- NET ASSETS $146,931,708 ============= CAPITAL SHARES, $0.01 PAR VALUE Authorized 300,000,000 ============= Outstanding 28,721,913 ============= NET ASSET VALUE PER SHARE $5.12 ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $266,214,526 Accumulated net realized loss on investment and foreign currency transactions (101,285,892) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (17,996,926) ------------- $146,931,708 ============= See Notes to Financial Statements. - ------ 12 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $3,507) $ 1,717,758 Interest 95,564 -------------- 1,813,322 -------------- EXPENSES: Management fees 3,255,975 Directors' fees and expenses 5,739 Other expenses 2,568 -------------- 3,264,282 -------------- NET INVESTMENT INCOME (LOSS) (1,450,960) -------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment and foreign currency transactions (34,752,582) Change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currency (68,501,298) -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (103,253,880) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(104,704,840) ============== See Notes to Financial Statements. - ------ 13 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $(1,450,960) $(2,081,598) Net realized gain (loss) (34,752,582) 53,831,813 Change in net unrealized appreciation (depreciation) (68,501,298) 20,464,068 ------------- ------------ Net increase (decrease) in net assets resulting from operations (104,704,840) 72,214,283 ------------- ------------ CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 11,746,882 15,958,764 Payments for shares redeemed(1) (30,538,826) (65,620,583) ------------- ------------ Net increase (decrease) in net assets from capital share transactions (18,791,944) (49,661,819) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS (123,496,784) 22,552,464 NET ASSETS Beginning of period 270,428,492 247,876,028 ------------- ------------ End of period $146,931,708 $270,428,492 ============= ============ TRANSACTIONS IN SHARES OF THE FUND Sold 1,641,508 2,133,906 Redeemed (4,448,068) (9,110,565) ------------- ------------ Net increase (decrease) in shares of the fund (2,806,560) (6,976,659) ============= ============ (1) Net of redemption fees of $26,903 and $11,866 respectively. See Notes to Financial Statements. - ------ 14 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 funds estimate 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. 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. - ------ 15 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. 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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. 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. - ------ 16 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. 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 the fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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, 2008 was 1.50%. 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. 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. Prior to December 12, 2007, the fund had a bank line of credit 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 ended October 31, 2008, were $342,983,801 and $352,580,986, respectively. 4. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from either line during the year ended October 31, 2008. 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. - ------ 17 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, 2008 and October 31, 2007. As of October 31, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $166,282,840 ============== Gross tax appreciation of investments $ 6,133,603 Gross tax depreciation of investments (25,847,211) -------------- Net tax appreciation (depreciation) of investments $(19,713,608) ============== Net tax appreciation (depreciation) on translation of assets and liabilities in foreign currencies $ (5,642) -------------- Net tax appreciation (depreciation) $(19,719,250) ============== Accumulated capital losses $(99,563,568) The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and return of capital dividends. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: 2009 2010 2011 2012 2013 2014 2015 2016 $(28,666,431) $(37,698,539) -- -- -- -- -- $(33,198,598) 7. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. - ------ 18 FINANCIAL HIGHLIGHTS New Opportunities For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $8.58 $6.44 $5.63 $5.06 $5.06 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss) (0.05)(1) (0.07) (0.06) (0.06) (0.06) Net Realized and Unrealized Gain (Loss) (3.41) 2.21 0.87 0.63 0.06 -------- -------- -------- -------- -------- Total From Investment Operations (3.46) 2.14 0.81 0.57 -- -------- -------- -------- -------- -------- Net Asset Value, End of Period $5.12 $8.58 $6.44 $5.63 $5.06 ======== ======== ======== ======== ======== TOTAL RETURN(2) (40.33)% 33.23% 14.39% 11.26% 0.00% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.49% Ratio of Net Investment Income (Loss) to Average Net Assets (0.66)% (0.83)% (0.84)% (0.98)% (1.04)% Portfolio Turnover Rate 159% 201% 298% 260% 269% Net Assets, End of Period (in thousands) $146,932 $270,428 $247,876 $240,464 $273,555 (1) Computed using average shares outstanding throughout the period. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders, American Century Mutual Funds, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of New Opportunities Fund, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 21 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 22 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 23 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 Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 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. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 the services provided by the advisor 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 to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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. - ------ 25 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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 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. - ------ 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. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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 board, including all of 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. - ------ 27 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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. - ------ 28 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 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 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 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. - ------ 29 NOTES - ------ 30 NOTES - ------ 31 NOTES - ------ 32 [back cover] [american century investments logo and text logo ®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62716S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo®] AMERICAN CENTURY INVESTMENTS BALANCED FUND PRESIDENT'S LETTER [photo of Jonathan Thomas] JONATHAN THOMAS Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9 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 . . . . . . . 31 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Approval of Management Agreement for Balanced . . . . . . . . . . . . 35 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 39 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 40 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Enrique Chang, Chief Investment Officer, American Century Investments STORMY SEAS SANK STOCKS In an increasingly volatile investment environment, U.S. stocks fell sharply for the 12 months ended October 31, 2008. The ongoing storm in the credit markets intensified throughout the period, creating a liquidity crisis that battered the financial sector. A number of venerable financial institutions faced bankruptcy, a federal government bailout, or takeover by a competitor. The economic environment also deteriorated during the period. U.S. economic growth contracted in the first and third quarters of 2008, and would likely have done so in the second quarter as well if not for the government's stimulus payments. Job growth was negative in each of the first 10 months of 2008, boosting the unemployment rate to a 14-year high, and consumer spending slowed markedly. Despite efforts by the government and the Federal Reserve (the Fed) to ease the credit crisis, the stock market crumpled under the weight of the economic downturn, declining corporate earnings, and financial instability. The decline was particularly acute in the last two months of the period as market conditions grew more volatile; in October, the stock market suffered its worst monthly performance in 21 years and one of the 10 worst months in its history. BONDS WERE MIXED BUT POSITIVE Volatility was also a factor in the U.S. bond market, which advanced modestly overall for the 12-month period. Like the stock market, bonds were buffeted by the credit crisis and economic slowdown, but the impact produced widely divergent returns for the different sectors of the bond market. Treasury bonds were the best performers, benefiting from a flight to quality as increasingly risk-averse investors fled to the relative safety of government bonds. Growing demand for high-quality bonds also provided a lift to mortgage-backed securities issued by government agencies. In contrast, the economic downturn, uncertain credit environment, and weaker corporate profit growth put downward pressure on corporate bonds, which declined sharply during the period. U.S. Market Returns For the 12 months ended October 31, 2008 STOCK INDICES Russell 1000 Index (large-cap) -36.80% Russell Midcap Index -40.67% Russell 2000 Index (small-cap) -34.16% CITIGROUP U.S. BOND MARKET INDICES Broad Investment-Grade (multi-sector) 1.12% Treasury 7.74% Mortgage (mortgage-backed) 4.52% Agency 4.39% Credit (investment-grade corporate) -11.68% - ------ 2 PERFORMANCE Balanced Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date INVESTOR CLASS -20.52% 2.19% 2.49% 7.35% 10/20/88 BLENDED INDEX(1) -22.70% 1.84% 2.58% 8.37%(2) -- S&P 500 INDEX(3) -36.10% 0.26% 0.40% 8.79%(2) -- CITIGROUP US BROAD INVESTMENT-GRADE BOND INDEX 1.12% 3.74% 5.12% 7.09%(2) -- Institutional Class -20.37% 2.38% -- 1.00% 5/1/00 (1) See Index Definitions page. (2) Since 10/31/88, the date nearest the Investor Class's inception for which data are available. (3) Data provided by Lipper Inc. - A Reuters Company. ©2008 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, 1998
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investor Class 12.03% 5.90% -10.46% -6.80% 15.92% 8.46% 6.89% 11.04% 8.92% -20.52% Blended index 15.17% 6.84% -10.54% -6.64% 14.57% 7.99% 5.78% 11.83% 10.95% -22.70% S&P 500 Index 25.67% 6.09% -24.90% -15.11% 20.80% 9.42% 8.72% 16.34% 14.56% -36.10% Citigroup US Broad Investment-Grade Bond Index 0.49% 7.28% 14.61% 5.75% 4.99% 5.70% 1.24% 5.24% 5.50% 1.12% 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 and Tom Vaiana Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, Jeff Houston, Hando Aguilar, Brian Howell, John Walsh, Dan Shiffman, and Jim Platz PERFORMANCE SUMMARY Balanced returned -20.52%* for the 12 months ended October 31, 2008, compared with the -22.70% return of its benchmark (a blended index consisting of 60% S&P 500 Index and 40% Citigroup US Broad Investment-Grade [BIG] Bond Index). The overall decline in the benchmark resulted primarily from a sharp drop in stocks, mitigated in part by a modest advance for bonds. The fund also posted a negative return but outperformed its benchmark as both the equity and fixed-income portions of the portfolio outpaced their respective counterparts in the benchmark. (It's worth noting that the fund's results reflected operating expenses, while the benchmark's return did not.) STOCK COMPONENT OUTPERFORMED In a challenging and volatile investment environment, Balanced's stock portfolio outperformed the S&P 500 for the 12-month period. The key to this outperformance was favorable stock selection in the financials sector. In particular, the portfolio avoided or minimized its exposure to many of the worst performers in this sector. Examples included insurance firm American International Group, which agreed to a substantial federal government bailout; commercial bank Wachovia, which sold itself to Wells Fargo to avoid insolvency; and brokerage firm Lehman Brothers, which filed for bankruptcy. The portfolio's health care stocks also outperformed, driven primarily by its holdings in the biotechnology industry. The top contributors were biotech firm Amgen, which rallied as its new osteoporosis medication achieved success in clinical trials, and pharmaceutical company Johnson & Johnson, which enjoyed strong results in its consumer products division. On the downside, holdings in the utilities and industrials sectors had the biggest negative impact on relative performance. Texas-based independent power producer Reliant Energy, a portfolio overweight, declined sharply amid shrinking profit margins Balanced's Top Ten Stock Holdings as of October 31, 2008 % of equity % of S&P 500 holdings Index Exxon Mobil Corp. 5.4% 4.5% Procter & Gamble Co. (The) 3.1% 2.3% Johnson & Johnson 2.9% 2.0% Hewlett-Packard Co. 2.0% 1.1% Chevron Corp. 2.0% 1.8% Pfizer, Inc. 2.0% 1.4% Wells Fargo & Co. 1.9% 1.3% General Electric Co. 1.9% 2.4% ConocoPhillips 1.8% 0.9% AT&T, Inc. 1.8% 1.9% Balanced's Top Five Stock Industries as of October 31, 2008 % of equity % of S&P 500 holdings Index Oil, Gas & Consumable Fuels 12.5% 11.1% Pharmaceuticals 6.9% 7.3% Computers & Peripherals 4.2% 3.0% Household Products 4.1% 3.1% Capital Markets 4.0% 2.6% *All fund returns referenced in this commentary are for Investor Class shares. - ------ 5 Balanced and higher financing costs, as well as facilities damage and power outages in the aftermath of Hurricane Ike. In the industrials sector, the biggest detractor was construction company Fluor; the company had significant exposure to the oil and gas industry, which slumped late in the period. FIXED-INCOME CONTRIBUTED POSITIVELY The portfolio's bond component posted a positive return for the 12-month period and surpassed the performance of the Citigroup BIG Index. The bond portion was well positioned for the credit crisis and economic downturn, with an overweight position in Treasury bonds, the best performers in the bond market, and an underweight position in corporate bonds, the worst fixed-income performers. Diversification into municipal bonds and Treasury inflation-protected securities (TIPS) also added value during the period. A steeper yield curve--which occurs when the gap between short- and long-term interest rates widens--also boosted results as the portfolio was structured to benefit from the steeper curve. We reduced our bias toward a steeper yield curve late in the period but did not eliminate it entirely. More recently, we have shifted the fixed-income portfolio back toward neutral with respect to sector weightings. We increased our holdings of municipal bonds, government agency securities, and TIPS while reducing our exposure to nominal Treasury bonds. In addition, we have been selectively adding corporate bonds to the portfolio, seeking to take advantage of attractive values in the corporate sector. OUTLOOK The economic storms and market turbulence investors have weathered since last autumn show no signs of abating in the near future. A meaningful recovery for the economy remains elusive amid further deterioration in the housing and mortgage markets, the highest unemployment rate in 14 years, and a troubled financial sector that is unable or unwilling to lend. Despite governmental efforts to thaw the frozen credit markets and stimulate the economy, we expect a long and difficult road to recovery. In this environment, we will continue to pursue our disciplined investment approach for both portions of the portfolio, looking to take advantage of attractive investment opportunities in a tumultuous market environment. Key Fixed-Income Portfolio Statistics As of As of 10/31/08 4/30/08 Weighted Average Life 6.6 years 7.1 years Average Duration (Effective) 5.3 years 4.7 years Types of Investments in Portfolio % of fund % of fund investments investments as of 10/31/08 as of 4/30/08 Common Stocks 56.2% 50.8% Mortgage- & Asset-Backed Securities 27.6% 21.5% Corporate Bonds 9.1% 8.2% Municipal Securities 2.2% 1.8% U.S. Treasury Securities 1.9% 8.2% U.S. Government Agency Securities 0.5% 0.2% Sovereign Governments & Agencies --(1) 0.1% Temporary Cash Investments 2.5% 2.7% Temporary Cash Investments - Securities Lending Collateral -- 6.5% (1) Category is less than 0.05% of total net assets. - ------ 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. - ------ 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. Beginning Ending Account Account Expenses Paid Annualized Value Value During Period* Expense 5/1/08 10/31/08 5/1/08 - 10/31/08 Ratio* ACTUAL Investor Class $1,000 $824.80 $4.13 0.90% Institutional Class $1,000 $825.00 $3.21 0.70% HYPOTHETICAL Investor Class $1,000 $1,020.61 $4.57 0.90% Institutional Class $1,000 $1,021.62 $3.56 0.70% *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 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS Balanced OCTOBER 31, 2008 Shares/Principal Amount Value Common Stocks -- 60.0% AEROSPACE & DEFENSE -- 2.0% 41,703 Boeing Co. $ 2,179,816 43,593 General Dynamics Corp. 2,629,529 4,189 Goodrich Corp. 153,150 3,740 L-3 Communications Holdings, Inc. 303,576 31,419 Lockheed Martin Corp. 2,672,186 10,920 Northrop Grumman Corp. 512,039 13,631 Raytheon Co. 696,680 ------------- 9,146,976 ------------- AIR FREIGHT & LOGISTICS -- 0.6% 4,969 C.H. Robinson Worldwide, Inc. 257,295 9,831 FedEx Corp. 642,652 30,379 United Parcel Service, Inc., Class B 1,603,404 ------------- 2,503,351 ------------- AIRLINES -- 0.1% 24,808 Southwest Airlines Co. 292,238 ------------- AUTO COMPONENTS -- 0.1% 57,846 TRW Automotive Holdings Corp.(1) 365,587 ------------- BEVERAGES -- 1.8% 15,944 Anheuser-Busch Cos., Inc. 989,006 60,269 Coca-Cola Co. (The) 2,655,452 45,988 Constellation Brands, Inc., Class A(1) 576,690 73,304 Dr Pepper Snapple Group, Inc.(1) 1,678,662 36,319 PepsiCo, Inc. 2,070,546 ------------- 7,970,356 ------------- BIOTECHNOLOGY -- 2.0% 77,586 Amgen, Inc.(1) 4,646,626 12,043 Celgene Corp.(1) 773,883 31,974 Cephalon, Inc.(1) 2,293,175 28,369 Gilead Sciences, Inc.(1) 1,300,719 ------------- 9,014,403 ------------- CAPITAL MARKETS -- 2.4% 66,272 Bank of New York Mellon Corp. (The) 2,160,467 2,053 BlackRock, Inc. 269,641 43,941 Charles Schwab Corp. (The) 840,152 12,404 Goldman Sachs Group, Inc. (The) 1,147,370 23,266 Janus Capital Group, Inc. 273,143 6,002 Knight Capital Group, Inc., Class A(1) 86,789 Shares/Principal Amount Value 55,200 Merrill Lynch & Co., Inc. $ 1,026,168 27,985 Morgan Stanley 488,898 26,589 Northern Trust Corp. 1,497,227 55,815 Raymond James Financial, Inc. 1,299,931 33,829 State Street Corp. 1,466,487 6,873 T. Rowe Price Group, Inc. 271,758 ------------- 10,828,031 ------------- CHEMICALS -- 0.3% 34,046 Ashland, Inc. 769,099 8,920 Monsanto Co. 793,702 ------------- 1,562,801 ------------- COMMERCIAL BANKS -- 1.5% 5,515 PNC Financial Services Group, Inc. 367,685 13,802 Royal Bank of Canada 534,551 28,875 Valley National Bancorp 548,625 150,993 Wells Fargo & Co. 5,141,312 ------------- 6,592,173 ------------- COMMERCIAL SERVICES & SUPPLIES -- 0.6% 12,174 Allied Waste Industries, Inc.(1) 126,853 93,913 Pitney Bowes, Inc. 2,327,164 8,697 R.R. Donnelley & Sons Co. 144,110 ------------- 2,598,127 ------------- COMMUNICATIONS EQUIPMENT -- 0.9% 158,367 Cisco Systems, Inc.(1) 2,814,181 173,884 Motorola, Inc. 933,757 4,630 QUALCOMM, Inc. 177,144 ------------- 3,925,082 ------------- COMPUTERS & PERIPHERALS -- 2.5% 28,123 Apple, Inc.(1) 3,025,753 97,356 EMC Corp.(1) 1,146,854 138,085 Hewlett-Packard Co. 5,285,894 63,904 Lexmark International, Inc., Class A(1) 1,650,640 ------------- 11,109,141 ------------- CONSTRUCTION & ENGINEERING -- 0.5% 42,637 EMCOR Group, Inc.(1) 757,659 36,449 Fluor Corp. 1,455,409 ------------- 2,213,068 ------------- CONSUMER FINANCE -- 0.4% 23,533 Capital One Financial Corp. 920,611 71,111 Discover Financial Services 871,110 ------------- 1,791,721 ------------- - ------ 9 Balanced Shares/Principal Amount Value CONTAINERS & PACKAGING -- 0.1% 12,725 Rock-Tenn Co., Class A $ 386,967 4,476 Sonoco Products Co. 112,706 ------------- 499,673 ------------- DIVERSIFIED -- 0.4% 60,306 PowerShares QQQ 1,983,464 ------------- DIVERSIFIED CONSUMER SERVICES -- 0.3% 66,094 H&R Block, Inc. 1,303,374 ------------- DIVERSIFIED FINANCIAL SERVICES -- 2.1% 114,385 Bank of America Corp. 2,764,685 138,232 Citigroup, Inc. 1,886,867 112,737 JPMorgan Chase & Co. 4,650,401 ------------- 9,301,953 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6% 176,651 AT&T, Inc. 4,728,947 3,606 CenturyTel, Inc. 90,547 5,325 Embarq Corp. 159,750 67,258 Verizon Communications, Inc. 1,995,545 13,904 Windstream Corp. 104,419 ------------- 7,079,208 ------------- ELECTRIC UTILITIES -- 1.1% 10,029 Edison International 356,932 31,742 Entergy Corp. 2,477,463 4,771 Exelon Corp. 258,779 22,960 FPL Group, Inc. 1,084,631 45,348 Pepco Holdings, Inc. 936,436 ------------- 5,114,241 ------------- ELECTRICAL EQUIPMENT -- 0.2% 24,976 Emerson Electric Co. 817,464 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.4% 278,007 Celestica, Inc.(1) 1,387,255 41,316 Jabil Circuit, Inc. 347,467 ------------- 1,734,722 ------------- ENERGY EQUIPMENT & SERVICES -- 1.2% 32,349 BJ Services Co. 415,685 34,734 ENSCO International, Inc. 1,320,239 19,904 FMC Technologies, Inc.(1) 696,441 26,636 National Oilwell Varco, Inc.(1) 796,150 10,405 Oil States International, Inc.(1) 240,668 32,940 Schlumberger Ltd. 1,701,351 ------------- 5,170,534 ------------- FOOD & STAPLES RETAILING -- 2.1% 114,927 Kroger Co. (The) 3,155,895 60,560 SYSCO Corp. 1,586,672 79,479 Wal-Mart Stores, Inc. 4,435,723 ------------- 9,178,290 ------------- Shares/Principal Amount Value FOOD PRODUCTS -- 1.5% 34,476 General Mills, Inc. $ 2,335,404 43,087 H.J. Heinz Co. 1,888,072 17,620 Hershey Co. (The) 656,169 11,823 JM Smucker Co. (The) 526,833 43,129 Kraft Foods, Inc., Class A 1,256,779 ------------- 6,663,257 ------------- GAS UTILITIES -- 0.4% 29,152 Nicor, Inc. 1,347,114 11,625 Piedmont Natural Gas Co., Inc. 382,695 ------------- 1,729,809 ------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.9% 19,417 Baxter International, Inc. 1,174,534 7,556 Becton, Dickinson & Co. 524,386 46,011 Medtronic, Inc. 1,855,624 1,086 St. Jude Medical, Inc.(1) 41,301 3,701 STERIS Corp. 125,982 6,572 Varian Medical Systems, Inc.(1) 299,092 ------------- 4,020,919 ------------- HEALTH CARE PROVIDERS & SERVICES -- 1.5% 74,410 Cigna Corp. 1,212,883 42,408 Express Scripts, Inc.(1) 2,570,349 64,741 Omnicare, Inc. 1,784,910 26,405 WellPoint, Inc.(1) 1,026,362 ------------- 6,594,504 ------------- HEALTH CARE TECHNOLOGY(2) 6,894 IMS Health, Inc. 98,860 ------------- HOTELS, RESTAURANTS & LEISURE -- 0.8% 61,059 McDonald's Corp. 3,537,148 ------------- HOUSEHOLD DURABLES -- 0.5% 4,949 NVR, Inc.(1) 2,426,049 ------------- HOUSEHOLD PRODUCTS -- 2.5% 13,148 Church & Dwight Co., Inc. 776,915 10,644 Clorox Co. 647,262 20,047 Colgate-Palmolive Co. 1,258,150 127,988 Procter & Gamble Co. (The) 8,260,345 ------------- 10,942,672 ------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.2% 12,773 NRG Energy, Inc.(1) 296,972 152,382 Reliant Energy, Inc.(1) 800,006 ------------- 1,096,978 ------------- INDUSTRIAL CONGLOMERATES -- 1.1% 255,821 General Electric Co. 4,991,068 ------------- - ------ 10 Balanced Shares/Principal Amount Value INSURANCE -- 1.9% 24,035 ACE Ltd. $ 1,378,648 41,625 American Financial Group, Inc. 946,136 14,402 Arch Capital Group Ltd.(1) 1,004,540 47,018 Aspen Insurance Holdings Ltd. 1,079,533 27,233 Chubb Corp. 1,411,214 27,692 Prudential Financial, Inc. 830,760 40,246 Travelers Cos., Inc. (The) 1,712,467 ------------- 8,363,298 ------------- INTERNET & CATALOG RETAIL(2) 1,016 Amazon.com, Inc.(1) 58,156 ------------- INTERNET SOFTWARE & SERVICES -- 0.6% 7,578 Google, Inc., Class A(1) 2,723,230 ------------- IT SERVICES -- 2.2% 83,777 Accenture Ltd., Class A 2,768,830 35,253 Alliance Data Systems Corp.(1) 1,768,290 45,997 International Business Machines Corp. 4,276,341 11,288 Visa, Inc., Class A 624,791 17,061 Western Union Co. (The) 260,351 ------------- 9,698,603 ------------- LEISURE EQUIPMENT & PRODUCTS -- 0.3% 19,825 Hasbro, Inc. 576,313 27,454 Polaris Industries, Inc. 924,376 ------------- 1,500,689 ------------- LIFE SCIENCES TOOLS & SERVICES -- 0.1% 11,040 Invitrogen Corp.(1) 317,842 ------------- MACHINERY -- 0.8% 34,897 AGCO Corp.(1) 1,099,954 57,411 Caterpillar, Inc. 2,191,378 6,207 Dover Corp. 197,196 ------------- 3,488,528 ------------- MEDIA -- 1.1% 244,162 Comcast Corp., Class A 3,847,993 58,846 DISH Network Corp., Class A(1) 926,236 ------------- 4,774,229 ------------- METALS & MINING -- 0.1% 11,267 Freeport-McMoRan Copper & Gold, Inc. 327,869 12,770 Reliance Steel & Aluminum Co. 319,761 ------------- 647,630 ------------- MULTILINE RETAIL -- 0.4% 41,300 Big Lots, Inc.(1) 1,008,959 9,953 Family Dollar Stores, Inc. 267,835 35,796 Macy's, Inc. 439,933 ------------- 1,716,727 ------------- Shares/Principal Amount Value MULTI-INDUSTRY -- 0.8% 136,232 Financial Select Sector SPDR Fund $ 2,115,683 38,455 SPDR KBW Regional Banking ETF 1,265,170 ------------- 3,380,853 ------------- MULTI-UTILITIES -- 0.5% 128,709 CenterPoint Energy, Inc. 1,482,728 5,153 DTE Energy Co. 181,901 15,816 Public Service Enterprise Group, Inc. 445,220 ------------- 2,109,849 ------------- OIL, GAS & CONSUMABLE FUELS -- 7.5% 14,044 Apache Corp. 1,156,243 70,458 Chevron Corp. 5,256,167 91,548 ConocoPhillips 4,762,327 14,315 Devon Energy Corp. 1,157,511 193,690 Exxon Mobil Corp. 14,356,303 18,930 Frontline Ltd. 601,974 6,731 Hess Corp. 405,273 2,887 Massey Energy Co. 66,661 43,955 McMoRan Exploration Co.(1) 623,721 5,370 Noble Energy, Inc. 278,273 28,024 Occidental Petroleum Corp. 1,556,453 38,187 Spectra Energy Corp. 738,155 38,197 Stone Energy Corp.(1) 1,158,897 14,340 Sunoco, Inc. 437,370 45,318 W&T Offshore, Inc. 868,746 ------------- 33,424,074 ------------- PHARMACEUTICALS -- 4.2% 3,131 Abbott Laboratories 172,675 68,558 Eli Lilly & Co. 2,318,631 128,497 Johnson & Johnson 7,882,006 66,142 Merck & Co., Inc. 2,047,095 296,673 Pfizer, Inc. 5,254,079 63,340 Schering-Plough Corp. 917,797 ------------- 18,592,283 ------------- REAL ESTATE INVESTMENT TRUSTS (REITS)(2) 15,803 Host Hotels & Resorts, Inc. 163,403 ------------- ROAD & RAIL -- 0.7% 9,235 Burlington Northern Santa Fe Corp. 822,469 12,251 CSX Corp. 560,116 12,175 Norfolk Southern Corp. 729,770 16,924 Union Pacific Corp. 1,130,015 ------------- 3,242,370 ------------- - ------ 11 Balanced Shares/Principal Amount Value SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8% 222,641 Amkor Technology, Inc.(1) $ 903,922 82,874 Intel Corp. 1,325,984 375,396 LSI Corp.(1) 1,445,275 7,253 National Semiconductor Corp. 95,522 ------------- 3,770,703 ------------- SOFTWARE -- 1.5% 15,497 Autodesk, Inc.(1) 330,241 186,763 Microsoft Corp. 4,170,418 43,991 Oracle Corp.(1) 804,595 115,045 Symantec Corp.(1) 1,447,266 ------------- 6,752,520 ------------- SPECIALTY RETAIL -- 1.0% 13,526 AutoZone, Inc.(1) 1,721,724 15,010 Best Buy Co., Inc. 402,418 162,467 Gap, Inc. (The) 2,102,323 25,530 RadioShack Corp. 323,210 ------------- 4,549,675 ------------- TOBACCO -- 0.9% 66,073 Altria Group, Inc. 1,267,941 64,005 Philip Morris International, Inc. 2,782,297 ------------- 4,050,238 ------------- TOTAL COMMON STOCKS (Cost $310,119,239) 267,522,142 ------------- U.S. Government Agency Mortgage-Backed Securities(3) -- 20.4% FIXED-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 18.4% $ 87,035 FHLMC, 7.00%, 10/1/12 91,806 1,952,438 FHLMC, 4.50%, 1/1/19(6) 1,872,636 120,186 FHLMC, 6.50%, 1/1/28 123,029 979,748 FHLMC, 5.50%, 12/1/33(6) 957,999 3,249,906 FHLMC, 5.50%, 1/1/38(6) 3,172,179 1,170,841 FHLMC, 6.00%, 8/1/38(6) 1,169,633 224,600 FHLMC, 6.50%, 7/1/47 222,003 18,598,092 FNMA, 6.00%, settlement date 11/13/08(4) 18,589,369 5,390,000 FNMA, 6.50%, settlement date 11/13/08(4) 5,463,272 20,024 FNMA, 6.00%, 2/1/09 20,111 11,873 FNMA, 6.50%, 5/1/11 12,149 122,355 FNMA, 7.50%, 11/1/11 128,149 741 FNMA, 6.50%, 10/1/12 759 10,189 FNMA, 6.50%, 5/1/13 10,435 4,417 FNMA, 6.50%, 5/1/13 4,524 25,829 FNMA, 6.50%, 6/1/13 26,453 Shares/Principal Amount Value $ 1,544 FNMA, 6.50%, 6/1/13 $1,581 3,704 FNMA, 6.50%, 6/1/13 3,791 27,743 FNMA, 6.50%, 6/1/13 28,413 13,031 FNMA, 6.50%, 6/1/13 13,346 86,731 FNMA, 6.00%, 1/1/14 87,768 311,713 FNMA, 6.00%, 4/1/14 315,440 788,477 FNMA, 4.50%, 5/1/19 755,018 1,535,162 FNMA, 4.50%, 5/1/19(6) 1,470,017 2,960,010 FNMA, 5.00%, 9/1/20(6) 2,900,539 27,762 FNMA, 6.50%, 1/1/28 28,419 127,550 FNMA, 7.00%, 1/1/28 132,840 143,063 FNMA, 6.50%, 1/1/29 146,447 189,793 FNMA, 7.50%, 7/1/29 199,608 69,229 FNMA, 7.50%, 9/1/30 72,665 120,605 FNMA, 6.50%, 9/1/31 123,307 39,555 FNMA, 7.00%, 9/1/31 40,975 227,449 FNMA, 6.50%, 1/1/32 232,475 447,323 FNMA, 7.00%, 6/1/32 463,200 218,773 FNMA, 6.50%, 8/1/32 223,607 1,448,118 FNMA, 5.50%, 6/1/33(6) 1,418,401 1,886,170 FNMA, 5.50%, 7/1/33(6) 1,847,464 1,527,881 FNMA, 5.50%, 8/1/33(6) 1,496,528 926,879 FNMA, 5.50%, 9/1/33 907,859 4,783,343 FNMA, 5.00%, 11/1/33(6) 4,542,632 6,859,501 FNMA, 5.50%, 1/1/34(6) 6,720,125 4,594,390 FNMA, 4.50%, 9/1/35 4,177,640 5,309,722 FNMA, 5.00%, 2/1/36 5,035,884 2,354,172 FNMA, 5.50%, 4/1/36 2,302,919 4,716,599 FNMA, 5.50%, 5/1/36 4,613,914 1,792,747 FNMA, 5.50%, 2/1/37 1,752,877 3,252,613 FNMA, 6.50%, 8/1/37 3,257,288 135,560 FNMA, 6.50%, 6/1/47 133,993 450,529 FNMA, 6.50%, 8/1/47 445,320 328,289 FNMA, 6.50%, 8/1/47 324,493 770,616 FNMA, 6.50%, 9/1/47 761,706 55,551 FNMA, 6.50%, 9/1/47 54,908 541,848 FNMA, 6.50%, 9/1/47 535,582 384,409 FNMA, 6.50%, 9/1/47 379,965 444,775 FNMA, 6.50%, 9/1/47 439,632 193,405 GNMA, 7.00%, 4/20/26 198,473 104,577 GNMA, 7.50%, 8/15/26 110,679 34,245 GNMA, 7.00%, 2/15/28 35,173 75,069 GNMA, 7.50%, 2/15/28 79,287 56,870 GNMA, 7.00%, 12/15/28 58,411 15,693 GNMA, 8.00%, 12/15/29 16,782 226,224 GNMA, 7.00%, 5/15/31 231,858 1,410,370 GNMA, 5.50%, 11/15/32 1,387,782 ------------- 82,371,537 ------------- - ------ 12 Balanced Shares/Principal Amount Value ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 2.0% $1,732,556 FHLMC, VRN, 6.78%, 9/1/10 $ 1,759,868 2,332,245 FHLMC, VRN, 6.00%, 11/1/11 2,359,286 1,322,465 FNMA, VRN, 6.49%, 1/1/10 1,346,652 1,138,359 FNMA, VRN, 6.46%, 6/1/11 1,164,675 947,607 FNMA, VRN, 6.42%, 7/1/11 967,125 1,218,728 FNMA, VRN, 5.95%, 5/1/12 1,237,827 ------------- 8,835,433 ------------- TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $92,554,738) 91,206,970 ------------- Corporate Bonds -- 9.7% AEROSPACE & DEFENSE -- 0.3% 262,000 Honeywell International, Inc., 5.30%, 3/15/17 234,985 230,000 Honeywell International, Inc., 5.30%, 3/1/18 202,883 378,000 Lockheed Martin Corp., 6.15%, 9/1/36 324,324 454,000 United Technologies Corp., 6.05%, 6/1/36 382,275 200,000 United Technologies Corp., 6.125%, 7/15/38 172,613 ------------- 1,317,080 ------------- AUTOMOBILES -- 0.1% 260,000 DaimlerChrysler N.A. Holding Corp., 5.875%, 3/15/11 212,385 330,000 DaimlerChrysler N.A. Holding Corp., 6.50%, 11/15/13 247,699 ------------- 460,084 ------------- BEVERAGES -- 0.4% 580,000 Coca-Cola Co. (The), 5.35%, 11/15/17 527,766 460,000 Diageo Capital plc, 5.75%, 10/23/17 396,384 670,000 SABMiller plc, 6.20%, 7/1/11(5) 680,996 ------------- 1,605,146 ------------- CAPITAL MARKETS -- 0.4% 550,000 Credit Suisse (New York), 5.00%, 5/15/13 496,701 330,000 Deutsche Bank AG (London), 4.875%, 5/20/13 307,949 609,000 Merrill Lynch & Co., Inc., 4.79%, 8/4/10 561,757 210,000 Morgan Stanley, 6.00%, 4/28/15 170,935 320,000 Morgan Stanley, 6.625%, 4/1/18 266,847 ------------- 1,804,189 ------------- Shares/Principal Amount Value CHEMICALS -- 0.1% $ 340,000 Air Products & Chemicals, Inc., 4.15%, 2/1/13 $ 308,024 240,000 Rohm & Haas Co., 5.60%, 3/15/13 229,830 ------------- 537,854 ------------- COMMERCIAL BANKS -- 0.6% 280,000 KeyCorp, 6.50%, 5/14/13 246,842 450,000 PNC Bank N.A., 4.875%, 9/21/17 361,909 290,000 PNC Bank N.A., 6.00%, 12/7/17 252,404 328,000 PNC Funding Corp., 5.125%, 12/14/10 326,205 110,000 SunTrust Bank, 7.25%, 3/15/18 92,329 373,000 Wachovia Bank N.A., 4.80%, 11/1/14 313,352 583,000 Wachovia Bank N.A., 4.875%, 2/1/15 499,174 516,000 Wells Fargo & Co., 4.625%, 8/9/10 514,256 140,000 Wells Fargo Bank N.A., 6.45%, 2/1/11 139,967 ------------- 2,746,438 ------------- COMMERCIAL SERVICES & SUPPLIES(2) 230,000 Pitney Bowes, Inc., 5.75%, 9/15/17 203,372 ------------- CONSUMER FINANCE -- 0.5% 250,000 American Express Centurion Bank, 4.375%, 7/30/09 243,336 300,000 American Express Centurion Bank, 5.55%, 10/17/12 251,329 340,000 General Electric Capital Corp., 6.125%, 2/22/11 336,832 220,000 General Electric Capital Corp., 4.80%, 5/1/13 197,982 450,000 General Electric Capital Corp., 5.625%, 9/15/17 368,744 220,000 John Deere Capital Corp., 4.50%, 4/3/13 199,728 532,000 John Deere Capital Corp., 5.50%, 4/13/17 456,991 ------------- 2,054,942 ------------- DIVERSIFIED FINANCIAL SERVICES -- 0.6% 580,000 Bank of America Corp., 4.375%, 12/1/10 565,596 420,000 Bank of America N.A., 5.30%, 3/15/17 354,689 360,000 Bank of America N.A., 6.00%, 10/15/36 276,955 330,000 Citigroup, Inc., 5.50%, 4/11/13 302,265 - ------ 13 Balanced Shares/Principal Amount Value $ 402,000 Citigroup, Inc., 5.00%, 9/15/14 $ 318,035 320,000 Citigroup, Inc., 6.125%, 5/15/18 274,799 450,000 Pricoa Global Funding I, 5.40%, 10/18/12(5) 415,428 ------------- 2,507,767 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.6% 350,000 AT&T, Inc., 6.80%, 5/15/36 296,606 110,000 AT&T, Inc., 6.40%, 5/15/38 88,050 70,000 BellSouth Corp., 6.875%, 10/15/31 56,776 350,000 British Telecommunications plc, 5.95%, 1/15/18 277,955 219,000 Embarq Corp., 7.08%, 6/1/16 168,859 120,000 Qwest Corp., 7.875%, 9/1/11 104,700 200,000 Qwest Corp., 7.50%, 10/1/14 155,000 490,000 Telecom Italia Capital SA, 4.00%, 1/15/10 441,836 280,000 Telefonica Emisiones SAU, 7.05%, 6/20/36 222,023 304,000 Verizon Communications, Inc., 5.55%, 2/15/16 265,886 230,000 Verizon Communications, Inc., 5.50%, 2/15/18 193,597 216,000 Verizon Communications, Inc., 6.25%, 4/1/37 166,880 350,000 Verizon Communications, Inc., 6.40%, 2/15/38 273,946 ------------- 2,712,114 ------------- ELECTRIC UTILITIES -- 0.5% 420,000 Carolina Power & Light Co., 5.15%, 4/1/15 381,600 401,000 Cleveland Electric Illuminating Co. (The), 5.70%, 4/1/17 320,214 266,000 Florida Power Corp., 4.50%, 6/1/10 260,300 230,000 Florida Power Corp., 6.35%, 9/15/37 201,224 420,000 Pacific Gas & Electric Co., 4.20%, 3/1/11 400,467 163,000 Pacific Gas & Electric Co., 5.80%, 3/1/37 121,507 220,000 Pacific Gas & Electric Co., 6.35%, 2/15/38 172,958 345,000 Southern California Edison Co., 5.625%, 2/1/36 273,469 190,000 Toledo Edison Co. (The), 6.15%, 5/15/37 131,774 ------------- 2,263,513 ------------- ELECTRICAL EQUIPMENT -- 0.1% 320,000 Rockwell Automation, Inc., 6.25%, 12/1/37 272,750 ------------- Shares/Principal Amount Value FOOD & STAPLES RETAILING -- 0.4% $ 330,000 CVS Caremark Corp., 5.75%, 6/1/17 $ 266,922 460,000 SYSCO Corp., 4.20%, 2/12/13 450,038 220,000 Wal-Mart Stores, Inc., 4.25%, 4/15/13 214,100 468,000 Wal-Mart Stores, Inc., 5.875%, 4/5/27 400,192 330,000 Wal-Mart Stores, Inc., 6.50%, 8/15/37 296,390 220,000 Wal-Mart Stores, Inc., 6.20%, 4/15/38 190,027 ------------- 1,817,669 ------------- FOOD PRODUCTS -- 0.3% 350,000 Cargill, Inc., 5.20%, 1/22/13(5) 318,562 170,000 General Mills, Inc., 5.65%, 9/10/12 157,168 220,000 Kellogg Co., 6.60%, 4/1/11 221,905 320,000 Kellogg Co., 5.125%, 12/3/12 305,706 330,000 Kraft Foods, Inc., 6.00%, 2/11/13 308,798 ------------- 1,312,139 ------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.3% 710,000 Baxter Finco BV, 4.75%, 10/15/10 695,626 500,000 Baxter International, Inc., 5.90%, 9/1/16 467,926 220,000 Baxter International, Inc., 5.375%, 6/1/18 195,418 230,000 Baxter International, Inc., 6.25%, 12/1/37 197,235 ------------- 1,556,205 ------------- HOTELS, RESTAURANTS & LEISURE -- 0.2% 560,000 McDonald's Corp., 5.35%, 3/1/18 500,806 230,000 McDonald's Corp., 6.30%, 10/15/37 201,814 310,000 Royal Caribbean Cruises Ltd., 7.00%, 6/15/13 217,000 230,000 Yum! Brands, Inc., 6.875%, 11/15/37 149,580 ------------- 1,069,200 ------------- HOUSEHOLD PRODUCTS(2) 230,000 Kimberly-Clark Corp., 6.125%, 8/1/17 214,913 ------------- INDUSTRIAL CONGLOMERATES -- 0.3% 1,208,000 General Electric Co., 5.00%, 2/1/13 1,140,986 230,000 General Electric Co., 5.25%, 12/6/17 192,986 ------------- 1,333,972 ------------- - ------ 14 Balanced Shares/Principal Amount Value INSURANCE -- 0.5% $ 423,000 Hartford Financial Services Group, Inc. (The), 5.375%, 3/15/17 $ 296,367 230,000 Hartford Financial Services Group, Inc. (The), 6.30%, 3/15/18 164,202 460,000 Lincoln National Corp., 6.30%, 10/9/37 300,626 750,000 MetLife Global Funding I, 5.125%, 4/10/13(5) 671,336 550,000 New York Life Global Funding, 4.65%, 5/9/13(5) 516,236 270,000 Prudential Financial, Inc., 5.40%, 6/13/35 154,163 230,000 Travelers Cos., Inc. (The), 6.25%, 6/15/37 174,619 ------------- 2,277,549 ------------- MACHINERY(2) 230,000 Caterpillar Financial Services Corp., 4.85%, 12/7/12 213,929 ------------- MEDIA -- 0.7% 489,000 Comcast Corp., 5.90%, 3/15/16 421,832 220,000 Comcast Corp., 5.70%, 5/15/18 182,312 220,000 Comcast Corp., 6.40%, 5/15/38 168,303 271,000 News America Holdings, Inc., 7.75%, 1/20/24 229,181 320,000 Pearson Dollar Finance Two plc, 6.25%, 5/6/18(5) 267,435 680,000 Rogers Cable, Inc., 6.25%, 6/15/13 625,138 650,000 Time Warner Cable, Inc., 5.40%, 7/2/12 583,301 550,000 Time Warner Cable, Inc., 6.75%, 7/1/18 473,055 195,000 Time Warner, Inc., 5.50%, 11/15/11 172,625 70,000 Time Warner, Inc., 7.625%, 4/15/31 55,982 ------------- 3,179,164 ------------- METALS & MINING -- 0.2% 350,000 ArcelorMittal, 6.125%, 6/1/18(5) 241,825 660,000 Rio Tinto Finance USA Ltd., 5.875%, 7/15/13 563,957 197,000 Xstrata Finance Canada Ltd., 5.80%, 11/15/16(5) 151,139 ------------- 956,921 ------------- Shares/Principal Amount Value MULTI-UTILITIES -- 0.3% $ 230,000 CenterPoint Energy Resources Corp., 6.125%, 11/1/17 $176,911 330,000 CenterPoint Energy Resources Corp., 6.25%, 2/1/37 206,674 258,000 Dominion Resources, Inc., 4.75%, 12/15/10 249,725 230,000 Dominion Resources, Inc., 6.40%, 6/15/18 195,443 460,000 NSTAR Electric Co., 5.625%, 11/15/17 411,344 ------------- 1,240,097 ------------- MULTILINE RETAIL -- 0.2% 175,000 Federated Retail Holdings, Inc., 5.35%, 3/15/12 131,988 240,000 Kohl's Corp., 6.875%, 12/15/37 163,261 600,000 Macy's Retail Holdings, Inc., 5.875%, 1/15/13 437,799 ------------- 733,048 ------------- OIL, GAS & CONSUMABLE FUELS -- 0.7% 260,000 Canadian Natural Resources Ltd., 5.70%, 5/15/17 216,028 230,000 Canadian Natural Resources Ltd., 6.75%, 2/1/39 169,945 450,000 Enbridge Energy Partners LP, 6.50%, 4/15/18 375,849 785,000 Enterprise Products Operating LP, 4.95%, 6/1/10 747,253 260,000 Enterprise Products Operating LP, 6.30%, 9/15/17 212,958 340,000 Nexen, Inc., 6.40%, 5/15/37 231,954 613,000 Premcor Refining Group, Inc. (The), 6.125%, 5/1/11 615,656 120,000 TransCanada PipeLines Ltd., 6.20%, 10/15/37 81,958 342,000 XTO Energy, Inc., 5.30%, 6/30/15 280,512 272,000 XTO Energy, Inc., 6.10%, 4/1/36 187,413 110,000 XTO Energy, Inc., 6.375%, 6/15/38 77,284 ------------- 3,196,810 ------------- PHARMACEUTICALS -- 0.7% 450,000 Abbott Laboratories, 5.875%, 5/15/16 431,116 210,000 Abbott Laboratories, 5.60%, 11/30/17 193,872 1,020,000 AstraZeneca plc, 5.40%, 9/15/12 1,004,847 360,000 AstraZeneca plc, 5.90%, 9/15/17 333,222 550,000 GlaxoSmithKline Capital, Inc., 4.85%, 5/15/13 522,414 - ------ 15 Balanced Shares/Principal Amount Value $ 330,000 GlaxoSmithKline Capital, Inc., 6.375%, 5/15/38 $ 279,137 272,000 Wyeth, 5.95%, 4/1/37 220,955 ------------- 2,985,563 ------------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1% 490,000 ProLogis, 5.625%, 11/15/16 268,097 ------------- ROAD & RAIL -- 0.1% 340,000 Union Pacific Corp., 5.75%, 11/15/17 288,835 ------------- SOFTWARE -- 0.3% 254,000 Intuit, Inc., 5.75%, 3/15/17 197,444 1,110,000 Oracle Corp., 5.75%, 4/15/18 973,661 ------------- 1,171,105 ------------- SPECIALTY RETAIL -- 0.1% 230,000 Lowe's Cos., Inc., 5.60%, 9/15/12 227,952 ------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.1% 410,000 Rogers Communications, Inc., 6.80%, 8/15/18 359,791 313,000 Vodafone Group plc, 5.625%, 2/27/17 256,177 ------------- 615,968 ------------- TOTAL CORPORATE BONDS (Cost $49,866,504) 43,144,385 ------------- Collateralized Mortgage Obligations(3) -- 4.7% PRIVATE SPONSOR COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.9% 1,482,845 Banc of America Alternative Loan Trust, Series 2007-2, Class 2A4, 5.75%, 6/25/37 1,346,193 4,457,320 Countrywide Home Loan Mortgage Pass-Through Trust, Series 2007-16, Class A1, 6.50%, 10/25/37 3,365,086 1,000,000 Credit Suisse First Boston Mortgage Securities Corp., Series 2002 CKN2, Class A3 SEQ, 6.13%, 4/15/37 943,469 5,000,000 Credit Suisse First Boston Mortgage Securities Corp., Series 2002 CKP1, Class B, 6.57%, 12/15/35 4,771,694 1,059,446 Credit Suisse First Boston Mortgage Securities Corp., Series 2003 AR28, Class 2A1, VRN, 4.92%, 11/1/08 1,016,456 82,292 MASTR Alternative Loans Trust, Series 2003-8, Class 4A1, 7.00%, 12/25/33 68,638 Shares/Principal Amount Value $ 767,731 Thornburg Mortgage Securities Trust, Series 2006-5, Class A1, VRN, 3.38%, 11/25/08, resets monthly off the 1-month LIBOR plus 0.12% with no caps $ 696,641 875,000 Washington Mutual Mortgage Pass-Through Certificates, Series 2005 AR4, Class A3, VRN, 4.59%, 11/1/08 840,793 ------------- 13,048,970 ------------- U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.8% 225,983 FHLMC, Series 77, Class H, 8.50%, 9/15/20 244,347 253,701 FHLMC, Series 2541, Class EA, 5.00%, 3/15/16 255,497 1,215,721 FHLMC, Series 2567, Class OD, 5.00%, 8/15/15 1,225,544 1,200,000 FHLMC, Series 2926, Class EW SEQ, 5.00%, 1/15/25 1,082,202 418,891 FHLMC, Series 2937, Class KA, 4.50%, 12/15/14 420,223 2,388,335 FNMA, Series 2005-63, Class HA SEQ, 5.00%, 4/25/23 2,394,199 2,187,884 FNMA, Series 2006-44, Class OA, 5.50%, 12/25/26 2,218,963 ------------- 7,840,975 ------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $22,742,222) 20,889,945 ------------- Commercial Mortgage-Backed Securities(3) -- 4.0% 2,169,000 Banc of America Commercial Mortgage, Inc., Series 2004-2, Class A3 SEQ, 4.05%, 11/10/38 2,048,866 900,000 Banc of America Commercial Mortgage, Inc., Series 2006-6, Class A3 SEQ, 5.37%, 10/10/45 731,505 9,798,886 Banc of America Commercial Mortgage, Inc. STRIPS- COUPON, Series 2004-1, Class XP, VRN, 0.63%, 11/1/08 136,931 1,316,742 Bear Stearns Commercial Mortgage Securities Trust, Series 2006 BBA7, Class A1, VRN, 4.67%, 11/15/08, resets monthly off the 1-month LIBOR plus 0.11% with no caps(5) 1,172,495 15,179,050 Bear Stearns Commercial Mortgage Securities Trust STRIPS-COUPON, Series 2004 T16, Class X2, VRN, 0.72%, 11/1/08 322,705 - ------ 16 Balanced Shares/Principal Amount Value $ 75,055 Commercial Mortgage Pass-Through Certificates, Series 2005 F10A, Class A1, VRN, 4.66%, 11/15/08, resets monthly off the 1-month LIBOR plus 0.10% with no caps(5) $69,519 500,000 Credit Suisse First Boston Mortgage Securities Corp., Series 2000 C1, Class B, VRN, 7.66%, 11/1/08 501,642 800,000 Credit Suisse First Boston Mortgage Securities Corp., Series 2001 CK3, Class A4 SEQ, 6.53%, 6/15/34 778,794 1,200,000 Credit Suisse Mortgage Capital Certificates, Series 2007 TF2A, Class A1, VRN, 4.74%, 11/15/08, resets monthly off the 1-month LIBOR plus 0.18% with no caps(5) 1,058,277 1,660,000 Greenwich Capital Commercial Funding Corp., Series 2005 GG3, Class A2 SEQ, 4.31%, 8/10/42 1,598,331 186,409 Greenwich Capital Commercial Funding Corp., Series 2006 FL4A, Class A1, VRN, 4.14%, 11/5/08, resets monthly off the 1-month LIBOR plus 0.09% with no caps(5) 157,933 291,861 GS Mortgage Securities Corp. II, Series 2007 EOP, Class A1, VRN, 4.14%, 11/6/08, resets monthly off the 1-month LIBOR plus 0.09% with no caps(5) 246,605 3,200,000 LB-UBS Commercial Mortgage Trust, Series 2003 C3, Class A3 SEQ, 3.85%, 5/15/27 2,915,756 894,691 LB-UBS Commercial Mortgage Trust, Series 2004 C1, Class A2 SEQ, 3.62%, 1/15/29 876,220 509,076 LB-UBS Commercial Mortgage Trust, Series 2004 C4, Class A2, VRN, 4.57%, 11/1/08 503,224 1,279,047 LB-UBS Commercial Mortgage Trust, Series 2005 C2, Class A2 SEQ, 4.82%, 4/15/30 1,220,880 3,000,000 LB-UBS Commercial Mortgage Trust, Series 2005 C3, Class A3 SEQ, 4.65%, 7/15/30 2,688,912 180,581 Lehman Brothers Floating Rate Commercial Mortgage Trust, Series 2006 LLFA, Class A1, VRN, 4.64%, 11/15/08, resets monthly off the 1-month LIBOR plus 0.08% with no caps(5) 154,558 Shares/Principal Amount Value $ 698,724 Merrill Lynch Floating Trust, Series 2006-1, Class A1, VRN, 4.63%, 11/15/08, resets monthly off the 1-month LIBOR plus 0.07% with no caps(5) $ 589,167 ------------- TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $19,238,848) 17,772,320 ------------- Municipal Securities -- 2.3% 3,700,000 Clark County School District GO, Series 2004 D, (Building Bonds), 5.00%, 12/15/14, Prerefunded at 100% of Par (MBIA)(7) 4,000,588 3,600,000 Clark County School District GO, Series 2005 C, (Building Bonds), 5.00%, 12/15/15, Prerefunded at 100% of Par (FSA)(7) 3,902,004 1,580,000 Georgia GO, Series 2008 B, 5.00%, 7/1/18 1,671,766 800,000 Illinois GO, (Taxable Pension), 5.10%, 6/1/33 701,512 ------------- TOTAL MUNICIPAL SECURITIES (Cost $10,389,807) 10,275,870 ------------- U.S. Treasury Securities and Equivalents -- 2.1% 310,000 U.S. Treasury Bonds, 6.25%, 5/15/30 373,066 929,000 U.S. Treasury Bonds, 4.75%, 2/15/37(6) 980,458 2,735,892 U.S. Treasury Inflation Indexed Notes, 3.00%, 7/15/12(6) 2,668,857 2,964,625 U.S. Treasury Inflation Indexed Notes, 2.00%, 1/15/14(6) 2,715,069 2,823,957 U.S. Treasury Inflation Indexed Notes, 1.625%, 1/15/18(6) 2,448,794 ------------- TOTAL U.S. TREASURY SECURITIES AND EQUIVALENTS (Cost $10,217,903) 9,186,244 ------------- U.S. Government Agency Securities -- 0.5% 2,200,000 FNMA, 5.00%, 2/13/17 (Cost $2,248,069) 2,172,295 ------------- Asset-Backed Securities(3) -- 0.4% 153,535 Accredited Mortgage Loan Trust, Series 2006-2, Class A1, VRN, 3.30%, 11/25/08, resets monthly off the 1-month LIBOR plus 0.04% with no caps 152,024 1,000,000 CNH Equipment Trust, Series 2007 C, Class A3A SEQ, 5.21%, 12/15/11 995,041 - ------ 17 Balanced Shares/Principal Amount Value $ 121,541 Long Beach Mortgage Loan Trust, Series 2006-6, Class 2A1, VRN, 3.30%, 11/25/08, resets monthly off the 1-month LIBOR plus 0.04% with no caps $ 121,011 252,993 SLM Student Loan Trust, Series 2006-5, Class A2, VRN, 3.53%, 1/26/09, resets quarterly off the 3-month LIBOR minus 0.01% with no caps 252,133 127,794 SLM Student Loan Trust, Series 2006-10, Class A2, VRN, 3.55%, 1/26/09, resets quarterly off the 3-month LIBOR plus 0.01% with no caps 127,436 ------------- TOTAL ASSET-BACKED SECURITIES (Cost $1,655,804) 1,647,645 ------------- Shares/Principal Amount Value Sovereign Governments & Agencies(2) $ 145,000 Hydro Quebec, 8.40%, 1/15/22 (Cost $169,832) $ 189,952 ------------- Temporary Cash Investments -- 2.7% 12,039,615 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares(6) (Cost $12,039,615) 12,039,615 ------------- TOTAL INVESTMENT SECURITIES -- 106.8% (Cost $531,242,581) 476,047,383 ------------- OTHER ASSETS AND LIABILITIES -- (6.8)% (30,150,855) ------------- TOTAL NET ASSETS -- 100.0% $445,896,528 ============= Futures Contracts Underlying Face Unrealized Contracts Purchased Expiration Date Amount at Value Gain (Loss) 18 U.S. Long Bond December 2008 $2,036,250 $(103,287) 37 U.S. Treasury 2-Year Notes December 2008 7,948,641 97,042 ------------- ------------- $9,984,891 $ (6,245) ============= ============= Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain (Loss) 70 U.S. Treasury 10-Year Notes December 2008 $7,915,469 $30,468 ============= ============= Swap Agreements Unrealized Notional Amount Description of Agreement Expiration Date Gain (Loss) CREDIT DEFAULT $ 240,000 Pay quarterly a fixed rate March 2013 $(1,681) equal to 0.70% multiplied by the notional amount and receive from Barclays Bank plc upon each default event of Rohm & Haas Co., par value of the proportional notional amount of Rohm & Haas Co., 7.85%, 7/15/29. 970,000 Pay quarterly a fixed rate June 2013 2,127 equal to 0.60% multiplied by the notional amount and receive from Deutsche Bank AG upon each default event of Marsh & McLennan Cos., Inc., par value of the proportional notional amount of Marsh & McLennan Cos., Inc., 5.375%, 7/15/14. 653,000 Pay quarterly a fixed rate December 2013 2,271 equal to 0.595% multiplied by the notional amount and receive from Deutsche Bank AG upon each default event of Hartford Financial Services Group, Inc., par value of the proportional notional amount of Hartford Financial Services Group, Inc., 4.75%, 3/1/14. 2,650,000 Pay quarterly a fixed rate March 2017 87,035 equal to 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 of Pfizer Inc., 4.65%, 3/1/18. ------------- $89,752 ============= - ------ 18 Balanced Notes to Schedule of Investments Equivalent = Security whose principal payments are secured by U.S. Treasury ETF = Exchange Traded Fund FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. 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. MBIA = MBIA Insurance Corporation 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 SPDR = Standard & Poor's Depositary Receipts 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, 2008. (1) Non-income producing. (2) Category is less than 0.05% of total net assets. (3) Final maturity indicated, unless otherwise noted. (4) Forward commitment. (5) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at October 31, 2008 was $6,711,511, which represented 1.5% of total net assets. (6) Security, or portion thereof, has been segregated for forward commitments, futures contracts and/or swap agreements. At period end, the aggregate value of securities pledged was $42,047,000. (7) Escrowed to maturity in U.S. government securities or state and local government securities. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 19 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $531,242,581) $476,047,383 Cash 888,308 Receivable for investments sold 4,372,795 Receivable for capital shares sold 97,927 Unrealized appreciation on swap agreements 91,433 Dividends and interest receivable 1,981,439 -------------- 483,479,285 -------------- LIABILITIES Payable for investments purchased 36,318,637 Payable for capital shares purchased 917,942 Payable for variation margin on futures contracts 158 Unrealized depreciation on swap agreements 1,681 Accrued management fees 344,339 -------------- 37,582,757 -------------- NET ASSETS $445,896,528 ============== NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $513,785,108 Undistributed net investment income 1,340,022 Accumulated net realized loss on investment transactions (14,148,625) Net unrealized depreciation on investments (55,079,977) -------------- $445,896,528 ============== INVESTOR CLASS, $0.01 PAR VALUE Net assets $439,969,416 Shares outstanding 34,754,078 Net asset value per share $12.66 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $5,927,112 Shares outstanding 468,123 Net asset value per share $12.66 See Notes to Financial Statements. - ------ 20 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Interest $ 12,527,797 Dividends (net of foreign taxes withheld of $19,063) 6,090,753 Securities lending, net 195,958 -------------- 18,814,508 -------------- EXPENSES: Management fees 5,100,209 Distribution and service fees -- Advisor Class 2,761 Directors' fees and expenses 14,990 Other expenses 4,322 -------------- 5,122,282 -------------- NET INVESTMENT INCOME (LOSS) 13,692,226 -------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (18,178,359) Futures and swaps transactions 4,687,552 -------------- (13,490,807) -------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (121,550,079) Futures and swaps 150,265 -------------- (121,399,814) -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (134,890,621) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(121,198,395) ============== See Notes to Financial Statements. - ------ 21 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $ 13,692,226 $ 13,585,777 Net realized gain (loss) (13,490,807) 41,026,936 Change in net unrealized appreciation (depreciation) (121,399,814) 1,286,437 -------------- -------------- Net increase (decrease) in net assets resulting from operations (121,198,395) 55,899,150 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (13,588,608) (13,376,037) Institutional Class (152,831) (31,846) Advisor Class -- (278,770) From net realized gains: Investor Class (40,498,231) (24,593,629) Institutional Class (82,676) (48,992) Advisor Class -- (617,315) -------------- -------------- Decrease in net assets from distributions (54,322,346) (38,946,589) -------------- -------------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (29,341,788) (20,109,153) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS (204,862,529) (3,156,592) NET ASSETS Beginning of period 650,759,057 653,915,649 -------------- -------------- End of period $ 445,896,528 $650,759,057 ============== ============== Undistributed net investment income $1,340,022 $1,445,049 ============== ============== See Notes to Financial Statements. - ------ 22 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 and the Institutional Class. Prior to December 3, 2007, the fund was authorized to issue the Advisor Class (see Note 9). 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 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. 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 income earned, net of any rebates or fees, is included in the Statement of Operations. 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 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. 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. 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. - ------ 24 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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. 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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 at each point within the range. The effective annual management fee for the year ended October 31, 2008 was 0.90% and 0.70%, for the Investor Class and Institutional 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 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plan during the year ended October 31, 2008, 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 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 securities lending agreement with JPMorgan Chase Bank (JPMCB). Prior to December 12, 2007, the fund had a bank line of credit agreement with JPMCB. JPMCB is a custodian of the fund and a wholly owned subsidiary of JPM. - ------ 25 3. INVESTMENT TRANSACTIONS Purchases of investment securities, excluding short-term investments, for the year ended October 31, 2008, totaled $869,070,050, of which $421,773,671 represented U.S. Treasury and Agency obligations. Sales of investment securities, excluding short-term investments, for the year ended October 31, 2008, totaled $925,285,266, of which $470,832,008 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, 2008 October 31, 2007 Shares Amount Shares Amount INVESTOR CLASS/ SHARES AUTHORIZED 250,000,000 200,000,000 ============== ============== Sold 2,498,883 $ 37,970,203 3,006,468 $ 51,143,165 Issued in connection with reclassification (Note 9) 732,507 12,525,159 -- -- Issued in reinvestment of distributions 3,360,729 52,807,274 2,197,817 36,858,846 Redeemed (8,259,045) (125,882,923) (6,167,002) (105,041,020) -------------- -------------- -------------- -------------- (1,666,926) (22,580,287) (962,717) (17,039,009) -------------- -------------- -------------- -------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 15,000,000 15,000,000 ============== ============== Sold 511,350 7,883,323 26,034 443,053 Issued in reinvestment of distributions 15,330 235,507 4,818 80,838 Redeemed (135,139) (2,010,038) (26,339) (453,631) -------------- -------------- -------------- -------------- 391,541 6,108,792 4,513 70,260 -------------- -------------- -------------- -------------- ADVISOR CLASS/ SHARES AUTHORIZED N/A 50,000,000 ============== ============== Sold 5,330 90,447 203,936 3,468,589 Issued in reinvestment of distributions -- -- 46,532 776,513 Issued in connection with reclassification (Note 9) (732,507) (12,525,159) -- -- Redeemed (25,768) (435,581) (430,742) (7,385,506) -------------- -------------- -------------- -------------- (752,945) (12,870,293) (180,274) (3,140,404) -------------- -------------- -------------- -------------- Net increase (decrease) (2,028,330) $ (29,341,788) (1,138,478) $ (20,109,153) ============== ============== ============== ============== 5. SECURITIES LENDING As of October 31, 2008, the fund did not have any securities on loan. 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 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. Investments made with cash collateral may decline in value. 6. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from either line during the year ended October 31, 2008. - ------ 26 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, 2008 and October 31, 2007 were as follows: 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $21,351,722 $14,401,841 Long-term capital gains $32,970,624 $24,544,748 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, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $537,609,171 ============== Gross tax appreciation of investments $ 17,005,743 Gross tax depreciation of investments (78,567,531) -------------- Net tax appreciation (depreciation) of investments $(61,561,788) ============== Net tax appreciation (depreciation) on derivatives $ 90,998 -------------- Net tax appreciation (depreciation) $(61,470,790) ============== Undistributed ordinary income $1,340,022 Accumulated capital losses $(7,757,812) 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. 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 2016. 9. CORPORATE EVENT On July 27, 2007, the Advisor Class shareholders of the fund approved a reclassification of Advisor Class shares into Investor 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. - ------ 27 10. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. 11. 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, 2008. For corporate taxpayers, the fund hereby designates $5,446,848, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2008 as qualified for the corporate dividends received deduction. The fund hereby designates $32,970,624, or up to the maximum amount allowable, of long-term capital gain distributions for the fiscal year ended October 31, 2008. The fund hereby designates $7,605,985 of distributions as qualified short-term capital gains for purposes of Internal Revenue Code Section 871. - ------ 28 FINANCIAL HIGHLIGHTS Balanced Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $17.47 $17.03 $16.52 $15.73 $14.77 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.37 0.35 0.35 0.31 0.26 Net Realized and Unrealized Gain (Loss) (3.69) 1.11 1.40 0.77 0.98 -------- -------- -------- -------- -------- Total From Investment Operations (3.32) 1.46 1.75 1.08 1.24 -------- -------- -------- -------- -------- Distributions From Net Investment Income (0.37) (0.36) (0.35) (0.29) (0.28) From Net Realized Gains (1.12) (0.66) (0.89) -- -- -------- -------- -------- -------- -------- Total Distributions (1.49) (1.02) (1.24) (0.29) (0.28) -------- -------- -------- -------- -------- Net Asset Value, End of Period $12.66 $17.47 $17.03 $16.52 $15.73 ======== ======== ======== ======== ======== TOTAL RETURN(2) (20.52)% 8.92% 11.04% 6.89% 8.46% 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 2.42% 2.08% 2.13% 1.89% 1.65% Portfolio Turnover Rate 153% 161% 197% 206% 204% Net Assets, End of Period (in millions) $440 $636 $637 $615 $595 (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. - ------ 29 Balanced Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $17.47 $17.04 $16.53 $15.73 $14.78 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.39 0.39 0.38 0.33 0.28 Net Realized and Unrealized Gain (Loss) (3.68) 1.09 1.40 0.80 0.98 -------- -------- -------- -------- -------- Total From Investment Operations (3.29) 1.48 1.78 1.13 1.26 -------- -------- -------- -------- -------- Distributions From Net Investment Income (0.40) (0.39) (0.38) (0.33) (0.31) From Net Realized Gains (1.12) (0.66) (0.89) -- -- -------- -------- -------- -------- -------- Total Distributions (1.52) (1.05) (1.27) (0.33) (0.31) -------- -------- -------- -------- -------- Net Asset Value, End of Period $12.66 $17.47 $17.04 $16.53 $15.73 ======== ======== ======== ======== ======== TOTAL RETURN(2) (20.37)% 9.07% 11.26% 7.17% 8.61% 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 2.62% 2.28% 2.33% 2.09% 1.85% Portfolio Turnover Rate 153% 161% 197% 206% 204% Net Assets, End of Period (in thousands) $5,927 $1,338 $1,228 $1,237 $225 (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. - ------ 30 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, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 31 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 32 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 33 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 34 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 Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or - ------ 35 controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management 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 the services provided by the advisor 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 to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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 - ------ 36 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 its peer group for both the one- and three-year period 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. The board will continue to monitor these efforts and the performance of the fund. More detailed information about the fund's performance can be found in the Performance and Portfolio Commentary sections of this report. 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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 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. - ------ 37 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. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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 board, including all of 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. - ------ 38 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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. - ------ 39 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 US 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 Bond Index, comprising 15- and 30-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 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. - ------ 40 [back cover] [american century investments logo and text logo®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62712S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS VEEDOT® FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments TABLE OF CONTENTS Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2 VEEDOT Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6 Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9 Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19 Report of Independent Registered Public Accounting Firm . . . . . . . 21 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Approval of Management Agreement for Veedot . . . . . . . . . . . . . 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Veedot Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years Inception Date INVESTOR CLASS -42.27% 1.36% 0.74% 11/30/99 RUSSELL 3000 INDEX(1) -36.60% 0.46% -1.61% -- Institutional Class -42.11% 1.58% -1.44% 8/1/00 (1) Data provided by Lipper Inc. -- A Reuters Company. ©2008 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. The fund's investment process may involve 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. 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 Veedot 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 2008 Investor Class 18.40% -27.03% -12.73% 32.36% 1.40% 10.08% 10.77% 49.92% -42.27% Russell 3000 Index 6.65% -25.17% -14.35% 23.69% 9.51% 10.60% 16.37% 14.53% -36.60% * 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, 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. 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 Veedot Portfolio Manager: John Small, Jr. PERFORMANCE SUMMARY Veedot returned -42.27%* for the 12 months ended October 31, 2008, compared with its benchmark, the Russell 3000 Index, which returned -36.60% for the period. As discussed in the Market Perspective on page 2, equity markets declined during the reporting period against a backdrop of extreme market volatility as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. Amid the volatility, Veedot's highly systematic investment process struggled with a difficult environment that weighed on performance relative to benchmark returns. Stock selection in the information technology and energy sectors, as well as overweight allocations and stock selection in the industrials and consumer discretionary sectors, accounted for the bulk of Veedot's poor absolute and relative performance. Slightly offsetting those losses, effective stock selection and a substantial underweight allocation in the financials sector yielded positive relative results. Veedot entered the reporting period with a significant allocation to foreign holdings. During the course of the reporting period, though, these holdings were reduced substantially. TECHNOLOGY, ENERGY DETRACTED The information technology sector represented Veedot's largest absolute and relative sector weakness. China Finance Online, which operates online, subscription-based information services on Chinese investment markets, was the largest detractor from relative performance within the sector. The company, whose share price slid 75% for the entire reporting period, is not represented in the benchmark. Blue Coat Systems, a maker of proxy server appliances, also was a drag on absolute and relative returns. Blue Coat, whose share price dropped 67%, was one of several overweight holdings in the communications equipment industry to detract from relative performance. The energy sector also weighed on absolute and relative returns. Here, stock selection in the oil, gas, and consumable fuels industry hurt performance. An overweight allocation to the group further detracted from returns. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Axsys Technologies, Inc. 2.0% 1.0% Berkshire Hathaway, Inc., Class B 1.8% -- LHC Group, Inc. 1.8% -- AeroVironment, Inc. 1.8% -- Dollar Tree, Inc. 1.8% -- Children's Place Retail Stores, Inc. (The) 1.6% -- Almost Family, Inc. 1.6% -- Gentiva Health Services, Inc. 1.6% -- Life Partners Holdings, Inc. 1.5% -- Kroger Co. (The) 1.4% -- * All fund returns referenced in this commentary are for Investor Class shares. - ------ 5 Veedot INDUSTRIALS HINDERED, BUT CERTAIN HOLDINGS HELPED Within the industrials sector, Veedot maintained an overweight stake in shipping companies. Although these companies were significant contributors to performance in past reporting periods as spot dry bulk shipping prices climbed, they collectively weighed on absolute and relative gains in the reporting period. DryShips and TBS International, in particular, were the two largest detractors from relative performance as their share prices sank 83% and 86%, respectively. Select holdings in the industrials sector helped relative performance, although they weighed on absolute returns. Notably, machinery overweight Lindsay Corp., a maker of agriculture irrigation systems, was the largest contributor to Veedot's performance relative to the benchmark as its share price fell a slight 3%. STOCK SELECTION, UNDERWEIGHT IN FINANCIALS HELPED Veedot continued to hold a significant underweight position in the financials sector, which benefited performance during the reporting period. Stock selection, however, represented the largest source of relative outperformance within the sector, as Veedot succeeded in sidestepping some benchmark constituents that significantly detracted from benchmark returns during the reporting period amid turmoil in the financials sector. Within the insurance industry, the portfolio avoided American International Group, whose share price slid 97%. Sidestepping thrift and mortgage finance company Fannie Mae also benefited relative returns, as its share price fell 98%. In addition, the capital markets and diversified financial services industries were home to a number of benchmark constituents not held by the portfolio, which aided relative returns. OUTLOOK 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. The reporting period was a difficult environment for growth- and momentum-oriented investment styles. Looking ahead, however, we remain confident that our systematic process of identifying companies with accelerating growth and price momentum will continue to successfully identify opportunities across industry sectors. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Commercial Banks 11.3% 2.7% Health Care Providers & Services 8.7% 2.3% Specialty Retail 6.4% 3.1% Pharmaceuticals 5.7% 1.0% Health Care Equipment & Supplies 5.5% 3.4% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks 91.3% 78.0% Foreign Common Stocks(1) 3.5% 18.6% TOTAL COMMON STOCKS 94.8% 96.6% Temporary Cash Investments 5.5% 5.6% Other Assets and Liabilities (0.3)% (2.2)% (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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 7 Expenses Paid Beginning Ending During Period* Annualized Account Account Value 5/1/08 - Expense Value 5/1/08 10/31/08 10/31/08 Ratio* ACTUAL Investor Class $1,000 $685.50 $5.34 1.26% Institutional Class $1,000 $687.30 $4.50 1.06% HYPOTHETICAL Investor Class $1,000 $1,018.80 $6.39 1.26% Institutional Class $1,000 $1,019.81 $5.38 1.06% * 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 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS Veedot OCTOBER 31, 2008 Shares Value Common Stocks -- 94.8% AEROSPACE & DEFENSE -- 5.2% 51,500 AeroVironment, Inc.(1) $ 1,849,880 79,500 Applied Signal Technologies 1,424,640 31,500 Axsys Technologies, Inc.(1) 2,079,945 ------------ 5,354,465 ------------ AIR FREIGHT & LOGISTICS -- 1.1% 45,000 Dynamex, Inc.(1) 1,098,450 ------------ BIOTECHNOLOGY -- 4.2% 17,000 Amgen, Inc.(1) 1,018,130 20,500 Celgene Corp.(1) 1,317,330 12,000 Genentech, Inc.(1) 995,280 22,000 Gilead Sciences, Inc.(1) 1,008,700 ------------ 4,339,440 ------------ BUILDING PRODUCTS -- 2.0% 70,500 Gibraltar Industries, Inc. 934,125 70,000 Trex Co., Inc.(1) 1,141,700 ------------ 2,075,825 ------------ CAPITAL MARKETS -- 1.3% 75,000 SWS Group, Inc. 1,392,000 ------------ CHEMICALS -- 1.0% 58,000 Westlake Chemical Corp. 1,057,340 ------------ COMMERCIAL BANKS -- 11.3% 20,000 First Financial Bankshares, Inc. 1,083,800 25,000 First Financial Corp. 1,057,000 78,500 FNB Corp. 1,028,350 15,000 HDFC Bank Ltd. ADR 984,000 39,000 Home Bancshares, Inc. 1,015,560 53,500 Marshall & Ilsley Corp. 964,605 145,500 Republic First Bancorp, Inc.(1) 1,164,000 9,198 Sierra Bancorp 183,592 34,500 SY Bancorp, Inc. 950,130 58,000 TCF Financial Corp. 1,028,920 55,500 Texas Capital Bancshares, Inc.(1) 990,675 75,500 Umpqua Holdings Corp. 1,285,010 ------------ 11,735,642 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.9% 45,500 HNI Corp. 833,560 51,500 Tetra Tech, Inc.(1) 1,132,485 ------------ 1,966,045 ------------ Shares Value DIVERSIFIED CONSUMER SERVICES -- 1.9% 69,287 Lincoln Educational Services Corp.(1) $ 1,001,890 21,500 Matthews International Corp., Class A 959,545 ------------ 1,961,435 ------------ DIVERSIFIED FINANCIAL SERVICES -- 1.5% 38,000 Life Partners Holdings, Inc. 1,526,840 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.3% 144,000 General Communication, Inc., Class A(1) 1,105,920 52,000 Shenandoah Telecommunications Co. 1,246,440 61,500 SureWest Communications 1,086,705 ------------ 3,439,065 ------------ ELECTRICAL EQUIPMENT -- 1.1% 38,000 AZZ, inc.(1) 1,108,840 ------------ FOOD & STAPLES RETAILING -- 3.8% 47,000 Casey's General Stores, Inc. 1,419,400 53,500 Kroger Co. (The) 1,469,110 40,500 Spartan Stores, Inc. 1,093,095 ------------ 3,981,605 ------------ FOOD PRODUCTS -- 4.5% 34,500 Campbell Soup Co. 1,309,275 18,000 General Mills, Inc. 1,219,320 28,000 Hershey Co. (The) 1,042,720 37,000 TreeHouse Foods, Inc.(1) 1,119,620 ------------ 4,690,935 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.5% 22,500 Baxter International, Inc. 1,361,025 11,500 C.R. Bard, Inc. 1,014,875 36,500 ICU Medical, Inc.(1) 1,169,095 37,500 Immucor, Inc.(1) 995,625 49,000 Thoratec Corp.(1) 1,206,380 ------------ 5,747,000 ------------ HEALTH CARE PROVIDERS & SERVICES -- 8.7% 34,500 Almost Family, Inc.(1) 1,661,520 25,000 Amedisys, Inc.(1) 1,410,250 31,000 Emergency Medical Services Corp., Class A(1) 1,018,660 60,500 Gentiva Health Services, Inc.(1) 1,642,575 53,500 LHC Group, Inc.(1) 1,887,480 51,000 Omnicare, Inc. 1,406,070 ------------ 9,026,555 ------------ - ------ 9 Veedot Shares Value HEALTH CARE TECHNOLOGY -- 1.0% 38,500 Computer Programs and Systems, Inc. $ 1,066,065 ------------ INSURANCE -- 1.8% 500 Berkshire Hathaway, Inc., Class B(1) 1,920,000 ------------ INTERNET & CATALOG RETAIL -- 1.0% 59,000 Petmed Express, Inc.(1) 1,041,940 ------------ INTERNET SOFTWARE & SERVICES -- 1.2% 56,500 Netease.com, Inc. ADR(1) 1,271,250 ------------ MACHINERY -- 0.6% 170,500 Xerium Technologies, Inc. 663,245 ------------ MULTILINE RETAIL -- 3.1% 48,500 Dollar Tree, Inc.(1) 1,843,970 50,500 Family Dollar Stores, Inc. 1,358,955 ------------ 3,202,925 ------------ PERSONAL PRODUCTS -- 1.2% 31,500 USANA Health Sciences, Inc.(1) 1,195,110 ------------ PHARMACEUTICALS -- 5.7% 26,500 Novartis AG ADR 1,351,235 114,500 Noven Pharmaceuticals, Inc.(1) 1,288,125 109,500 Pain Therapeutics, Inc.(1) 1,000,830 156,000 Questcor Pharmaceuticals, Inc.(1) 1,207,440 87,500 ViroPharma, Inc.(1) 1,097,250 ------------ 5,944,880 ------------ ROAD & RAIL -- 3.1% 22,000 CSX Corp. 1,005,840 22,000 Norfolk Southern Corp. 1,318,680 60,000 USA Truck, Inc. 886,200 ------------ 3,210,720 ------------ SOFTWARE -- 0.8% 64,665 Opnet Technologies, Inc.(1) 816,719 ------------ SPECIALTY RETAIL -- 6.4% 56,500 Aaron Rents, Inc. 1,400,635 50,000 Children's Place Retail Stores, Inc. (The)(1) 1,671,500 125,500 Finish Line, Inc. (The), Class A 1,201,035 89,500 Foot Locker, Inc. 1,308,490 54,000 PetSmart, Inc. 1,063,260 ------------ 6,644,920 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 2.3% 53,000 Carter's, Inc.(1) 1,125,720 260,500 Unifi, Inc.(1) 1,250,400 ------------ 2,376,120 ------------ Shares Value THRIFTS & MORTGAGE FINANCE -- 4.2% 27,000 Capitol Federal Financial $ 1,255,770 64,500 First Niagara Financial Group, Inc. 1,017,165 57,000 Hudson City Bancorp, Inc. 1,072,170 74,000 United Financial Bancorp, Inc. 1,036,000 ------------ 4,381,105 ------------ TOBACCO -- 0.9% 49,500 Altria Group, Inc. 949,905 ------------ TRADING COMPANIES & DISTRIBUTORS -- 2.2% 92,000 Beacon Roofing Supply, Inc.(1) 1,258,560 12,500 W.W. Grainger, Inc. 982,125 ------------ 2,240,685 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 1.0% 109,000 USA Mobility, Inc.(1) 1,051,850 ------------ TOTAL COMMON STOCKS (Cost $101,691,547) 98,478,921 ------------ Principal Amount Temporary Cash Investments -- 5.5% $5,700,000 FHLB Discount Notes, 0.01%, 11/3/08(2) 5,700,000 7,578 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 7,578 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $5,707,578) 5,707,578 ------------ TOTAL INVESTMENT SECURITIES -- 100.3% (Cost $107,399,125) 104,186,499 ------------ OTHER ASSETS AND LIABILITIES -- (0.3)% (331,399) ------------ TOTAL NET ASSETS -- 100.0% $103,855,100 ============ 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. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 10 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $107,399,125) $104,186,499 Cash 19,305 Receivable for investments sold 935,563 Receivable for capital shares sold 8,014 Dividends and interest receivable 56,614 ------------- 105,205,995 ------------- LIABILITIES Payable for investments purchased 1,176,754 Payable for capital shares redeemed 67,992 Accrued management fees 106,149 ------------- 1,350,895 ------------- NET ASSETS $103,855,100 ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 171,546,190 Accumulated net realized loss on investment transactions (64,478,464) Net unrealized depreciation on investments (3,212,626) ------------- $ 103,855,100 ============= INVESTOR CLASS, $0.01 PAR VALUE Net assets $98,991,294 Shares outstanding 18,530,379 Net asset value per share $5.34 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $4,863,806 Shares outstanding 895,927 Net asset value per share $5.43 See Notes to Financial Statements. - ------ 11 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $43,518) $ 1,453,926 Interest 95,532 ------------- 1,549,458 ------------- EXPENSES: Management fees 1,972,537 Directors' fees and expenses 4,209 Other expenses 2,233 ------------- 1,978,979 ------------- NET INVESTMENT INCOME (LOSS) (429,521) ------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment transactions (27,791,108) Change in net unrealized appreciation (depreciation) on investments (53,607,679) ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (81,398,787) ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(81,828,308) ============= See Notes to Financial Statements. - ------ 12 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $ (429,521) $ (281,699) Net realized gain (loss) (27,791,108) 33,343,183 Change in net unrealized appreciation (depreciation) (53,607,679) 35,640,640 ------------- ------------ Net increase (decrease) in net assets resulting from operations (81,828,308) 68,702,124 ------------- ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (18,609,717) (30,019,917) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS (100,438,025) 38,682,207 NET ASSETS Beginning of period 204,293,125 165,610,918 ------------- ------------ End of period $ 103,855,100 $204,293,125 ============= ============ See Notes to Financial Statements. - ------ 13 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 Investments. 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 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. 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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. - ------ 14 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. 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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. - ------ 15 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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, 2008, 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. 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. Prior to December 12, 2007, the fund had 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, 2008, were $403,036,233 and $422,784,235, respectively. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the fund were as follows: Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount INVESTOR CLASS/SHARES AUTHORIZED 200,000,000 200,000,000 =========== =========== Sold 1,480,565 $ 11,492,491 2,809,737 $ 23,058,182 Redeemed (4,036,655) (29,538,137)(1) (6,725,943) (47,100,091)(2) ----------- --------------- ----------- --------------- (2,556,090) (18,045,646) (3,916,206) (24,041,909) ----------- --------------- ----------- --------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 100,000,000 100,000,000 =========== =========== Sold 145,816 1,157,483 146,901 1,160,072 Redeemed (229,009) (1,721,554)(3) (965,925) (7,138,080)(4) ----------- --------------- ----------- --------------- (83,193) (564,071) (819,024) (5,978,008) ----------- --------------- ----------- --------------- Net increase (decrease) (2,639,283) $ (18,609,717) (4,735,230) $(30,019,917) =========== =============== =========== =============== (1) Net of redemption fees of $55,641. (2) Net of redemption fees of $62,403. (3) Net of redemption fees of $9,826. (4) Net of redemption fees of $9,817. - ------ 16 5. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from the line during the year ended October 31, 2008. 6. RISK FACTORS The fund's investment process may involve 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. 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, 2008 and October 31, 2007. As of October 31, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $107,399,125 ============ Gross tax appreciation of investments $ 4,107,480 Gross tax depreciation of investments (7,320,106) ------------ Net tax appreciation (depreciation) of investments $(3,212,626) ============ Undistributed ordinary income -- Accumulated capital losses $(64,478,464) The cost and unrealized appreciation (depreciation) of investments for federal income tax purposes was the same as the cost and unrealized appreciation (depreciation) 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), $(32,317,452) and $(27,976,449) expire in 2009, 2010 and 2016, respectively. - ------ 17 8. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. - ------ 18 FINANCIAL HIGHLIGHTS Veedot Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.25 $6.17 $5.57 $5.06 $4.99 ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) (0.02) (0.01) (0.02) (0.03) (0.03) Net Realized and Unrealized Gain (Loss) (3.89) 3.09 0.62 0.53 0.09 ------ ------ ------ ------ ------ Total From Investment Operations (3.91) 3.08 0.60 0.50 0.06 ------ ------ ------ ------ ------ Redemption Fees(1) --(2) --(2) --(2) 0.01 0.01 ------ ------ ------ ------ ------ Net Asset Value, End of Period $5.34 $9.25 $6.17 $5.57 $5.06 ====== ====== ====== ====== ====== TOTAL RETURN(3) (42.27)% 49.92% 10.77% 10.08% 1.40% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.25% 1.25% 1.45% 1.50% 1.50% Ratio of Net Investment Income (Loss) to Average Net Assets (0.27)% (0.18)% (0.39)% (0.51)% (0.57)% Portfolio Turnover Rate 257% 207% 330% 399% 344% Net Assets, End of Period (in thousands) $98,991 $195,105 $154,374 $178,078 $219,618 (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. - ------ 19 Veedot Institutional Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $9.38 $6.25 $5.63 $5.10 $5.02 ------ ----- ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(1) (0.01) --(2) (0.01) (0.02) (0.02) Net Realized and Unrealized Gain (Loss) (3.94) 3.13 0.63 0.54 0.09 ------ ----- ------ ------ ------ Total From Investment Operations (3.95) 3.13 0.62 0.52 0.07 ------ ----- ------ ------ ------ Redemption Fees(1) --(2) --(2) --(2) 0.01 0.01 ------ ----- ------ ------ ------ Net Asset Value, End of Period $5.43 $9.38 $6.25 $5.63 $5.10 ====== ===== ====== ====== ====== TOTAL RETURN(3) (42.11)% 50.08% 11.01% 10.39% 1.59% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.05% 1.05% 1.25% 1.30% 1.30% Ratio of Net Investment Income (Loss) to Average Net Assets (0.07)% 0.02% (0.19)% (0.31)% (0.37)% Portfolio Turnover Rate 257% 207% 330% 399% 344% Net Assets, End of Period (in thousands) $4,864 $9,188 $11,237 $11,440 $12,400 (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. - ------ 20 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, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 23 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 24 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 Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 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. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 the services provided by the advisor 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 to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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 - ------ 26 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 for both the one- and three-year periods was significantly 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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 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. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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 board, including all of 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. - ------ 28 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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 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 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 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. - ------ 30 NOTES - ------ 31 NOTES - ------ 32 [back cover] [american century investments logo and text logo ®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62718S
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] American Century Investments CAPITAL VALUE FUND PRESIDENT'S LETTER [photo of Jonathan Thomas] JONATHAN THOMAS Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 9 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 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Approval of Management Agreement for Capital Value. . . . . . . . . . 27 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 32 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 33 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Phil Davidson, Chief Investment Officer, U.S. Value Equity CREDIT CRISIS TRIGGERED MARKET TURMOIL A series of unprecedented and startling events sent the U.S. equity market tumbling during the 12 months ended October 31, 2008. Bouts of investor optimism early in the period gave way to panic, fear, and frustration as the credit crunch that began in 2007 blossomed into a full-blown financial crisis. Frozen credit markets and failures of once-venerable Wall Street institutions triggered one of the most tumultuous stretches stock investors have ever endured. In particular, the turmoil reached catastrophic levels in September, after the federal government took over mortgage giants Fannie Mae and Freddie Mac. This was followed by the bankruptcy of Lehman Brothers, the bailout of American International Group, Bank of America's acquisition of troubled Merrill Lynch, and other financial sector disruptions. The adverse effects spread throughout the U.S. and global economies, triggering extraordinary action from the U.S. government and Federal Reserve and several of their global counterparts. Nevertheless, these measures, including the U.S. government's $700 billion rescue plan for the financial industry, did little to calm fears. Stock market volatility reached extreme levels as investors lost confidence in the financial system and the ability of the government to remedy the situation. In addition, unemployment soared, consumer confidence and spending plunged, and economies around the world slowed considerably. ALL STYLES SUFFERED In this challenging environment, all stock market styles suffered severe, double-digit losses. Even companies with attractive valuation characteristics, which usually draw risk-averse investors during periods of market uncertainty and heightened volatility, experienced sharp declines. Although the recent performance of the value style has been disappointing, the style is not completely betraying us. Specifically, the stocks of many higher-quality companies are relatively cheap, and our fund managers are finding them--even in sectors rife with "value traps" (stocks that are inexpensive for good reason), such as consumer discretionary. Although more volatility and uncertainty are in the cards, we believe our focus on strong balance sheets, competitive strength, and earnings power may help us identify companies poised to successfully weather the current financial storm. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Capital Value Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years Inception Date INVESTOR CLASS -37.52% 0.14% 2.26% 3/31/99 Return After-Tax on Distributions(1) -38.06% -0.25% 1.85% Return After-Tax on Distributions and Sale of Shares(1) -23.15% 0.35% 1.93% RUSSELL 1000 VALUE INDEX(2) -36.80% 1.90% 1.92% -- Institutional Class -37.46% 0.31% 0.45% 3/1/02 Return After-Tax on Distributions(1) -38.02% -0.11% 0.05% Return After-Tax on Distributions and Sale of Shares(1) -23.07% 0.50% 0.51% Advisor Class -37.78% -0.17% 2.09% 5/14/03 Return After-Tax on Distributions(1) -38.29% -0.52% 1.76% Return After-Tax on Distributions and Sale of Shares(1) -23.36% 0.08% 1.99% (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. ©2008 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 2008 Investor Class (before tax) 3.60% 7.23% -0.47% -8.49% 21.67% 13.94% 9.29% 18.03% 9.66% -37.52% Russell 1000 Value Index 6.15% 5.52% -11.86% -10.02% 22.87% 15.45% 11.86% 21.46% 10.83% -36.80% *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 returned -37.52%(1) for the 12 months ended October 31, 2008. By comparison, its benchmark, the Russell 1000 Value Index, returned -36.80%, while the broader market, as measured by the S&P 500 Index, returned - -36.10%.(2) The portfolio's return reflects operating expenses, while the indices' returns do not. The median return for Morningstar's Large Cap Value category (whose performance, like Capital Value's, reflects fund operating expenses) was -36.65%.(3) The volatile market environment described in the Market Perspective on page 2 hampered Capital Value's absolute and relative performance. U.S. equity indices were universally down for the 12-month period. Value outperformed growth-- except among mega-cap stocks (shares of especially large companies, represented by the Russell Top 200 Index). Capital Value's performance was hampered by the portfolio's position in the financials sector and holdings among industrials stocks. On the positive side, the portfolio benefited from effective security selection in the information technology, health care, and consumer staples sectors. FINANCIALS HINDERED PROGRESS Despite an underweight position, the financials sector was the portfolio's largest source of relative underperformance, partly because of turmoil in the credit markets. Although we continue to be selective about portfolio holdings, Capital Value was hampered by its mix of insurance stocks and mortgage finance names. Two top detractors were Freddie Mac, a stockholder-owned corporation chartered by Congress to keep money flowing to mortgage lenders in support of home ownership, and American International Group (AIG), the leading U.S.-based international insurer. Freddie Mac declined on greater-than-expected losses on exposure to subprime loans and the need for additional capital. Shares of AIG fell significantly after the Federal Reserve stepped in to rescue the company from bankruptcy. We eliminated both positions during the reporting period. Top Ten Holdings as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Exxon Mobil Corp. 6.8% 5.5% General Electric Co. 5.1% 4.7% Chevron Corp. 5.0% 3.7% AT&T, Inc. 4.3% 3.8% JPMorgan Chase & Co. 3.7% 2.9% Johnson & Johnson 3.2% 2.8% Pfizer, Inc. 3.2% 2.7% ConocoPhillips 2.8% 2.6% Bank of America Corp. 2.7% 3.3% Royal Dutch Shell plc ADR 2.7% 2.9% (1) All fund returns referenced in this commentary are for Investor Class shares. (2) The S&P 500 Index returned 0.26% and -1.29% on an average annualized basis for the five-year and since inception periods ended October 31, 2008, respectively. (3) The median returns for Morningstar's Large Cap Value category were 0.79% and 1.26% on an average annualized basis for the five-year and since inception periods ended October 31, 2008, respectively. ©2008 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. - ------ 5 Capital Value INDUSTRIALS DETRACTED The industrials sector was another source of relative weakness. As the global economy slowed, many large U.S. companies saw a downturn in their international businesses. Ingersoll-Rand Co. cited the uncertain global economic outlook--and the ongoing credit crisis--for its decline in earnings. The company, which designs and manufactures a range of industrial and commercial products, was a notable detractor. INFORMATION TECHNOLOGY CONTRIBUTED Capital Value benefited from strong security selection in information technology, primarily from large leading software and technology companies. A notable contributor was Hewlett-Packard (HP), a computer and peripheral maker. HP's acquisition of outsourcing giant Electronic Data Systems appears to offer a competitive advantage and could add value through reorganization and cost-cutting efforts. HEALTH CARE, CONSUMER STAPLES ADDED VALUE The portfolio's holdings in the health care and consumer staples sectors contributed to results. During difficult economic times or periods of stock market turbulence, investors often regard health care and consumer staples stocks as lower-risk, defensive investments. Moreover, our preference for large industry leaders proved advantageous. In health care, a significant holding was Abbott Laboratories, which develops and manufactures laboratory diagnostics, medical devices, and pharmaceutical therapies. Abbott reported strong sales across its entire product line, including HUMIRA (a drug that treats autoimmune diseases). In consumer staples, Wal-Mart Stores was a top contributor. The retailer's low-price strategy paid off as higher prices at the pump and the sluggish U.S. economy put pressure on consumers. OUTLOOK We continue to be bottom-up investment managers, evaluating each company individually and building our portfolio one stock at a time. Capital Value is broadly diversified, with ongoing overweight positions in the information technology and energy sectors. Our valuation work is also directing us toward smaller relative weightings in utilities and consumer staples stocks. In addition, we are still finding value opportunities among mega-cap stocks and have maintained our bias toward them. Top Five Industries as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Oil, Gas & Consumable Fuels 18.6% 15.1% Pharmaceuticals 10.9% 9.2% Diversified Financial Services 8.9% 8.5% Diversified Telecommunication Services 6.9% 6.1% Industrial Conglomerates 5.5% 5.4% Types of Investments in Portfolio % of % of net assets net assets as of as of 10/31/08 4/30/08 Common Stocks 99.5% 98.9% Temporary Cash Investments 0.7% 0.9% Other Assets and Liabilities (0.2)% 0.2% - ------ 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 7 Beginning Expenses Paid Account Ending During Period* Annualized Value Account Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* ACTUAL Investor $1,000 $702.40 $4.71 1.10% Institutional Class $1,000 $702.40 $3.85 0.90% Advisor Class $1,000 $700.70 $5.77 1.35% HYPOTHETICAL Investor $1,000 $1,019.61 $5.58 1.10% Institutional Class $1,000 $1,020.61 $4.57 0.90% Advisor Class $1,000 $1,018.35 $6.85 1.35% * Expenses are equal to the 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 366, to reflect the one-half year period. - ------ 8 SCHEDULE OF INVESTMENTS Capital Value OCTOBER 31, 2008 Shares Value Common Stocks -- 99.5% AEROSPACE & DEFENSE -- 1.1% 46,900 Northrop Grumman Corp. $2,199,141 ------------ BEVERAGES -- 2.1% 67,300 Coca-Cola Co. (The) 2,965,238 58,600 Pepsi Bottling Group, Inc. 1,354,832 ------------ 4,320,070 ------------ BIOTECHNOLOGY -- 1.2% 42,300 Amgen, Inc.(1) 2,533,347 ------------ CAPITAL MARKETS -- 3.6% 67,500 Bank of New York Mellon Corp. (The) 2,200,500 19,300 Goldman Sachs Group, Inc. (The) 1,785,250 17,600 Legg Mason, Inc. 390,544 77,800 Merrill Lynch & Co., Inc. 1,446,302 85,400 Morgan Stanley 1,491,938 ------------ 7,314,534 ------------ CHEMICALS -- 2.0% 71,000 E.I. du Pont de Nemours & Co. 2,272,000 38,400 PPG Industries, Inc. 1,903,872 ------------ 4,175,872 ------------ COMMERCIAL BANKS -- 3.3% 174,200 National City Corp. 470,340 60,000 U.S. Bancorp. 1,788,600 130,600 Wells Fargo & Co. 4,446,930 ------------ 6,705,870 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.9% 28,700 Avery Dennison Corp. 1,005,074 16,300 Pitney Bowes, Inc. 403,914 66,000 R.R. Donnelley & Sons Co. 1,093,620 44,600 Waste Management, Inc. 1,392,858 ------------ 3,895,466 ------------ COMMUNICATIONS EQUIPMENT -- 0.7% 61,900 Cisco Systems, Inc.(1) 1,099,963 66,000 Motorola, Inc. 354,420 ------------ 1,454,383 ------------ COMPUTERS & PERIPHERALS -- 1.0% 55,200 Hewlett-Packard Co. 2,113,056 ------------ CONSUMER FINANCE -- 0.3% 58,300 Discover Financial Services 714,175 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.8% 80,800 H&R Block, Inc. 1,593,376 ------------ Shares Value DIVERSIFIED FINANCIAL SERVICES -- 8.9% 232,700 Bank of America Corp. $5,624,359 362,933 Citigroup, Inc. 4,954,035 185,400 JPMorgan Chase & Co. 7,647,750 ------------ 18,226,144 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 6.9% 327,600 AT&T, Inc. 8,769,852 24,700 Embarq Corp. 741,000 153,600 Verizon Communications, Inc. 4,557,312 ------------ 14,068,164 ------------ ELECTRIC UTILITIES -- 2.7% 55,500 Exelon Corp. 3,010,320 74,500 PPL Corp. 2,445,090 ------------ 5,455,410 ------------ ENERGY EQUIPMENT & SERVICES -- 0.5% 32,900 National Oilwell Varco, Inc.(1) 983,381 ------------ FOOD & STAPLES RETAILING -- 3.0% 63,000 Kroger Co. (The) 1,729,980 63,500 Walgreen Co. 1,616,710 48,900 Wal-Mart Stores, Inc. 2,729,109 ------------ 6,075,799 ------------ FOOD PRODUCTS -- 0.8% 64,700 Unilever NV New York Shares 1,556,035 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7% 37,100 Medtronic, Inc. 1,496,243 ------------ HEALTH CARE PROVIDERS & SERVICES -- 0.5% 21,800 Quest Diagnostics, Inc. 1,020,240 ------------ HOTELS, RESTAURANTS & LEISURE -- 0.6% 25,100 Darden Restaurants, Inc. 556,467 52,000 Starbucks Corp.(1) 682,760 ------------ 1,239,227 ------------ HOUSEHOLD DURABLES -- 0.7% 101,300 Newell Rubbermaid, Inc. 1,392,875 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3% 25,300 NRG Energy, Inc.(1) 588,225 ------------ INDUSTRIAL CONGLOMERATES -- 5.5% 531,500 General Electric Co. 10,369,565 32,200 Tyco International Ltd. 814,016 ------------ 11,183,581 ------------ - ------ 9 Capital Value Shares Value INSURANCE -- 3.3% 68,500 Allstate Corp. (The) $1,807,715 43,800 Hartford Financial Services Group, Inc. (The) 452,016 28,000 Loews Corp. 929,880 27,400 Torchmark Corp. 1,144,498 56,500 Travelers Cos., Inc. (The) 2,404,075 ------------ 6,738,184 ------------ IT SERVICES -- 1.4% 21,100 Fiserv, Inc.(1) 703,896 23,000 International Business Machines Corp. 2,138,310 ------------ 2,842,206 ------------ MACHINERY -- 2.4% 37,700 Caterpillar, Inc. 1,439,009 40,900 Dover Corp. 1,299,393 61,300 Ingersoll-Rand Co. Ltd., Class A 1,130,985 25,800 Parker-Hannifin Corp. 1,000,266 ------------ 4,869,653 ------------ MEDIA -- 3.1% 101,000 CBS Corp., Class B 980,710 71,600 Gannett Co., Inc. 787,600 275,600 Time Warner, Inc. 2,780,804 83,800 Viacom, Inc., Class B(1) 1,694,436 ------------ 6,243,550 ------------ METALS & MINING -- 0.6% 33,200 Nucor Corp. 1,344,932 ------------ MULTILINE RETAIL -- 0.6% 37,200 Kohl's Corp.(1) 1,306,836 ------------ OFFICE ELECTRONICS -- 0.6% 146,100 Xerox Corp. 1,171,722 ------------ OIL, GAS & CONSUMABLE FUELS -- 18.6% 12,200 Apache Corp. 1,004,426 137,000 Chevron Corp. 10,220,200 111,900 ConocoPhillips 5,821,038 14,300 Devon Energy Corp. 1,156,298 188,900 Exxon Mobil Corp. 14,001,268 8,200 Occidental Petroleum Corp. 455,428 97,600 Royal Dutch Shell plc ADR 5,447,056 ------------ 38,105,714 ------------ PAPER & FOREST PRODUCTS -- 0.9% 34,600 International Paper Co. 595,812 34,300 Weyerhaeuser Co. 1,310,946 ------------ 1,906,758 ------------ Shares Value PHARMACEUTICALS -- 10.9% 35,400 Abbott Laboratories $1,952,310 52,000 Eli Lilly & Co. 1,758,640 107,200 Johnson & Johnson 6,575,648 95,000 Merck & Co., Inc. 2,940,250 369,100 Pfizer, Inc. 6,536,761 75,700 Wyeth 2,436,026 ------------ 22,199,635 ------------ PROFESSIONAL SERVICES -- 0.1% 13,800 Robert Half International, Inc. 260,406 ------------ REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1% 23,100 Developers Diversified Realty Corp. 304,227 ------------ ROAD & RAIL -- 0.1% 45,400 YRC Worldwide, Inc.(1) 207,932 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.1% 67,400 Applied Materials, Inc. 870,134 59,700 Intel Corp. 955,200 24,800 Texas Instruments, Inc. 485,088 ------------ 2,310,422 ------------ SOFTWARE -- 1.6% 91,900 Microsoft Corp. 2,052,127 63,500 Oracle Corp.(1) 1,161,415 ------------ 3,213,542 ------------ SPECIALTY RETAIL -- 2.6% 47,400 Best Buy Co., Inc. 1,270,794 66,900 Gap, Inc. (The) 865,686 74,000 Home Depot, Inc. (The) 1,745,660 76,100 Staples, Inc. 1,478,623 ------------ 5,360,763 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.6% 23,600 VF Corp. 1,300,360 ------------ THRIFTS & MORTGAGE FINANCE -- 0.1% 56,700 MGIC Investment Corp. 219,996 ------------ TOBACCO -- 1.4% 71,500 Altria Group, Inc. 1,372,085 22,000 Lorillard, Inc. 1,448,920 ------------ 2,821,005 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.3% 178,800 Sprint Nextel Corp. 559,644 ------------ TOTAL COMMON STOCKS (Cost $217,738,336) 203,592,101 ------------ - ------ 10 Capital Value Shares Value Temporary Cash Investments -- 0.7% 74,933 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares $ 74,933 Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 6.125%, 11/15/27, valued at $1,425,779), in a joint trading account at 0.10%, dated 10/31/08, due 11/3/08 (Delivery value $1,400,012) 1,400,000 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,474,933) 1,474,933 ------------ TOTAL INVESTMENT SECURITIES -- 100.2% (Cost $219,213,269) 205,067,034 ------------ OTHER ASSETS AND LIABILITIES -- (0.2)% (464,457) ------------ TOTAL NET ASSETS -- 100.0% $204,602,577 ============ Notes to Schedule of Investments ADR = American Depositary Receipt (1) Non-income producing. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 11 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 ASSETS Investment securities, at value (cost of $219,213,269) $205,067,034 Receivable for investments sold 535,746 Receivable for capital shares sold 29,590 Dividends and interest receivable 410,778 -------------- 206,043,148 -------------- LIABILITIES Disbursements in excess of demand deposit cash 26,733 Payable for investments purchased 578,530 Payable for capital shares redeemed 639,468 Accrued management fees 194,312 Distribution and service fees payable 1,528 -------------- 1,440,571 -------------- NET ASSETS $204,602,577 ============== NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $222,792,505 Undistributed net investment income 5,247,349 Accumulated net realized loss on investment transactions (9,291,042) Net unrealized depreciation on investments (14,146,235) -------------- $204,602,577 ============== INVESTOR CLASS, $0.01 PAR VALUE Net assets $185,569,069 Shares outstanding 35,923,059 Net asset value per share $5.17 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $12,029,658 Shares outstanding 2,325,587 Net asset value per share $5.17 ADVISOR CLASS, $0.01 PAR VALUE Net assets $7,003,850 Shares outstanding 1,358,969 Net asset value per share $5.15 See Notes to Financial Statements. - ------ 12 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $49,337) $ 10,639,980 Interest 61,929 Securities lending, net 113,535 -------------- 10,815,444 -------------- EXPENSES: Management fees 3,839,144 Distribution fees -- Advisor Class 3,033 Service fees -- Advisor Class 3,033 Distribution and service fees -- Advisor Class 25,202 Directors' fees and expenses 9,641 Other expenses 4,260 -------------- 3,884,313 -------------- NET INVESTMENT INCOME (LOSS) 6,931,131 -------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment transactions (8,977,268) Change in unrealized appreciation (depreciation) on investments (150,104,194) -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (159,081,462) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(152,150,331) ============== See Notes to Financial Statements. - ------ 13 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Increase (Decrease) in Net Assets 2008 2007 OPERATIONS Net investment income (loss) $ 6,931,131 $8,188,675 Net realized gain (loss) (8,977,268) 18,769,164 Change in net unrealized appreciation (depreciation) (150,104,194) 22,105,599 ------------- ------------ Net increase (decrease) in net assets resulting from operations (152,150,331) 49,063,438 ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (6,799,465) (7,057,821) Institutional Class (437,453) (534,336) Advisor Class (195,244) (212,420) From net realized gains: Investor Class (17,205,248) (6,173,467) Institutional Class (986,976) (410,071) Advisor Class (582,280) (225,243) ------------- ------------ Decrease in net assets from distributions (26,206,666) (14,613,358) ------------- ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (122,589,572) (43,818,329) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS (300,946,569) (9,368,249) NET ASSETS Beginning of period 505,549,146 514,917,395 ------------- ------------ End of period $204,602,577 $505,549,146 ============= ============ Undistributed net investment income $5,247,349 $5,754,249 ============= ============ See Notes to Financial Statements. - ------ 14 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 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. 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 income earned, net of any rebates or fees, is included in the Statement of Operations. 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 has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109" during the current fiscal year. The fund is no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 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. Effective December 3, 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule for the fund ranges from 0.90% to 1.10% for the Investor Class and Advisor Class. The Institutional Class is 0.20% less at each point within the range. Prior to December 3, 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, 2008, was 1.10%, 0.90% and 1.07% for the Investor Class, Institutional Class and Advisor Class, respectively. - ------ 16 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 December 3, 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 an annual 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plan during the year ended October 31, 2008, 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 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 js an equity investor in ACC. The fund has a securities lending agreement with JPMorgan Chase Bank (JPMCB). Prior to December 12, 2007, the fund had a bank line of credit agreement with 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 ended October 31, 2008, were $90,329,413 and $230,002,024, respectively. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the fund were as follows: Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount INVESTOR CLASS/SHARES AUTHORIZED 200,000,000 200,000,000 ============ ============ Sold 4,019,582 $ 28,296,721 8,504,945 $72,228,943 Issued in reinvestment of distributions 2,617,117 20,177,969 1,397,652 11,684,374 Redeemed (23,291,242) (161,307,127) (14,030,687) (120,606,257) ------------ --------------- ------------ ------------- (16,654,543) (112,832,437) (4,128,090) (36,692,940) ------------ --------------- ------------ ------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 15,000,000 15,000,000 ============ ============ Sold 760,655 5,015,742 252,381 2,101,512 Issued in reinvestment of distributions 155,264 1,195,532 112,065 936,867 Redeemed (1,784,972) (12,651,624) (947,069) (8,137,849) ------------ --------------- ------------ ------------- (869,053) (6,440,350) (582,623) (5,099,470) ------------ --------------- ------------ ------------- ADVISOR CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ============ ============ Sold 233,387 1,571,870 297,016 2,529,461 Issued in reinvestment of distributions 100,040 771,305 52,056 435,187 Redeemed (808,390) (5,659,960) (581,695) (4,990,567) ------------ --------------- ------------ ------------- (474,963) (3,316,785) (232,623) (2,025,919) ------------ --------------- ------------ ------------- Net increase (decrease) (17,998,559) $(122,589,572) (4,943,336) $(43,818,329) ============ =============== ============ ============= - ------ 17 5. SECURITIES LENDING As of October 31, 2008, the fund did not have any securities on loan. 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 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. Investments made with cash collateral may decline in value. 6. BANK LINE OF CREDIT Effective December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, has a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the fund, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The fund did not borrow from either line during the year ended October 31, 2008. 7. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended October 31, 2008 and October 31, 2007 were as follows: 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $7,438,030 $7,804,577 Long-term capital gains $18,768,636 $6,808,781 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, 2008, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: Federal tax cost of investments $219,762,098 ============== Gross tax appreciation of investments $ 30,125,528 Gross tax depreciation of investments (44,820,592) -------------- Net tax appreciation (depreciation) of investments $(14,695,064) ============== Undistributed ordinary income $5,247,349 Accumulated capital losses $(8,742,213) The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2016. - ------ 18 8. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 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. The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2008. For corporate taxpayers, the fund hereby designates $7,438,030, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2008, as qualified for the corporate dividends received deduction. The fund hereby designates $18,768,636, or up to the maximum amount allowable, of long-term capital gain distributions for the fiscal year ended October 31, 2008. - ------ 19 FINANCIAL HIGHLIGHTS Capital Value Investor Class For a Share Outstanding Throughout the Years Ended October 31 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $8.78 $8.23 $7.15 $6.61 $5.86 -------- -------- -------- -------- -------- Income From Investment Operations Net Investment Income (Loss)(1) 0.14 0.13 0.12 0.10 0.09 Net Realized and Unrealized Gain (Loss) (3.28) 0.65 1.14 0.51 0.72 -------- -------- -------- -------- -------- Total From Investment Operations (3.14) 0.78 1.26 0.61 0.81 -------- -------- -------- -------- -------- Distributions From Net Investment Income (0.13) (0.12) (0.10) (0.07) (0.06) From Net Realized Gains (0.34) (0.11) (0.08) -- -- -------- -------- -------- -------- -------- Total Distributions (0.47) (0.23) (0.18) (0.07) (0.06) -------- -------- -------- -------- -------- Net Asset Value, End of Period $5.17 $8.78 $8.23 $7.15 $6.61 ======== ======== ======== ======== ======== TOTAL RETURN(2) (37.52)% 9.66% 18.03% 9.29% 13.94% 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 1.98% 1.52% 1.55% 1.42% 1.44% Portfolio Turnover Rate 26% 15% 16% 28% 15% Net Assets, End of Period (in thousands) $185,569 $461,413 $466,803 $458,354 $255,504 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $8.79 $8.24 $7.16 $6.62 $5.87 -------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss)(1) 0.15 0.15 0.13 0.12 0.10 Net Realized and Unrealized Gain (Loss) (3.28) 0.65 1.15 0.51 0.72 -------- ------- ------- ------- ------- Total From Investment Operations (3.13) 0.80 1.28 0.63 0.82 -------- ------- ------- ------- ------- Distributions From Net Investment Income (0.15) (0.14) (0.12) (0.09) (0.07) From Net Realized Gains (0.34) (0.11) (0.08) -- -- -------- ------- ------- ------- ------- Total Distributions (0.49) (0.25) (0.20) (0.09) (0.07) -------- ------- ------- ------- ------- Net Asset Value, End of Period $5.17 $8.79 $8.24 $7.16 $6.62 ======== ======= ======= ======= ======= TOTAL RETURN(2) (37.46)% 9.88% 18.24% 9.50% 14.15% 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 2.18% 1.72% 1.75% 1.62% 1.64% Portfolio Turnover Rate 26% 15% 16% 28% 15% Net Assets, End of Period (in thousands) $12,030 $28,077 $31,141 $37,523 $23,449 (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 2008 2007 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $8.76 $8.21 $7.14 $6.60 $5.86 -------- ------- ------- ------- ------ Income From Investment Operations Net Investment Income (Loss)(1) 0.12 0.11 0.10 0.08 0.08 Net Realized and Unrealized Gain (Loss) (3.28) 0.65 1.13 0.52 0.71 -------- ------- ------- ------- ------ Total From Investment Operations (3.16) 0.76 1.23 0.60 0.79 -------- ------- ------- ------- ------ Distributions From Net Investment Income (0.11) (0.10) (0.08) (0.06) (0.05) From Net Realized Gains (0.34) (0.11) (0.08) -- -- -------- ------- ------- ------- ------ Total Distributions (0.45) (0.21) (0.16) (0.06) (0.05) -------- ------- ------- ------- ------ Net Asset Value, End of Period $5.15 $8.76 $8.21 $7.14 $6.60 ======== ======= ======= ======= ====== TOTAL RETURN(2) (37.78)% 9.40% 17.62% 9.04% 13.60% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.35% 1.35% 1.35% 1.35% 1.35% Ratio of Net Investment Income (Loss) to Average Net Assets 1.73% 1.27% 1.30% 1.17% 1.19% Portfolio Turnover Rate 26% 15% 16% 28% 15% Net Assets, End of Period (in thousands) $7,004 $16,059 $16,973 $14,744 $8,023 (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. - ------ 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, one of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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, one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 23 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 24 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 25 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 26 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 Investments, 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; * reports on the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 27 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. In connection with their review of the fund, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 the services provided by the advisor 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. - ------ 28 INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided to the fund is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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 its peer group for both the one- and three-year period 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. The board will continue to monitor these efforts and the performance of the fund. More detailed information about the fund's performance can be found in the Performance and Portfolio Commentary sections of this report. 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. 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. The board concluded that the advisor's profits were reasonable in light of the services provided to the fund. ETHICS. 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. - ------ 29 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 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 above the median of the total expense ratios of its peer group. The board concluded that the management fee paid by the fund to the advisor was reasonable in light of the services provided to the fund. 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. - ------ 30 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 board, including all of 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. - ------ 31 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund's 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. - ------ 32 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 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 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 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. - ------ 33 NOTES - ------ 34 NOTES - ------ 35 NOTES - ------ 36 [back cover] [american century investments logo and text logo ®] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765 1-800-345-2021 INVESTOR SERVICES REPRESENTATIVE . . . . . . . . . . . . . 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62714N
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS AMERICAN CENTURY-MASON STREET MID CAP GROWTH FUND AMERICAN CENTURY-MASON STREET SMALL CAP GROWTH FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/ Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 SMALL CAP GROWTH Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 10 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 10 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 11 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 13 Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 18 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 20 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 21 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 22 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 29 Report of Independent Registered Public Accounting Firm . . . . . . . 41 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Approval of Management Agreements for Mid Cap Growth and Small Cap Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 50 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 51 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of chief investment officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE Mid Cap Growth Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years 10 years Inception Date A CLASS(1) No sales charge* -35.83% -0.25% 4.13% 5.71% With sales charge* -39.53% -1.43% 3.52% 5.17% 3/31/97 RUSSELL MIDCAP GROWTH INDEX(2) -42.65% -0.18% 2.20% 4.03% -- S&P MIDCAP 400 INDEX(2) -36.46% 1.96% 6.71% 8.60% -- Investor Class -35.67% -- -- -10.01% 4/3/06 Institutional Class -35.55% -- -- -9.84% 4/3/06 B Class(1) No sales charge* -36.28% -0.90% 3.45% 5.01% With sales charge* -40.28% -1.11% 3.45% 5.01% 3/31/97 C Class -36.31% -- -- -10.91% 4/3/06 R Class -36.00% -- -- -10.48% 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%. 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. ©2008 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, 1998*
One-Year Returns Over 10 Years Periods ended October 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 A Class** (no sales charge) 46.73% 47.26% -35.19% -9.55% 19.92% 4.92% 7.99% 7.08% 26.85% -35.83% Russell Midcap Growth Index 37.66% 38.67% -42.78% -17.61% 39.30% 8.77% 15.91% 14.51% 19.72% -42.65% S&P MidCap 400 Index 21.07% 31.65% -12.45% -4.78% 30.73% 11.04% 17.65% 13.43% 17.02% -36.46% * 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 -35.83%* during the 12 months ended October 31, 2008. By comparison, the Russell Midcap Growth Index returned -42.65%. See page 3 for additional performance comparisons. The portfolio's absolute return reflected the unprecedented turmoil affecting the economy and financial markets. No sector contributed positively to results. The biggest negative contribution came from information technology stocks. The portfolio held up better than the index thanks to stock selection across a number of sectors, led by industrials. Consumer staples shares detracted most from relative results. KEY CONTRIBUTION: INDUSTRIALS Stock selection in the industrials sector goes a long way toward explaining why the portfolio held up better than the Russell index. Positioning in the road and rail, commercial services, air freight and logistics, and industrial conglomerate industry segments contributed most. Among road and rail stocks, Knight Transportation and J.B. Hunt Transport Services posted better-than-expected profits late in the reporting period. C.H. Robinson Worldwide was a top-10 contributor overall and the leading source of relative return in the air freight segment, thanks to rising demand for its services across a number of business units. Elsewhere in the sector, medical waste disposal firm Stericycle was another top-10 contributor, as it benefited from some recent acquisitions and news that it would be added to the S&P 500 Index. HEALTH CARE, CONSUMER DISCRETIONARY HELPED The portfolio's health care and consumer discretionary stocks outperformed these portions of the Russell index thanks to stock picking. Health care providers Psychiatric Solutions and DaVita were both top-10 contributors for the year. DaVita provided more kidney dialysis treatments and was added to the S&P 500 during the year, while Psychiatric Solutions saw rising demand for its services, leading to improving profits and margins. Biotechnology firm Celgene, another top-10 contributor, benefited from better sales of some of its leading drug lines and contributions from a recent acquisition. The consumer discretionary sector was home to the top two individual contributors to relative performance, DeVry and Dollar Tree. Both stocks benefited from the economic Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Psychiatric Solutions, Inc. 3.1% 2.1% DeVry, Inc. 3.1% 1.8% Immucor, Inc. 2.7% 1.5% DaVita, Inc. 2.6% 2.9% GameStop Corp. 2.5% 2.2% Dollar Tree, Inc. 2.5% 1.4% Global Payments, Inc. 2.5% 1.6% Corrections Corp. of America 2.4% 1.6% Alliance Data Systems Corp. 2.2% 0.5% Stericycle, Inc. 2.2% 1.1% * 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 downturn in that discount retailer Dollar Tree saw more cost-conscious customers come through its doors. Adult and vocational education firm DeVry saw enrollment rise as the difficult job market put a premium on worker education and training. LEADING DETRACTORS An underweight position and stock selection made consumer staples shares the largest detractors from relative results by far. The leading detractor was cosmetics firm Bare Escentuals, which reported disappointing profit growth and guided analysts' expectations down for future quarters. It also hurt to be underrepresented in food products, tobacco, and household products companies, which held up better than the index as a whole. In terms of individual stocks, several of the leading detractors were shares of companies hit hard by the sharp downturn in the economy late in the year. Topping the list were online marketing and digital ad firms ValueClick (#1 detractor for the year) and Focus Media Holdings (#2). Similarly, payment processor VeriFone Holdings (#5) and graphics chipmaker NVIDIA (#8) were victims of the economic turmoil. We eliminated our holdings in ValueClick and NVIDIA, but continued to hold stakes in VeriFone and Focus Media at period-end. OUTLOOK We're concerned about the length and depth of the economic recession, and think volatility in the stock market is likely to continue, driven by deleveraging and forced selling. Under these conditions, the market can throw out normal earnings and valuation metrics, discounting both good companies and bad. Indeed, we've been able to add high-quality companies trading at what we believe are attractive valuations. In this uncertain environment, we are maintaining an underweight in consumer-related shares and an overweight to the health care sector. We also maintained an underweight position in energy shares, with oil prices and earnings derived from them falling sharply. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 IT Services 8.4% 4.7% Health Care Providers & Services 7.7% 9.1% Software 7.0% 5.0% Specialty Retail 5.9% 4.5% Semiconductors & Semiconductor Equipment 5.8% 4.8% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks and Futures 92.9% 88.9% Foreign Common Stocks(1) 2.9% 6.8% TOTAL COMMON STOCKS 95.8% 95.7% Short-Term Investments 4.0% 3.2% Other Assets and Liabilities 0.2% 1.1% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 6 PERFORMANCE Small Cap Growth Total Returns as of October 31, 2008 Average Annual Returns Since Inception 1 year 5 years Inception Date A CLASS(1) No sales charge* -46.12% -2.32% 4.36% With sales charge* -49.22% -3.48% 3.69% 7/12/99 RUSSELL 2000 GROWTH INDEX(2) -37.87% -0.13% -1.46%(3) -- S&P SMALLCAP 600 INDEX(2) -32.44% 3.33% 5.61%(3) -- Investor Class -46.00% -- -16.86% 4/3/06 Institutional Class -45.89% -- -16.69% 4/3/06 B Class(1) No sales charge* -46.52% -2.96% 3.69% With sales charge* -50.52% -3.19% 3.69% 7/12/99 C Class -46.51% -- -17.69% 4/3/06 R Class -46.32% -- -17.31% 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%. 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. ©2008 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. 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 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. - ------ 7 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 2008 A Class** (no sales charge) 13.00% 63.92% -24.37% -7.06% 28.49% 7.39% 19.34% 6.63% 20.75% -46.12% Russell 2000 Growth Index -4.03% 16.16% -31.50% -21.57% 46.56% 5.53% 10.91% 17.07% 16.73% -37.87% S&P SmallCap 600 Index -6.41% 25.27% -6.44% -3.78% 33.58% 16.78% 15.27% 16.10% 11.55% -32.44% * 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. 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 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. - ------ 8 PORTFOLIO COMMENTARY Small Cap Growth Portfolio Managers: Bill Walker and Andy Eng PERFORMANCE SUMMARY Small Cap Growth returned -46.12%* during the 12 months ended October 31, 2008. By comparison, the Russell 2000 Growth Index returned -37.87%. See page 7 for additional performance comparisons. The portfolio's absolute return reflects the unprecedented turmoil affecting the economy and financial markets. No sector contributed positively to results. The biggest negative contribution to both relative and absolute results came from information technology stocks. Industrials shares were the leading contributors to relative return. LEADING DETRACTORS: INFORMATION TECHNOLOGY An overweight position and stock selection made information technology shares the main source of weakness relative to the Russell index. The portfolio's internet software & services, software, semiconductor, and electronic equipment holdings all detracted substantially from relative results. The leading detractor in the sector was mobile phone and digital media equipment maker Cogo Group, which was hit by worries about slower economic growth hurting demand for its products, and a changing product mix geared toward lower-margin business. Other top-10 detractors in the sector were Synchronoss Technologies, Riverbed Technology, comScore, and Insight Enterprises. Computer hardware, software, and services provider Insight Enterprises gave a downbeat outlook and reported disappointing revenue and profit figures as a result of slower economic growth and trouble with its online sales system, as well as some one-time charges. Business software maker comScore revised down profit expectations and gave a poor outlook as economic conditions deteriorated. Riverbed, which provides technology to speed corporate networks, was a high P/E, high-momentum stock whose share price tumbled on disappointing financial results. Communication software maker Synchronoss underperformed after losing a piece of business with its dominant customer, AT&T. Top Ten Holdings as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 NuVasive, Inc. 2.3% 1.4% Alberto-Culver Co. 2.3% 0.9% Team, Inc. 2.2% 0.9% Dollar Tree, Inc. 2.2% 0.9% Genoptix, Inc. 2.1% 1.1% Silgan Holdings, Inc. 2.1% 0.9% Masimo Corp. 2.1% 1.5% New Oriental Education & Technology Group ADR 1.9% 1.5% Stanley, Inc. 1.9% -- Corrections Corp. of America 1.9% 0.9% * 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. - ------ 9 Small Cap Growth OTHER DETRACTORS: ENERGY, HEALTH CARE Energy shares also detracted from relative performance. Stock picks and an underweight position in oil, gas, and consumable fuel stocks drove the underperformance. Here the leading detractor was Alpha Natural Resources. We were underrepresented in the stock, which performed very well early in the fiscal year as coal prices soared; however, we made up some of that relative underperformance in recent months as the stock declined along with coal prices. Health care shares were also notable detractors from relative results. The main source of weakness by far was our positioning in the biotechnology segment, where we held an underweight position. Many small-cap biotechnology firms often lack the earnings history necessary for inclusion in the portfolio; as a result, we're often underrepresented in this segment. Unfortunately, some of the biotech stocks we did own also underperformed, such as BioMarin Pharmaceuticals and Savient Pharmaceuticals. LEADING CONTRIBUTORS Industrials shares contributed most to relative results, led by stock selection and an overweight position in aerospace and defense and commercial services firms. The leading contributor to performance was military contractor Axsys Technologies, whose business boomed as a result of increased defense spending. Other key contributors from these two industry segments were AeroVironment, Stanley, Team, and Cornell Companies. The portfolio also enjoyed notable contributions to relative return from positioning in the materials sector. Here it helped to be underweight the poor-performing metals and mining stocks, and overweight containers and packaging companies, which held up better. The leading contributor in the sector was packaging firm Silgan Holdings, which reported record third-quarter income despite the challenging economic environment. OUTLOOK Given the unprecedented events sweeping financial markets, we are working to trim the portfolio's risk by reducing our overweight position in the volatile information technology sector and adding shares in the relatively more stable health care sector. Nevertheless, information technology remains our largest sector exposure, and we continue to believe we'll see strong relative results from these names when market conditions stabilize. Top Five Industries as of October 31, 2008 % of net % of net assets as of assets as of 10/31/08 4/30/08 Aerospace & Defense 7.1% 2.2% Health Care Equipment & Supplies 6.5% 6.9% Internet Software & Services 6.0% 9.2% Commercial Services & Supplies 5.7% 4.5% Semiconductors & Semiconductor Equipment 5.6% 4.9% Types of Investments in Portfolio % of net % of net assets as of assets as of 10/31/08 4/30/08 Domestic Common Stocks and Futures 89.9% 86.1% Foreign Common Stocks(1) 6.9% 9.1% TOTAL EQUITY EXPOSURE 96.8% 95.2% Short-Term Investments -- 3.8% Other Assets and Liabilities 3.2% 1.0% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 10 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 11 Expenses Paid Ending During Beginning Account Period(1) Annualized Account Value Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio(1) Mid Cap Growth ACTUAL Investor Class $1,000 $706.10 $4.50 1.05% Institutional Class $1,000 $706.70 $3.65 0.85% A Class $1,000 $705.10 $5.57 1.30% B Class $1,000 $702.70 $8.77 2.05% C Class $1,000 $702.30 $8.77 2.05% R Class $1,000 $704.10 $6.64 1.55% HYPOTHETICAL Investor Class $1,000 $1,019.86 $5.33 1.05% Institutional Class $1,000 $1,020.86 $4.32 0.85% A Class $1,000 $1,018.60 $6.60 1.30% B Class $1,000 $1,014.83 $10.38 2.05% C Class $1,000 $1,014.83 $10.38 2.05% R Class $1,000 $1,017.34 $7.86 1.55% Small Cap Growth ACTUAL Investor Class $1,000 $689.90 $5.56 1.31% Institutional Class $1,000 $690.60 $4.72 1.11% A Class $1,000 $688.90 $6.62 1.56% B Class $1,000 $685.90 $9.79 2.31% C Class $1,000 $687.10 $9.80 2.31% R Class $1,000 $687.70 $7.68 1.81% HYPOTHETICAL Investor Class $1,000 $1,018.55 $6.65 1.31% Institutional Class $1,000 $1,019.56 $5.63 1.11% A Class $1,000 $1,017.29 $7.91 1.56% B Class $1,000 $1,013.52 $11.69 2.31% C Class $1,000 $1,013.52 $11.69 2.31% R Class $1,000 $1,016.04 $9.17 1.81% (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 366, to reflect the one-half year period. - ------ 12 SCHEDULE OF INVESTMENTS Mid Cap Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 92.2% AEROSPACE & DEFENSE -- 2.2% 16,600 L-3 Communications Holdings, Inc. $ 1,347,422 102,700 Spirit Aerosystems Holdings, Inc., Class A(1) 1,656,551 ------------ 3,003,973 ------------ AIR FREIGHT & LOGISTICS -- 3.5% 56,400 C.H. Robinson Worldwide, Inc. 2,920,392 53,220 Expeditors International of Washington, Inc. 1,737,633 ------------ 4,658,025 ------------ BIOTECHNOLOGY -- 2.1% 44,100 Celgene Corp.(1) 2,833,866 ------------ CAPITAL MARKETS -- 5.3% 61,320 Investment Technology Group, Inc.(1) 1,251,541 43,200 Northern Trust Corp. 2,432,592 96,600 Raymond James Financial, Inc. 2,249,814 60,000 SEI Investments Co. 1,060,800 2,200 T. Rowe Price Group, Inc. 86,988 ------------ 7,081,735 ------------ CHEMICALS -- 1.6% 34,030 Praxair, Inc. 2,217,054 ------------ COMMERCIAL BANKS -- 0.9% 116,600 Synovus Financial Corp. 1,204,478 ------------ COMMERCIAL SERVICES & SUPPLIES -- 5.6% 169,200 Corrections Corp. of America(1) 3,233,412 70,200 Ritchie Bros. Auctioneers, Inc.(1) 1,303,614 50,380 Stericycle, Inc.(1) 2,943,703 ------------ 7,480,729 ------------ CONSTRUCTION & ENGINEERING -- 0.6% 27,600 Foster Wheeler Ltd.(1) 756,240 ------------ CONTAINERS & PACKAGING -- 1.2% 71,000 Owens-Illinois, Inc.(1) 1,624,480 ------------ DIVERSIFIED CONSUMER SERVICES -- 3.1% 73,900 DeVry, Inc. 4,189,391 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.6% 10,112 IntercontinentalExchange, Inc.(1) 865,183 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.6% 75,220 Amphenol Corp., Class A 2,155,053 ------------ ENERGY EQUIPMENT & SERVICES -- 4.1% 93,800 Cameron International Corp.(1) 2,275,588 9,500 Diamond Offshore Drilling, Inc. 843,600 Shares Value 37,400 National Oilwell Varco, Inc.(1) $ 1,117,886 36,400 Smith International, Inc. 1,255,072 ------------ 5,492,146 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.4% 134,570 Immucor, Inc.(1) 3,572,833 6,400 Intuitive Surgical, Inc.(1) 1,105,856 34,100 Mettler-Toledo International, Inc.(1) 2,610,014 ------------ 7,288,703 ------------ HEALTH CARE PROVIDERS & SERVICES -- 7.7% 60,400 DaVita, Inc.(1) 3,427,700 45,600 Express Scripts, Inc.(1) 2,763,816 126,595 Psychiatric Solutions, Inc.(1) 4,214,348 ------------ 10,405,864 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.4% 91,400 Jack in the Box, Inc.(1) 1,837,140 ------------ INSURANCE -- 1.2% 60,900 Assured Guaranty Ltd. 683,907 99,700 MBIA, Inc. 980,051 ------------ 1,663,958 ------------ IT SERVICES -- 8.4% 59,400 Alliance Data Systems Corp.(1) 2,979,504 70,560 Cognizant Technology Solutions Corp., Class A(1) 1,354,752 81,900 Global Payments, Inc. 3,317,769 87,110 NeuStar, Inc., Class A(1) 1,716,067 99,100 VeriFone Holdings, Inc.(1) 1,125,776 49,700 Western Union Co. (The) 758,422 ------------ 11,252,290 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.1% 42,800 Charles River Laboratories International, Inc.(1) 1,533,524 ------------ MACHINERY -- 1.3% 14,000 Cummins, Inc. 361,900 60,300 Harsco Corp. 1,427,301 ------------ 1,789,201 ------------ MEDIA -- 1.5% 105,700 Focus Media Holding Ltd. ADR(1) 1,958,621 ------------ METALS & MINING -- 1.3% 25,700 SPDR S&P Metals & Mining ETF(3) 799,013 95,600 Titanium Metals Corp. 890,036 ------------ 1,689,049 ------------ MULTILINE RETAIL -- 2.5% 88,100 Dollar Tree, Inc.(1) 3,349,562 ------------ - ------ 13 Mid Cap Growth Shares Value OIL, GAS & CONSUMABLE FUELS -- 5.5% 62,500 Equitable Resources, Inc. $ 2,169,375 55,630 Range Resources Corp. 2,348,699 47,600 SandRidge Energy, Inc.(1) 509,320 64,800 Southwestern Energy Co.(1) 2,308,176 ------------ 7,335,570 ------------ PERSONAL PRODUCTS -- 0.3% 98,800 Bare Escentuals, Inc.(1) 412,984 ------------ ROAD & RAIL -- 2.9% 77,610 J.B. Hunt Transport Services, Inc. 2,206,452 103,200 Knight Transportation, Inc. 1,640,880 ------------ 3,847,332 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.8% 154,100 Intersil Corp., Class A 2,109,629 66,750 KLA-Tencor Corp. 1,551,938 97,997 Microchip Technology, Inc. 2,413,666 88,600 Varian Semiconductor Equipment Associates, Inc.(1) 1,738,332 ------------ 7,813,565 ------------ SOFTWARE -- 7.0% 172,294 Activision Blizzard, Inc.(1) 2,146,783 45,900 Cerner Corp.(1) 1,708,857 49,738 Citrix Systems, Inc.(1) 1,281,749 44,200 FactSet Research Systems, Inc. 1,714,518 80,500 McAfee, Inc.(1) 2,620,275 ------------ 9,472,182 ------------ SPECIALTY RETAIL -- 5.9% 149,900 Collective Brands, Inc.(1) 1,917,221 123,200 GameStop Corp., Class A(1) 3,374,448 Shares/Principal Amount Value 39,670 O'Reilly Automotive, Inc.(1) $ 1,075,454 71,000 Urban Outfitters, Inc.(1) 1,543,540 ------------ 7,910,663 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.6% 22,900 MSC Industrial Direct Co., Class A 821,194 ------------ TOTAL COMMON STOCKS (Cost $149,573,388) 123,943,755 ------------ Short-Term Investments -- 4.0% $3,000,000 FHLB Discount Notes, 1.25%, 11/18/08(2) 2,999,781 2,400,000 FHLB Discount Notes, 0.25%, 11/28/08(2) 2,399,707 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $5,398,000) 5,399,488 ------------ Short-Term Investments -- Segregated for Futures Contracts -- 3.6% 2,400,000 FHLB Discount Notes, 1.05%, 11/24/08(2)(3) 2,399,755 2,400,000 General Electric Cap Corp., 0.15%, 11/3/08(2)(3) 2,399,717 ------------ TOTAL SHORT-TERM INVESTMENTS -- SEGREGATED FOR FUTURES CONTRACTS (Cost $4,798,149) 4,799,472 ------------ TOTAL INVESTMENT SECURITIES -- 99.8% (Cost $159,769,537) 134,142,715 ------------ OTHER ASSETS AND LIABILITIES -- 0.2% 349,194 ------------ TOTAL NET ASSETS -- 100.0% $134,491,909 ============ Futures Contracts Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 17 S&P MidCap 400 Index Futures December 2008 $4,831,400 $(570,920) ========== ========== Notes to Schedule of Investments ADR = American Depositary Receipt ETF = Exchange Traded Fund FHLB = Federal Home Loan Bank SPDR = Standard & Poor's Depository Receipts (1) Non-income producing. (2) The rate indicated is the yield to maturity at purchase. (3) Security, or portion thereof, has been segregated for futures contracts. At period end, the aggregate value of securities pledged was $4,831,400. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 14 Small Cap Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 96.0% AEROSPACE & DEFENSE -- 7.1% 10,900 AeroVironment, Inc.(1) $ 391,528 17,228 Astronics Corp.(1) 215,350 5,848 Axsys Technologies, Inc.(1) 386,143 13,850 Stanley, Inc.(1) 474,501 9,942 TransDigm Group, Inc.(1) 299,652 ----------- 1,767,174 ----------- AIR FREIGHT & LOGISTICS -- 1.1% 8,895 Hub Group, Inc., Class A(1) 279,748 ----------- AIRLINES -- 0.1% 900 Allegiant Travel Co.(1) 35,847 ----------- BEVERAGES -- 1.1% 9,110 Central European Distribution Corp.(1) 262,277 ----------- BIOTECHNOLOGY -- 2.2% 12,425 BioMarin Pharmaceutical, Inc.(1) 227,626 2,150 iShares Nasdaq Biotechnology Index Fund(2) 153,532 1,900 United Therapeutics Corp.(1) 165,737 ----------- 546,895 ----------- CAPITAL MARKETS -- 2.1% 12,112 Investment Technology Group, Inc.(1) 247,206 9,329 KBW, Inc.(1) 273,153 ----------- 520,359 ----------- CHEMICALS -- 0.9% 16,700 Calgon Carbon Corp.(1) 222,444 ----------- COMMERCIAL BANKS -- 1.1% 29,696 Boston Private Financial Holdings, Inc. 262,513 ----------- COMMERCIAL SERVICES & SUPPLIES -- 5.7% 18,177 Cornell Cos, Inc.(1) 413,890 24,764 Corrections Corp. of America(1) 473,240 19,388 Team, Inc.(1) 538,405 ----------- 1,425,535 ----------- COMMUNICATIONS EQUIPMENT -- 3.6% 7,150 Comtech Telecommunications Corp.(1) 346,203 15,250 DG FastChannel, Inc.(1) 270,077 11,258 F5 Networks, Inc.(1) 279,424 ----------- 895,704 ----------- CONTAINERS & PACKAGING -- 2.1% 11,126 Silgan Holdings, Inc. 517,804 ----------- Shares Value DISTRIBUTORS -- 0.9% 19,704 LKQ Corp.(1) $ 225,414 ----------- DIVERSIFIED CONSUMER SERVICES -- 3.5% 8,609 American Public Education, Inc.(1) 381,121 7,495 New Oriental Education & Technology Group ADR(1) 479,305 ----------- 860,426 ----------- DIVERSIFIED FINANCIAL SERVICES -- 0.3% 1,800 Portfolio Recovery Associates, Inc.(1) 64,584 ----------- ELECTRIC UTILITIES -- 1.8% 11,300 ITC Holdings Corp. 458,554 ----------- ELECTRICAL EQUIPMENT -- 0.2% 8,300 GT Solar International, Inc.(1) 38,263 1,817 Polypore International, Inc.(1) 15,499 ----------- 53,762 ----------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6% 18,239 Mellanox Technologies Ltd.(1) 141,535 ----------- ENERGY EQUIPMENT & SERVICES -- 3.0% 2,750 Core Laboratories NV 202,675 4,059 IHS, Inc., Class A(1) 143,648 24,200 ION Geophysical Corp.(1) 158,752 3,766 Oceaneering International, Inc.(1) 106,088 5,993 T-3 Energy Services, Inc.(1) 144,491 ----------- 755,654 ----------- FOOD PRODUCTS -- 1.8% 10,300 Flowers Foods, Inc. 305,395 4,300 TreeHouse Foods, Inc.(1) 130,118 ----------- 435,513 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.5% 16,118 Masimo Corp.(1) 515,615 13,640 Meridian Bioscience, Inc. 335,271 12,372 NuVasive, Inc.(1) 582,598 7,718 Thoratec Corp.(1) 190,017 ----------- 1,623,501 ----------- HEALTH CARE PROVIDERS & SERVICES -- 5.2% 6,950 athenahealth, Inc.(1) 212,670 2,850 CardioNet, Inc.(1) 72,931 15,711 Genoptix, Inc.(1) 525,376 2,850 IPC The Hospitalist Co., Inc.(1) 58,026 12,995 Psychiatric Solutions, Inc.(1) 432,604 ----------- 1,301,607 ----------- - ------ 15 Small Cap Growth Shares Value HEALTH CARE TECHNOLOGY -- 0.9% 16,068 Phase Forward, Inc.(1) $ 229,290 ----------- HOTELS, RESTAURANTS & LEISURE -- 1.6% 11,250 Jack in the Box, Inc.(1) 226,125 8,680 Life Time Fitness, Inc.(1) 165,267 ----------- 391,392 ----------- INTERNET SOFTWARE & SERVICES -- 6.0% 8,637 Bankrate, Inc.(1) 284,244 20,511 comScore, Inc.(1) 250,234 21,548 Omniture, Inc.(1) 247,802 28,657 Switch & Data Facilities Co., Inc.(1) 269,949 16,582 VistaPrint Ltd.(1) 283,055 9,461 Vocus, Inc.(1) 159,228 ----------- 1,494,512 ----------- IT SERVICES -- 2.6% 18,150 Cybersource Corp.(1) 220,522 23,734 Global Cash Access Holdings, Inc.(1) 66,930 17,714 NeuStar, Inc., Class A(1) 348,966 ----------- 636,418 ----------- LIFE SCIENCES TOOLS & SERVICES -- 2.6% 10,059 ICON plc ADR(1) 255,197 12,712 Illumina, Inc.(1) 391,911 ----------- 647,108 ----------- MACHINERY -- 1.5% 2,843 Bucyrus International, Inc. 68,602 923 Energy Recovery, Inc.(1) 5,353 4,361 Kaydon Corp. 145,701 12,446 Titan Machinery, Inc.(1) 154,081 ----------- 373,737 ----------- METALS & MINING -- 0.4% 3,228 SPDR S&P Metals & Mining ETF(2) 100,359 ----------- MULTI-INDUSTRY -- 0.7% 11,350 Financial Select Sector SPDR Fund(2) 176,266 ----------- MULTILINE RETAIL -- 2.2% 14,126 Dollar Tree, Inc.(1) 537,071 ----------- OIL, GAS & CONSUMABLE FUELS -- 4.1% 11,794 Arena Resources, Inc.(1) 359,481 6,713 Carrizo Oil & Gas, Inc.(1) 157,017 3,300 Contango Oil & Gas Co.(1) 181,500 11,550 EXCO Resources, Inc.(1) 106,144 Shares Value 4,980 Petroleum Development Corp.(1) $ 103,136 2,250 Whiting Petroleum Corp.(1) 116,978 ----------- 1,024,256 ----------- PERSONAL PRODUCTS -- 2.3% 22,013 Alberto-Culver Co. 566,394 ----------- PROFESSIONAL SERVICES -- 1.6% 19,262 Hill International, Inc.(1) 120,965 5,100 Huron Consulting Group, Inc.(1) 277,287 ----------- 398,252 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 2.1% 7,078 Digital Realty Trust, Inc. 236,971 51,156 MFA Mortgage Investments, Inc. 281,358 ----------- 518,329 ----------- ROAD & RAIL -- 1.8% 28,693 Knight Transportation, Inc. 456,219 ----------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.6% 21,505 Advanced Energy Industries, Inc.(1) 229,458 13,477 Atheros Communications, Inc.(1) 242,182 13,330 Diodes, Inc.(1) 131,701 12,652 Netlogic Microsystems, Inc.(1) 267,210 10,282 Rubicon Technology, Inc.(1) 54,700 9,274 Tessera Technologies, Inc.(1) 160,255 67,450 TriQuint Semiconductor, Inc.(1) 302,176 ----------- 1,387,682 ----------- SOFTWARE -- 4.1% 8,753 Blackboard, Inc.(1) 214,273 6,293 Concur Technologies, Inc.(1) 158,772 24,827 Synchronoss Technologies, Inc.(1) 192,906 8,744 Taleo Corp., Class A(1) 120,667 46,739 VanceInfo Technologies, Inc. ADR(1) 343,532 ----------- 1,030,150 ----------- SPECIALTY RETAIL -- 2.3% 10,450 Lumber Liquidators, Inc.(1) 87,049 17,350 PetSmart, Inc. 341,621 14,900 Zumiez, Inc.(1) 145,424 ----------- 574,094 ----------- TEXTILES, APPAREL & LUXURY GOODS -- 1.7% 7,500 Phillips-Van Heusen Corp. 183,825 7,842 Warnaco Group, Inc. (The)(1) 233,770 ----------- 417,595 ----------- - ------ 16 Small Cap Growth Shares Value THRIFTS & MORTGAGE FINANCE -- 0.3% 4,483 Encore Bancshares, Inc.(1) $ 74,821 ----------- WIRELESS TELECOMMUNICATION SERVICES -- 0.7% 47,416 Centennial Communications Corp.(1) 168,801 ----------- TOTAL COMMON STOCKS (Cost $28,123,210) 23,859,596 ----------- Principal Amount Value Short-Term Investments -- Segregated for Futures Contracts -- 0.8% $200,000 FHLB Discount Notes, 1.25%, 12/18/08(2)(3) $ 199,916 (Cost $199,674) ----------- TOTAL INVESTMENT SECURITIES -- 96.8% (Cost $28,322,884) 24,059,512 ----------- OTHER ASSETS AND LIABILITIES -- 3.2% 790,304 ----------- TOTAL NET ASSETS -- 100.0% $24,849,816 =========== Futures Contracts Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 1 Russell 2000 Index Futures December 2008 $269,000 $21,376 ======== ======= Notes to Schedule of Investments ADR = American Depositary Receipt ETF = Exchange Traded Fund FHLB = Federal Home Loan Bank SPDR = Standard & Poor's Depository Receipts (1) Non-income producing. (2) Security, or portion thereof, has been segregated for futures contracts. At period end, the aggregate value of securities pledged was $269,000. (3) The rate indicated is the yield to maturity at purchase. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 17 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 Small Cap Mid Cap Growth Growth ASSETS Investment securities, at value (cost of $159,769,537 and $28,322,884, respectively) $134,142,715 $24,059,512 Cash 72,597 179,838 Receivable for investments sold 300,413 779,739 Receivable for capital shares sold 6,042 46,489 Receivable for variation margin on futures contracts 73,100 10,750 Dividends and interest receivable 35,338 1,036 ------------ ----------- 134,630,205 25,077,364 ------------ ----------- LIABILITIES Payable for investments purchased -- 152,347 Payable for capital shares redeemed 33,108 42,200 Accrued management fees 99,113 27,886 Distribution fees payable 1,909 1,707 Service fees (and distribution fees -- A Class and R Class) payable 4,166 3,408 ------------ ----------- 138,296 227,548 ------------ ----------- NET ASSETS $134,491,909 $24,849,816 ============ =========== See Notes to Financial Statements. - ------ 18 OCTOBER 31, 2008 Small Cap Mid Cap Growth Growth NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $160,822,171 $36,859,113 Accumulated net realized loss on investment transactions (132,520) (7,767,301) Net unrealized depreciation on investments (26,197,742) (4,241,996) ------------ ----------- $134,491,909 $24,849,816 ============ =========== INVESTOR CLASS, $0.01 PAR VALUE Net assets $1,350,246 $1,172,105 Shares outstanding 140,535 142,799 Net asset value per share $9.61 $8.21 INSTITUTIONAL CLASS, $0.01 PAR VALUE Net assets $114,131,376 $8,627,394 Shares outstanding 11,815,253 1,044,551 Net asset value per share $9.66 $8.26 A CLASS, $0.01 PAR VALUE Net assets $15,886,055 $12,359,511 Shares outstanding 1,665,512 1,511,929 Net asset value per share $9.54 $8.17 Maximum offering price (net asset value divided by 0.9425) $10.12 $8.67 B CLASS, $0.01 PAR VALUE Net assets $2,965,209 $2,488,564 Shares outstanding 340,188 327,201 Net asset value per share $8.72 $7.61 C CLASS, $0.01 PAR VALUE Net assets $74,868 $124,576 Shares outstanding 8,019 15,638 Net asset value per share $9.34 $7.97 R CLASS, $0.01 PAR VALUE Net assets $84,155 $77,666 Shares outstanding 8,886 9,607 Net asset value per share $9.47 $8.08 See Notes to Financial Statements. - ------ 19 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 Small Cap Mid Cap Growth Growth INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $4,468 and $402, respectively) $ 928,722 $ 94,671 Interest 333,561 81,956 ------------- ------------- 1,262,283 176,627 ------------- ------------- EXPENSES: Management fees 1,639,872 443,503 Distribution fees: B Class 34,559 32,285 C Class 967 977 Service fees: B Class 11,520 10,761 C Class 322 325 Distribution and service fees: A Class 63,125 53,038 R Class 465 376 Directors' fees and expenses 5,835 1,757 Other expenses 493 97 ------------- ------------- 1,757,158 543,119 ------------- ------------- Amount waived (2,154) (20,654) ------------- ------------- 1,755,004 522,465 ------------- ------------- NET INVESTMENT INCOME (LOSS) (492,721) (345,838) ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions 1,462,968 (6,555,691) Futures transactions (572,791) (1,037,625) ------------- ------------- 890,177 (7,593,316) ------------- ------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (75,667,173) (14,191,363) Futures (699,060) 6,446 ------------- ------------- (76,366,233) (14,184,917) ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (75,476,056) (21,778,233) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(75,968,777) $(22,124,071) ============= ============= See Notes to Financial Statements. - ------ 20 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 Mid Cap Growth Small Cap Growth Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ (492,721) $ (205,937) $ (345,838) $ (394,903) Net realized gain (loss) 890,177 20,994,253 (7,593,316) 7,363,154 Change in net unrealized appreciation (depreciation) (76,366,233) 26,844,008 (14,184,917) 1,941,390 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (75,968,777) 47,632,324 (22,124,071) 8,909,641 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net realized gains: Investor Class (157,129) (17,063) (140,197) (34,247) Institutional Class (16,583,729) (7,634,579) (1,012,615) (100,277) A Class (2,936,941) (1,979,362) (3,750,708) (2,404,950) B Class (596,144) (373,134) (806,805) (410,373) C Class (14,246) (7,699) (21,577) (7,151) R Class (10,685) (1,280) (5,404) (1,413) From return of capital: Investor Class -- -- (28,879) -- Institutional Class -- -- (208,584) -- A Class -- -- (772,592) -- B Class -- -- (166,190) -- C Class -- -- (4,444) -- R Class -- -- (1,113) -- ------------ ------------ ------------ ------------ Decrease in net assets from distributions (20,298,874) (10,013,117) (6,919,108) (2,958,411) ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions 14,134,544 (3,715,693) 7,727,163 (10,361,918) ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS (82,133,107) 33,903,514 (21,316,016) (4,410,688) NET ASSETS Beginning of period 216,625,016 182,721,502 46,165,832 50,576,520 ------------ ------------ ------------ ------------ End of period $134,491,909 $216,625,016 $ 24,849,816 $ 46,165,832 ============ ============ ============ ============ See Notes to Financial Statements. - ------ 21 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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. 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. 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 at the time of purchase may be valued at cost, plus or minus any amortized 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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. 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 funds estimate 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. - ------ 22 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 futures transactions and unrealized appreciation (depreciation) on futures, respectively. 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. The funds are no longer subject to examination by tax authorities for years prior to 2005. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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 American Century Investment Management, Inc. (ACIM) (the investment advisor), 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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. - ------ 23 The effective annual management fee for each class of each fund for the year ended October 31, 2008, 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 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 will each pay ACIS an annual distribution fee of 0.75% 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 fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2008, are detailed in the Statement of Operations. ACIS voluntarily waived a portion of the 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, 2008, was as follows: A B Mid Cap Growth -- $2,154 Small Cap Growth $15,421 $5,233 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. Prior to December 12, 2007, the funds had 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, 2008, were as follows: Mid Cap Growth Small Cap Growth Purchases $86,798,461 $50,971,169 Proceeds from sales $92,266,215 $49,584,011 - ------ 24 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows: Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount Mid Cap Growth INVESTOR CLASS/SHARES AUTHORIZED 55,000,000 55,000,000 ========== =========== Sold 146,564 $ 2,000,750 53,696 $ 861,276 Issued in reinvestment of distributions 11,084 157,061 1,253 17,063 Redeemed (83,772) (1,066,466) (10,923) (161,735) ---------- ----------- ----------- ------------ 73,876 1,091,345 44,026 716,604 ---------- ----------- ----------- ------------ INSTITUTIONAL CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ========== =========== Sold -- -- -- -- Issued in reinvestment of distributions 1,166,226 16,582,487 559,720 7,634,579 Redeemed -- -- -- -- ---------- ----------- ----------- ------------ 1,166,226 16,582,487 559,720 7,634,579 ---------- ----------- ----------- ------------ A CLASS/SHARES AUTHORIZED 20,000,000 20,000,000 ========== =========== Sold 210,028 2,736,138 356,472 5,183,353 Issued in reinvestment of distributions 205,493 2,897,444 141,971 1,929,392 Redeemed (696,188) (8,610,535) (1,221,667) (17,603,091) ---------- ----------- ----------- ------------ (280,667) (2,976,953) (723,224) (10,490,346) ---------- ----------- ----------- ------------ B CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== =========== Sold 12,622 147,651 36,843 481,205 Issued in reinvestment of distributions 45,603 591,014 29,049 368,634 Redeemed (107,817) (1,299,660) (190,268) (2,543,506) ---------- ----------- ----------- ------------ (49,592) (560,995) (124,376) (1,693,667) ---------- ----------- ----------- ------------ C CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== =========== Sold 2,452 31,175 6,298 91,015 Issued in reinvestment of distributions 764 10,607 365 4,935 Redeemed (5,632) (63,910) (3,551) (49,016) ---------- ----------- ----------- ------------ (2,416) (22,128) 3,112 46,934 ---------- ----------- ----------- ------------ R CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== =========== Sold 2,514 24,784 6,832 95,371 Issued in reinvestment of distributions 762 10,685 94 1,280 Redeemed (1,221) (14,681) (1,786) (26,448) ---------- ----------- ----------- ------------ 2,055 20,788 5,140 70,203 ---------- ----------- ----------- ------------ Net increase (decrease) 909,482 $14,134,544 (235,602) $(3,715,693) ========== =========== =========== ============ - ------ 25 Year ended October 31, 2008 Year ended October 31, 2007 Shares Amount Shares Amount Small Cap Growth INVESTOR CLASS/SHARES AUTHORIZED 55,000,000 55,000,000 ========== ========== Sold 227,292 $ 2,625,169 24,900 $ 414,030 Issued in reinvestment of distributions 12,377 169,076 2,202 34,247 Redeemed (152,025) (1,443,247) (8,573) (138,996) ---------- ----------- ---------- ------------- 87,644 1,350,998 18,529 309,281 ---------- ----------- ---------- ------------- INSTITUTIONAL CLASS/SHARES AUTHORIZED 50,000,000 50,000,000 ========== ========== Sold 1,064,970 13,098,409 432,499 6,911,741 Issued in reinvestment of distributions 27,389 375,778 2,388 37,213 Redeemed (496,906) (5,900,146) (58,457) (946,327) ---------- ----------- ---------- ------------- 595,453 7,574,041 376,430 6,002,627 ---------- ----------- ---------- ------------- A CLASS/SHARES AUTHORIZED 20,000,000 20,000,000 ========== ========== Sold 231,122 2,810,479 278,465 4,485,744 Issued in reinvestment of distributions 318,209 4,337,860 145,027 2,253,726 Redeemed (709,305) (8,235,921) (1,360,627) (22,092,686) ---------- ----------- ---------- ------------- (159,974) (1,087,582) (937,135) (15,353,216) ---------- ----------- ---------- ------------- B CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 11,755 131,881 19,279 290,474 Issued in reinvestment of distributions 73,823 941,984 26,709 395,563 Redeemed (119,079) (1,324,579) (134,473) (2,051,933) ---------- ----------- ---------- ------------- (33,501) (250,714) (88,485) (1,365,896) ---------- ----------- ---------- ------------- C CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 6,370 55,338 3,989 62,568 Issued in reinvestment of distributions 1,945 26,021 447 6,897 Redeemed (2,134) (24,161) (2,361) (37,369) ---------- ----------- ---------- ------------- 6,181 57,198 2,075 32,096 ---------- ----------- ---------- ------------- R CLASS/SHARES AUTHORIZED 10,000,000 10,000,000 ========== ========== Sold 6,811 77,007 816 12,595 Issued in reinvestment of distributions 482 6,517 91 1,413 Redeemed (26) (302) (50) (818) ---------- ----------- ---------- ------------- 7,267 83,222 857 13,190 ---------- ----------- ---------- ------------- Net increase (decrease) 503,070 $ 7,727,163 (627,729) $(10,361,918) ========== =========== ========== ============= 5. BANK LINE OF CREDIT Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc. (ACGIM), have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The funds did not borrow from either line during the year ended October 31, 2008. - ------ 26 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 years ended October 31, 2008 and October 31, 2007 were as follows: Mid Cap Growth Small Cap Growth 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $3,785,647 $2,254,837 $121,176 -- Long-term capital gains $16,513,227 $7,758,280 $5,616,130 $2,958,411 Return of capital -- -- $1,181,802 -- 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, 2008, 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 $160,783,004 $29,359,386 ============= ============ Gross tax appreciation of investments $ 11,928,664 $ 1,264,223 Gross tax depreciation of investments (38,568,953) (6,564,097) ------------- ------------ Net tax appreciation (depreciation) of investments $(26,640,289) $(5,299,874) ============= ============ Undistributed ordinary income -- -- Accumulated long-term gains $310,027 -- Accumulated capital losses -- $(6,709,423) 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 (losses) on certain futures 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 for Small Cap Growth expire in 2016. - ------ 27 8. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. 9. CORPORATE EVENT On December 3, 2008, the Board of Directors approved a plan to liquidate Mid Cap Growth and Small Cap Growth. The liquidation is expected to be completed at the close of business on February 27, 2009. 10. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. Mid Cap Growth and Small Cap Growth hereby designate $16,513,227 and $5,616,130, or up to the maximum amount allowable, of capital gain distributions, respectively, for the fiscal year ended October 31, 2008. Mid Cap Growth and Small Cap Growth hereby designate $3,785,647 and $121,176, or up to the maximum amount allowable, of distributions as qualified short-term capital gains, respectively, for purposes of Internal Revenue Code Section 871. - ------ 28 FINANCIAL HIGHLIGHTS Mid Cap Growth Investor Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $16.58 $13.76 $14.78 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.05) (0.03) (0.01) Net Realized and Unrealized Gain (Loss) (5.36) 3.61 (1.01) ------ ------ ------ Total From Investment Operations (5.41) 3.58 (1.02) ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- ------ ------ ------ Net Asset Value, End of Period $9.61 $16.58 $13.76 ====== ====== ====== TOTAL RETURN(3) (35.67)% 27.19% (6.90)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.05% 1.05% 1.05%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.37)% (0.19)% (0.19)%(4) Portfolio Turnover Rate 49% 77% 52% Net Assets, End of Period (in thousands) $1,350 $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. - ------ 29 Mid Cap Growth Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $16.63 $13.78 $14.78 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.02) --(3) --(3) Net Realized and Unrealized Gain (Loss) (5.39) 3.61 (1.00) ------ ------ ------ Total From Investment Operations (5.41) 3.61 (1.00) ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- ------ ------ ------ Net Asset Value, End of Period $9.66 $16.63 $13.78 ====== ====== ====== TOTAL RETURN(4) (35.55)% 27.38% (6.77)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.85% 0.85% 0.85%(5) Ratio of Net Investment Income (Loss) to Average Net Assets (0.17)% 0.01% 0.01%(5) Portfolio Turnover Rate 49% 77% 52% Net Assets, End of Period (in thousands) $114,131 $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. - ------ 30 Mid Cap Growth A Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $16.51 $13.74 $14.83 $13.50 $12.78 $9.83 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.08) (0.06) (0.04) (0.01) (0.10) (0.09) Net Realized and Unrealized Gain (Loss) (5.33) 3.59 (1.05) 2.65 0.82 3.04 ------ ------ ------ ------ ------ ------ Total From Investment Operations (5.41) 3.53 (1.09) 2.64 0.72 2.95 ------ ------ ------ ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- (1.31) -- -- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.54 $16.51 $13.74 $14.83 $13.50 $12.78 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (35.83)% 26.85% (7.35)% 20.28% 5.63% 30.01% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.30% 1.30% 1.30%(4) 1.29% 1.30%(5) 1.30%(5) Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.30% 1.30% 1.30%(4) 1.29% 1.36% 1.40% Ratio of Net Investment Income (Loss) to Average Net Assets (0.62)% (0.44)% (0.44)%(4) (0.08)% (0.79)%(5) (0.74)%(5) Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) (0.62)% (0.44)% (0.44)%(4) (0.08)% (0.85)% (0.84)% Portfolio Turnover Rate 49% 77% 52% 89% 70% 72% Net Assets, End of Period (in thousands) $15,886 $32,134 $36,675 $193,019 $163,069 $148,862 (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. - ------ 31 Mid Cap Growth B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $15.33 $12.89 $13.96 $12.86 $12.25 $9.49 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.16) (0.15) (0.08) (0.10) (0.18) (0.16) Net Realized and Unrealized Gain (Loss) (4.89) 3.35 (0.99) 2.51 0.79 2.92 ------ ------ ------ ------ ------ ------ Total From Investment Operations (5.05) 3.20 (1.07) 2.41 0.61 2.76 ------ ------ ------ ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- (1.31) -- -- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.72 $15.33 $12.89 $13.96 $12.86 $12.25 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (36.28)% 26.02% (7.66)% 19.48% 4.98% 29.08% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.00%(4) 1.95%(4) 1.95%(4)(5) 1.95%(6) 1.95%(6) 1.95%(6) Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 2.05% 2.05% 2.05%(5) 2.02% 2.04% 2.05% Ratio of Net Investment Income (Loss) to Average Net Assets (1.32)%(4) (1.09)%(4) (1.09)%(4)(5) (0.78)%(6) (1.44)%(6) (1.40)%(6) Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) (1.37)% (1.19)% (1.19)%(5) (0.85)% (1.53)% (1.50)% Portfolio Turnover Rate 49% 77% 52% 89% 70% 72% Net Assets, End of Period (in thousands) $2,965 $5,975 $6,626 $9,032 $9,839 $10,128 (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 through March 31, 2008, 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. - ------ 32 Mid Cap Growth C Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $16.31 $13.68 $14.78 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.18) (0.17) (0.10) Net Realized and Unrealized Gain (Loss) (5.23) 3.56 (1.00) ------ ------ ------ Total From Investment Operations (5.41) 3.39 (1.10) ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- ------ ------ ------ Net Asset Value, End of Period $9.34 $16.31 $13.68 ====== ====== ====== TOTAL RETURN(3) (36.31)% 25.90% (7.44)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.05% 2.05% 2.05%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (1.37)% (1.19)% (1.19)%(4) Portfolio Turnover Rate 49% 77% 52% Net Assets, End of Period (in thousands) $75 $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. - ------ 33 Mid Cap Growth R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $16.44 $13.72 $14.78 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.11) (0.10) (0.06) Net Realized and Unrealized Gain (Loss) (5.30) 3.58 (1.00) ------ ------ ------ Total From Investment Operations (5.41) 3.48 (1.06) ------ ------ ------ Distributions From Net Realized Gains (1.56) (0.76) -- ------ ------ ------ Net Asset Value, End of Period $9.47 $16.44 $13.72 ====== ====== ====== TOTAL RETURN(3) (36.00)% 26.51% (7.17)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.55% 1.55% 1.55%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.87)% (0.69)% (0.69)%(4) Portfolio Turnover Rate 49% 77% 52% Net Assets, End of Period (in thousands) $84 $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. - ------ 34 Small Cap Growth Investor Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $18.26 $16.03 $16.86 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.10) (0.11) (0.06) Net Realized and Unrealized Gain (Loss) (7.19) 3.29 (0.77) ------ ------ ------ Total From Investment Operations (7.29) 3.18 (0.83) ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- From Return of Capital (0.47) -- -- ------ ------ ------ Total Distributions (2.76) (0.95) -- ------ ------ ------ Net Asset Value, End of Period $8.21 $18.26 $16.03 ====== ====== ====== TOTAL RETURN(3) (46.00)% 20.93% (4.92)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.31% 1.30% 1.30%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.81)% (0.66)% (0.80)%(4) Portfolio Turnover Rate 146% 119% 42% Net Assets, End of Period (in thousands) $1,172 $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. - ------ 35 Small Cap Growth Institutional Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $18.33 $16.05 $16.86 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.08) (0.08) (0.05) Net Realized and Unrealized Gain (Loss) (7.23) 3.31 (0.76) ------ ------ ------ Total From Investment Operations (7.31) 3.23 (0.81) ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- From Return of Capital (0.47) -- -- ------ ------ ------ Total Distributions (2.76) (0.95) -- ------ ------ ------ Net Asset Value, End of Period $8.26 $18.33 $16.05 ====== ====== ====== TOTAL RETURN(3) (45.89)% 21.16% (4.80)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.11% 1.10% 1.10%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.61)% (0.46)% (0.60)%(4) Portfolio Turnover Rate 146% 119% 42% Net Assets, End of Period (in thousands) $8,627 $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. - ------ 36 Small Cap Growth A Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $18.23 $16.02 $17.02 $15.27 $14.38 $10.11 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.12) (0.12) (0.08) (0.14) (0.15) (0.15) Net Realized and Unrealized Gain (Loss) (7.18) 3.28 (0.92) 3.53 1.75 4.42 ------ ------ ------ ------ ------ ------ Total From Investment Operations (7.30) 3.16 (1.00) 3.39 1.60 4.27 ------ ------ ------ ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- (1.64) (0.71) -- From Return of Capital (0.47) -- -- -- -- -- ------ ------ ------ ------ ------ ------ Total Distributions (2.76) (0.95) -- (1.64) (0.71) -- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $8.17 $18.23 $16.02 $17.02 $15.27 $14.38 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (46.12)% 20.75% (5.88)% 23.08% 10.99% 42.24% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49%(4) 1.40%(4) 1.40%(4)(5) 1.40%(6) 1.40%(6) 1.40%(6) Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.56% 1.55% 1.55%(5) 1.86% 2.03% 2.21% Ratio of Net Investment Income (Loss) to Average Net Assets (0.99)%(4) (0.76)%(4) (0.90)%(4)(5) (0.82)%(6) (1.05)%(6) (1.16)%(6) Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) (1.06)% (0.91)% (1.05)%(5) (1.28)% (1.68)% (1.97)% Portfolio Turnover Rate 146% 119% 42% 81% 86% 98% Net Assets, End of Period (in thousands) $12,360 $30,483 $41,798 $55,085 $33,791 $23,914 (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 through March 31, 2008, 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. - ------ 37 Small Cap Growth B Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) 2006 2005 2004 PER-SHARE DATA Net Asset Value, Beginning of Period $17.28 $15.32 $16.34 $14.81 $14.06 $9.95 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.19) (0.22) (0.14) (0.24) (0.24) (0.23) Net Realized and Unrealized Gain (Loss) (6.72) 3.13 (0.88) 3.41 1.70 4.34 ------ ------ ------ ------ ------ ------ Total From Investment Operations (6.91) 2.91 (1.02) 3.17 1.46 4.11 ------ ------ ------ ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- (1.64) (0.71) -- From Return of Capital (0.47) -- -- -- -- -- ------ ------ ------ ------ ------ ------ Total Distributions (2.76) (0.95) -- (1.64) (0.71) -- ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $7.61 $17.28 $15.32 $16.34 $14.81 $14.06 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (46.52)% 20.02% (6.24)% 22.29% 10.23% 41.31% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.19%(4) 2.05%(4) 2.05%(4)(5) 2.05%(6) 2.05%(6) 2.05%(6) Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 2.31% 2.30% 2.30%(5) 2.51% 2.68% 2.86% Ratio of Net Investment Income (Loss) to Average Net Assets (1.69)%(4) (1.41)%(4) (1.55)%(4)(5) (1.48)%(6) (1.70)%(6) (1.81)%(6) Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) (1.81)% (1.66)% (1.80)%(5) (1.94)% (2.33)% (2.62)% Portfolio Turnover Rate 146% 119% 42% 81% 86% 98% Net Assets, End of Period (in thousands) $2,489 $6,233 $6,884 $8,284 $6,986 $6,066 (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 through March 31, 2008, 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. - ------ 38 Small Cap Growth C Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $17.97 $15.94 $16.86 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.22) (0.27) (0.16) Net Realized and Unrealized Gain (Loss) (7.02) 3.25 (0.76) ------ ------ ------ Total From Investment Operations (7.24) 2.98 (0.92) ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- From Return of Capital (0.47) -- -- ------ ------ ------ Total Distributions (2.76) (0.95) -- ------ ------ ------ Net Asset Value, End of Period $7.97 $17.97 $15.94 ====== ====== ====== TOTAL RETURN(3) (46.51)% 19.67% (5.46)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 2.31% 2.30% 2.30%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (1.81)% (1.66)% (1.80)(4) Portfolio Turnover Rate 146% 119% 42% Net Assets, End of Period (in thousands) $125 $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. - ------ 39 Small Cap Growth R Class For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $18.12 $15.98 $16.86 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss)(2) (0.16) (0.19) (0.12) Net Realized and Unrealized Gain (Loss) (7.12) 3.28 (0.76) ------ ------ ------ Total From Investment Operations (7.28) 3.09 (0.88) ------ ------ ------ Distributions From Net Realized Gains (2.29) (0.95) -- From Return of Capital (0.47) -- -- ------ ------ ------ Total Distributions (2.76) (0.95) -- ------ ------ ------ Net Asset Value, End of Period $8.08 $18.12 $15.98 ====== ====== ====== TOTAL RETURN(3) (46.32)% 20.34% (5.22)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.81% 1.80% 1.80%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (1.31)% (1.16)% (1.30)%(4) Portfolio Turnover Rate 146% 119% 42% Net Assets, End of Period (in thousands) $78 $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, 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. - ------ 40 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, two of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 each of the two years in the period then ended and the seven month period ended October 31, 2006. These financial statements and financial highlights are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The 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 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 Corporation 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 Corporation'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, 2008, 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 respective financial positions of American Century - Mason Street Mid Cap Growth Fund and American Century - Mason Street Small Cap Growth Fund, two of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 each of the two years in the period then ended and the seven month period ended October 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri December 16, 2008 - ------ 41 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 42 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. - ------ 43 JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 44 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 (including subadvisory 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 Investments, 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 and the subadvisor, 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 Mid Cap Growth and Small Cap Growth (the "fund") and the services provided to the fund under the management and subadvisory 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 fund; * reports on the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of both the advisor and the subadvisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 45 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. In connection with their review of the funds, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management and subadvisory 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 agreement, 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 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 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 the services provided by the advisor 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. The directors specifically noted that with respect to the funds, the advisor had retained the subadvisor to provide the day-to-day security selection. Under the subadvisory agreement, the subadvisor is responsible for managing the investment operations and composition of the funds, including the purchase, retention, and disposition of the investments contained in the funds. 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. - ------ 46 INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided to the funds is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments, and liquidity. In evaluating investment performance, the board expects the advisor and subadvisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor and subadvisor utilize 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 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. The funds' performance was above the median for their peer groups 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. 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 agreement, and the reasonableness of the current management fee. The board concluded that the advisor's profits were reasonable in light of the services provided to the funds. The board did not consider the profitability of the subadvisor because the subadvisor is paid from the unified fee of the advisor as a result of arm's length negotiations. ETHICS. 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. With respect to the subadvisor, as part of its oversight responsibilities, the board approves the subadvisor's code of ethics and any changes thereto. Further, through the advisor's compliance group, the board stays abreast of any violations of the subadvisor's code. - ------ 47 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 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. 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). The Directors specifically noted that the subadvisory 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. 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 funds' unified fee to the total expense ratio of other funds in the funds' peer groups. The unified fee charged to shareholders of each fund was below the median of the total expense ratios of its peer group. The board concluded that the management fee paid by the funds to the advisor was reasonable in light of the services provided to the Funds. 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. - ------ 48 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 funds 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 board, including all of 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. Additionally, the board, including all 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 subadvisory agreement between the advisor and the subadvisor, on behalf of the funds, is fair and reasonable in light of the services provided and should be renewed. - ------ 49 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The 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. - ------ 50 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 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 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 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. - ------ 51 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. - ------ 52 [back cover] [american century investments logo and text logo ®] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE. . . . . . . . . . . . . . . . . 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE. . . . . . . . . . . . . . 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS. . . . . . . . . . . . . . . . . . 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS . .. . . . . . . . . . . . . . . . . . . . . . . . . . 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES. . . . . . . . 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF. . . . . . . . . . . 1-800-634-4113 AMERICAN CENTURY 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62720N
[front cover] ANNUAL REPORT OCTOBER 31, 2008 [american century investments logo and text logo ®] AMERICAN CENTURY INVESTMENTS NT GROWTH FUND NT VISTA(SM) FUND PRESIDENT'S LETTER JONATHAN THOMAS [photo of Jonathan Thomas] Dear Investor: Thank you for taking time to review the following discussions, from our experienced portfolio management team, of the fund reporting period ended October 31, 2008. It was a time of enormous upheaval and change. We understand and appreciate the challenges you have faced during this historic period, and share your concerns about the economy, the markets, and fund holdings. To help address these issues, I'd like to provide my perspective on how we have managed--and continue to manage--your investments in these uncertain times. As a company, American Century Investments® is well positioned to deal with market turmoil. We are financially strong and privately held, which allows us to align our resources with your long-term investment interests. In addition, our actively managed, team-based approach allows our portfolio teams to identify attractive investment opportunities regardless of market conditions. Our seasoned investment professionals have substantial experience and have successfully navigated previous market crises. These portfolio managers and analysts continue to use a team approach and follow disciplined investment processes designed to produce the best possible long-term results for you. For example, our equity investment teams are working closely with our fixed income group to monitor and assess credit crisis developments. The fixed income team anticipated dislocation in the credit markets and--through its disciplined processes and teamwork--helped reduce our exposure to investments that suffered substantial losses. How soon a sustainable recovery will occur is uncertain. But I am certain of this: Since 1958, we've demonstrated a consistent ability to execute solid, long-term investment strategies and the discipline to remain focused during times of volatility or shifts in the markets. We've stayed true to our principles, especially our belief that your success is the ultimate measure of our success. Thank you for your continued confidence in us. Sincerely, /s/Jonathan Thomas Jonathan S. Thomas President and Chief Executive Officer American Century Investments 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 NT VISTA Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 7 Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 8 Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 8 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . . . 9 FINANCIAL STATEMENTS Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 11 Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 17 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 18 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 19 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 20 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 25 Report of Independent Registered Public Accounting Firm . . . . . . . 27 OTHER INFORMATION Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Approval of Management Agreements for NT Growth and NT Vista. . . . . 31 Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 35 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 36 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 Investments or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments' knowledge, such information is accurate at the time of printing. MARKET PERSPECTIVE [photo of Chief Investment Officer] By Steve Lurito, Chief Investment Officer, U.S. Growth Equity THE PERFECT STORM The year ended October 31, 2008, was one of the most turbulent periods for the U.S. equity market since the Great Depression. As the accompanying table shows, stocks declined sharply across the board as a "perfect storm" of negative influences undermined investor confidence and produced a dramatic increase in market volatility. The biggest impact came from the credit crisis that grew out of the housing and mortgage meltdowns in 2007. Credit conditions deteriorated throughout the one-year period, culminating in a liquidity crisis that led to the downfall of a number of major financial companies. Examples included the government conservatorship of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of brokerage firm Lehman Brothers, and the government bailout of insurer American International Group. Despite efforts by the U.S. government and Federal Reserve to provide systemic stability, the credit markets remained deeply troubled. Diminishing economic activity also weighed on the stock market. After decelerating in 2007, the U.S. economy weakened further in 2008 as consumer spending stalled, the housing downturn worsened, and the unemployment rate reached its highest level since 1994. The U.S. economic slowdown spread to other parts of the world, increasing the likelihood of a global recession. One other noteworthy factor was the parabolic rise and fall of commodity prices. Robust growth in emerging economies combined with speculative excesses boosted the prices of energy and many other commodities to record highs by mid-2008. However, the global economic slowdown led to a sharp reversal in commodity prices during the last few months of the period. THE GROUNDWORK FOR RECOVERY The events of the past year have been about correcting global imbalances and domestic excesses--the first step on the road to recovery. It's important to remember that the stock market is a discounting mechanism, trading on estimates of future earnings power. The market decline over the past year discounted the current economic slowdown; similarly, we would expect the market to rebound before we see improvement in the economic data. We don't know when this will happen, but the preconditions for market recovery--significant monetary stimulus and low valuations--are in place. U.S. Stock Index Returns For the 12 months ended October 31, 2008 RUSSELL 1000 INDEX (LARGE-CAP) -36.80% Russell 1000 Value Index -36.80% Russell 1000 Growth Index -36.95% RUSSELL MIDCAP INDEX -40.67% Russell Midcap Value Index -38.83% Russell Midcap Growth Index -42.65% RUSSELL 2000 INDEX (SMALL-CAP) -34.16% Russell 2000 Value Index -30.54% Russell 2000 Growth Index -37.87% - ------ 2 PERFORMANCE NT Growth Total Returns as of October 31, 2008 Average Annual Returns 1 year Since Inception Inception Date INSTITUTIONAL CLASS -33.68% -6.09% 5/12/06 RUSSELL 1000 GROWTH INDEX(1) -36.95% -9.03% -- (1) Data provided by Lipper Inc. - A Reuters Company. ©2008 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 2008 Institutional Class 5.70% 22.12% -33.68% Russell 1000 Growth Index 5.28% 19.23% -36.95% *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 -33.68% during the 12 months ended October 31, 2008. By comparison, NT Growth outperformed its benchmark--the Russell 1000 Growth Index--which returned -36.95%. See the previous page for additional performance information. The portfolio had negative returns in a year of unprecedented turmoil in financial markets. In that environment, no sector contributed positively to absolute returns; information technology shares detracted most. NT Growth held up better than the Russell index thanks to contributions from a number of sectors, led by consumer discretionary, materials, and financials shares. Information technology was the only sector to detract meaningfully from relative results. CONSUMER DISCRETIONARY CONTRIBUTED MOST Outperformance in the consumer discretionary sector was driven by stock picks in the multiline and specialty retail industries. The sector was home to the number-one overall contributor to relative results, an overweight position in Family Dollar Stores. In the specialty retail segment, performance benefited from larger-than-benchmark weightings during the period in Urban Outfitters and The TJX Companies, among others. Family Dollar Stores and The TJX Companies, which operates the T.J. Maxx and Marshalls chains, as well as other discount retailers, are representative of a trend that benefited portfolio performance--having exposure to the stocks of low-cost retailers in this difficult economic environment. It was a similar story in the consumer staples sector, where Wal-Mart continued to make progress on its turnaround and is seeing increased customer traffic. Wal-Mart was a top-five contributor to performance for the year. OTHER KEY CONTRIBUTORS Materials shares also helped relative performance, led by stock selection. Monsanto, the world's largest seed producer, was the leading contributor in this space. It also helped to be underweight in the chemicals and metals and mining industries, which suffered from falling commodity prices and the outlook for slower economic growth and tighter credit. The portfolio had no exposure to the poorest-performing fertilizer and steel companies, led by Mosaic and U.S. Steel, respectively. Top Ten Holdings as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Apple, Inc. 3.4% 3.4% Wal-Mart Stores, Inc. 3.1% 2.1% Procter & Gamble Co. (The) 3.0% 1.3% Cisco Systems, Inc. 2.9% 1.5% QUALCOMM, Inc. 2.8% 2.5% Coca-Cola Co. (The) 2.8% 2.2% Google, Inc., Class A 2.3% 0.9% Oracle Corp. 2.3% 0.8% Raytheon Co. 2.3% 1.9% Union Pacific Corp. 2.2% 0.4% - ------ 4 NT Growth Financials shares contributed to relative performance thanks to stock selection in the insurance space, as well as underweight positions in consumer finance and thrifts. The key contribution to relative results came from an overweight position in Chubb Corporation. Chubb had an essentially flat return during an otherwise very difficult year for financials stocks because it's seen as a well-capitalized, higher-quality name. IT, INDUSTRIALS DETRACTED The information technology sector was the largest detractor from relative return. Stock selection in the software industry hurt performance, behind an underweight position in Microsoft, which was seen as a "safe haven" during the market turmoil. An underweight position and stock selection in IT services also detracted. Here it hurt to be underrepresented in IBM, another big safe-haven play, and overweight in Western Union and DST Systems during the period. The industrial sector underperformed due to positioning in the electrical equipment, commercial services, road and rail, and building products industries. Stock selection was mixed, but allocation detracted--the portfolio was overweight the poor-performing electrical equipment companies, and underrepresented in the other industry segments, which held up better. OUTLOOK The NT Growth team's investment process focuses on large companies exhibiting sustainable improvement in their businesses. The managers have a thesis on each stock they own and devote their entire research effort toward identifying the companies in each sector and industry that they feel are likely to outperform. It is the managers' belief that owning such companies will generate outperformance over time versus the Russell 1000 Growth Index and the other funds in the large-growth peer group. As a result, the portfolio's sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2008, they found opportunity in the health care and consumer discretionary sectors, the portfolio's largest overweight positions. The most notable sector underweights were in information technology and energy shares. Top Five Industries as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Health Care Equipment & Supplies 8.1% 8.2% Software 6.7% 4.3% Communications Equipment 5.7% 8.0% Semiconductors & Semiconductor Equipment 5.3% 5.7% Oil, Gas & Consumable Fuels 5.1% 6.4% Types of Investments in Portfolio % of % of net assets net assets as of as of 10/31/08 4/30/08 Domestic Common Stocks 94.2% 93.1% Foreign Common Stocks(1) 4.6% 6.3% TOTAL COMMON STOCKS 98.8% 99.4% Temporary Cash Investments 1.5% 0.8% Other Assets and Liabilities(2) (0.3)% (0.2)% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. (2) Includes securities lending collateral and other assets and liabilities. - ------ 5 PERFORMANCE NT Vista Total Returns as of October 31, 2008 Average Annual Returns 1 year Since Inception Inception Date INSTITUTIONAL CLASS -43.09% -10.32% 5/12/06 RUSSELL MIDCAP GROWTH INDEX(1) -42.65% -13.82% -- (1) Data provided by Lipper Inc. - A Reuters Company. ©2008 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 2008 Institutional Class -10.00% 49.11% -43.09% Russell Midcap Growth Index 0.79% 19.72% -42.65% *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. - ------ 6 PORTFOLIO COMMENTARY NT Vista Portfolio Managers: Glenn Fogle and Brad Eixmann PERFORMANCE SUMMARY NT Vista returned -43.09% for the 12 months ended October 31, 2008, lagging the -42.65% return of its benchmark, the Russell Midcap Growth Index. As discussed in the Market Perspective on page 2, equity markets declined during the reporting period against a backdrop of extreme market volatility as the subprime mortgage-driven credit crisis spread further into the economy. In this environment, mid-cap stocks underperformed their large- and small-cap counterparts, and growth-oriented shares lagged value stocks. Within the portfolio, poor security selection in the information technology sector and an underweight allocation to the energy sector accounted for the bulk of NT Vista's underperformance relative to the benchmark. An overweight allocation to the materials sector and an overweight allocation and poor stock selection in the telecommunications sector further trimmed returns. Effective stock selection in the consumer discretionary and health care sectors helped to offset those losses. ENERGY, INFORMATION TECHNOLOGY LED DETRACTORS NT Vista's underweight allocation to the energy sector weighed on relative performance as oil and natural gas prices remained high for much of the reporting period, although energy prices declined sharply late in the period. Within the sector, a stake in oil field services company Weatherford International detracted from returns as its share price sank 48%. Within the information technology sector, poor stock selection trimmed portfolio returns. In the communications equipment and semiconductor industries, in particular, the portfolio held overweight stakes in several laggards. TELECOMMUNICATIONS, MATERIALS LAGGED, BUT SOME HOLDINGS GAINED An overweight stake and stock selection in the telecommunications sector also curbed relative returns. Within the wireless telecommunications industry, the portfolio maintained an overweight in NII Holdings, Inc., which provides cellular service in burgeoning Latin American markets. Although it has benefited performance in the past, NII detracted from returns during the reporting period. A higher standard of living in emerging markets, lower availability of farmland, and greater global focus on biofuels have translated into growing global demand for agriculture in recent reporting periods, leading to a rise in commodities prices that benefited select chemicals companies in the portfolio. During the reporting period, though, most of those holdings saw share price declines amid falling commodity prices. Top Ten Holdings as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Dollar Tree, Inc. 3.1% -- SBA Communications Corp., Class A 2.5% 2.5% Thermo Fisher Scientific, Inc. 2.4% 3.0% Express Scripts, Inc. 2.3% 2.2% Midcap SPDR Trust Series 1 2.3% -- ITT Educational Services, Inc. 2.3% 0.3% Ross Stores, Inc. 2.3% -- Medco Health Solutions, Inc. 2.2% 2.2% Quanta Services, Inc. 2.2% 1.2% Covidien Ltd. 2.0% -- - ------ 7 NT Vista However, Monsanto, which is a producer of genetically modified corn seed and pesticides, benefited relative performance. Not a constituent of the benchmark, Monsanto experienced relatively modest share price declines during the reporting period. Declining commodity prices drove down the share price of fertilizer company Mosaic. Because the investment team reduced portfolio exposure to the holding, Mosaic contributed to relative performance, although it weighed on relative returns. INDUSTRIALS HOLDINGS DECLINED In the industrials sector, we maintained an overweight position in the construction and engineering industry. Here, overweight holding Foster Wheeler declined on fears that weakening energy prices would reduce engineering and construction activity. Aerospace and defense industry overweight BE Aerospace also trimmed relative returns. The portfolio no longer holds these two positions. CONSUMER DISCRETIONARY, HEALTH CARE CONTRIBUTED Effective stock selection within the consumer discretionary sector partially offset relative losses derived in other sectors. Notably, an overweight stake in discount variety retailer Dollar Tree, Inc. represented the single largest contributor to NT Vista's relative performance. Within the health care sector, an overweight position in the health care providers group benefited relative returns. Here, stakes in Express Scripts and Medco Health Solutions added to performance relative to the benchmark. OUTLOOK 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. The reporting period was a difficult environment for growth- and momentum-oriented investment styles. Looking ahead, we remain confident in our investment beliefs that stocks which exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Top Five Industries as of October 31, 2008 % of % of net assets net assets as of as of 10/31/08 4/30/08 Specialty Retail 7.4% 5.2% Oil, Gas & Consumable Fuels 6.4% 5.9% Health Care Providers & Services 6.1% 4.9% Diversified Consumer Services 5.0% 0.9% Multiline Retail 5.0% -- Types of Investments in Portfolio % of % of net assets net assets as of as of 10/31/08 4/30/08 Domestic Common Stocks 91.2% 82.7% Foreign Common Stocks(1) 6.2% 14.4% TOTAL COMMON STOCKS 97.4% 97.1% Temporary Cash Investments 2.4% 2.0% Other Assets and Liabilities 0.2% 0.9% (1) Includes depositary shares, dual listed securities and foreign ordinary shares. - ------ 8 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, 2008 to October 31, 2008. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Investments Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------ 9 Expenses Paid Beginning Ending During Period* Annualized Account Value Account Value 5/1/08 - Expense 5/1/08 10/31/08 10/31/08 Ratio* NT Growth -- Institutional Class Actual $1,000 $705.70 $3.43 0.80% Hypothetical $1,000 $1,021.11 $4.06 0.80% NT Vista -- Institutional Class Actual $1,000 $648.50 $3.36 0.81% Hypothetical $1,000 $1,021.06 $4.12 0.81% *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 366, to reflect the one-half year period. - ------ 10 SCHEDULE OF INVESTMENTS NT Growth OCTOBER 31, 2008 Shares Value Common Stocks -- 98.8% AEROSPACE & DEFENSE -- 3.7% 38,700 Honeywell International, Inc. $ 1,178,415 37,500 Raytheon Co. 1,916,625 ----------- 3,095,040 ----------- AIR FREIGHT & LOGISTICS -- 1.2% 19,200 United Parcel Service, Inc., Class B 1,013,376 ----------- AUTO COMPONENTS -- 0.7% 26,400 BorgWarner, Inc. 593,208 ----------- BEVERAGES -- 4.3% 52,400 Coca-Cola Co. (The) 2,308,744 22,600 PepsiCo, Inc. 1,288,426 ----------- 3,597,170 ----------- BIOTECHNOLOGY -- 3.1% 10,400 Alexion Pharmaceuticals, Inc.(1) 423,800 10,700 Genentech, Inc.(1) 887,458 27,300 Gilead Sciences, Inc.(1) 1,251,705 ----------- 2,562,963 ----------- CAPITAL MARKETS -- 1.2% 16,800 Northern Trust Corp. 946,008 5,800 Waddell & Reed Financial, Inc., Class A 84,216 ----------- 1,030,224 ----------- CHEMICALS -- 2.1% 20,100 Monsanto Co. 1,788,498 ----------- COMMUNICATIONS EQUIPMENT -- 5.7% 139,400 Cisco Systems, Inc.(1) 2,477,138 60,500 QUALCOMM, Inc. 2,314,730 ----------- 4,791,868 ----------- COMPUTERS & PERIPHERALS -- 4.5% 26,000 Apple, Inc.(1) 2,797,340 82,700 EMC Corp.(1) 974,206 ----------- 3,771,546 ----------- DIVERSIFIED -- 0.5% 10,100 iShares Russell 1000 Growth Index Fund 404,505 ----------- DIVERSIFIED FINANCIAL SERVICES -- 1.5% 10,500 Bank of America Corp. 253,785 14,100 Citigroup, Inc. 192,465 9,500 IntercontinentalExchange, Inc.(1) 812,820 ----------- 1,259,070 ----------- ELECTRIC UTILITIES -- 1.3% 22,000 FPL Group, Inc. 1,039,280 ----------- Shares Value ELECTRICAL EQUIPMENT -- 4.1% 36,000 Cooper Industries Ltd., Class A $ 1,114,200 45,200 Emerson Electric Co. 1,479,396 9,700 Energy Conversion Devices, Inc.(1) 331,158 3,200 First Solar, Inc.(1) 459,840 ----------- 3,384,594 ----------- ENERGY EQUIPMENT & SERVICES -- 2.6% 13,400 National Oilwell Varco, Inc.(1) 400,526 9,800 Schlumberger Ltd. 506,170 15,100 Transocean, Inc.(1) 1,243,183 ----------- 2,149,879 ----------- FOOD & STAPLES RETAILING -- 3.1% 46,100 Wal-Mart Stores, Inc. 2,572,841 ----------- FOOD PRODUCTS -- 2.1% 9,400 Kellogg Co. 473,948 33,000 Nestle SA 1,286,322 ----------- 1,760,270 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.1% 5,000 Alcon, Inc. 440,600 18,100 Baxter International, Inc. 1,094,869 24,500 Becton, Dickinson & Co. 1,700,300 10,000 C.R. Bard, Inc. 882,500 18,600 DENTSPLY International, Inc. 565,068 6,400 Gen-Probe, Inc.(1) 301,184 3,400 Intuitive Surgical, Inc.(1) 587,486 19,300 Medtronic, Inc. 778,369 4,900 Mettler Toledo International, Inc.(1) 375,046 ----------- 6,725,422 ----------- HEALTH CARE PROVIDERS & SERVICES -- 1.7% 17,100 Express Scripts, Inc.(1) 1,036,431 7,900 UnitedHealth Group, Inc. 187,467 12,300 VCA Antech, Inc.(1) 222,630 ----------- 1,446,528 ----------- HOUSEHOLD DURABLES -- 1.3% 35,200 KB Home 587,488 10,500 Mohawk Industries, Inc.(1) 507,990 ----------- 1,095,478 ----------- HOUSEHOLD PRODUCTS -- 3.0% 38,700 Procter & Gamble Co. (The) 2,497,698 ----------- INSURANCE -- 1.1% 18,000 Chubb Corp. 932,760 ----------- INTERNET & CATALOG RETAIL -- 0.4% 5,300 Amazon.com, Inc.(1) 303,372 ----------- - ------ 11 NT Growth Shares Value INTERNET SOFTWARE & SERVICES -- 2.3% 5,400 Google, Inc., Class A(1) $ 1,940,544 ----------- IT SERVICES -- 1.8% 21,800 Global Payments, Inc. 883,118 42,300 Western Union Co. (The) 645,498 ----------- 1,528,616 ----------- LIFE SCIENCES TOOLS & SERVICES -- 1.6% 15,100 QIAGEN NV(1) 215,326 27,100 Thermo Fisher Scientific, Inc.(1) 1,100,260 ----------- 1,315,586 ----------- MACHINERY -- 0.6% 9,257 Valmont Industries, Inc. 507,099 ----------- MEDIA -- 2.7% 62,000 DIRECTV Group, Inc. (The)(1) 1,357,180 30,000 Scripps Networks Interactive, Inc. 852,000 ----------- 2,209,180 ----------- METALS & MINING -- 0.2% 7,500 Newmont Mining Corp. 197,550 ----------- MULTILINE RETAIL -- 3.0% 42,000 Family Dollar Stores, Inc. 1,130,220 37,600 Kohl's Corp.(1) 1,320,888 ----------- 2,451,108 ----------- MULTI-UTILITIES -- 0.6% 16,600 Public Service Enterprise Group, Inc. 467,290 ----------- OIL, GAS & CONSUMABLE FUELS -- 5.1% 9,100 Alpha Natural Resources, Inc.(1) 325,507 5,800 Apache Corp. 477,514 17,500 Devon Energy Corp. 1,415,050 11,400 EOG Resources, Inc. 922,488 20,100 Occidental Petroleum Corp. 1,116,354 ----------- 4,256,913 ----------- PERSONAL PRODUCTS -- 0.8% 18,100 Estee Lauder Cos., Inc. (The), Class A 652,324 ----------- PHARMACEUTICALS -- 3.0% 16,400 Allergan, Inc. 650,588 5,100 Johnson & Johnson 312,834 23,400 Novo Nordisk AS B Shares 1,252,615 9,500 Wyeth 305,710 ----------- 2,521,747 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.6% 15,600 Digital Realty Trust, Inc. 522,288 ----------- Shares Value ROAD & RAIL -- 2.2% 27,500 Union Pacific Corp. $ 1,836,175 ----------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.3% 56,300 Altera Corp. 976,805 41,100 Intel Corp. 657,600 33,900 Linear Technology Corp. 768,852 86,700 Marvell Technology Group Ltd.(1) 603,432 38,300 Texas Instruments, Inc. 749,148 36,200 Xilinx, Inc. 666,804 ----------- 4,422,641 ----------- SOFTWARE -- 6.7% 48,370 Activision Blizzard, Inc.(1) 602,690 22,600 Adobe Systems, Inc.(1) 602,064 71,300 Microsoft Corp. 1,592,129 105,500 Oracle Corp.(1) 1,929,595 11,600 salesforce.com, inc.(1) 359,136 39,200 Symantec Corp.(1) 493,136 ----------- 5,578,750 ----------- SPECIALTY RETAIL -- 2.8% 13,750 Advance Auto Parts, Inc. 429,000 7,500 AnnTaylor Stores Corp.(1) 94,275 55,600 Lowe's Cos., Inc. 1,206,520 23,000 O'Reilly Automotive, Inc.(1) 623,530 ----------- 2,353,325 ----------- WIRELESS TELECOMMUNICATION SERVICES -- 2.2% 56,200 American Tower Corp., Class A(1) 1,815,822 ----------- TOTAL COMMON STOCKS (Cost $96,241,687) 82,392,548 ----------- Temporary Cash Investments -- 1.5% 74,892 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares 74,892 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $1,221,436), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $1,200,005) 1,200,000 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,274,892) 1,274,892 ----------- TOTAL INVESTMENT SECURITIES -- 100.3% (Cost $97,516,579) 83,667,440 ----------- OTHER ASSETS AND LIABILITIES -- (0.3)% (227,820) ----------- TOTAL NET ASSETS -- 100.0% $83,439,620 =========== - ------ 12 NT Growth Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 1,303,236 CHF for USD 11/28/08 $1,124,080 $24,307 5,989,772 DKK for USD 11/28/08 1,023,416 11,498 ---------- ---------- $2,147,496 $35,805 ========== ========== (Value on Settlement Date $2,183,301) Notes to Schedule of Investments CHF = Swiss Franc DKK = Danish Krone USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $2,538,937, which represented 3.0% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 13 NT Vista OCTOBER 31, 2008 Shares Value Common Stocks -- 97.4% AIRLINES -- 2.6% 27,200 AMR Corp.(1) $ 277,712 16,400 Continental Airlines, Inc., Class B(1) 310,288 43,025 Delta Air Lines, Inc.(1) 472,414 ---------- 1,060,414 ---------- BIOTECHNOLOGY -- 2.7% 9,200 Alexion Pharmaceuticals, Inc.(1) 374,900 3,000 Celgene Corp.(1) 192,780 4,500 Cephalon, Inc.(1) 322,740 7,700 CSL Ltd. 187,675 ---------- 1,078,095 ---------- CAPITAL MARKETS -- 3.4% 1,500 BlackRock, Inc. 197,010 14,900 Charles Schwab Corp. (The) 284,888 12,700 Lazard Ltd., Class A 383,159 11,900 Raymond James Financial, Inc. 277,151 4,812 Stifel Financial Corp.(1) 210,044 ---------- 1,352,252 ---------- CHEMICALS -- 3.0% 8,570 Monsanto Co. 762,559 2,353 Syngenta AG 438,844 ---------- 1,201,403 ---------- COMMERCIAL BANKS -- 1.7% 4,200 Hancock Holding Co. 185,472 18,775 TCF Financial Corp. 333,068 3,900 UMB Financial Corp. 176,787 ---------- 695,327 ---------- COMMERCIAL SERVICES & SUPPLIES -- 1.9% 6,200 Copart, Inc.(1) 216,380 16,096 Waste Connections, Inc.(1) 544,850 ---------- 761,230 ---------- COMPUTERS & PERIPHERALS -- 0.5% 6,315 Diebold, Inc. 187,682 ---------- CONSTRUCTION & ENGINEERING -- 2.2% 44,306 Quanta Services, Inc.(1) 875,486 ---------- CONTAINERS & PACKAGING -- 1.8% 27,363 Crown Holdings, Inc.(1) 552,185 7,500 Pactiv Corp.(1) 176,700 ---------- 728,885 ---------- DIVERSIFIED -- 2.3% 8,900 Midcap SPDR Trust Series 1 920,260 ---------- Shares Value DIVERSIFIED CONSUMER SERVICES -- 5.0% 4,100 Apollo Group, Inc., Class A(1) $ 284,991 21,500 Corinthian Colleges, Inc.(1) 307,020 5,600 DeVry, Inc. 317,464 10,400 ITT Educational Services, Inc.(1) 911,560 900 Strayer Education, Inc. 203,643 ---------- 2,024,678 ---------- ELECTRICAL EQUIPMENT -- 1.1% 6,300 Energy Conversion Devices, Inc.(1) 215,082 1,600 First Solar, Inc.(1) 229,920 ---------- 445,002 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.6% 8,312 Amphenol Corp., Class A 238,139 ---------- ENERGY EQUIPMENT & SERVICES -- 2.5% 4,700 CARBO Ceramics, Inc. 203,369 9,800 Dresser-Rand Group, Inc.(1) 219,520 3,400 Helmerich & Payne, Inc. 116,654 6,500 Smith International, Inc. 224,120 13,800 Weatherford International Ltd.(1) 232,944 ---------- 996,607 ---------- FOOD & STAPLES RETAILING -- 0.5% 6,800 Kroger Co. (The) 186,728 ---------- FOOD PRODUCTS -- 4.3% 4,800 Campbell Soup Co. 182,160 9,700 Dean Foods Co.(1) 212,042 16,900 H.J. Heinz Co. 740,558 3,600 Kellogg Co. 181,512 4,400 Ralcorp Holdings, Inc.(1) 297,792 4,100 TreeHouse Foods, Inc.(1) 124,066 ---------- 1,738,130 ---------- HEALTH CARE EQUIPMENT & SUPPLIES -- 4.3% 18,300 Covidien Ltd. 810,507 7,700 Edwards Lifesciences Corp.(1) 406,868 8,000 St. Jude Medical, Inc.(1) 304,240 4,700 Varian Medical Systems, Inc.(1) 213,897 ---------- 1,735,512 ---------- HEALTH CARE PROVIDERS & SERVICES -- 6.1% 15,300 Express Scripts, Inc.(1) 927,333 23,100 Medco Health Solutions, Inc.(1) 876,645 23,980 Omnicare, Inc. 661,129 ---------- 2,465,107 ---------- HOTELS, RESTAURANTS & LEISURE -- 1.2% 10,500 Panera Bread Co., Class A(1) 473,760 ---------- - ------ 14 NT Vista Shares Value HOUSEHOLD DURABLES -- 1.4% 12,100 Leggett & Platt, Inc. $ 210,056 300 NVR, Inc.(1) 147,063 9,000 Toll Brothers, Inc.(1) 208,080 ---------- 565,199 ---------- INSURANCE -- 2.0% 3,300 ACE Ltd. 189,288 5,200 AON Corp. 219,960 3,200 Axis Capital Holdings Ltd. 91,136 7,500 Marsh & McLennan Cos., Inc. 219,900 1,300 PartnerRe Ltd. 87,997 ---------- 808,281 ---------- INTERNET SOFTWARE & SERVICES -- 2.5% 1,500 Equinix, Inc.(1) 93,630 18,300 Netease.com, Inc. ADR(1) 411,750 9,100 Sohu.com, Inc.(1) 499,954 ---------- 1,005,334 ---------- IT SERVICES -- 0.3% 6,600 Perot Systems Corp., Class A(1) 94,974 ---------- LIFE SCIENCES TOOLS & SERVICES -- 2.4% 24,200 Thermo Fisher Scientific, Inc.(1) 982,520 ---------- MACHINERY -- 1.0% 14,300 Briggs & Stratton Corp. 225,368 3,100 Flowserve Corp. 176,452 ---------- 401,820 ---------- MULTILINE RETAIL -- 5.0% 12,800 Big Lots, Inc.(1) 312,704 32,600 Dollar Tree, Inc.(1) 1,239,452 17,000 Family Dollar Stores, Inc. 457,470 ---------- 2,009,626 ---------- OIL, GAS & CONSUMABLE FUELS -- 6.4% 7,300 Alpha Natural Resources, Inc.(1) 261,121 8,500 Continental Resources, Inc.(1) 275,315 42,389 PetroHawk Energy Corp.(1) 803,271 8,800 Plains Exploration & Production Co.(1) 248,160 5,200 Range Resources Corp. 219,544 8,700 Southwestern Energy Co.(1) 309,894 4,000 Ultra Petroleum Corp.(1) 186,200 5,000 Whiting Petroleum Corp.(1) 259,950 ---------- 2,563,455 ---------- PERSONAL PRODUCTS -- 0.8% 4,300 Chattem, Inc.(1) 325,381 ---------- PHARMACEUTICALS -- 1.5% 17,200 Perrigo Co. 584,800 ---------- Shares Value PROFESSIONAL SERVICES -- 1.0% 6,700 FTI Consulting, Inc.(1) $ 390,275 ---------- ROAD & RAIL -- 4.3% 10,400 CSX Corp. 475,488 10,300 Norfolk Southern Corp. 617,382 9,700 Union Pacific Corp. 647,669 ---------- 1,740,539 ---------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.1% 18,300 Altera Corp. 317,505 15,600 Broadcom Corp., Class A(1) 266,448 11,500 LDK Solar Co., Ltd.(1) 208,840 20,635 Microsemi Corp.(1) 448,605 ---------- 1,241,398 ---------- SOFTWARE -- 3.6% 56,800 Activision Blizzard, Inc.(1) 707,728 4,800 Cerner Corp.(1) 178,704 9,600 McAfee, Inc.(1) 312,480 21,000 Symantec Corp.(1) 264,180 ---------- 1,463,092 ---------- SPECIALTY RETAIL -- 7.4% 14,100 Children's Place Retail Stores, Inc. (The)(1) 471,363 13,800 Collective Brands, Inc.(1) 176,502 13,900 Foot Locker, Inc. 203,218 3,500 GameStop Corp., Class A(1) 95,865 5,200 Hibbett Sports, Inc.(1) 92,612 15,400 PetSmart, Inc. 303,226 27,630 Ross Stores, Inc. 903,225 23,500 TJX Cos., Inc. (The) 628,860 4,200 Urban Outfitters, Inc.(1) 91,308 ---------- 2,966,179 ---------- TEXTILES, APPAREL & LUXURY GOODS -- 0.9% 9,500 Carter's, Inc.(1) 201,780 5,200 Warnaco Group, Inc. (The)(1) 155,012 ---------- 356,792 ---------- THRIFTS & MORTGAGE FINANCE -- 1.2% 25,000 Hudson City Bancorp., Inc. 470,250 ---------- TRADING COMPANIES & DISTRIBUTORS -- 0.8% 4,000 W.W. Grainger, Inc. 314,280 ---------- WIRELESS TELECOMMUNICATION SERVICES -- 4.1% 9,000 American Tower Corp., Class A(1) 290,790 13,000 NII Holdings, Inc.(1) 334,880 48,102 SBA Communications Corp., Class A(1) 1,009,661 ---------- 1,635,331 ---------- TOTAL COMMON STOCKS (Cost $41,478,246) 39,084,223 ---------- - ------ 15 NT Vista Shares Value Temporary Cash Investments -- 2.4% 73,488 JPMorgan U.S. Treasury Plus Money Market Fund Agency Shares $ 73,488 Repurchase Agreement, Bank of America Securities, LLC, (collateralized by various U.S. Treasury obligations, 8.125%, 5/15/21, valued at $916,077), in a joint trading account at 0.05%, dated 10/31/08, due 11/3/08 (Delivery value $900,004) 900,000 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $973,488) 973,488 ----------- Value TOTAL INVESTMENT SECURITIES -- 99.8% (Cost $42,451,734) $40,057,711 ----------- OTHER ASSETS AND LIABILITIES -- 0.2% 77,978 ----------- TOTAL NET ASSETS -- 100.0% $40,135,689 =========== Forward Foreign Currency Exchange Contracts Unrealized Contracts to Sell Settlement Date Value Gain (Loss) 208,940 AUD for USD 11/28/08 $138,517 $1,439 415,021 CHF for USD 11/28/08 357,967 7,484 -------- ------- $496,484 $8,923 ======== ======= (Value on Settlement Date $505,407) Notes to Schedule of Investments ADR = American Depositary Receipt AUD = Australian Dollar CHF = Swiss Franc SPDR = Standard & Poor's Depositary Receipts USD = United States Dollar (1) Non-income producing. As of October 31, 2008, securities with an aggregate value of $626,519, which represented 1.6% of total net assets, were valued in accordance with alternative pricing procedures adopted by the Board of Directors. Industry classifications are unaudited. See Notes to Financial Statements. - ------ 16 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2008 NT Growth NT Vista ASSETS Investment securities, at value (cost of $97,516,579 and $42,451,734, respectively) $83,667,440 $40,057,711 Cash -- 5,542 Receivable for investments sold 779,485 1,384,461 Receivable for forward foreign currency exchange contracts 35,805 8,923 Receivable for capital shares sold 117,161 56,723 Dividends and interest receivable 44,810 19,804 ----------- ----------- 84,644,701 41,533,164 ----------- ----------- LIABILITIES Disbursements in excess of demand deposit cash 71,009 -- Payable for investments purchased 1,079,258 1,372,326 Payable for capital shares purchased 732 282 Accrued management fees 54,082 24,867 ----------- ----------- 1,205,081 1,397,475 ----------- ----------- NET ASSETS $83,439,620 $40,135,689 =========== =========== INSTITUTIONAL CLASS CAPITAL SHARES, $0.01 PAR VALUE Authorized 100,000,000 100,000,000 =========== =========== Outstanding 10,259,525 5,267,994 =========== =========== NET ASSET VALUE PER SHARE $8.13 $7.62 =========== =========== NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $104,311,278 $48,601,856 Accumulated undistributed net investment income (loss) 494,226 (8,523) Accumulated net realized loss on investment and foreign currency transactions (7,552,670) (6,072,255) Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies (13,813,214) (2,385,389) ------------ ------------ $83,439,620 $40,135,689 ============ ============ See Notes to Financial Statements. - ------ 17 STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 NT Growth NT Vista INVESTMENT INCOME (LOSS) INCOME: Dividends (net of foreign taxes withheld of $5,345 and $3,950, respectively) $ 1,016,247 $ 160,727 Interest 24,819 33,792 Securities lending, net 18,404 -- ------------- ------------- 1,059,470 194,519 ------------- ------------- EXPENSES: Management fees 713,028 337,299 Directors' fees and expenses 2,347 1,101 Other expenses 2,260 3,018 ------------- ------------- 717,635 341,418 ------------- ------------- NET INVESTMENT INCOME (LOSS) 341,835 (146,899) ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (7,330,998) (5,905,681) Foreign currency transactions 209,362 99,281 ------------- ------------- (7,121,636) (5,806,400) ------------- ------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (28,453,054) (15,771,652) Translation of assets and liabilities in foreign currencies 38,842 11,866 ------------- ------------- (28,414,212) (15,759,786) ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (35,535,848) (21,566,186) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(35,194,013) $(21,713,085) ============= ============= See Notes to Financial Statements. - ------ 18 STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED OCTOBER 31, 2008 AND OCTOBER 31, 2007 NT Growth NT Vista Increase (Decrease) in Net Assets 2008 2007 2008 2007 OPERATIONS Net investment income (loss) $ 341,835 $ 252,008 $ (146,899) $ (123,658) Net realized gain (loss) (7,121,636) 4,588,508 (5,806,400) 3,240,562 Change in net unrealized appreciation (depreciation) (28,414,212) 10,299,415 (15,759,786) 11,596,277 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (35,194,013) 15,139,931 (21,713,085) 14,713,181 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income (194,614) (175,726) -- -- From net realized gains (3,783,853) -- (87,218) -- ------------ ------------ ------------ ------------ Decrease in net assets from distributions (3,978,467) (175,726) (87,218) -- ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 48,892,848 31,876,693 28,341,744 16,758,304 Payments for shares redeemed (14,726,562) (17,377,762) (11,057,975) (12,497,498) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets from capital share transactions 34,166,286 14,498,931 17,283,769 4,260,806 ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS (5,006,194) 29,463,136 (4,516,534) 18,973,987 NET ASSETS Beginning of period 88,445,814 58,982,678 44,652,223 25,678,236 ------------ ------------ ------------ ------------ End of period $83,439,620 $88,445,814 $40,135,689 $44,652,223 ============ ============ ============ ============ Accumulated undistributed net investment income (loss) $494,226 $141,260 $(8,523) $1,921 ============ ============ ============ ============ TRANSACTION IN SHARES OF THE FUNDS Sold 4,697,976 2,849,265 2,867,449 1,590,776 Redeemed (1,311,665) (1,555,417) (926,513) (1,118,215) ------------ ------------ ------------ ------------ Net increase (decrease) in shares of the funds 3,386,311 1,293,848 1,940,936 472,561 ============ ============ ============ ============ See Notes to Financial Statements. - ------ 19 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 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 the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors, 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 - ------ 20 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. SECURITIES ON LOAN -- NT Growth may lend portfolio securities through its lending agent to certain approved borrowers in order to earn additional income. The income earned, net of any rebates or fees, is included in the Statement of Operations. NT Growth continues to recognize any gain or loss in the market price of the securities loaned and records 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. 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 have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" during the current fiscal year. All tax years for the funds remain subject to examination by tax authorities. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes. 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. - ------ 21 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 each fund's assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). 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, 2008 was 0.80%. The annual management fee for NT Vista is 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 Investment Services, Inc., and the corporation's transfer agent, American Century Services, LLC. The funds are wholly owned, in aggregate, by various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP). ACAAP does not invest in the funds for the purpose of exercising management or control. 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. NT Growth has a securities lending agreement with JPMorgan Chase Bank (JPMCB). Prior to December 12, 2007, the funds had a bank line of credit 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, 2008, were as follows: NT Growth NT Vista Purchases $151,920,514 $92,525,601 Proceeds from sales $121,397,549 $75,645,982 4. SECURITIES LENDING As of October 31, 2008, NT Growth did not have any securities on loan. 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. 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. Investments made with cash collateral may decline in value. 5. BANK LINE OF CREDIT Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. Prior to December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, had 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, which is subject to annual renewal, bear interest at the Federal Funds rate plus 0.40%. The line expired December 10, 2008, and was not renewed. The funds did not borrow from either line during the year ended October 31, 2008. - ------ 22 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, 2008 and October 31, 2007 were as follows: NT Growth NT Vista 2008 2007 2008 2007 DISTRIBUTIONS PAID FROM Ordinary income $1,297,574 $175,726 -- -- Long-term capital gains $2,680,893 -- $87,218 -- 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, 2008, 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 $99,999,526 $44,208,595 ============= ============= Gross tax appreciation of investments $ 1,766,142 $ 1,179,651 Gross tax depreciation of investments (18,098,228) (5,330,535) ------------- ------------- Net tax appreciation (depreciation) of investments $(16,332,086) $(4,150,884) ============= ============= Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies $ 11,619 $111 ------------- ------------- Net tax appreciation (depreciation) $(16,320,467) $(4,150,773) ============= ============= Undistributed ordinary income $ 518,532 -- Accumulated capital losses $ (5,069,723) $(4,315,394) 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 received and the realization for tax purposes of unrealized gains on certain forward foreign currency exchange 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 2016. 8. RECENTLY ISSUED ACCOUNTING STANDARDS 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. The adoption of FAS 157 will not materially impact the determination of fair value. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands disclosures about derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about the objectives and strategies of derivative instruments, quantitative disclosures about the fair value amounts of and gains and losses on derivative instruments, and disclosures of credit-risk-related contingent features in hedging activities. Management is currently evaluating the impact that adopting FAS 161 will have on the financial statement disclosures. - ------ 23 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, 2008. For corporate taxpayers, NT Growth hereby designates $716,780, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2008 as qualified for the corporate dividends received deduction. NT Growth and NT Vista hereby designate $2,680,893 and $87,218, respectively, or up to the maximum amount allowable, of long-term capital gain distributions for the fiscal year ended October 31, 2008. NT Growth hereby designates $1,102,122 of distributions as qualified short-term capital gains for purposes of Internal Revenue Code Section 871. - ------ 24 FINANCIAL HIGHLIGHTS NT Growth For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $12.87 $10.57 $10.00 ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.04(2) 0.04 0.01 Net Realized and Unrealized Gain (Loss) (4.19) 2.29 0.56 ------- ------- ------- Total From Investment Operations (4.15) 2.33 0.57 ------- ------- ------- Distributions From Net Investment Income (0.03) (0.03) -- From Net Realized Gains (0.56) -- -- ------- ------- ------- Total Distributions (0.59) (0.03) -- ------- ------- ------- Net Asset Value, End of Period $ 8.13 $12.87 $10.57 ======= ======= ======= TOTAL RETURN(3) (33.68)% 22.12% 5.70% 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 0.38% 0.35% 0.36%(4) Portfolio Turnover Rate 136% 140% 57% Net Assets, End of Period (in thousands) $83,440 $88,446 $58,983 (1) May 12, 2006 (fund inception) 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. (4) Annualized. See Notes to Financial Statements. - ------ 25 NT Vista For a Share Outstanding Throughout the Years Ended October 31 (except as noted) 2008 2007 2006(1) PER-SHARE DATA Net Asset Value, Beginning of Period $13.42 $9.00 $10.00 --------- --------- --------- Income From Investment Operations Net Investment Income (Loss) (0.04)(2) (0.04) (0.01) Net Realized and Unrealized Gain (Loss) (5.73) 4.46 (0.99) --------- --------- --------- Total From Investment Operations (5.77) 4.42 (1.00) --------- --------- --------- Distributions From Net Realized Gains (0.03) -- -- --------- --------- --------- Net Asset Value, End of Period $7.62 $13.42 $9.00 ========= ========= ========= TOTAL RETURN(3) (43.09)% 49.11% (10.00)% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.81% 0.80% 0.80%(4) Ratio of Net Investment Income (Loss) to Average Net Assets (0.35)% (0.36)% (0.27)%(4) Portfolio Turnover Rate 183% 147% 109% Net Assets, End of Period (in thousands) $40,136 $44,652 $25,678 (1) May 12, 2006 (fund inception) 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. (4) Annualized. See Notes to Financial Statements. - ------ 26 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, two of the funds constituting American Century Mutual Funds, Inc. (the "Corporation"), as of October 31, 2008, 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 Corporation'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 Corporation 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 Corporation'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, 2008, 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 respective financial positions of NT Growth Fund and NT Vista Fund, two of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2008, 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 16, 2008 - ------ 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 or the advisor); 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 Investments 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 Investments 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: 70 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: 111 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 (bearings and power transmission company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: None - ------ 28 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 (not-for-profit, contract research organization) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Saia, Inc.; 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. (real estate company); Retired Chairman of the Board, Butler Manufacturing Company (metal buildings producer) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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., (technology products and services provider) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 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 (telecommunications company) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: DST Systems, Inc.; Euronet Worldwide, Inc.; Charming Shoppes, Inc. JOHN R. WHITTEN, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUNDS: Director (since 2008) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Project Consultant, Celanese Corp. (industrial chemical company) (September 2004 to January 2005); Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc. (bearings and power transmission company) (1995 to 2003) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR: 70 OTHER DIRECTORSHIPS HELD BY DIRECTOR: Rudolph Technologies, Inc. - ------ 29 OFFICERS BARRY FINK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUNDS: Executive Vice President (since 2007) PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Director, ACC, ACS, ACIS and other ACC subsidiaries 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 Investments 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 Investments 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. - ------ 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 Investments, 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 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 funds; * reports on the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * information about the compliance policies, procedures, and regulatory experience of the advisor; * 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 in-person meetings and one telephonic meeting to review and discuss the information provided. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. In connection with their review of - ------ 31 the funds, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement 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 funds. 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 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 the services provided by the advisor 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 to the funds is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments 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. 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 - ------ 32 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. The funds' 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. 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 agreement, and the reasonableness of the current management fee. The board concluded that the advisor's profits were reasonable in light of the services provided to the funds. ETHICS. 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 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. 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 - ------ 33 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 groups. The unified fee charged to shareholders of 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. The board concluded that the management fee paid by the funds to the advisor was reasonable in light of the services provided to the funds. 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 board, including all of 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. - ------ 34 ADDITIONAL INFORMATION RETIREMENT ACCOUNT INFORMATION As required by law, distributions you receive from certain IRAs or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the 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 Investments' website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The 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. - ------ 35 INDEX DEFINITIONS The following indices are used to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The 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 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 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 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. - ------ 36 [back cover] [american century investments logo and text logo ®] 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 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 ©2008 American Century Proprietary Holdings, Inc. All rights reserved. 0812 CL-ANN-62721N
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) John R. Whitten, Thomas A. Brown 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 2007: $315,101 FY 2008: $317,528 (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 2007: $0 FY 2008: $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 2007: $0 FY 2008: $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 2007: $4,491 FY 2008: $0 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 2007: $0 FY 2008: $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 2007: $0 FY 2008: $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 2007: $0 FY 2008: $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 2007: $152,811 FY 2008: $ 80,618 (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. INVESTMENTS. (a) The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. (b) Not applicable. 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, 2008 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, 2008 By: /s/ Robert J. Leach --------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: December 26, 2008