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: | 10-31-2015 |
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT | OCTOBER 31, 2015 |
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All Cap Growth Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWGTX | 9.40% | 12.95% | 10.78% | 11.54% | 11/25/83 |
Russell 3000 Growth Index | — | 8.72% | 15.15% | 9.05% | 9.97%(1) | — |
Institutional Class | ACAJX | 9.60% | — | — | 17.12% | 9/30/11 |
A Class | ACAQX | 9/30/11 | ||||
No sales charge* | 9.12% | — | — | 16.61% | ||
With sales charge* | 2.85% | — | — | 14.94% | ||
C Class | ACAHX | 8.32% | — | — | 15.74% | 9/30/11 |
R Class | ACAWX | 8.87% | — | — | 16.32% | 9/30/11 |
* | 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 and may be subject to a maximum CDSC of 1.00%. 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) | Since November 30, 1983, the date nearest the Investor Class’s inception for which data are available. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $27,841 | |
Russell 3000 Growth Index — $23,804 | |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: David Hollond, Michael Orndorff, and Marcus Scott
Performance Summary
All Cap Growth returned 9.40%* for the 12 months ended October 31, 2015, outpacing the 8.72% return of the portfolio’s benchmark, the Russell 3000 Growth Index.
U.S. stock indices posted solid returns during the reporting period amid considerable volatility and variation in sector performance. Within the Russell 3000 Growth Index, the consumer discretionary sector delivered the best returns followed by information technology and consumer staples. Energy stocks fell sharply, losing more than 30% as oil prices plunged. Utilities and materials registered smaller losses.
All Cap Growth received positive absolute contributions from most sectors, with information technology the top contributor followed by consumer discretionary. Energy, industrials, and materials detracted. Stock selection among information technology stocks was by far the largest contributor relative to the Russell index. Stock selection in the industrials and consumer discretionary sectors hampered results versus the benchmark.
Information Technology Stocks Led Contributors
Stock selection in the information technology sector was the top contributor to results versus the benchmark, driven by the software industry. Video game maker Electronic Arts aided performance. The company continued to execute, reporting strong results consistent with our investment thesis of improving operating margins driven by cost controls, a higher percentage of video games being delivered digitally, and a gaming console refresh cycle. Alphabet (formerly Google) was another top contributor in the sector. The company’s top line is accelerating, expenses are being controlled, and the new CFO is showing greater transparency and may drive better capital allocation.
Stock decisions in the consumer staples sector also benefited results. Constellation Brands, a producer and marketer of beer, wine, and spirits, was a top contributor as the company continued to see very strong sales volume and pricing in its Corona and Modelo brands. Topline results came in better than expected. Mondelez International, which is not an index component, was a solid contributor. The global snack and beverage company reported better-than-expected results. The company’s margins are improving in a consolidating industry through streamlining existing operations and cost cutting. Merger activity in the industry also led to speculation that the company might be bought.
The health care sector also aided performance versus the benchmark, due to both stock selection and an overweight allocation. Top sector contributors included pharmaceutical company Allergan, which was created when Actavis acquired Allergan and was renamed Allergan. The deal closed in the second quarter of 2015. The company continued to benefit from synergies from previous acquisitions, including Forest Laboratories.
Industrials Hampered Results
Stock selection in the industrials sector was the largest source of relative underperformance, led by positioning in road and rail companies. Canadian Pacific Railway, which is not an index component, and Kansas City Southern detracted as investors worried that rail volumes would decline as coal and oil prices fell.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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In the consumer discretionary sector, stock choices among internet and catalog retailers and an underweight allocation to the industry detracted. Underweighting Amazon.com hurt results as the online retailer reported results that detailed its cloud hosting business for the first time. This information gave more clarity into the impact of this business on the firm’s overall growth and profitability and led to an increase in the stock price. Not owning index component Netflix was a significant detractor. The stock rose after the company reported robust subscriber growth based on the strength of original content.
Energy stocks continued to suffer from weak prices. Exploration and production company Antero Resources was a significant detractor, as was energy equipment and services firm Halliburton. Halliburton was eliminated.
Outlook
Our investment process focuses on companies of all capitalization sizes with accelerating earnings growth rates and share price momentum. The fund’s positioning remains largely stock specific. As of October 31, 2015, the largest overweights were in information technology and health care, while the largest underweights were in materials and financials. Current investment themes include stocks of companies that are benefiting from the Affordable Care Act, which has given a lift to health care providers.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc.* | 7.0% |
Apple, Inc. | 4.4% |
Facebook, Inc., Class A | 3.5% |
Allergan plc | 3.5% |
Electronic Arts, Inc. | 3.3% |
Mondelez International, Inc., Class A | 3.1% |
Comcast Corp., Class A | 3.0% |
Teleflex, Inc. | 2.9% |
Lowe's Cos., Inc. | 2.7% |
MasterCard, Inc., Class A | 2.2% |
*Includes all classes of the issuer. | |
Top Five Industries | % of net assets |
Internet Software and Services | 10.9% |
Biotechnology | 7.1% |
Specialty Retail | 6.2% |
Software | 6.1% |
Pharmaceuticals | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.4% |
Temporary Cash Investments | 0.8% |
Other Assets and Liabilities | (0.2)% |
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,034.00 | $5.13 | 1.00% |
Institutional Class | $1,000 | $1,035.00 | $4.10 | 0.80% |
A Class | $1,000 | $1,032.80 | $6.40 | 1.25% |
C Class | $1,000 | $1,028.90 | $10.23 | 2.00% |
R Class | $1,000 | $1,031.50 | $7.68 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 99.4% | ||||
Air Freight and Logistics — 2.0% | ||||
FedEx Corp. | 145,080 | $ | 22,639,734 | |
Airlines — 1.0% | ||||
American Airlines Group, Inc. | 193,696 | 8,952,629 | ||
Spirit Airlines, Inc.(1) | 69,560 | 2,582,067 | ||
11,534,696 | ||||
Banks — 0.5% | ||||
SVB Financial Group(1) | 48,294 | 5,895,248 | ||
Beverages — 2.9% | ||||
Boston Beer Co., Inc. (The), Class A(1) | 13,229 | 2,904,956 | ||
Brown-Forman Corp., Class B | 62,311 | 6,616,182 | ||
Constellation Brands, Inc., Class A | 170,672 | 23,006,586 | ||
32,527,724 | ||||
Biotechnology — 7.1% | ||||
Alexion Pharmaceuticals, Inc.(1) | 87,525 | 15,404,400 | ||
Biogen, Inc.(1) | 39,015 | 11,334,248 | ||
BioMarin Pharmaceutical, Inc.(1) | 31,459 | 3,681,961 | ||
Gilead Sciences, Inc. | 191,777 | 20,736,847 | ||
Regeneron Pharmaceuticals, Inc.(1) | 19,701 | 10,981,140 | ||
Vertex Pharmaceuticals, Inc.(1) | 132,716 | 16,554,994 | ||
78,693,590 | ||||
Capital Markets — 2.1% | ||||
Charles Schwab Corp. (The) | 348,817 | 10,645,895 | ||
Morgan Stanley | 394,403 | 13,003,467 | ||
23,649,362 | ||||
Chemicals — 1.4% | ||||
Axalta Coating Systems Ltd.(1) | 142,049 | 3,924,814 | ||
Monsanto Co. | 122,917 | 11,458,323 | ||
15,383,137 | ||||
Commercial Services and Supplies — 0.6% | ||||
KAR Auction Services, Inc. | 170,364 | 6,541,978 | ||
Communications Equipment — 3.4% | ||||
Cisco Systems, Inc. | 564,755 | 16,293,182 | ||
Motorola Solutions, Inc. | 307,001 | 21,480,860 | ||
37,774,042 | ||||
Consumer Finance — 0.7% | ||||
Discover Financial Services | 147,527 | 8,293,968 | ||
Diversified Financial Services — 0.5% | ||||
McGraw Hill Financial, Inc. | 59,351 | 5,498,277 | ||
Electrical Equipment — 0.6% | ||||
Acuity Brands, Inc. | 31,069 | 6,791,683 |
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Shares | Value | |||
Food and Staples Retailing — 1.8% | ||||
Costco Wholesale Corp. | 128,103 | $ | 20,255,646 | |
Food Products — 3.6% | ||||
Amplify Snack Brands, Inc.(1) | 178,804 | 2,159,952 | ||
Hain Celestial Group, Inc. (The)(1) | 78,070 | 3,891,790 | ||
Mondelez International, Inc., Class A | 739,393 | 34,130,381 | ||
40,182,123 | ||||
Health Care Equipment and Supplies — 4.8% | ||||
DexCom, Inc.(1) | 43,357 | 3,612,505 | ||
Hologic, Inc.(1) | 174,581 | 6,784,218 | ||
Intuitive Surgical, Inc.(1) | 20,417 | 10,139,082 | ||
Teleflex, Inc. | 245,810 | 32,692,730 | ||
53,228,535 | ||||
Health Care Providers and Services — 2.3% | ||||
AmerisourceBergen Corp. | 101,387 | 9,784,859 | ||
McKesson Corp. | 65,366 | 11,687,441 | ||
VCA, Inc.(1) | 72,209 | 3,954,887 | ||
25,427,187 | ||||
Hotels, Restaurants and Leisure — 3.1% | ||||
Hilton Worldwide Holdings, Inc. | 64,558 | 1,613,304 | ||
McDonald's Corp. | 104,110 | 11,686,348 | ||
Starbucks Corp. | 346,981 | 21,710,601 | ||
35,010,253 | ||||
Household Durables — 0.9% | ||||
Harman International Industries, Inc. | 42,166 | 4,636,573 | ||
Newell Rubbermaid, Inc. | 116,071 | 4,924,893 | ||
9,561,466 | ||||
Internet and Catalog Retail — 3.0% | ||||
Amazon.com, Inc.(1) | 22,611 | 14,152,225 | ||
Priceline Group, Inc. (The)(1) | 13,303 | 19,345,755 | ||
33,497,980 | ||||
Internet Software and Services — 10.9% | ||||
Alphabet, Inc., Class A(1) | 76,573 | 56,464,165 | ||
Alphabet, Inc., Class C(1) | 30,462 | 21,652,694 | ||
CoStar Group, Inc.(1) | 20,515 | 4,165,981 | ||
Facebook, Inc., Class A(1) | 384,758 | 39,233,773 | ||
121,516,613 | ||||
IT Services — 4.2% | ||||
Alliance Data Systems Corp.(1) | 60,171 | 17,889,440 | ||
MasterCard, Inc., Class A | 242,285 | 23,983,792 | ||
Sabre Corp. | 146,465 | 4,294,354 | ||
46,167,586 | ||||
Leisure Products — 0.3% | ||||
Polaris Industries, Inc. | 24,850 | 2,791,649 | ||
Machinery — 3.1% | ||||
Ingersoll-Rand plc | 239,726 | 14,206,163 |
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Shares | Value | |||
Middleby Corp. (The)(1) | 126,470 | $ | 14,789,402 | |
Snap-On, Inc. | 31,075 | 5,155,031 | ||
34,150,596 | ||||
Media — 4.6% | ||||
Comcast Corp., Class A | 527,072 | 33,005,249 | ||
Time Warner, Inc. | 167,251 | 12,600,690 | ||
Walt Disney Co. (The) | 46,091 | 5,242,390 | ||
50,848,329 | ||||
Multiline Retail — 2.9% | ||||
Burlington Stores, Inc.(1) | 91,095 | 4,379,848 | ||
Dollar Tree, Inc.(1) | 182,176 | 11,930,706 | ||
Target Corp. | 213,502 | 16,478,084 | ||
32,788,638 | ||||
Oil, Gas and Consumable Fuels — 1.0% | ||||
Antero Resources Corp.(1) | 51,563 | 1,215,340 | ||
Concho Resources, Inc.(1) | 47,707 | 5,529,718 | ||
Pioneer Natural Resources Co. | 35,411 | 4,856,265 | ||
11,601,323 | ||||
Pharmaceuticals — 5.0% | ||||
Allergan plc(1) | 125,748 | 38,789,486 | ||
Shire plc ADR | 14,827 | 3,366,470 | ||
Zoetis, Inc. | 316,975 | 13,633,095 | ||
55,789,051 | ||||
Professional Services — 1.1% | ||||
Nielsen Holdings plc | 251,792 | 11,962,638 | ||
Real Estate Management and Development — 0.4% | ||||
Jones Lang LaSalle, Inc. | 26,494 | 4,416,815 | ||
Road and Rail — 2.4% | ||||
Canadian Pacific Railway Ltd., New York Shares | 151,667 | 21,309,213 | ||
Kansas City Southern | 69,363 | 5,740,482 | ||
27,049,695 | ||||
Semiconductors and Semiconductor Equipment — 1.2% | ||||
Avago Technologies Ltd. | 55,345 | 6,814,630 | ||
NXP Semiconductors NV(1) | 78,493 | 6,149,926 | ||
12,964,556 | ||||
Software — 6.1% | ||||
Adobe Systems, Inc.(1) | 134,699 | 11,942,413 | ||
Electronic Arts, Inc.(1) | 510,589 | 36,798,149 | ||
Intuit, Inc. | 33,909 | 3,303,754 | ||
salesforce.com, inc.(1) | 155,235 | 12,063,312 | ||
Take-Two Interactive Software, Inc.(1) | 113,704 | 3,774,973 | ||
67,882,601 | ||||
Specialty Retail — 6.2% | ||||
AutoZone, Inc.(1) | 16,066 | 12,602,331 | ||
Home Depot, Inc. (The) | 117,457 | 14,522,384 | ||
Lowe's Cos., Inc. | 413,088 | 30,498,287 | ||
Signet Jewelers Ltd. | 73,210 | 11,050,317 | ||
68,673,319 |
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Shares | Value | |||
Technology Hardware, Storage and Peripherals — 4.4% | ||||
Apple, Inc. | 406,746 | $ | 48,606,147 | |
Textiles, Apparel and Luxury Goods — 0.7% | ||||
NIKE, Inc., Class B | 57,385 | 7,519,156 | ||
Tobacco — 0.9% | ||||
Philip Morris International, Inc. | 108,560 | 9,596,704 | ||
Wireless Telecommunication Services — 1.7% | ||||
SBA Communications Corp., Class A(1) | 154,330 | 18,368,357 | ||
TOTAL COMMON STOCKS (Cost $757,213,675) | 1,105,080,402 | |||
TEMPORARY CASH INVESTMENTS — 0.8% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $3,412,511), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $3,346,122) | 3,346,119 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $5,689,613), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $5,578,000) | 5,578,000 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,924,119) | 8,924,119 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $766,137,794) | 1,114,004,521 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (2,449,556) | |||
TOTAL NET ASSETS — 100.0% | $ | 1,111,554,965 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
CAD | 1,419,648 | USD | 1,076,045 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | 9,450 | |
USD | 20,815,743 | CAD | 27,575,031 | JPMorgan Chase Bank N.A. | 11/30/15 | (268,755) | ||
GBP | 649,691 | USD | 994,235 | Credit Suisse AG | 11/30/15 | 7,164 | ||
GBP | 512,282 | USD | 785,159 | Credit Suisse AG | 11/30/15 | 4,445 | ||
USD | 4,835,728 | GBP | 3,150,886 | Credit Suisse AG | 11/30/15 | (20,880) | ||
$ | (268,576 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
GBP | - | British Pound |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $766,137,794) | $ | 1,114,004,521 | |
Foreign currency holdings, at value (cost of $69,060) | 60,510 | ||
Receivable for investments sold | 5,433,265 | ||
Receivable for capital shares sold | 199,262 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 21,059 | ||
Dividends and interest receivable | 233,738 | ||
1,119,952,355 | |||
Liabilities | |||
Disbursements in excess of demand deposit cash | 18,375 | ||
Payable for investments purchased | 6,778,310 | ||
Payable for capital shares redeemed | 388,429 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 289,635 | ||
Accrued management fees | 911,245 | ||
Distribution and service fees payable | 11,396 | ||
8,397,390 | |||
Net Assets | $ | 1,111,554,965 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 695,837,903 | |
Accumulated net investment loss | (458,828 | ) | |
Undistributed net realized gain | 68,586,289 | ||
Net unrealized appreciation | 347,589,601 | ||
$ | 1,111,554,965 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $1,082,418,697 | 33,274,078 | $32.53 | |||
Institutional Class, $0.01 Par Value | $280,187 | 8,535 | $32.83 | |||
A Class, $0.01 Par Value | $10,656,809 | 331,482 | $32.15* | |||
C Class, $0.01 Par Value | $4,655,610 | 150,085 | $31.02 | |||
R Class, $0.01 Par Value | $13,543,662 | 426,312 | $31.77 |
*Maximum offering price $34.11 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $58,217) | $ | 9,503,560 | |
Interest | 1,822 | ||
9,505,382 | |||
Expenses: | |||
Management fees | 11,126,105 | ||
Distribution and service fees: | |||
A Class | 23,216 | ||
C Class | 38,193 | ||
R Class | 59,573 | ||
Directors' fees and expenses | 36,888 | ||
Other expenses | 677 | ||
11,284,652 | |||
Net investment income (loss) | (1,779,270 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 68,689,485 | ||
Foreign currency transactions | 2,972,973 | ||
71,662,458 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 29,534,493 | ||
Translation of assets and liabilities in foreign currencies | (373,832 | ) | |
29,160,661 | |||
Net realized and unrealized gain (loss) | 100,823,119 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 99,043,849 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | (1,779,270 | ) | $ | (2,087,065 | ) |
Net realized gain (loss) | 71,662,458 | 162,948,101 | ||||
Change in net unrealized appreciation (depreciation) | 29,160,661 | (42,216,054 | ) | |||
Net increase (decrease) in net assets resulting from operations | 99,043,849 | 118,644,982 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Investor Class | (149,342,881 | ) | (135,254,248 | ) | ||
Institutional Class | (26,645 | ) | (13,915 | ) | ||
A Class | (1,170,337 | ) | (1,123,968 | ) | ||
C Class | (545,627 | ) | (454,606 | ) | ||
R Class | (1,466,459 | ) | (827,562 | ) | ||
Decrease in net assets from distributions | (152,551,949 | ) | (137,674,299 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 62,410,541 | 22,307,155 | ||||
Net increase (decrease) in net assets | 8,902,441 | 3,277,838 | ||||
Net Assets | ||||||
Beginning of period | 1,102,652,524 | 1,099,374,686 | ||||
End of period | $ | 1,111,554,965 | $ | 1,102,652,524 | ||
Accumulated net investment loss | $ | (458,828 | ) | $ | (1,702,952 | ) |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. All Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
17
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
18
Distributions to Shareholders — 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.00% for the Investor Class, A 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $468,643,367 and $551,947,145, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 225,000,000 | 200,000,000 | ||||||||
Sold | 1,942,723 | $ | 62,182,754 | 1,162,515 | $ | 38,387,186 | ||||
Issued in reinvestment of distributions | 5,037,722 | 145,791,678 | 4,246,173 | 132,055,972 | ||||||
Redeemed | (4,820,064 | ) | (153,118,504 | ) | (4,648,558 | ) | (153,313,983 | ) | ||
2,160,381 | 54,855,928 | 760,130 | 17,129,175 | |||||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 2,931 | 89,844 | 2,427 | 80,496 | ||||||
Issued in reinvestment of distributions | 914 | 26,645 | 446 | 13,915 | ||||||
Redeemed | (770 | ) | (24,765 | ) | (485 | ) | (16,142 | ) | ||
3,075 | 91,724 | 2,388 | 78,269 | |||||||
A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 157,561 | 4,929,881 | 132,615 | 4,368,596 | ||||||
Issued in reinvestment of distributions | 40,835 | 1,170,337 | 36,351 | 1,123,968 | ||||||
Redeemed | (123,527 | ) | (3,893,895 | ) | (152,490 | ) | (4,957,707 | ) | ||
74,869 | 2,206,323 | 16,476 | 534,857 | |||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 53,142 | 1,594,597 | 39,397 | 1,268,756 | ||||||
Issued in reinvestment of distributions | 19,578 | 545,053 | 14,564 | 442,613 | ||||||
Redeemed | (39,580 | ) | (1,195,912 | ) | (31,993 | ) | (1,022,084 | ) | ||
33,140 | 943,738 | 21,968 | 689,285 | |||||||
R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 191,758 | 6,026,314 | 169,022 | 5,520,467 | ||||||
Issued in reinvestment of distributions | 51,654 | 1,466,459 | 26,921 | 827,562 | ||||||
Redeemed | (102,289 | ) | (3,179,945 | ) | (75,880 | ) | (2,472,460 | ) | ||
141,123 | 4,312,828 | 120,063 | 3,875,569 | |||||||
Net increase (decrease) | 2,412,588 | $ | 62,410,541 | 921,025 | $ | 22,307,155 |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
20
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 1,105,080,402 | — | — | ||||
Temporary Cash Investments | — | $ | 8,924,119 | — | ||||
$ | 1,105,080,402 | $ | 8,924,119 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 21,059 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (289,635 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $23,130,596.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as an asset of $21,059 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $289,635 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $2,975,003 in net realized gain (loss) on foreign currency transactions and $(367,826) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | — | $ | 12,321,590 | |||
Long-term capital gains | $ | 152,551,949 | $ | 125,352,709 |
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.
21
As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 766,158,515 | |
Gross tax appreciation of investments | $ | 357,796,793 | |
Gross tax depreciation of investments | (9,950,787 | ) | |
Net tax appreciation (depreciation) of investments | 347,846,006 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (8,550 | ) | |
Net tax appreciation (depreciation) | $ | 347,837,456 | |
Undistributed ordinary income | — | ||
Accumulated long-term gains | $ | 68,607,010 | |
Late-year ordinary loss deferral | $ | (727,404 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the realization for tax purposes of unrealized gains (losses) on certain foreign currency exchange contracts.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
22
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $34.71 | (0.05) | 2.71 | 2.66 | — | (4.84) | (4.84) | $32.53 | 9.40% | 1.00% | (0.15)% | 43% | $1,082,419 | ||
2014 | $35.63 | (0.06) | 3.64 | 3.58 | — | (4.50) | (4.50) | $34.71 | 11.50% | 1.00% | (0.18)% | 56% | $1,079,950 | ||
2013 | $30.44 | 0.12 | 7.22 | 7.34 | (0.10) | (2.05) | (2.15) | $35.63 | 25.72% | 1.00% | 0.38% | 60% | $1,081,599 | ||
2012 | $28.06 | 0.01 | 3.08 | 3.09 | — | (0.71) | (0.71) | $30.44 | 11.40% | 1.00% | 0.04% | 55% | $961,562 | ||
2011 | $26.07 | (0.02) | 2.01 | 1.99 | — | — | — | $28.06 | 7.63% | 1.00% | (0.08)% | 75% | $935,751 | ||
Institutional Class | |||||||||||||||
2015 | $34.92 | 0.01 | 2.74 | 2.75 | — | (4.84) | (4.84) | $32.83 | 9.60% | 0.80% | 0.05% | 43% | $280 | ||
2014 | $35.76 | —(3) | 3.66 | 3.66 | — | (4.50) | (4.50) | $34.92 | 11.71% | 0.80% | 0.02% | 56% | $191 | ||
2013 | $30.50 | 0.16 | 7.26 | 7.42 | (0.11) | (2.05) | (2.16) | $35.76 | 25.98% | 0.80% | 0.58% | 60% | $110 | ||
2012 | $28.06 | 0.09 | 3.06 | 3.15 | — | (0.71) | (0.71) | $30.50 | 11.62% | 0.80% | 0.24% | 55% | $61 | ||
2011(4) | $25.32 | (0.01) | 2.75 | 2.74 | — | — | — | $28.06 | 10.82% | 0.80%(5) | (0.28)%(5) | 75%(6) | $28 | ||
A Class | |||||||||||||||
2015 | $34.44 | (0.13) | 2.68 | 2.55 | — | (4.84) | (4.84) | $32.15 | 9.12% | 1.25% | (0.40)% | 43% | $10,657 | ||
2014 | $35.47 | (0.14) | 3.61 | 3.47 | — | (4.50) | (4.50) | $34.44 | 11.22% | 1.25% | (0.43)% | 56% | $8,837 | ||
2013 | $30.36 | 0.04 | 7.19 | 7.23 | (0.07) | (2.05) | (2.12) | $35.47 | 25.42% | 1.25% | 0.13% | 60% | $8,517 | ||
2012 | $28.05 | (0.02) | 3.04 | 3.02 | — | (0.71) | (0.71) | $30.36 | 11.15% | 1.25% | (0.21)% | 55% | $11,334 | ||
2011(4) | $25.32 | (0.02) | 2.75 | 2.73 | — | — | — | $28.05 | 10.78% | 1.25%(5) | (0.73)%(5) | 75%(6) | $28 |
23
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||
2015 | $33.62 | (0.35) | 2.59 | 2.24 | — | (4.84) | (4.84) | $31.02 | 8.32% | 2.00% | (1.15)% | 43% | $4,656 | ||
2014 | $34.96 | (0.38) | 3.54 | 3.16 | — | (4.50) | (4.50) | $33.62 | 10.40% | 2.00% | (1.18)% | 56% | $3,932 | ||
2013 | $30.11 | (0.20) | 7.11 | 6.91 | (0.01) | (2.05) | (2.06) | $34.96 | 24.45% | 2.00% | (0.62)% | 60% | $3,321 | ||
2012 | $28.03 | (0.25) | 3.04 | 2.79 | — | (0.71) | (0.71) | $30.11 | 10.32% | 2.00% | (0.96)% | 55% | $1,993 | ||
2011(4) | $25.32 | (0.03) | 2.74 | 2.71 | — | — | — | $28.03 | 10.70% | 2.00%(5) | (1.48)%(5) | 75%(6) | $28 | ||
R Class | |||||||||||||||
2015 | $34.16 | (0.20) | 2.65 | 2.45 | — | (4.84) | (4.84) | $31.77 | 8.87% | 1.50% | (0.65)% | 43% | $13,544 | ||
2014 | $35.30 | (0.22) | 3.58 | 3.36 | — | (4.50) | (4.50) | $34.16 | 10.93% | 1.50% | (0.68)% | 56% | $9,743 | ||
2013 | $30.27 | (0.09) | 7.22 | 7.13 | (0.05) | (2.05) | (2.10) | $35.30 | 25.12% | 1.50% | (0.12)% | 60% | $5,828 | ||
2012 | $28.04 | (0.08) | 3.02 | 2.94 | — | (0.71) | (0.71) | $30.27 | 10.86% | 1.50% | (0.46)% | 55% | $864 | ||
2011(4) | $25.32 | (0.02) | 2.74 | 2.72 | — | — | — | $28.04 | 10.74% | 1.50%(5) | (0.98)%(5) | 75%(6) | $28 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | September 30, 2011 (commencement of sale) through October 31, 2011. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2011. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of All Cap Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 All Cap Growth Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the ten-year period and below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain
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effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $152,551,949, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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Notes |
35
Notes |
36
![]() | ||
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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87639 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Balanced Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWBIX | 0.98% | 9.16% | 6.31% | 7.97% | 10/20/88 |
Blended Index(1) | — | 4.13% | 9.89% | 6.89% | 8.97%(2) | — |
S&P 500 Index | — | 5.20% | 14.32% | 7.84% | 10.11%(2) | — |
Barclays U.S. Aggregate Bond Index | — | 1.96% | 3.02% | 4.72% | 6.53%(2) | — |
Institutional Class | ABINX | 1.19% | 9.38% | 6.52% | 4.96% | 5/1/00 |
(1) | The blended index combines monthly returns of two widely known indices in proportion to the asset mix of the fund. The S&P 500 Index represents 60% of the index and the remaining 40% is represented by the Barclays U.S. Aggregate Bond Index. |
(2) | Since October 31, 1988, the date nearest the Investor Class’s inception for which data are available. |
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $18,442 | |
Blended Index — $19,473 | |
S&P 500 Index — $21,288 | |
Barclays U.S. Aggregate Bond Index — $15,862 | |
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
0.90% | 0.70% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Portfolio Commentary |
Equity Portfolio Managers: Bill Martin, Claudia Musat
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, and Brian Howell
Performance Summary
Balanced returned 0.98%* for the 12-months ended October 31, 2015. By comparison, the fund’s benchmark (a blended index consisting of 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index) returned 4.13%. The equity portion of Balanced advanced, but underperformed the 5.20% return of the S&P 500 Index, while the fixed income segment outperformed the 1.96% return of the Barclays U.S. Aggregate Bond Index.
Consumer Discretionary Stocks Leading Equity Detractors
Stock selection in the consumer discretionary sector was a main driver of underperformance, particularly positioning among internet retailers and security selection in hotels, restaurant, and leisure holdings. Leading detractors included Amazon.com, whose stock price steadily gained over the course of the year on rising revenues and earnings, driven in large part by the strength of its cloud computing business. We initiated a position in the internet retailer during the third quarter of 2015 on strength across growth, sentiment, and quality, but missed much of the stock’s appreciation during the period. A portfolio-only position in GoPro detracted as the wearable camera maker’s stock slumped together with the broad market on concerns about economic growth in China. Nevertheless, the company remains attractive across all factors and the team maintains its positioning.
Consumer staples holdings also pressured relative gains. Several food and staples retailers were key detractors, including Wal-Mart Stores, a portfolio overweight relative to the benchmark. Dollar strength and higher labor costs led to lower-than-expected earnings and revenues and downward revisions to future guidance. Despite disappointing stock performance, the retailer’s robust valuation measures and above-average factors of quality and sentiment make it an attractive portfolio holding.
The Industrials sector was also an area of relative weakness, driven largely by positioning among machinery manufacturers. An overweight position in Caterpillar weighed on results. The heavy equipment manufacturer’s shares declined as falling oil and commodity prices led to weakening sales to the energy and mining industries. Slumping demand for construction equipment, particularly in China, also pressured the company’s stock price. Diesel engine manufacturer Cummins detracted due to a slowdown in demand, particularly in non-U.S. markets, for its products. While the current operating environment remains challenging, both holdings retain strong measures of quality and valuation. Elsewhere, an underweight to Facebook impacted returns after the social networking site’s stock price rose on ongoing gains in user engagement for both its flagship brand as well as for acquired properties. Our positioning is justified given the stock’s weak valuation profile.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
4
Positive contribution to results on a sector level came from the energy sector, where stock selection and positioning in oil, gas, and consumable fuels holdings bolstered relative results. Much of the contribution came from not owning or maintaining underweight positions in oil-related companies—whose stock prices declined together with failing oil prices over the course of the year—such as Chevron, where we maintained an underweight given weak factors of growth, quality, and sentiment. The exception was an overweight in oil refiner Valero Energy, which repeatedly surpassed earnings and revenue expectations as lower oil prices and higher demand for gasoline boosted the company’s throughput margin per barrel. Strong valuation, quality, and growth insights drive our overweight positioning.
Individual contributors included portfolio-only AmTrust Financial Services, a property and casualty insurance provider, which advanced on accelerating earnings growth driven in part through acquisitions, higher-than-expected profits, and a 20% increase in its quarterly cash dividend to shareholders. Health insurance and managed care provider Aetna was a key outperformer, advancing nearly 40% amid merger speculation in the recent wave of health insurance industry consolidation. Broadcom bolstered fund returns as the semiconductor designer’s stock rose following strong first-quarter results, and again after a merger announcement with industry rival Avago Technologies. However, valuation, quality, and growth indicators showed modest deterioration during the period, and we liquidated the position in June.
Securitized Sector Led Fixed Income Contributors
We continued to underweight U.S. Treasuries and government agencies relative to the benchmark in favor of corporate credit and securitized bonds during the 12-month period. The overweight to the securitized sector aided results, while the corporate overweight detracted in part due to an allocation to high-yield corporate bonds. Security selection also lifted performance. Within the securitized sector, selections among non-agency commercial mortgage-backed securities, asset-backed securities, collateralized mortgage obligations, and traditional pass-through mortgage-backed securities broadly contributed to performance. In the credit sector, security selection among investment-grade and high-yield corporate bonds contributed to relative results, largely due to a rally in the credit markets during October 2015, which offset weaker performance earlier in the period.
Anticipating a gradual increase in U.S. interest rates, we maintained a shorter-than-benchmark duration (less price sensitivity to interest rate changes) during the first eight months of the period. This strategy detracted from results, as longer-maturity interest rates generally declined. We shifted back to a neutral duration position by the third quarter of 2015, because the timetable for U.S. interest rate increases appeared to be extending.
Outlook
Economic activity in the U.S. remains slow yet steady but continues to outpace most other global markets. We believe that divergence in monetary policy between the U.S. and much of the rest of the world is likely to continue as the U.S. Federal Reserve (the Fed) prepares to raise interest rates, possibly before the start of 2016, while central banks elsewhere maintain aggressive monetary stimulus. Investor sentiment in financials markets is likely to be driven by the timing and impact of a Fed move, as well as by the trajectory of global economic growth, particularly in China. We believe that our disciplined, objective, and systematic investment strategy, for both the equity and fixed-income components of the portfolio, is particularly beneficial during periods of volatility and we adhere to our process regardless of the market environment, allowing us to take advantage of opportunities presented by market inefficiencies.
5
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Common Stocks | % of net assets |
Apple, Inc. | 2.6% |
Microsoft Corp. | 1.4% |
Alphabet, Inc., Class A | 1.4% |
Pfizer, Inc. | 1.2% |
JPMorgan Chase & Co. | 1.2% |
Intel Corp. | 1.1% |
Cisco Systems, Inc. | 1.0% |
Gilead Sciences, Inc. | 1.0% |
PepsiCo, Inc. | 1.0% |
Citigroup, Inc. | 1.0% |
Top Five Common Stocks Industries | % of net assets |
Biotechnology | 3.8% |
Software | 3.1% |
Banks | 3.0% |
Pharmaceuticals | 2.8% |
Technology Hardware, Storage and Peripherals | 2.8% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 59.7% |
Corporate Bonds | 12.4% |
U.S. Treasury Securities | 12.1% |
U.S. Government Agency Mortgage-Backed Securities | 10.5% |
Collateralized Mortgage Obligations | 2.0% |
Commercial Mortgage-Backed Securities | 2.0% |
Asset-Backed Securities | 1.6% |
Sovereign Governments and Agencies | 0.6% |
Municipal Securities | 0.5% |
Temporary Cash Investments | 1.1% |
Other Assets and Liabilities | (2.5)% |
Key Fixed-Income Portfolio Statistics | |
Weighted Average Life | 7.6 years |
Average Duration (effective) | 5.6 years |
6
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. 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 Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $981.80 | $4.50 | 0.90% |
Institutional Class | $1,000 | $982.80 | $3.50 | 0.70% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.67 | $4.58 | 0.90% |
Institutional Class | $1,000 | $1,021.68 | $3.57 | 0.70% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
8
Schedule of Investments |
OCTOBER 31, 2015
Shares/ Principal Amount | Value | |||||
COMMON STOCKS — 59.7% | ||||||
Aerospace and Defense — 2.7% | ||||||
Boeing Co. (The) | 16,908 | $ | 2,503,568 | |||
General Dynamics Corp. | 34,213 | 5,083,368 | ||||
Honeywell International, Inc. | 60,966 | 6,296,568 | ||||
Huntington Ingalls Industries, Inc. | 8,652 | 1,037,721 | ||||
Spirit AeroSystems Holdings, Inc., Class A(1) | 72,130 | 3,804,136 | ||||
Textron, Inc. | 103,038 | 4,345,112 | ||||
23,070,473 | ||||||
Air Freight and Logistics — 0.7% | ||||||
United Parcel Service, Inc., Class B | 55,705 | 5,738,729 | ||||
Airlines — 0.8% | ||||||
Southwest Airlines Co. | 37,266 | 1,725,043 | ||||
United Continental Holdings, Inc.(1) | 76,854 | 4,635,065 | ||||
6,360,108 | ||||||
Auto Components — 0.4% | ||||||
Delphi Automotive plc | 7,931 | 659,780 | ||||
Goodyear Tire & Rubber Co. (The) | 45,755 | 1,502,594 | ||||
Johnson Controls, Inc. | 26,397 | 1,192,617 | ||||
3,354,991 | ||||||
Automobiles — 0.6% | ||||||
Ford Motor Co. | 330,532 | 4,895,179 | ||||
Banks — 3.0% | ||||||
Bank of America Corp. | 217,116 | 3,643,207 | ||||
Citigroup, Inc. | 161,565 | 8,590,411 | ||||
JPMorgan Chase & Co. | 152,725 | 9,812,581 | ||||
Wells Fargo & Co. | 55,543 | 3,007,098 | ||||
25,053,297 | ||||||
Beverages — 1.1% | ||||||
Coca-Cola Co. (The) | 9,727 | 411,938 | ||||
PepsiCo, Inc. | 84,313 | 8,615,946 | ||||
9,027,884 | ||||||
Biotechnology — 3.8% | ||||||
AbbVie, Inc. | 114,595 | 6,824,132 | ||||
Amgen, Inc. | 47,003 | 7,434,935 | ||||
Biogen, Inc.(1) | 17,923 | 5,206,811 | ||||
Celgene Corp.(1) | 29,107 | 3,571,720 | ||||
Gilead Sciences, Inc. | 79,715 | 8,619,583 | ||||
31,657,181 | ||||||
Building Products — 0.4% | ||||||
Owens Corning | 80,376 | 3,659,519 |
9
Shares/ Principal Amount | Value | |||||
Capital Markets — 1.2% | ||||||
Affiliated Managers Group, Inc.(1) | 8,606 | $ | 1,551,318 | |||
Ameriprise Financial, Inc. | 37,730 | 4,352,533 | ||||
Janus Capital Group, Inc. | 6,125 | 95,121 | ||||
Legg Mason, Inc. | 86,275 | 3,860,806 | ||||
9,859,778 | ||||||
Chemicals — 1.7% | ||||||
Cabot Corp. | 91,944 | 3,304,467 | ||||
Dow Chemical Co. (The) | 117,132 | 6,052,211 | ||||
LyondellBasell Industries NV, Class A | 55,219 | 5,130,397 | ||||
14,487,075 | ||||||
Commercial Services and Supplies — 0.3% | ||||||
Pitney Bowes, Inc. | 105,816 | 2,185,100 | ||||
Communications Equipment — 1.7% | ||||||
Cisco Systems, Inc. | 300,415 | 8,666,973 | ||||
QUALCOMM, Inc. | 92,817 | 5,515,186 | ||||
14,182,159 | ||||||
Consumer Finance — 0.3% | ||||||
Credit Acceptance Corp.(1) | 4,954 | 936,752 | ||||
Synchrony Financial(1) | 56,561 | 1,739,816 | ||||
2,676,568 | ||||||
Containers and Packaging — 0.2% | ||||||
Avery Dennison Corp. | 32,636 | 2,120,361 | ||||
Diversified Consumer Services — 0.4% | ||||||
H&R Block, Inc. | 89,625 | 3,339,428 | ||||
Diversified Financial Services — 0.3% | ||||||
Berkshire Hathaway, Inc., Class B(1) | 18,322 | 2,492,158 | ||||
Diversified Telecommunication Services — 0.4% | ||||||
AT&T, Inc. | 53,382 | 1,788,831 | ||||
Verizon Communications, Inc. | 39,324 | 1,843,509 | ||||
3,632,340 | ||||||
Electric Utilities — 0.6% | ||||||
NextEra Energy, Inc. | 48,679 | 4,997,386 | ||||
Electrical Equipment — 0.2% | ||||||
Rockwell Automation, Inc. | 19,099 | 2,084,847 | ||||
Electronic Equipment, Instruments and Components — 0.3% | ||||||
Corning, Inc. | 136,644 | 2,541,578 | ||||
Energy Equipment and Services — 0.5% | ||||||
Cameron International Corp.(1) | 5,381 | 365,962 | ||||
Schlumberger Ltd. | 43,875 | 3,429,270 | ||||
Transocean Ltd. | 37,977 | 601,176 | ||||
4,396,408 | ||||||
Food and Staples Retailing — 2.1% | ||||||
CVS Health Corp. | 66,651 | 6,583,786 |
10
Shares/ Principal Amount | Value | |||||
Kroger Co. (The) | 133,210 | $ | 5,035,338 | |||
Wal-Mart Stores, Inc. | 109,262 | 6,254,157 | ||||
17,873,281 | ||||||
Food Products — 1.2% | ||||||
Archer-Daniels-Midland Co. | 93,488 | 4,268,662 | ||||
Dean Foods Co. | 28,887 | 523,144 | ||||
Ingredion, Inc. | 22,392 | 2,128,583 | ||||
Pilgrim's Pride Corp. | 155,843 | 2,959,459 | ||||
9,879,848 | ||||||
Health Care Equipment and Supplies — 1.5% | ||||||
Abbott Laboratories | 40,205 | 1,801,184 | ||||
C.R. Bard, Inc. | 10,732 | 1,999,908 | ||||
St. Jude Medical, Inc. | 68,268 | 4,356,181 | ||||
Stryker Corp. | 51,037 | 4,880,158 | ||||
13,037,431 | ||||||
Health Care Providers and Services — 1.6% | ||||||
Aetna, Inc. | 43,660 | 5,011,295 | ||||
Express Scripts Holding Co.(1) | 62,270 | 5,378,882 | ||||
HCA Holdings, Inc.(1) | 18,886 | 1,299,168 | ||||
UnitedHealth Group, Inc. | 15,891 | 1,871,642 | ||||
13,560,987 | ||||||
Hotels, Restaurants and Leisure — 1.1% | ||||||
Bloomin' Brands, Inc. | 16,575 | 281,278 | ||||
Brinker International, Inc. | 47,324 | 2,153,715 | ||||
Cracker Barrel Old Country Store, Inc. | 18,287 | 2,513,731 | ||||
Darden Restaurants, Inc. | 58,275 | 3,606,640 | ||||
McDonald's Corp. | 3,126 | 350,893 | ||||
8,906,257 | ||||||
Household Durables — 0.2% | ||||||
GoPro, Inc., Class A(1) | 64,079 | 1,601,975 | ||||
Household Products — 0.6% | ||||||
Procter & Gamble Co. (The) | 66,541 | 5,082,402 | ||||
Industrial Conglomerates — 0.6% | ||||||
3M Co. | 2,692 | 423,209 | ||||
Carlisle Cos., Inc. | 12,583 | 1,094,721 | ||||
General Electric Co. | 125,299 | 3,623,647 | ||||
5,141,577 | ||||||
Insurance — 0.7% | ||||||
Amtrust Financial Services, Inc. | 11,735 | 800,562 | ||||
Aspen Insurance Holdings Ltd. | 9,943 | 483,329 | ||||
Hanover Insurance Group, Inc. (The) | 45,547 | 3,837,335 | ||||
Progressive Corp. (The) | 25,273 | 837,294 | ||||
5,958,520 | ||||||
Internet and Catalog Retail — 0.7% | ||||||
Amazon.com, Inc.(1) | 9,882 | 6,185,144 |
11
Shares/ Principal Amount | Value | |||||
Internet Software and Services — 2.5% | ||||||
Alphabet, Inc., Class A(1) | 16,381 | $ | 12,079,186 | |||
eBay, Inc.(1) | 182,416 | 5,089,406 | ||||
Facebook, Inc., Class A(1) | 42,609 | 4,344,840 | ||||
21,513,432 | ||||||
IT Services — 2.1% | ||||||
Accenture plc, Class A | 60,652 | 6,501,895 | ||||
Amdocs Ltd. | 53,897 | 3,210,644 | ||||
International Business Machines Corp. | 51,190 | 7,170,695 | ||||
PayPal Holdings, Inc.(1) | 31,026 | 1,117,246 | ||||
18,000,480 | ||||||
Life Sciences Tools and Services — 0.5% | ||||||
Bio-Rad Laboratories, Inc., Class A(1) | 4,769 | 665,180 | ||||
Thermo Fisher Scientific, Inc. | 25,443 | 3,327,436 | ||||
3,992,616 | ||||||
Machinery — 1.3% | ||||||
Caterpillar, Inc. | 2,775 | 202,547 | ||||
Cummins, Inc. | 16,950 | 1,754,495 | ||||
PACCAR, Inc. | 80,563 | 4,241,642 | ||||
Stanley Black & Decker, Inc. | 44,844 | 4,752,567 | ||||
10,951,251 | ||||||
Media — 2.2% | ||||||
CBS Corp., Class B | 33,695 | 1,567,491 | ||||
Comcast Corp., Class A | 90,672 | 5,677,881 | ||||
Scripps Networks Interactive, Inc., Class A | 25,591 | 1,537,507 | ||||
Twenty-First Century Fox, Inc. | 180,315 | 5,533,867 | ||||
Viacom, Inc., Class B | 86,408 | 4,260,779 | ||||
Walt Disney Co. (The) | 2,262 | 257,280 | ||||
18,834,805 | ||||||
Metals and Mining — 0.5% | ||||||
Alcoa, Inc. | 219,827 | 1,963,055 | ||||
Newmont Mining Corp. | 124,209 | 2,417,107 | ||||
4,380,162 | ||||||
Multi-Utilities — 0.1% | ||||||
Public Service Enterprise Group, Inc. | 19,363 | 799,498 | ||||
Multiline Retail — 1.0% | ||||||
Big Lots, Inc. | 59,721 | 2,753,138 | ||||
Target Corp. | 70,400 | 5,433,472 | ||||
8,186,610 | ||||||
Oil, Gas and Consumable Fuels — 2.2% | ||||||
Chevron Corp. | 3,164 | 287,544 | ||||
CVR Energy, Inc. | 47,826 | 2,126,344 | ||||
EOG Resources, Inc. | 9,525 | 817,721 | ||||
Exxon Mobil Corp. | 65,617 | 5,429,150 | ||||
Tesoro Corp. | 35,863 | 3,834,831 | ||||
Valero Energy Corp. | 76,165 | 5,020,797 |
12
Shares/ Principal Amount | Value | |||||
Western Refining, Inc. | 17,222 | $ | 716,780 | |||
18,233,167 | ||||||
Pharmaceuticals — 2.8% | ||||||
Johnson & Johnson | 53,881 | 5,443,597 | ||||
Merck & Co., Inc. | 124,842 | 6,823,864 | ||||
Mylan NV(1) | 26,000 | 1,146,340 | ||||
Pfizer, Inc. | 303,549 | 10,266,027 | ||||
23,679,828 | ||||||
Real Estate Investment Trusts (REITs) — 1.5% | ||||||
Hospitality Properties Trust | 59,817 | 1,605,488 | ||||
Lamar Advertising Co., Class A | 68,454 | 3,862,859 | ||||
Mid-America Apartment Communities, Inc. | 8,767 | 746,861 | ||||
Plum Creek Timber Co., Inc. | 29,058 | 1,183,823 | ||||
RLJ Lodging Trust | 116,499 | 2,922,960 | ||||
Ryman Hospitality Properties, Inc. | 44,835 | 2,358,321 | ||||
12,680,312 | ||||||
Real Estate Management and Development — 1.0% | ||||||
CBRE Group, Inc.(1) | 114,724 | 4,276,911 | ||||
Jones Lang LaSalle, Inc. | 24,012 | 4,003,040 | ||||
8,279,951 | ||||||
Semiconductors and Semiconductor Equipment — 1.5% | ||||||
Analog Devices, Inc. | 64,443 | 3,874,313 | ||||
Intel Corp. | 271,472 | 9,192,042 | ||||
13,066,355 | ||||||
Software — 3.1% | ||||||
Activision Blizzard, Inc. | 28,352 | 985,516 | ||||
Adobe Systems, Inc.(1) | 19,751 | 1,751,124 | ||||
Intuit, Inc. | 25,347 | 2,469,558 | ||||
Microsoft Corp. | 230,829 | 12,150,839 | ||||
Oracle Corp. | 132,422 | 5,143,270 | ||||
Synopsys, Inc.(1) | 72,725 | 3,634,795 | ||||
26,135,102 | ||||||
Specialty Retail — 1.1% | ||||||
Best Buy Co., Inc. | 53,361 | 1,869,236 | ||||
Foot Locker, Inc. | 54,805 | 3,713,039 | ||||
Lowe's Cos., Inc. | 54,112 | 3,995,089 | ||||
9,577,364 | ||||||
Technology Hardware, Storage and Peripherals — 2.8% | ||||||
Apple, Inc. | 186,030 | 22,230,585 | ||||
EMC Corp. | 43,395 | 1,137,817 | ||||
23,368,402 | ||||||
Textiles, Apparel and Luxury Goods — 0.4% | ||||||
NIKE, Inc., Class B | 22,899 | 3,000,456 | ||||
Thrifts and Mortgage Finance — 0.3% | ||||||
Essent Group Ltd.(1) | 103,483 | 2,493,940 |
13
Shares/ Principal Amount | Value | |||||
Tobacco — 0.9% | ||||||
Philip Morris International, Inc. | 84,717 | $ | 7,488,983 | |||
TOTAL COMMON STOCKS (Cost $433,896,074) | 503,702,683 | |||||
CORPORATE BONDS — 12.4% | ||||||
Aerospace and Defense — 0.1% | ||||||
Boeing Co. (The), 2.20%, 10/30/22 | $ | 110,000 | 107,686 | |||
Lockheed Martin Corp., 4.25%, 11/15/19 | 250,000 | 270,344 | ||||
Lockheed Martin Corp., 3.80%, 3/1/45 | 100,000 | 89,154 | ||||
United Technologies Corp., 6.05%, 6/1/36 | 250,000 | 305,662 | ||||
United Technologies Corp., 5.70%, 4/15/40 | 120,000 | 143,246 | ||||
916,092 | ||||||
Auto Components — 0.1% | ||||||
Schaeffler Finance BV, 4.25%, 5/15/21(2) | 200,000 | 202,000 | ||||
Tenneco, Inc., 6.875%, 12/15/20 | 100,000 | 103,875 | ||||
ZF North America Capital, Inc., 4.00%, 4/29/20(2) | 150,000 | 152,062 | ||||
457,937 | ||||||
Automobiles — 0.3% | ||||||
American Honda Finance Corp., 1.50%, 9/11/17(2) | 70,000 | 70,300 | ||||
American Honda Finance Corp., 2.125%, 10/10/18 | 150,000 | 152,075 | ||||
Daimler Finance North America LLC, 2.625%, 9/15/16(2) | 210,000 | 212,394 | ||||
Ford Motor Co., 4.75%, 1/15/43 | 70,000 | 69,662 | ||||
Ford Motor Credit Co. LLC, 2.15%, 1/9/18 | 200,000 | 200,169 | ||||
Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 400,000 | 425,071 | ||||
Ford Motor Credit Co. LLC, 8.125%, 1/15/20 | 150,000 | 179,854 | ||||
Ford Motor Credit Co. LLC, 5.875%, 8/2/21 | 440,000 | 502,277 | ||||
General Motors Co., 5.00%, 4/1/35 | 210,000 | 206,005 | ||||
General Motors Financial Co., Inc., 3.25%, 5/15/18 | 350,000 | 354,474 | ||||
General Motors Financial Co., Inc., 3.10%, 1/15/19 | 110,000 | 110,527 | ||||
Jaguar Land Rover Automotive plc, 4.125%, 12/15/18(2) | 150,000 | 154,312 | ||||
2,637,120 | ||||||
Banks — 1.9% | ||||||
Bank of America Corp., 6.50%, 8/1/16 | 480,000 | 499,725 | ||||
Bank of America Corp., 5.75%, 12/1/17 | 360,000 | 389,244 | ||||
Bank of America Corp., 5.625%, 7/1/20 | 110,000 | 124,059 | ||||
Bank of America Corp., 5.70%, 1/24/22 | 220,000 | 251,987 | ||||
Bank of America Corp., 4.10%, 7/24/23 | 70,000 | 73,304 | ||||
Bank of America Corp., MTN, 4.00%, 4/1/24 | 220,000 | 226,943 | ||||
Bank of America Corp., MTN, 4.20%, 8/26/24 | 380,000 | 382,933 | ||||
Bank of America Corp., MTN, 4.00%, 1/22/25 | 300,000 | 296,458 | ||||
Bank of America Corp., MTN, 5.00%, 1/21/44 | 110,000 | 116,986 | ||||
Bank of America N.A., 5.30%, 3/15/17 | 870,000 | 913,705 | ||||
Bank of Nova Scotia (The), 2.55%, 1/12/17 | 150,000 | 152,700 | ||||
Barclays Bank plc, 5.14%, 10/14/20 | 200,000 | 219,521 | ||||
Barclays Bank plc, 3.75%, 5/15/24 | 200,000 | 204,746 | ||||
BB&T Corp., MTN, 2.05%, 6/19/18 | 100,000 | 100,840 |
14
Shares/ Principal Amount | Value | |||||
BPCE SA, 5.15%, 7/21/24(2) | $ | 200,000 | $ | 206,836 | ||
Branch Banking & Trust Co., 3.625%, 9/16/25 | 113,000 | 114,206 | ||||
Branch Banking & Trust Co., 3.80%, 10/30/26 | 130,000 | 132,682 | ||||
Capital One Financial Corp., 4.20%, 10/29/25 | 445,000 | 446,092 | ||||
Capital One N.A., 2.35%, 8/17/18 | 250,000 | 251,353 | ||||
Citigroup, Inc., 4.45%, 1/10/17 | 100,000 | 103,792 | ||||
Citigroup, Inc., 5.50%, 2/15/17 | 90,000 | 94,585 | ||||
Citigroup, Inc., 1.75%, 5/1/18 | 710,000 | 707,107 | ||||
Citigroup, Inc., 4.50%, 1/14/22 | 560,000 | 606,680 | ||||
Citigroup, Inc., 4.05%, 7/30/22 | 70,000 | 72,010 | ||||
Citigroup, Inc., 4.40%, 6/10/25 | 880,000 | 894,917 | ||||
Citigroup, Inc., 4.45%, 9/29/27 | 160,000 | 160,869 | ||||
Commerzbank AG, 8.125%, 9/19/23(2) | 200,000 | 232,334 | ||||
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, 3.875%, 2/8/22 | 430,000 | 455,941 | ||||
Credit Suisse Group Funding Guernsey Ltd., 2.75%, 3/26/20(2) | 280,000 | 279,257 | ||||
Fifth Third Bancorp, 4.30%, 1/16/24 | 110,000 | 113,530 | ||||
Fifth Third Bank, 2.875%, 10/1/21 | 250,000 | 249,969 | ||||
HBOS plc, MTN, 6.75%, 5/21/18(2) | 300,000 | 331,351 | ||||
HSBC Holdings plc, 5.10%, 4/5/21 | 230,000 | 257,388 | ||||
Intesa Sanpaolo SpA, 5.02%, 6/26/24(2) | 230,000 | 230,858 | ||||
JPMorgan Chase & Co., 6.00%, 1/15/18 | 520,000 | 567,663 | ||||
JPMorgan Chase & Co., 4.625%, 5/10/21 | 460,000 | 501,452 | ||||
JPMorgan Chase & Co., 3.25%, 9/23/22 | 220,000 | 222,397 | ||||
JPMorgan Chase & Co., 3.875%, 9/10/24 | 370,000 | 370,832 | ||||
JPMorgan Chase & Co., 3.125%, 1/23/25 | 570,000 | 554,647 | ||||
JPMorgan Chase & Co., 4.95%, 6/1/45 | 100,000 | 101,659 | ||||
KeyCorp, MTN, 2.30%, 12/13/18 | 220,000 | 221,529 | ||||
KFW, 2.00%, 6/1/16 | 260,000 | 262,388 | ||||
KFW, 2.00%, 10/4/22 | 300,000 | 299,178 | ||||
Royal Bank of Scotland Group plc, 6.125%, 12/15/22 | 230,000 | 252,666 | ||||
Royal Bank of Scotland plc (The), 4.375%, 3/16/16 | 250,000 | 253,186 | ||||
Standard Chartered plc, 3.95%, 1/11/23(2) | 200,000 | 196,419 | ||||
U.S. Bancorp, 3.44%, 2/1/16 | 120,000 | 120,787 | ||||
U.S. Bancorp, MTN, 3.00%, 3/15/22 | 110,000 | 112,110 | ||||
U.S. Bancorp, MTN, 3.60%, 9/11/24 | 330,000 | 337,399 | ||||
U.S. Bank N.A., 2.80%, 1/27/25 | 500,000 | 490,711 | ||||
Wells Fargo & Co., 4.125%, 8/15/23 | 200,000 | 208,420 | ||||
Wells Fargo & Co., MTN, 2.10%, 5/8/17 | 20,000 | 20,297 | ||||
Wells Fargo & Co., MTN, 2.60%, 7/22/20 | 320,000 | 323,497 | ||||
Wells Fargo & Co., MTN, 4.60%, 4/1/21 | 450,000 | 494,875 | ||||
Wells Fargo & Co., MTN, 3.55%, 9/29/25 | 160,000 | 160,501 | ||||
Wells Fargo & Co., MTN, 4.10%, 6/3/26 | 210,000 | 214,413 | ||||
Wells Fargo & Co., MTN, 4.65%, 11/4/44 | 80,000 | 79,317 | ||||
16,261,251 | ||||||
Beverages — 0.1% | ||||||
Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/19 | 460,000 | 537,547 |
15
Shares/ Principal Amount | Value | |||||
Anheuser-Busch InBev Worldwide, Inc., 2.50%, 7/15/22 | $ | 360,000 | $ | 342,573 | ||
Coca-Cola Co. (The), 1.80%, 9/1/16 | 180,000 | 181,994 | ||||
Pernod-Ricard SA, 2.95%, 1/15/17(2) | 180,000 | 182,844 | ||||
1,244,958 | ||||||
Biotechnology — 0.4% | ||||||
AbbVie, Inc., 1.75%, 11/6/17 | 300,000 | 303,050 | ||||
AbbVie, Inc., 2.90%, 11/6/22 | 220,000 | 213,304 | ||||
AbbVie, Inc., 3.60%, 5/14/25 | 220,000 | 216,791 | ||||
AbbVie, Inc., 4.40%, 11/6/42 | 240,000 | 219,548 | ||||
Amgen, Inc., 2.125%, 5/15/17 | 180,000 | 182,432 | ||||
Amgen, Inc., 4.10%, 6/15/21 | 100,000 | 107,222 | ||||
Amgen, Inc., 5.375%, 5/15/43 | 250,000 | 269,993 | ||||
Biogen, Inc., 3.625%, 9/15/22 | 370,000 | 376,850 | ||||
Celgene Corp., 3.25%, 8/15/22 | 190,000 | 190,066 | ||||
Celgene Corp., 3.625%, 5/15/24 | 300,000 | 300,147 | ||||
Celgene Corp., 3.875%, 8/15/25 | 190,000 | 190,959 | ||||
Gilead Sciences, Inc., 4.40%, 12/1/21 | 310,000 | 337,711 | ||||
Gilead Sciences, Inc., 3.65%, 3/1/26 | 260,000 | 263,312 | ||||
3,171,385 | ||||||
Building Products† | ||||||
Masco Corp., 4.45%, 4/1/25 | 170,000 | 170,850 | ||||
Capital Markets — 0.1% | ||||||
Ameriprise Financial, Inc., 4.00%, 10/15/23 | 140,000 | 147,210 | ||||
Bear Stearns Cos. LLC (The), 6.40%, 10/2/17 | 370,000 | 403,109 | ||||
Jefferies Group LLC, 5.125%, 4/13/18 | 110,000 | 115,795 | ||||
666,114 | ||||||
Chemicals — 0.2% | ||||||
Ashland, Inc., 4.75%, 8/15/22 | 160,000 | 160,688 | ||||
Dow Chemical Co. (The), 4.25%, 11/15/20 | 62,000 | 66,788 | ||||
Eastman Chemical Co., 2.70%, 1/15/20 | 210,000 | 210,460 | ||||
Eastman Chemical Co., 3.60%, 8/15/22 | 198,000 | 200,555 | ||||
Ecolab, Inc., 4.35%, 12/8/21 | 250,000 | 270,596 | ||||
LyondellBasell Industries NV, 5.00%, 4/15/19 | 200,000 | 215,365 | ||||
LyondellBasell Industries NV, 4.625%, 2/26/55 | 140,000 | 121,819 | ||||
Mosaic Co. (The), 5.625%, 11/15/43 | 120,000 | 126,410 | ||||
1,372,681 | ||||||
Commercial Services and Supplies — 0.1% | ||||||
Clean Harbors, Inc., 5.25%, 8/1/20 | 180,000 | 188,100 | ||||
Covanta Holding Corp., 5.875%, 3/1/24 | 150,000 | 149,625 | ||||
Pitney Bowes, Inc., 4.625%, 3/15/24 | 110,000 | 110,056 | ||||
Republic Services, Inc., 3.55%, 6/1/22 | 220,000 | 226,768 | ||||
Waste Management, Inc., 4.10%, 3/1/45 | 150,000 | 141,488 | ||||
816,037 | ||||||
Communications Equipment† | ||||||
CC Holdings GS V LLC / Crown Castle GS III Corp., 3.85%, 4/15/23 | 260,000 | 257,629 | ||||
Cisco Systems, Inc., 5.90%, 2/15/39 | 130,000 | 159,192 | ||||
416,821 |
16
Shares/ Principal Amount | Value | |||||
Construction Materials† | ||||||
Owens Corning, 4.20%, 12/15/22 | $ | 160,000 | $ | 162,070 | ||
Consumer Finance — 0.4% | ||||||
American Express Centurion Bank, MTN, 6.00%, 9/13/17 | 250,000 | 269,772 | ||||
American Express Co., 1.55%, 5/22/18 | 220,000 | 219,331 | ||||
American Express Credit Corp., 1.30%, 7/29/16 | 180,000 | 180,774 | ||||
American Express Credit Corp., 2.60%, 9/14/20 | 115,000 | 115,975 | ||||
Capital One Bank USA N.A., 2.30%, 6/5/19 | 250,000 | 248,634 | ||||
Capital One Bank USA N.A., 3.375%, 2/15/23 | 250,000 | 245,107 | ||||
CIT Group, Inc., 4.25%, 8/15/17 | 470,000 | 481,750 | ||||
CIT Group, Inc., 5.00%, 8/15/22 | 90,000 | 95,063 | ||||
Discover Bank, 2.00%, 2/21/18 | 250,000 | 248,269 | ||||
Equifax, Inc., 3.30%, 12/15/22 | 140,000 | 140,471 | ||||
GLP Capital LP / GLP Financing II, Inc., 4.875%, 11/1/20 | 420,000 | 434,700 | ||||
John Deere Capital Corp., MTN, 3.15%, 10/15/21 | 100,000 | 102,886 | ||||
McGraw Hill Financial, Inc., 3.30%, 8/14/20(2) | 120,000 | 122,271 | ||||
PNC Bank N.A., 6.00%, 12/7/17 | 290,000 | 314,467 | ||||
Synchrony Financial, 3.00%, 8/15/19 | 90,000 | 91,007 | ||||
3,310,477 | ||||||
Containers and Packaging — 0.1% | ||||||
Ball Corp., 4.00%, 11/15/23 | 180,000 | 176,400 | ||||
Crown Americas LLC / Crown Americas Capital Corp. IV, 4.50%, 1/15/23 | 210,000 | 211,575 | ||||
Rock-Tenn Co., 3.50%, 3/1/20 | 140,000 | 144,133 | ||||
Rock-Tenn Co., 4.00%, 3/1/23 | 240,000 | 245,889 | ||||
777,997 | ||||||
Diversified Consumer Services† | ||||||
Catholic Health Initiatives, 2.95%, 11/1/22 | 110,000 | 108,411 | ||||
Johns Hopkins University, 4.08%, 7/1/53 | 45,000 | 45,137 | ||||
153,548 | ||||||
Diversified Financial Services — 1.0% | ||||||
Ally Financial, Inc., 2.75%, 1/30/17 | 340,000 | 342,550 | ||||
BNP Paribas SA, 4.375%, 9/28/25(2) | 200,000 | 198,476 | ||||
Deutsche Bank AG, VRN, 4.30%, 5/24/23 | 200,000 | 193,035 | ||||
GE Capital International Funding Co., 0.96%, 4/15/16(2) | 268 | 268 | ||||
GE Capital International Funding Co., 2.34%, 11/15/20(2) | 694,629 | 696,945 | ||||
General Electric Capital Corp., 5.30%, 2/11/21 | 40,000 | 45,703 | ||||
General Electric Capital Corp., MTN, 4.375%, 9/16/20 | 250,000 | 274,543 | ||||
General Electric Capital Corp., MTN, 4.65%, 10/17/21 | 120,000 | 134,318 | ||||
Goldman Sachs Group, Inc. (The), 2.375%, 1/22/18 | 330,000 | 335,285 | ||||
Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 530,000 | 544,956 | ||||
Goldman Sachs Group, Inc. (The), 5.375%, 3/15/20 | 110,000 | 122,957 | ||||
Goldman Sachs Group, Inc. (The), 5.75%, 1/24/22 | 460,000 | 527,688 | ||||
Goldman Sachs Group, Inc. (The), 4.00%, 3/3/24 | 300,000 | 309,449 | ||||
Goldman Sachs Group, Inc. (The), 3.50%, 1/23/25 | 160,000 | 158,626 | ||||
Goldman Sachs Group, Inc. (The), 4.25%, 10/21/25 | 130,000 | 130,867 | ||||
Goldman Sachs Group, Inc. (The), 6.75%, 10/1/37 | 260,000 | 314,600 |
17
Shares/ Principal Amount | Value | |||||
Goldman Sachs Group, Inc. (The), 5.15%, 5/22/45 | $ | 100,000 | $ | 100,877 | ||
Goldman Sachs Group, Inc. (The), MTN, 4.80%, 7/8/44 | 220,000 | 223,046 | ||||
Icahn Enterprises LP / Icahn Enterprises Finance Corp., 3.50%, 3/15/17 | 150,000 | 152,130 | ||||
Morgan Stanley, 2.65%, 1/27/20 | 90,000 | 90,755 | ||||
Morgan Stanley, 5.00%, 11/24/25 | 610,000 | 654,286 | ||||
Morgan Stanley, MTN, 6.625%, 4/1/18 | 690,000 | 766,177 | ||||
Morgan Stanley, MTN, 5.625%, 9/23/19 | 870,000 | 970,007 | ||||
Morgan Stanley, MTN, 3.70%, 10/23/24 | 300,000 | 304,288 | ||||
UBS AG (Stamford Branch), 5.875%, 12/20/17 | 321,000 | 348,114 | ||||
UBS Group Funding Jersey Ltd., 4.125%, 9/24/25(2) | 200,000 | 201,376 | ||||
8,141,322 | ||||||
Diversified Telecommunication Services — 0.7% | ||||||
AT&T, Inc., 2.625%, 12/1/22 | 290,000 | 276,381 | ||||
AT&T, Inc., 3.40%, 5/15/25 | 600,000 | 583,654 | ||||
AT&T, Inc., 6.55%, 2/15/39 | 287,000 | 333,510 | ||||
AT&T, Inc., 4.30%, 12/15/42 | 130,000 | 113,256 | ||||
British Telecommunications plc, 5.95%, 1/15/18 | 480,000 | 524,052 | ||||
CenturyLink, Inc., 6.00%, 4/1/17 | 60,000 | 63,225 | ||||
CenturyLink, Inc., Series Q, 6.15%, 9/15/19 | 140,000 | 145,600 | ||||
Deutsche Telekom International Finance BV, 2.25%, 3/6/17(2) | 250,000 | 252,429 | ||||
Deutsche Telekom International Finance BV, 6.75%, 8/20/18 | 210,000 | 236,976 | ||||
Frontier Communications Corp., 8.25%, 4/15/17 | 80,000 | 85,759 | ||||
Frontier Communications Corp., 8.50%, 4/15/20 | 150,000 | 154,875 | ||||
Frontier Communications Corp., 11.00%, 9/15/25(2) | 70,000 | 73,543 | ||||
Orange SA, 4.125%, 9/14/21 | 210,000 | 224,226 | ||||
Orange SA, 5.50%, 2/6/44 | 80,000 | 89,395 | ||||
Telecom Italia Capital SA, 6.00%, 9/30/34 | 120,000 | 113,400 | ||||
Telefonica Emisiones SAU, 5.46%, 2/16/21 | 100,000 | 111,750 | ||||
Verizon Communications, Inc., 3.65%, 9/14/18 | 480,000 | 506,612 | ||||
Verizon Communications, Inc., 3.50%, 11/1/21 | 130,000 | 134,216 | ||||
Verizon Communications, Inc., 5.15%, 9/15/23 | 350,000 | 390,205 | ||||
Verizon Communications, Inc., 5.05%, 3/15/34 | 570,000 | 577,016 | ||||
Verizon Communications, Inc., 4.75%, 11/1/41 | 150,000 | 141,331 | ||||
Verizon Communications, Inc., 6.55%, 9/15/43 | 140,000 | 168,563 | ||||
Verizon Communications, Inc., 4.86%, 8/21/46 | 250,000 | 240,550 | ||||
Verizon Communications, Inc., 5.01%, 8/21/54 | 199,000 | 184,047 | ||||
Windstream Services LLC, 7.875%, 11/1/17 | 60,000 | 63,862 | ||||
5,788,433 | ||||||
Electrical Equipment† | ||||||
Belden, Inc., 5.25%, 7/15/24(2) | 180,000 | 171,900 | ||||
Electronic Equipment, Instruments and Components† | ||||||
Jabil Circuit, Inc., 7.75%, 7/15/16 | 200,000 | 208,500 | ||||
Jabil Circuit, Inc., 5.625%, 12/15/20 | 50,000 | 53,264 | ||||
261,764 | ||||||
Energy Equipment and Services — 0.1% | ||||||
Ensco plc, 4.70%, 3/15/21 | 270,000 | 241,996 |
18
Shares/ Principal Amount | Value | |||||
Ensco plc, 5.20%, 3/15/25 | $ | 80,000 | $ | 66,957 | ||
Noble Holding International Ltd., 5.95%, 4/1/25 | 75,000 | 60,391 | ||||
Schlumberger Investment SA, 3.65%, 12/1/23 | 170,000 | 176,923 | ||||
Transocean, Inc., 6.50%, 11/15/20 | 70,000 | 56,409 | ||||
Weatherford International Ltd., 4.50%, 4/15/22 | 130,000 | 102,249 | ||||
704,925 | ||||||
Food and Staples Retailing — 0.2% | ||||||
CVS Health Corp., 3.50%, 7/20/22 | 220,000 | 227,343 | ||||
CVS Health Corp., 2.75%, 12/1/22 | 170,000 | 166,967 | ||||
CVS Health Corp., 5.125%, 7/20/45 | 110,000 | 118,533 | ||||
Delhaize Group, 5.70%, 10/1/40 | 90,000 | 95,716 | ||||
Dollar General Corp., 3.25%, 4/15/23 | 220,000 | 210,575 | ||||
Dollar General Corp., 4.15%, 11/1/25 | 40,000 | 39,818 | ||||
Kroger Co. (The), 6.40%, 8/15/17 | 200,000 | 217,037 | ||||
Kroger Co. (The), 3.30%, 1/15/21 | 330,000 | 339,530 | ||||
Target Corp., 3.50%, 7/1/24 | 210,000 | 218,661 | ||||
Wal-Mart Stores, Inc., 2.55%, 4/11/23 | 50,000 | 49,765 | ||||
Wal-Mart Stores, Inc., 5.625%, 4/15/41 | 110,000 | 132,161 | ||||
Wal-Mart Stores, Inc., 4.30%, 4/22/44 | 390,000 | 396,775 | ||||
2,212,881 | ||||||
Food Products — 0.1% | ||||||
Kraft Foods Group, Inc., 5.00%, 6/4/42 | 220,000 | 227,548 | ||||
Kraft Heinz Foods Co., 3.95%, 7/15/25(2) | 100,000 | 102,780 | ||||
Kraft Heinz Foods Co., 5.20%, 7/15/45(2) | 140,000 | 148,242 | ||||
Mondelez International, Inc., 4.00%, 2/1/24 | 200,000 | 209,216 | ||||
Tyson Foods, Inc., 4.50%, 6/15/22 | 180,000 | 191,722 | ||||
879,508 | ||||||
Gas Utilities — 0.6% | ||||||
Columbia Pipeline Group, Inc., 4.50%, 6/1/25(2) | 200,000 | 192,913 | ||||
Enbridge Energy Partners LP, 6.50%, 4/15/18 | 130,000 | 139,193 | ||||
Enbridge Energy Partners LP, 5.20%, 3/15/20 | 100,000 | 104,387 | ||||
Enbridge, Inc., 4.50%, 6/10/44 | 120,000 | 89,529 | ||||
Energy Transfer Equity LP, 7.50%, 10/15/20 | 150,000 | 162,030 | ||||
Energy Transfer Partners LP, 4.15%, 10/1/20 | 200,000 | 200,830 | ||||
Energy Transfer Partners LP, 3.60%, 2/1/23 | 160,000 | 141,733 | ||||
Energy Transfer Partners LP, 6.50%, 2/1/42 | 180,000 | 168,134 | ||||
Enterprise Products Operating LLC, 6.30%, 9/15/17 | 300,000 | 324,838 | ||||
Enterprise Products Operating LLC, 4.85%, 3/15/44 | 460,000 | 420,640 | ||||
Enterprise Products Operating LLC, VRN, 7.03%, 1/15/18 | 140,000 | 148,225 | ||||
Kinder Morgan Energy Partners LP, 6.50%, 4/1/20 | 210,000 | 228,638 | ||||
Kinder Morgan Energy Partners LP, 5.30%, 9/15/20 | 170,000 | 177,228 | ||||
Kinder Morgan Energy Partners LP, 3.95%, 9/1/22 | 170,000 | 158,514 | ||||
Kinder Morgan Energy Partners LP, 6.50%, 9/1/39 | 210,000 | 196,514 | ||||
Kinder Morgan, Inc., 7.25%, 6/1/18 | 150,000 | 164,078 | ||||
Kinder Morgan, Inc., 4.30%, 6/1/25 | 80,000 | 72,597 | ||||
Kinder Morgan, Inc., 5.55%, 6/1/45 | 150,000 | 126,824 |
19
Shares/ Principal Amount | Value | |||||
Magellan Midstream Partners LP, 6.55%, 7/15/19 | $ | 100,000 | $ | 113,096 | ||
MarkWest Energy Partners LP / MarkWest Energy Finance Corp., 4.875%, 12/1/24 | 130,000 | 123,500 | ||||
MarkWest Energy Partners LP / MarkWest Energy Finance Corp., 4.875%, 6/1/25 | 150,000 | 140,625 | ||||
Plains All American Pipeline LP / PAA Finance Corp., 3.65%, 6/1/22 | 310,000 | 303,880 | ||||
Sunoco Logistics Partners Operations LP, 3.45%, 1/15/23 | 330,000 | 292,180 | ||||
Targa Resources Partners LP / Targa Resources Partners Finance Corp., 4.25%, 11/15/23 | 210,000 | 184,800 | ||||
TransCanada PipeLines Ltd., 2.50%, 8/1/22 | 200,000 | 188,989 | ||||
Williams Cos., Inc. (The), 3.70%, 1/15/23 | 50,000 | 40,887 | ||||
Williams Cos., Inc. (The), 5.75%, 6/24/44 | 90,000 | 66,705 | ||||
Williams Partners LP, 4.125%, 11/15/20 | 200,000 | 199,889 | ||||
Williams Partners LP, 5.40%, 3/4/44 | 240,000 | 189,088 | ||||
5,060,484 | ||||||
Health Care Equipment and Supplies — 0.2% | ||||||
Becton Dickinson and Co., 3.73%, 12/15/24 | 360,000 | 369,178 | ||||
Medtronic, Inc., 2.50%, 3/15/20 | 130,000 | 132,064 | ||||
Medtronic, Inc., 2.75%, 4/1/23 | 200,000 | 197,693 | ||||
Medtronic, Inc., 3.50%, 3/15/25 | 230,000 | 235,901 | ||||
Medtronic, Inc., 4.375%, 3/15/35 | 360,000 | 373,716 | ||||
St. Jude Medical, Inc., 2.00%, 9/15/18 | 110,000 | 110,445 | ||||
Zimmer Biomet Holdings, Inc., 2.70%, 4/1/20 | 120,000 | 119,795 | ||||
1,538,792 | ||||||
Health Care Providers and Services — 0.3% | ||||||
Aetna, Inc., 2.75%, 11/15/22 | 130,000 | 127,876 | ||||
CHS / Community Health Systems, Inc., 5.125%, 8/15/18 | 240,000 | 245,400 | ||||
Express Scripts Holding Co., 2.65%, 2/15/17 | 510,000 | 517,363 | ||||
Express Scripts Holding Co., 7.25%, 6/15/19 | 170,000 | 196,515 | ||||
HCA, Inc., 3.75%, 3/15/19 | 310,000 | 316,138 | ||||
NYU Hospitals Center, 4.43%, 7/1/42 | 90,000 | 87,805 | ||||
UnitedHealth Group, Inc., 2.875%, 12/15/21 | 230,000 | 234,541 | ||||
UnitedHealth Group, Inc., 2.875%, 3/15/22 | 310,000 | 314,608 | ||||
UnitedHealth Group, Inc., 3.75%, 7/15/25 | 100,000 | 104,444 | ||||
Universal Health Services, Inc., 7.125%, 6/30/16 | 160,000 | 164,800 | ||||
Universal Health Services, Inc., 4.75%, 8/1/22(2) | 130,000 | 133,087 | ||||
2,442,577 | ||||||
Hotels, Restaurants and Leisure — 0.1% | ||||||
McDonald's Corp., MTN, 3.25%, 6/10/24 | 200,000 | 198,306 | ||||
McDonald's Corp., MTN, 3.375%, 5/26/25 | 80,000 | 79,750 | ||||
McDonald's Corp., MTN, 4.60%, 5/26/45 | 70,000 | 69,031 | ||||
Royal Caribbean Cruises Ltd., 5.25%, 11/15/22 | 160,000 | 171,200 | ||||
Wyndham Worldwide Corp., 2.95%, 3/1/17 | 110,000 | 111,394 | ||||
629,681 | ||||||
Household Durables — 0.1% | ||||||
D.R. Horton, Inc., 3.625%, 2/15/18 | 270,000 | 274,387 | ||||
D.R. Horton, Inc., 5.75%, 8/15/23 | 110,000 | 120,725 |
20
Shares/ Principal Amount | Value | |||||
Lennar Corp., 4.75%, 12/15/17 | $ | 210,000 | $ | 218,400 | ||
Lennar Corp., 4.50%, 6/15/19 | 160,000 | 166,800 | ||||
M.D.C. Holdings, Inc., 5.50%, 1/15/24 | 140,000 | 143,500 | ||||
Toll Brothers Finance Corp., 6.75%, 11/1/19 | 100,000 | 113,500 | ||||
TRI Pointe Holdings, Inc., 4.375%, 6/15/19 | 100,000 | 99,875 | ||||
1,137,187 | ||||||
Industrial Conglomerates — 0.1% | ||||||
General Electric Co., 5.25%, 12/6/17 | 230,000 | 248,358 | ||||
General Electric Co., 2.70%, 10/9/22 | 210,000 | 210,449 | ||||
General Electric Co., 4.125%, 10/9/42 | 180,000 | 177,565 | ||||
Ingersoll-Rand Luxembourg Finance SA, 3.55%, 11/1/24 | 170,000 | 168,722 | ||||
805,094 | ||||||
Insurance — 0.6% | ||||||
ACE INA Holdings, Inc., 3.15%, 3/15/25 | 280,000 | 278,623 | ||||
ACE INA Holdings, Inc., 3.35%, 5/3/26(3) | 110,000 | 110,566 | ||||
AerCap Ireland Capital Ltd. / AerCap Global Aviation Trust, 3.75%, 5/15/19 | 150,000 | 152,175 | ||||
Allstate Corp. (The), VRN, 5.75%, 8/15/23 | 90,000 | 93,881 | ||||
American International Group, Inc., 4.875%, 6/1/22 | 550,000 | 612,658 | ||||
American International Group, Inc., 4.50%, 7/16/44 | 120,000 | 118,124 | ||||
American International Group, Inc., MTN, 5.85%, 1/16/18 | 210,000 | 229,065 | ||||
Berkshire Hathaway Finance Corp., 4.25%, 1/15/21 | 140,000 | 153,701 | ||||
Berkshire Hathaway Finance Corp., 3.00%, 5/15/22 | 90,000 | 91,369 | ||||
Berkshire Hathaway, Inc., 4.50%, 2/11/43 | 220,000 | 224,586 | ||||
Hartford Financial Services Group, Inc. (The), 5.95%, 10/15/36 | 50,000 | 59,522 | ||||
International Lease Finance Corp., 6.25%, 5/15/19 | 100,000 | 109,000 | ||||
Liberty Mutual Group, Inc., 4.95%, 5/1/22(2) | 60,000 | 64,768 | ||||
Liberty Mutual Group, Inc., 4.85%, 8/1/44(2) | 210,000 | 208,086 | ||||
Lincoln National Corp., 6.25%, 2/15/20 | 160,000 | 182,326 | ||||
Markel Corp., 4.90%, 7/1/22 | 190,000 | 205,987 | ||||
Markel Corp., 3.625%, 3/30/23 | 100,000 | 99,883 | ||||
MetLife, Inc., 4.125%, 8/13/42 | 110,000 | 105,479 | ||||
MetLife, Inc., 4.875%, 11/13/43 | 110,000 | 118,087 | ||||
Metropolitan Life Global Funding I, 3.00%, 1/10/23(2) | 200,000 | 199,251 | ||||
Principal Financial Group, Inc., 3.30%, 9/15/22 | 70,000 | 69,683 | ||||
Prudential Financial, Inc., MTN, 5.375%, 6/21/20 | 70,000 | 78,627 | ||||
Prudential Financial, Inc., MTN, 5.625%, 5/12/41 | 370,000 | 426,231 | ||||
TIAA Asset Management Finance Co. LLC, 4.125%, 11/1/24(2) | 120,000 | 122,453 | ||||
Travelers Cos., Inc. (The), 4.60%, 8/1/43 | 100,000 | 105,946 | ||||
Travelers Cos., Inc. (The), 4.30%, 8/25/45 | 60,000 | 61,294 | ||||
Voya Financial, Inc., 5.50%, 7/15/22 | 100,000 | 113,419 | ||||
Voya Financial, Inc., 5.70%, 7/15/43 | 160,000 | 187,849 | ||||
WR Berkley Corp., 4.625%, 3/15/22 | 130,000 | 138,282 | ||||
WR Berkley Corp., 4.75%, 8/1/44 | 90,000 | 88,509 | ||||
XLIT Ltd., 4.45%, 3/31/25 | 50,000 | 50,107 | ||||
4,859,537 |
21
Shares/ Principal Amount | Value | |||||
Internet Software and Services† | ||||||
Alibaba Group Holding Ltd., 3.125%, 11/28/21(2) | $ | 200,000 | $ | 197,395 | ||
Netflix, Inc., 5.375%, 2/1/21 | 200,000 | 212,250 | ||||
409,645 | ||||||
IT Services — 0.1% | ||||||
Fidelity National Information Services, Inc., 1.45%, 6/5/17 | 150,000 | 148,536 | ||||
Fidelity National Information Services, Inc., 5.00%, 3/15/22 | 100,000 | 103,008 | ||||
Fidelity National Information Services, Inc., 4.50%, 10/15/22 | 180,000 | 184,069 | ||||
Fidelity National Information Services, Inc., 3.50%, 4/15/23 | 110,000 | 104,975 | ||||
Xerox Corp., 2.95%, 3/15/17 | 80,000 | 80,858 | ||||
621,446 | ||||||
Life Sciences Tools and Services — 0.1% | ||||||
Thermo Fisher Scientific, Inc., 3.60%, 8/15/21 | 150,000 | 154,484 | ||||
Thermo Fisher Scientific, Inc., 3.30%, 2/15/22 | 148,000 | 148,477 | ||||
Thermo Fisher Scientific, Inc., 5.30%, 2/1/44 | 150,000 | 162,338 | ||||
465,299 | ||||||
Machinery — 0.1% | ||||||
Caterpillar Financial Services Corp., MTN, 2.85%, 6/1/22 | 220,000 | 219,550 | ||||
Deere & Co., 5.375%, 10/16/29 | 200,000 | 235,504 | ||||
Oshkosh Corp., 5.375%, 3/1/22 | 290,000 | 297,975 | ||||
753,029 | ||||||
Media — 0.8% | ||||||
21st Century Fox America, Inc., 3.00%, 9/15/22 | 240,000 | 238,654 | ||||
21st Century Fox America, Inc., 3.70%, 10/15/25(2) | 80,000 | 80,209 | ||||
21st Century Fox America, Inc., 6.90%, 8/15/39 | 150,000 | 184,498 | ||||
21st Century Fox America, Inc., 4.75%, 9/15/44 | 190,000 | 191,751 | ||||
CBS Corp., 3.50%, 1/15/25 | 170,000 | 165,292 | ||||
CBS Corp., 4.85%, 7/1/42 | 60,000 | 55,907 | ||||
CCO Safari II LLC, 4.91%, 7/23/25(2) | 670,000 | 683,695 | ||||
Comcast Corp., 4.40%, 8/15/35 | 140,000 | 142,350 | ||||
Comcast Corp., 6.40%, 5/15/38 | 310,000 | 389,783 | ||||
Comcast Corp., 4.75%, 3/1/44 | 310,000 | 327,708 | ||||
DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 5.00%, 3/1/21 | 250,000 | 273,676 | ||||
DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 4.45%, 4/1/24 | 120,000 | 123,995 | ||||
Discovery Communications LLC, 5.625%, 8/15/19 | 90,000 | 99,944 | ||||
Discovery Communications LLC, 3.25%, 4/1/23 | 100,000 | 95,589 | ||||
DISH DBS Corp., 7.125%, 2/1/16 | 50,000 | 50,670 | ||||
Embarq Corp., 8.00%, 6/1/36 | 120,000 | 126,525 | ||||
Interpublic Group of Cos., Inc. (The), 4.00%, 3/15/22 | 160,000 | 160,777 | ||||
Lamar Media Corp., 5.375%, 1/15/24 | 180,000 | 187,650 | ||||
NBCUniversal Media LLC, 5.15%, 4/30/20 | 90,000 | 101,736 | ||||
NBCUniversal Media LLC, 4.375%, 4/1/21 | 380,000 | 418,367 | ||||
NBCUniversal Media LLC, 2.875%, 1/15/23 | 120,000 | 120,521 | ||||
Nielsen Finance LLC / Nielsen Finance Co., 5.00%, 4/15/22(2) | 160,000 | 163,200 | ||||
Omnicom Group, Inc., 3.625%, 5/1/22 | 50,000 | 50,799 |
22
Shares/ Principal Amount | Value | |||||
Scripps Networks Interactive, Inc., 2.80%, 6/15/20 | $ | 230,000 | $ | 225,766 | ||
TEGNA, Inc., 5.125%, 7/15/20 | 330,000 | 344,850 | ||||
Time Warner Cable, Inc., 6.75%, 7/1/18 | 130,000 | 144,375 | ||||
Time Warner Cable, Inc., 5.50%, 9/1/41 | 70,000 | 64,524 | ||||
Time Warner Cable, Inc., 4.50%, 9/15/42 | 100,000 | 81,374 | ||||
Time Warner, Inc., 4.70%, 1/15/21 | 140,000 | 152,585 | ||||
Time Warner, Inc., 3.60%, 7/15/25 | 400,000 | 397,431 | ||||
Time Warner, Inc., 7.70%, 5/1/32 | 200,000 | 258,301 | ||||
Time Warner, Inc., 5.35%, 12/15/43 | 120,000 | 126,508 | ||||
Viacom, Inc., 4.50%, 3/1/21 | 110,000 | 115,265 | ||||
Viacom, Inc., 3.125%, 6/15/22 | 190,000 | 177,637 | ||||
Virgin Media Secured Finance plc, 5.25%, 1/15/26(2) | 200,000 | 200,500 | ||||
Walt Disney Co. (The), MTN, 2.35%, 12/1/22 | 130,000 | 129,448 | ||||
Walt Disney Co. (The), MTN, 4.125%, 6/1/44 | 230,000 | 233,816 | ||||
7,085,676 | ||||||
Metals and Mining — 0.1% | ||||||
Barrick North America Finance LLC, 4.40%, 5/30/21 | 170,000 | 169,153 | ||||
Barrick North America Finance LLC, 5.75%, 5/1/43 | 70,000 | 62,422 | ||||
Freeport-McMoRan, Inc., 3.875%, 3/15/23 | 115,000 | 90,505 | ||||
Glencore Finance Canada Ltd., 4.95%, 11/15/21(2) | 110,000 | 95,545 | ||||
Newmont Mining Corp., 6.25%, 10/1/39 | 80,000 | 74,555 | ||||
Southern Copper Corp., 5.25%, 11/8/42 | 100,000 | 81,559 | ||||
Steel Dynamics, Inc., 6.125%, 8/15/19 | 157,000 | 163,280 | ||||
Teck Resources Ltd., 3.15%, 1/15/17 | 110,000 | 105,050 | ||||
Vale Overseas Ltd., 5.625%, 9/15/19 | 280,000 | 285,040 | ||||
1,127,109 | ||||||
Multi-Utilities — 0.6% | ||||||
Berkshire Hathaway Energy Co., 3.50%, 2/1/25 | 160,000 | 161,557 | ||||
CenterPoint Energy Houston Electric LLC, 3.55%, 8/1/42 | 70,000 | 63,733 | ||||
CMS Energy Corp., 8.75%, 6/15/19 | 180,000 | 218,629 | ||||
Consolidated Edison Co. of New York, Inc., 3.95%, 3/1/43 | 150,000 | 142,948 | ||||
Constellation Energy Group, Inc., 5.15%, 12/1/20 | 220,000 | 240,786 | ||||
Consumers Energy Co., 2.85%, 5/15/22 | 50,000 | 49,967 | ||||
Consumers Energy Co., 3.375%, 8/15/23 | 50,000 | 51,532 | ||||
Dominion Resources, Inc., 6.40%, 6/15/18 | 190,000 | 211,494 | ||||
Dominion Resources, Inc., 2.75%, 9/15/22 | 210,000 | 204,261 | ||||
Dominion Resources, Inc., 3.625%, 12/1/24 | 160,000 | 160,243 | ||||
Dominion Resources, Inc., 4.90%, 8/1/41 | 130,000 | 131,929 | ||||
Dominion Resources, Inc., VRN, 7.50%, 6/30/16 | 120,000 | 107,700 | ||||
DPL, Inc., 6.50%, 10/15/16 | 44,000 | 45,100 | ||||
Duke Energy Corp., 1.625%, 8/15/17 | 150,000 | 150,600 | ||||
Duke Energy Corp., 3.55%, 9/15/21 | 90,000 | 93,260 | ||||
Duke Energy Florida LLC, 6.35%, 9/15/37 | 110,000 | 142,564 | ||||
Duke Energy Florida LLC, 3.85%, 11/15/42 | 220,000 | 211,295 | ||||
Duke Energy Progress, LLC, 4.15%, 12/1/44 | 130,000 | 131,038 | ||||
Edison International, 3.75%, 9/15/17 | 130,000 | 135,062 |
23
Shares/ Principal Amount | Value | |||||
Exelon Generation Co. LLC, 4.25%, 6/15/22 | $ | 120,000 | $ | 122,476 | ||
Exelon Generation Co. LLC, 5.60%, 6/15/42 | 70,000 | 69,230 | ||||
FirstEnergy Corp., 2.75%, 3/15/18 | 135,000 | 135,383 | ||||
FirstEnergy Corp., 4.25%, 3/15/23 | 260,000 | 263,289 | ||||
Florida Power & Light Co., 4.125%, 2/1/42 | 140,000 | 141,215 | ||||
Georgia Power Co., 4.30%, 3/15/42 | 70,000 | 64,898 | ||||
IPALCO Enterprises, Inc., 5.00%, 5/1/18 | 230,000 | 243,800 | ||||
MidAmerican Energy Co., 4.40%, 10/15/44 | 150,000 | 156,255 | ||||
NextEra Energy Capital Holdings, Inc., VRN, 7.30%, 9/1/17 | 210,000 | 209,475 | ||||
Nisource Finance Corp., 5.65%, 2/1/45 | 100,000 | 116,123 | ||||
PacifiCorp, 6.00%, 1/15/39 | 180,000 | 223,631 | ||||
Potomac Electric Power Co., 3.60%, 3/15/24 | 120,000 | 124,803 | ||||
Progress Energy, Inc., 3.15%, 4/1/22 | 90,000 | 89,808 | ||||
Sempra Energy, 6.50%, 6/1/16 | 200,000 | 206,297 | ||||
Sempra Energy, 2.40%, 3/15/20 | 120,000 | 119,422 | ||||
Sempra Energy, 2.875%, 10/1/22 | 200,000 | 196,016 | ||||
Southern Power Co., 5.15%, 9/15/41 | 40,000 | 38,664 | ||||
Virginia Electric and Power Co., 3.45%, 2/15/24 | 160,000 | 165,364 | ||||
Virginia Electric and Power Co., 4.45%, 2/15/44 | 80,000 | 84,171 | ||||
Xcel Energy, Inc., 4.80%, 9/15/41 | 50,000 | 51,948 | ||||
5,475,966 | ||||||
Multiline Retail — 0.1% | ||||||
Macy's Retail Holdings, Inc., 2.875%, 2/15/23 | 190,000 | 178,067 | ||||
Target Corp., 4.00%, 7/1/42 | 280,000 | 273,246 | ||||
451,313 | ||||||
Oil, Gas and Consumable Fuels — 0.8% | ||||||
AmeriGas Finance LLC / AmeriGas Finance Corp., 6.75%, 5/20/20 | 50,000 | 52,063 | ||||
AmeriGas Partners LP / AmeriGas Finance Corp., 6.25%, 8/20/19 | 90,000 | 92,250 | ||||
Anadarko Petroleum Corp., 5.95%, 9/15/16 | 80,000 | 82,967 | ||||
Anadarko Petroleum Corp., 6.45%, 9/15/36 | 110,000 | 124,237 | ||||
Apache Corp., 4.75%, 4/15/43 | 90,000 | 83,628 | ||||
BP Capital Markets plc, 4.50%, 10/1/20 | 100,000 | 109,812 | ||||
BP Capital Markets plc, 2.75%, 5/10/23 | 100,000 | 97,286 | ||||
BP Capital Markets plc, 3.51%, 3/17/25 | 100,000 | 101,129 | ||||
California Resources Corp., 5.50%, 9/15/21 | 180,000 | 124,650 | ||||
Chesapeake Energy Corp., 4.875%, 4/15/22 | 150,000 | 93,750 | ||||
Chevron Corp., 2.43%, 6/24/20 | 80,000 | 81,526 | ||||
Cimarex Energy Co., 4.375%, 6/1/24 | 220,000 | 219,305 | ||||
CNOOC Nexen Finance 2014 ULC, 4.25%, 4/30/24 | 140,000 | 144,231 | ||||
Concho Resources, Inc., 7.00%, 1/15/21 | 330,000 | 342,375 | ||||
Concho Resources, Inc., 6.50%, 1/15/22 | 90,000 | 93,713 | ||||
ConocoPhillips Holding Co., 6.95%, 4/15/29 | 40,000 | 49,932 | ||||
Continental Resources, Inc., 5.00%, 9/15/22 | 240,000 | 216,000 | ||||
Devon Energy Corp., 5.00%, 6/15/45 | 50,000 | 46,069 | ||||
Ecopetrol SA, 4.125%, 1/16/25 | 90,000 | 79,533 | ||||
EOG Resources, Inc., 5.625%, 6/1/19 | 150,000 | 167,837 |
24
Shares/ Principal Amount | Value | |||||
EOG Resources, Inc., 4.10%, 2/1/21 | $ | 130,000 | $ | 139,506 | ||
Exxon Mobil Corp., 2.71%, 3/6/25 | 280,000 | 277,281 | ||||
Hess Corp., 6.00%, 1/15/40 | 90,000 | 90,828 | ||||
Marathon Petroleum Corp., 3.50%, 3/1/16 | 210,000 | 211,788 | ||||
Newfield Exploration Co., 5.75%, 1/30/22 | 220,000 | 224,400 | ||||
Noble Energy, Inc., 4.15%, 12/15/21 | 290,000 | 293,757 | ||||
Petrobras Global Finance BV, 5.75%, 1/20/20 | 100,000 | 85,750 | ||||
Petrobras Global Finance BV, 5.375%, 1/27/21 | 220,000 | 179,575 | ||||
Petroleos Mexicanos, 6.00%, 3/5/20 | 120,000 | 130,613 | ||||
Petroleos Mexicanos, 4.875%, 1/24/22 | 240,000 | 244,860 | ||||
Petroleos Mexicanos, 3.50%, 1/30/23 | 60,000 | 55,860 | ||||
Petroleos Mexicanos, 6.625%, 6/15/35 | 50,000 | 49,438 | ||||
Petroleos Mexicanos, 5.50%, 6/27/44 | 230,000 | 197,156 | ||||
Phillips 66, 4.30%, 4/1/22 | 250,000 | 265,756 | ||||
Phillips 66, 4.65%, 11/15/34 | 180,000 | 180,346 | ||||
Shell International Finance BV, 2.375%, 8/21/22 | 130,000 | 127,516 | ||||
Shell International Finance BV, 3.25%, 5/11/25 | 200,000 | 200,197 | ||||
Shell International Finance BV, 3.625%, 8/21/42 | 140,000 | 125,780 | ||||
Statoil ASA, 2.45%, 1/17/23 | 190,000 | 183,595 | ||||
Statoil ASA, 3.95%, 5/15/43 | 50,000 | 47,152 | ||||
Statoil ASA, 4.80%, 11/8/43 | 100,000 | 108,383 | ||||
Suburban Propane Partners LP / Suburban Energy Finance Corp., 7.375%, 8/1/21 | 150,000 | 158,250 | ||||
Talisman Energy, Inc., 7.75%, 6/1/19 | 95,000 | 104,801 | ||||
Tesoro Corp., 5.375%, 10/1/22 | 100,000 | 101,875 | ||||
Total Capital Canada Ltd., 2.75%, 7/15/23 | 120,000 | 117,796 | ||||
Total Capital SA, 2.125%, 8/10/18 | 140,000 | 142,496 | ||||
Whiting Petroleum Corp., 5.00%, 3/15/19 | 190,000 | 181,450 | ||||
6,628,498 | ||||||
Paper and Forest Products — 0.1% | ||||||
Georgia-Pacific LLC, 2.54%, 11/15/19(2) | 250,000 | 251,128 | ||||
Georgia-Pacific LLC, 5.40%, 11/1/20(2) | 350,000 | 389,529 | ||||
International Paper Co., 6.00%, 11/15/41 | 70,000 | 77,480 | ||||
718,137 | ||||||
Pharmaceuticals — 0.3% | ||||||
Actavis Funding SCS, 3.85%, 6/15/24 | 320,000 | 319,133 | ||||
Actavis Funding SCS, 4.55%, 3/15/35 | 150,000 | 144,180 | ||||
Actavis, Inc., 1.875%, 10/1/17 | 220,000 | 219,735 | ||||
Actavis, Inc., 3.25%, 10/1/22 | 200,000 | 196,225 | ||||
Actavis, Inc., 4.625%, 10/1/42 | 60,000 | 56,908 | ||||
Baxalta, Inc., 4.00%, 6/23/25(2) | 230,000 | 231,811 | ||||
Forest Laboratories LLC, 4.875%, 2/15/21(2) | 270,000 | 292,471 | ||||
GlaxoSmithKline Capital plc, 2.85%, 5/8/22 | 250,000 | 252,680 | ||||
Merck & Co., Inc., 2.40%, 9/15/22 | 100,000 | 98,947 | ||||
Merck & Co., Inc., 3.70%, 2/10/45 | 80,000 | 73,539 | ||||
Perrigo Finance plc, 3.90%, 12/15/24 | 200,000 | 192,915 | ||||
Roche Holdings, Inc., 3.35%, 9/30/24(2) | 110,000 | 113,757 |
25
Shares/ Principal Amount | Value | |||||
Sanofi, 4.00%, 3/29/21 | $ | 95,000 | $ | 102,698 | ||
2,294,999 | ||||||
Real Estate Investment Trusts (REITs) — 0.3% | ||||||
American Tower Corp., 5.05%, 9/1/20 | 130,000 | 141,495 | ||||
DDR Corp., 4.75%, 4/15/18 | 230,000 | 242,721 | ||||
DDR Corp., 3.625%, 2/1/25 | 150,000 | 142,620 | ||||
Essex Portfolio LP, 3.625%, 8/15/22 | 150,000 | 151,707 | ||||
Essex Portfolio LP, 3.375%, 1/15/23 | 60,000 | 58,778 | ||||
Essex Portfolio LP, 3.25%, 5/1/23 | 50,000 | 48,795 | ||||
HCP, Inc., 3.75%, 2/1/16 | 200,000 | 201,209 | ||||
Hospitality Properties Trust, 4.65%, 3/15/24 | 350,000 | 348,496 | ||||
Hospitality Properties Trust, 4.50%, 3/15/25 | 140,000 | 136,424 | ||||
Host Hotels & Resorts LP, 3.75%, 10/15/23 | 100,000 | 96,647 | ||||
Kilroy Realty LP, 3.80%, 1/15/23 | 140,000 | 139,889 | ||||
Realty Income Corp., 4.125%, 10/15/26 | 80,000 | 81,200 | ||||
Reckson Operating Partnership LP, 6.00%, 3/31/16 | 125,000 | 127,227 | ||||
Senior Housing Properties Trust, 4.75%, 5/1/24 | 180,000 | 178,317 | ||||
Ventas Realty LP, 4.125%, 1/15/26 | 100,000 | 100,304 | ||||
Ventas Realty LP / Ventas Capital Corp., 4.75%, 6/1/21 | 120,000 | 128,998 | ||||
Welltower, Inc., 2.25%, 3/15/18 | 50,000 | 50,189 | ||||
Welltower, Inc., 3.75%, 3/15/23 | 130,000 | 128,449 | ||||
2,503,465 | ||||||
Road and Rail — 0.2% | ||||||
Burlington Northern Santa Fe LLC, 3.60%, 9/1/20 | 176,000 | 185,290 | ||||
Burlington Northern Santa Fe LLC, 5.05%, 3/1/41 | 60,000 | 63,223 | ||||
Burlington Northern Santa Fe LLC, 4.45%, 3/15/43 | 220,000 | 217,251 | ||||
Burlington Northern Santa Fe LLC, 4.15%, 4/1/45 | 180,000 | 170,182 | ||||
CSX Corp., 4.25%, 6/1/21 | 150,000 | 160,852 | ||||
CSX Corp., 3.40%, 8/1/24 | 180,000 | 181,857 | ||||
Norfolk Southern Corp., 5.75%, 4/1/18 | 40,000 | 43,681 | ||||
Norfolk Southern Corp., 3.25%, 12/1/21 | 200,000 | 203,094 | ||||
Penske Truck Leasing Co. LP / PTL Finance Corp., 2.875%, 7/17/18(2) | 40,000 | 40,514 | ||||
Penske Truck Leasing Co. LP / PTL Finance Corp., 3.375%, 2/1/22(2) | 110,000 | 107,553 | ||||
Union Pacific Corp., 4.00%, 2/1/21 | 100,000 | 108,140 | ||||
Union Pacific Corp., 4.75%, 9/15/41 | 250,000 | 273,153 | ||||
1,754,790 | ||||||
Semiconductors and Semiconductor Equipment — 0.1% | ||||||
Intel Corp., 3.70%, 7/29/25 | 110,000 | 114,785 | ||||
KLA-Tencor Corp., 4.65%, 11/1/24 | 110,000 | 111,005 | ||||
NXP BV / NXP Funding LLC, 4.125%, 6/15/20(2) | 200,000 | 204,500 | ||||
430,290 | ||||||
Software — 0.2% | ||||||
Activision Blizzard, Inc., 5.625%, 9/15/21(2) | 210,000 | 222,642 | ||||
Intuit, Inc., 5.75%, 3/15/17 | 254,000 | 268,421 | ||||
Microsoft Corp., 2.70%, 2/12/25 | 360,000 | 355,085 | ||||
Microsoft Corp., 3.125%, 11/3/25(3) | 110,000 | 111,332 |
26
Shares/ Principal Amount | Value | |||||
Oracle Corp., 2.50%, 10/15/22 | $ | 260,000 | $ | 254,964 | ||
Oracle Corp., 3.625%, 7/15/23 | 280,000 | 294,141 | ||||
Oracle Corp., 3.40%, 7/8/24 | 170,000 | 173,746 | ||||
Oracle Corp., 4.30%, 7/8/34 | 160,000 | 159,880 | ||||
1,840,211 | ||||||
Specialty Retail — 0.1% | ||||||
Home Depot, Inc. (The), 2.625%, 6/1/22 | 190,000 | 191,064 | ||||
Home Depot, Inc. (The), 3.35%, 9/15/25 | 120,000 | 123,323 | ||||
Home Depot, Inc. (The), 5.95%, 4/1/41 | 360,000 | 458,573 | ||||
Lowe's Cos., Inc., 3.375%, 9/15/25 | 45,000 | 45,525 | ||||
Sally Holdings LLC / Sally Capital, Inc., 6.875%, 11/15/19 | 227,000 | 236,080 | ||||
United Rentals North America, Inc., 4.625%, 7/15/23 | 170,000 | 171,380 | ||||
1,225,945 | ||||||
Technology Hardware, Storage and Peripherals — 0.2% | ||||||
Apple, Inc., 1.00%, 5/3/18 | 160,000 | 159,605 | ||||
Apple, Inc., 2.85%, 5/6/21 | 180,000 | 185,541 | ||||
Apple, Inc., 3.45%, 5/6/24 | 240,000 | 249,083 | ||||
Dell, Inc., 3.10%, 4/1/16 | 40,000 | 40,340 | ||||
Hewlett-Packard Co., 4.30%, 6/1/21 | 290,000 | 298,572 | ||||
Hewlett-Packard Enterprise Co., 3.60%, 10/15/20(2) | 350,000 | 352,962 | ||||
Seagate HDD Cayman, 4.75%, 6/1/23 | 310,000 | 288,183 | ||||
1,574,286 | ||||||
Textiles, Apparel and Luxury Goods — 0.1% | ||||||
Hanesbrands, Inc., 6.375%, 12/15/20 | 280,000 | 291,200 | ||||
L Brands, Inc., 6.90%, 7/15/17 | 100,000 | 108,250 | ||||
PVH Corp., 4.50%, 12/15/22 | 210,000 | 211,575 | ||||
611,025 | ||||||
Tobacco — 0.1% | ||||||
Altria Group, Inc., 2.85%, 8/9/22 | 270,000 | 266,425 | ||||
Philip Morris International, Inc., 4.125%, 5/17/21 | 180,000 | 193,608 | ||||
Reynolds American, Inc., 4.45%, 6/12/25 | 250,000 | 262,271 | ||||
722,304 | ||||||
Wireless Telecommunication Services — 0.1% | ||||||
America Movil SAB de CV, 3.125%, 7/16/22 | 310,000 | 307,749 | ||||
Sprint Communications, Inc., 6.00%, 12/1/16 | 150,000 | 151,969 | ||||
Sprint Communications, Inc., 9.00%, 11/15/18(2) | 180,000 | 198,336 | ||||
T-Mobile USA, Inc., 6.46%, 4/28/19 | 210,000 | 216,562 | ||||
Vodafone Group plc, 5.625%, 2/27/17 | 110,000 | 116,054 | ||||
990,670 | ||||||
TOTAL CORPORATE BONDS (Cost $104,053,320) | 104,853,526 | |||||
U.S. TREASURY SECURITIES — 12.1% | ||||||
U.S. Treasury Bills, 0.25%, 6/23/16(4) | 3,000,000 | 2,994,516 | ||||
U.S. Treasury Bonds, 4.75%, 2/15/37 | 1,860,000 | 2,503,928 | ||||
U.S. Treasury Bonds, 3.50%, 2/15/39 | 3,900,000 | 4,383,869 | ||||
U.S. Treasury Bonds, 4.375%, 11/15/39 | 2,000,000 | 2,553,972 |
27
Shares/ Principal Amount | Value | |||||
U.S. Treasury Bonds, 4.375%, 5/15/41 | $ | 1,850,000 | $ | 2,371,685 | ||
U.S. Treasury Bonds, 3.125%, 11/15/41 | 1,500,000 | 1,574,413 | ||||
U.S. Treasury Bonds, 2.75%, 11/15/42 | 2,180,000 | 2,110,853 | ||||
U.S. Treasury Bonds, 2.875%, 5/15/43 | 770,000 | 762,741 | ||||
U.S. Treasury Bonds, 3.125%, 8/15/44 | 1,830,000 | 1,901,533 | ||||
U.S. Treasury Bonds, 3.00%, 11/15/44 | 1,580,000 | 1,600,831 | ||||
U.S. Treasury Bonds, 2.50%, 2/15/45 | 1,250,000 | 1,140,560 | ||||
U.S. Treasury Notes, 1.375%, 11/30/15 | 1,750,000 | 1,751,937 | ||||
U.S. Treasury Notes, 0.375%, 1/15/16 | 700,000 | 700,387 | ||||
U.S. Treasury Notes, 0.625%, 12/15/16 | 2,100,000 | 2,103,049 | ||||
U.S. Treasury Notes, 0.75%, 10/31/17 | 1,500,000 | 1,499,863 | ||||
U.S. Treasury Notes, 1.875%, 10/31/17 | 2,400,000 | 2,453,218 | ||||
U.S. Treasury Notes, 0.875%, 1/31/18 | 3,400,000 | 3,402,679 | ||||
U.S. Treasury Notes, 1.00%, 2/15/18 | 2,300,000 | 2,307,068 | ||||
U.S. Treasury Notes, 1.00%, 3/15/18 | 5,000,000 | 5,013,770 | ||||
U.S. Treasury Notes, 0.75%, 4/15/18 | 1,200,000 | 1,195,289 | ||||
U.S. Treasury Notes, 2.625%, 4/30/18 | 875,000 | 912,347 | ||||
U.S. Treasury Notes, 1.375%, 7/31/18 | 11,130,000 | 11,250,427 | ||||
U.S. Treasury Notes, 1.375%, 9/30/18 | 2,500,000 | 2,525,847 | ||||
U.S. Treasury Notes, 1.25%, 10/31/18 | 2,350,000 | 2,364,168 | ||||
U.S. Treasury Notes, 1.25%, 11/30/18 | 3,100,000 | 3,116,650 | ||||
U.S. Treasury Notes, 1.375%, 11/30/18 | 200,000 | 201,844 | ||||
U.S. Treasury Notes, 1.625%, 7/31/19 | 2,800,000 | 2,834,051 | ||||
U.S. Treasury Notes, 1.625%, 8/31/19 | 8,350,000 | 8,449,215 | ||||
U.S. Treasury Notes, 1.50%, 10/31/19 | 5,650,000 | 5,681,521 | ||||
U.S. Treasury Notes, 1.50%, 11/30/19 | 2,600,000 | 2,612,847 | ||||
U.S. Treasury Notes, 1.625%, 12/31/19 | 950,000 | 958,727 | ||||
U.S. Treasury Notes, 1.375%, 3/31/20 | 2,950,000 | 2,940,666 | ||||
U.S. Treasury Notes, 1.375%, 4/30/20 | 1,500,000 | 1,494,386 | ||||
U.S. Treasury Notes, 1.625%, 6/30/20 | 2,350,000 | 2,364,504 | ||||
U.S. Treasury Notes, 2.00%, 10/31/21 | 4,950,000 | 5,017,676 | ||||
U.S. Treasury Notes, 1.75%, 5/15/22 | 1,000,000 | 993,965 | ||||
U.S. Treasury Notes, 1.875%, 5/31/22 | 2,000,000 | 2,003,034 | ||||
U.S. Treasury Notes, 2.00%, 2/15/25 | 2,450,000 | 2,422,915 | ||||
TOTAL U.S. TREASURY SECURITIES (Cost $100,684,041) | 102,470,951 | |||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES(5) — 10.5% | ||||||
Adjustable-Rate U.S. Government Agency Mortgage-Backed Securities — 1.4% | ||||||
FHLMC, VRN, 1.76%, 11/15/15 | 135,080 | 138,374 | ||||
FHLMC, VRN, 1.84%, 11/15/15 | 410,447 | 421,363 | ||||
FHLMC, VRN, 1.97%, 11/15/15 | 192,503 | 198,409 | ||||
FHLMC, VRN, 1.98%, 11/15/15 | 294,657 | 303,800 | ||||
FHLMC, VRN, 2.05%, 11/15/15 | 560,448 | 571,423 | ||||
FHLMC, VRN, 2.32%, 11/15/15 | 737,099 | 747,226 | ||||
FHLMC, VRN, 2.37%, 11/15/15 | 356,802 | 379,391 | ||||
FHLMC, VRN, 2.43%, 11/15/15 | 159,486 | 170,074 | ||||
FHLMC, VRN, 2.46%, 11/15/15 | 951,641 | 1,012,604 |
28
Shares/ Principal Amount | Value | |||||
FHLMC, VRN, 2.53%, 11/15/15 | $ | 68,806 | $ | 72,805 | ||
FHLMC, VRN, 2.54%, 11/15/15 | 94,941 | 101,033 | ||||
FHLMC, VRN, 2.63%, 11/15/15 | 92,702 | 98,589 | ||||
FHLMC, VRN, 2.86%, 11/15/15 | 178,183 | 183,769 | ||||
FHLMC, VRN, 2.97%, 11/15/15 | 356,110 | 377,699 | ||||
FHLMC, VRN, 3.26%, 11/15/15 | 241,653 | 255,931 | ||||
FHLMC, VRN, 3.74%, 11/15/15 | 157,142 | 164,469 | ||||
FHLMC, VRN, 4.05%, 11/15/15 | 133,403 | 140,409 | ||||
FHLMC, VRN, 4.21%, 11/15/15 | 386,485 | 406,076 | ||||
FHLMC, VRN, 4.61%, 11/15/15 | 98,742 | 104,064 | ||||
FHLMC, VRN, 5.13%, 11/15/15 | 36,685 | 38,712 | ||||
FHLMC, VRN, 5.80%, 11/15/15 | 250,632 | 266,088 | ||||
FHLMC, VRN, 5.95%, 11/15/15 | 198,895 | 210,914 | ||||
FHLMC, VRN, 6.10%, 11/15/15 | 131,242 | 139,218 | ||||
FNMA, VRN, 1.92%, 11/25/15 | 306,069 | 320,285 | ||||
FNMA, VRN, 1.94%, 11/25/15 | 362,795 | 377,271 | ||||
FNMA, VRN, 1.95%, 11/25/15 | 518,347 | 543,464 | ||||
FNMA, VRN, 1.95%, 11/25/15 | 612,723 | 635,457 | ||||
FNMA, VRN, 1.95%, 11/25/15 | 907,231 | 952,235 | ||||
FNMA, VRN, 2.01%, 11/25/15 | 1,261,306 | 1,312,331 | ||||
FNMA, VRN, 2.31%, 11/25/15 | 81,945 | 87,593 | ||||
FNMA, VRN, 2.40%, 11/25/15 | 49,661 | 52,607 | ||||
FNMA, VRN, 2.41%, 11/25/15 | 71,974 | 76,982 | ||||
FNMA, VRN, 2.43%, 11/25/15 | 337,856 | 359,185 | ||||
FNMA, VRN, 2.69%, 11/25/15 | 317,765 | 326,766 | ||||
FNMA, VRN, 3.36%, 11/25/15 | 160,190 | 167,567 | ||||
FNMA, VRN, 3.61%, 11/25/15 | 218,878 | 229,663 | ||||
FNMA, VRN, 3.91%, 11/25/15 | 192,008 | 203,430 | ||||
FNMA, VRN, 5.08%, 11/25/15 | 146,037 | 155,597 | ||||
12,302,873 | ||||||
Fixed-Rate U.S. Government Agency Mortgage-Backed Securities — 9.1% | ||||||
FHLMC, 4.50%, 1/1/19 | 141,726 | 146,688 | ||||
FHLMC, 6.50%, 1/1/28 | 22,890 | 26,558 | ||||
FHLMC, 5.50%, 12/1/33 | 191,310 | 216,288 | ||||
FHLMC, 5.00%, 7/1/35 | 1,652,993 | 1,829,774 | ||||
FHLMC, 5.50%, 1/1/38 | 181,734 | 202,450 | ||||
FHLMC, 6.00%, 8/1/38 | 73,236 | 83,373 | ||||
FHLMC, 6.50%, 7/1/47 | 7,231 | 8,000 | ||||
FNMA, 3.00%, 11/12/15(6) | 1,750,000 | 1,768,730 | ||||
FNMA, 3.50%, 11/12/15(6) | 8,000,000 | 8,326,375 | ||||
FNMA, 4.00%, 11/12/15(6) | 5,450,000 | 5,801,695 | ||||
FNMA, 4.50%, 11/12/15(6) | 1,705,000 | 1,847,461 | ||||
FNMA, 4.50%, 5/1/19 | 51,181 | 53,373 | ||||
FNMA, 4.50%, 5/1/19 | 134,502 | 139,812 | ||||
FNMA, 5.00%, 9/1/20 | 307,165 | 327,750 | ||||
FNMA, 2.625%, 9/6/24 | 590,000 | 604,712 |
29
Shares/ Principal Amount | Value | |||||
FNMA, 6.50%, 1/1/28 | $ | 17,896 | $ | 20,468 | ||
FNMA, 6.50%, 1/1/29 | 31,001 | 35,959 | ||||
FNMA, 7.50%, 7/1/29 | 85,337 | 97,660 | ||||
FNMA, 7.50%, 9/1/30 | 17,945 | 21,625 | ||||
FNMA, 6.625%, 11/15/30 | 2,290,000 | 3,300,412 | ||||
FNMA, 5.00%, 7/1/31 | 982,881 | 1,087,543 | ||||
FNMA, 6.50%, 9/1/31 | 23,440 | 26,812 | ||||
FNMA, 7.00%, 9/1/31 | 9,628 | 10,812 | ||||
FNMA, 6.50%, 1/1/32 | 30,182 | 34,529 | ||||
FNMA, 6.50%, 8/1/32 | 33,732 | 39,444 | ||||
FNMA, 5.50%, 6/1/33 | 98,111 | 110,674 | ||||
FNMA, 5.50%, 7/1/33 | 178,828 | 201,481 | ||||
FNMA, 5.50%, 8/1/33 | 300,252 | 335,963 | ||||
FNMA, 5.50%, 9/1/33 | 197,549 | 225,067 | ||||
FNMA, 5.00%, 11/1/33 | 593,758 | 657,712 | ||||
FNMA, 5.00%, 4/1/35 | 810,499 | 894,987 | ||||
FNMA, 4.50%, 9/1/35 | 387,184 | 420,994 | ||||
FNMA, 5.00%, 2/1/36 | 535,428 | 590,454 | ||||
FNMA, 5.50%, 4/1/36 | 202,090 | 227,340 | ||||
FNMA, 5.50%, 5/1/36 | 388,799 | 437,159 | ||||
FNMA, 5.00%, 11/1/36 | 1,388,330 | 1,530,816 | ||||
FNMA, 5.50%, 2/1/37 | 99,391 | 111,405 | ||||
FNMA, 6.00%, 7/1/37 | 677,337 | 767,546 | ||||
FNMA, 6.50%, 8/1/37 | 163,839 | 183,241 | ||||
FNMA, 5.50%, 7/1/39 | 651,650 | 732,666 | ||||
FNMA, 5.00%, 4/1/40 | 1,469,540 | 1,622,716 | ||||
FNMA, 5.00%, 6/1/40 | 1,293,441 | 1,429,235 | ||||
FNMA, 4.50%, 8/1/40 | 1,889,930 | 2,053,105 | ||||
FNMA, 4.50%, 9/1/40 | 3,284,329 | 3,593,770 | ||||
FNMA, 3.50%, 1/1/41 | 1,801,504 | 1,879,806 | ||||
FNMA, 4.00%, 1/1/41 | 1,439,870 | 1,556,791 | ||||
FNMA, 4.50%, 1/1/41 | 1,289,612 | 1,418,960 | ||||
FNMA, 4.00%, 5/1/41 | 1,764,125 | 1,883,189 | ||||
FNMA, 4.50%, 7/1/41 | 595,408 | 651,612 | ||||
FNMA, 4.50%, 9/1/41 | 665,019 | 722,996 | ||||
FNMA, 4.50%, 9/1/41 | 2,643,157 | 2,873,781 | ||||
FNMA, 4.00%, 12/1/41 | 1,529,554 | 1,646,341 | ||||
FNMA, 4.00%, 1/1/42 | 918,996 | 981,623 | ||||
FNMA, 4.00%, 1/1/42 | 1,286,901 | 1,373,912 | ||||
FNMA, 4.00%, 3/1/42 | 1,148,520 | 1,226,815 | ||||
FNMA, 3.50%, 5/1/42 | 2,410,421 | 2,516,761 | ||||
FNMA, 3.50%, 6/1/42 | 770,454 | 806,810 | ||||
FNMA, 3.00%, 11/1/42 | 1,842,500 | 1,869,093 | ||||
FNMA, 6.50%, 8/1/47 | 23,303 | 25,910 | ||||
FNMA, 6.50%, 8/1/47 | 42,662 | 47,453 | ||||
FNMA, 6.50%, 9/1/47 | 43,556 | 48,478 |
30
Shares/ Principal Amount | Value | |||||
FNMA, 6.50%, 9/1/47 | $ | 2,406 | $ | 2,678 | ||
FNMA, 6.50%, 9/1/47 | 16,358 | 18,203 | ||||
FNMA, 6.50%, 9/1/47 | 23,778 | 26,469 | ||||
FNMA, 6.50%, 9/1/47 | 6,349 | 7,063 | ||||
GNMA, 3.50%, 11/19/15(6) | 3,300,000 | 3,457,974 | ||||
GNMA, 4.00%, 11/19/15(6) | 2,000,000 | 2,128,516 | ||||
GNMA, 7.00%, 4/20/26 | 56,258 | 66,403 | ||||
GNMA, 7.50%, 8/15/26 | 32,856 | 39,528 | ||||
GNMA, 7.00%, 2/15/28 | 11,709 | 11,872 | ||||
GNMA, 7.50%, 2/15/28 | 14,632 | 14,931 | ||||
GNMA, 7.00%, 12/15/28 | 20,807 | 21,640 | ||||
GNMA, 7.00%, 5/15/31 | 62,897 | 74,816 | ||||
GNMA, 5.50%, 11/15/32 | 236,359 | 270,330 | ||||
GNMA, 4.50%, 5/20/41 | 784,949 | 855,163 | ||||
GNMA, 4.50%, 6/15/41 | 709,230 | 781,477 | ||||
GNMA, 4.00%, 12/15/41 | 1,265,730 | 1,349,362 | ||||
GNMA, 3.50%, 6/20/42 | 1,512,374 | 1,589,823 | ||||
GNMA, 3.50%, 7/20/42 | 738,758 | 776,590 | ||||
GNMA, 4.50%, 11/20/43 | 1,115,891 | 1,203,536 | ||||
76,411,339 | ||||||
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $86,935,158) | 88,714,212 | |||||
COLLATERALIZED MORTGAGE OBLIGATIONS(5) — 2.0% | ||||||
Private Sponsor Collateralized Mortgage Obligations — 1.9% | ||||||
ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33 | 30,858 | 32,402 | ||||
Adjustable Rate Mortgage Trust, Series 2004-4, Class 4A1, VRN, 2.55%, 11/1/15 | 392,461 | 392,728 | ||||
Banc of America Alternative Loan Trust, Series 2007-2, Class 2A4, 5.75%, 6/25/37 | 338,093 | 266,298 | ||||
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2A1, VRN, 2.77%, 11/1/15 | 243,582 | 243,201 | ||||
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19 | 30,385 | 30,376 | ||||
Banc of America Mortgage Securities, Inc., Series 2004-E, Class 2A6 SEQ, VRN, 2.86%, 11/1/15 | 372,703 | 372,689 | ||||
Banc of America Mortgage Securities, Inc., Series 2005-1, Class 1A15, 5.50%, 2/25/35 | 135,083 | 141,072 | ||||
Citigroup Mortgage Loan Trust, Inc., Series 2004-UST1, Class A4, VRN, 2.27%, 11/1/15 | 721,237 | 717,322 | ||||
Citigroup Mortgage Loan Trust, Inc., Series 2004-UST1, Class A5, VRN, 2.03%, 11/1/15 | 971,694 | 958,861 | ||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 2.78%, 11/1/15 | 155,347 | 153,788 | ||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-6, Class A2, VRN, 2.42%, 11/1/15 | 324,570 | 327,141 | ||||
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35 | 9,826 | 9,695 | ||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-AR28, Class 2A1, VRN, 2.52%, 11/1/15 | 212,110 | 209,466 | ||||
First Horizon Alternative Mortgage Securities Trust, Series 2004-AA4, Class A1, VRN, 2.35%, 11/1/15 | 666,206 | 660,016 |
31
Shares/ Principal Amount | Value | |||||
First Horizon Mortgage Pass-Through Trust, Series 2005-AR3, Class 4A1, VRN, 2.59%, 11/1/15 | $ | 118,404 | $ | 113,808 | ||
GSR Mortgage Loan Trust, Series 2004-7, Class 3A1, VRN, 2.30%, 11/1/15 | 263,897 | 257,443 | ||||
GSR Mortgage Loan Trust, Series 2004-AR5, Class 3A3, VRN, 2.69%, 11/1/15 | 253,492 | 252,525 | ||||
GSR Mortgage Loan Trust, Series 2005-AR1, Class 3A1, VRN, 2.66%, 11/1/15 | 409,476 | 406,900 | ||||
GSR Mortgage Loan Trust, Series 2005-AR6, Class 2A1, VRN, 2.72%, 11/1/15 | 387,065 | 394,966 | ||||
GSR Mortgage Loan Trust, Series 2005-AR6, Class 4A5, VRN, 2.81%, 11/1/15 | 640,770 | 647,572 | ||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 1A1, VRN, 2.48%, 11/1/15 | 120,759 | 119,604 | ||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 2A1, VRN, 2.68%, 11/1/15 | 82,755 | 82,527 | ||||
JPMorgan Mortgage Trust, Series 2006-A3, Class 7A1, VRN, 2.98%, 11/1/15 | 411,908 | 415,387 | ||||
JPMorgan Mortgage Trust, Series 2013-1, Class 2A2 SEQ, VRN, 2.50%, 11/1/15(2) | 163,354 | 163,687 | ||||
MASTR Adjustable Rate Mortgages Trust, Series 2004-13, Class 3A7, VRN, 2.77%, 11/1/15 | 561,182 | 576,230 | ||||
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33 | 72,178 | 74,487 | ||||
Merrill Lynch Mortgage Investors Trust, Series 2005-3, Class 2A, VRN, 2.21%, 11/25/15 | 298,024 | 294,325 | ||||
Merrill Lynch Mortgage Investors Trust, Series 2005-A2, Class A1, VRN, 2.47%, 11/1/15 | 416,663 | 409,859 | ||||
PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 5.43%, 11/1/15 | 51,413 | 51,342 | ||||
Sequoia Mortgage Trust, Series 2012-1, Class 1A1, VRN, 2.87%, 11/1/15 | 86,074 | 86,552 | ||||
Sequoia Mortgage Trust, Series 2013-12, Class A1 SEQ, 4.00%, 12/25/43(2) | 245,988 | 253,927 | ||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2004-6, Class 3A2, VRN, 2.45%, 11/1/15 | 277,617 | 278,186 | ||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2004-8, Class 2A1, VRN, 2.42%, 11/1/15 | 255,754 | 256,306 | ||||
Thornburg Mortgage Securities Trust, Series 2004-3, Class A, VRN, 0.94%, 11/25/15 | 1,042,109 | 977,893 | ||||
WaMu Mortgage Pass-Through Certificates, Series 2005-AR3, Class A1, VRN, 2.44%, 11/1/15 | 715,427 | 712,155 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-4, Class A9, 5.50%, 5/25/34 | 76,206 | 78,710 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-K, Class 2A6, VRN, 2.74%, 11/1/15 | 107,863 | 108,981 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-S, Class A1, VRN, 2.73%, 11/1/15 | 212,681 | 218,533 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-Z, Class 2A2, VRN, 2.63%, 11/1/15 | 220,150 | 220,641 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 140,017 | 142,946 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-3, Class A12, 5.50%, 5/25/35 | 190,645 | 194,921 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-9, Class 2A6, 5.25%, 10/25/35 | 350,986 | 369,456 |
32
Shares/ Principal Amount | Value | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 1A1, VRN, 2.70%, 11/1/15 | $ | 696,110 | $ | 713,285 | ||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 2A15, VRN, 2.70%, 11/1/15 | 71,235 | 73,421 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 2A17, VRN, 2.70%, 11/1/15 | 474,902 | 484,936 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR14, Class A1, VRN, 2.74%, 11/1/15 | 124,454 | 123,285 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 1A1, VRN, 2.69%, 11/1/15 | 140,501 | 143,426 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 3A2, VRN, 2.70%, 11/1/15 | 380,026 | 383,809 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR2, Class 3A1, VRN, 2.62%, 11/1/15 | 105,580 | 107,006 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR7, Class 1A1, VRN, 2.74%, 11/1/15 | 406,395 | 407,649 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 177,628 | 181,682 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-13, Class A5, 6.00%, 10/25/36 | 223,286 | 231,482 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37 | 116,788 | 120,318 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-14, Class 2A2, 5.50%, 10/25/22 | 125,634 | 129,940 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-16, Class 1A1, 6.00%, 12/28/37 | 78,806 | 81,544 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 6.26%, 11/1/15 | 113,812 | 113,211 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2008-1, Class 4A1, 5.75%, 2/25/38 | 315,702 | 333,951 | ||||
16,303,869 | ||||||
U.S. Government Agency Collateralized Mortgage Obligations — 0.1% | ||||||
FHLMC, Series 2926, Class EW SEQ, 5.00%, 1/15/25 | 326,933 | 353,024 | ||||
FHLMC, Series 77, Class H, 8.50%, 9/15/20 | 15,414 | 16,098 | ||||
FNMA, Series 2014-M3, Class ASQ2, 0.56%, 3/25/16 | 247,577 | 247,503 | ||||
616,625 | ||||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $16,993,869) | 16,920,494 | |||||
COMMERCIAL MORTGAGE-BACKED SECURITIES(5) — 2.0% | ||||||
Bank of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2012-PARK, Class A SEQ, 2.96%, 12/10/30(2) | 1,125,000 | 1,133,566 | ||||
Bank of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2014-ICTS, Class A, VRN, 1.00%, 11/15/15(2) | 825,000 | 823,009 | ||||
Bank of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2015-200P, Class B, 3.49%, 4/14/33(2) | 625,000 | 624,523 | ||||
BB-UBS Trust, Series 2012-SHOW, Class A SEQ, 3.43%, 11/5/36(2) | 950,000 | 968,255 | ||||
BLCP Hotel Trust, Series 2014-CLRN, Class A, VRN, 1.15%, 11/15/15(2) | 1,344,314 | 1,337,850 | ||||
Commercial Mortgage Pass-Through Certificates, Series 2014-BBG, Class A, VRN, 1.00%, 11/15/15(2) | 925,000 | 918,734 | ||||
Commercial Mortgage Pass-Through Certificates, Series 2014-CR15, Class AM SEQ, 4.43%, 2/10/47 | 675,000 | 734,603 | ||||
Commercial Mortgage Pass-Through Certificates, Series 2014-LC17, Class AM, VRN, 4.19%, 11/1/15 | 775,000 | 827,519 |
33
Shares/ Principal Amount | Value | |||||
Commercial Mortgage Pass-Through Certificates, Series 2014-UBS5, Class AM, 4.19%, 9/10/47 | $ | 1,025,000 | $ | 1,087,029 | ||
Commercial Mortgage Pass-Through Certificates, Series 2015-3BP, Class B, VRN, 3.24%, 11/15/15(2) | 400,000 | 392,989 | ||||
Commercial Mortgage Pass-Through Certificates, Series 2015-CR22, Class AM, 3.60%, 3/10/48 | 750,000 | 760,091 | ||||
Core Industrial Trust, Series 2015-WEST, Class A SEQ, 3.29%, 2/10/37(2) | 1,150,000 | 1,157,555 | ||||
GS Mortgage Securities Corp. II, Series 2015-GC28, Class AS, 3.76%, 2/10/48 | 325,000 | 329,052 | ||||
Irvine Core Office Trust, Series 2013-IRV, Class A2 SEQ, VRN, 3.17%, 11/10/15(2) | 1,575,000 | 1,609,683 | ||||
JPMBB Commercial Mortgage Securities Trust, Series 2014-C21, Class B, VRN, 4.34%, 11/1/15 | 475,000 | 489,667 | ||||
JPMorgan Chase Commercial Mortgage Securities Trust, Series 2013-C16, Class A4, 4.17%, 12/15/46 | 275,000 | 298,813 | ||||
JPMorgan Chase Commercial Mortgage Securities Trust, Series 2013-C16, Class AS, 4.52%, 12/15/46 | 450,000 | 490,472 | ||||
JPMorgan Chase Commercial Mortgage Securities Trust, Series 2014-CBM, Class A, VRN, 1.10%, 11/15/15(2) | 925,000 | 920,464 | ||||
Morgan Stanley Capital I Trust, Series 2014-CPT, Class A SEQ, 3.35%, 7/13/29(2) | 800,000 | 830,209 | ||||
Morgan Stanley Capital I Trust, Series 2014-CPT, Class C, VRN, 3.45%, 11/1/15(2) | 725,000 | 735,817 | ||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $16,302,928) | 16,469,900 | |||||
ASSET-BACKED SECURITIES(5) — 1.6% | ||||||
Avis Budget Rental Car Funding AESOP LLC, Series 2012-2A, Class A SEQ, 2.80%, 5/20/18(2) | 750,000 | 761,431 | ||||
Avis Budget Rental Car Funding AESOP LLC, Series 2015-2A, Class A, 2.63%, 12/20/21(2) | 800,000 | 803,508 | ||||
Barclays Dryrock Issuance Trust, Series 2014-1, Class A, VRN, 0.56%, 11/16/15 | 775,000 | 774,386 | ||||
BMW Floorplan Master Owner Trust, Series 2015-1A, Class A, VRN, 0.70%, 11/16/15(2) | 850,000 | 846,212 | ||||
Chesapeake Funding LLC, Series 2014-1A, Class A, VRN, 0.61%, 11/9/15(2) | 769,831 | 767,710 | ||||
Dell Equipment Finance Trust, Series 2015-2, Class A2B, VRN, 1.09%, 11/23/15(2) | 700,000 | 700,000 | ||||
Enterprise Fleet Financing LLC, Series 2014-1, Class A2 SEQ, 0.87%, 9/20/19(2) | 281,301 | 280,584 | ||||
Enterprise Fleet Financing LLC, Series 2015-2, Class A2 SEQ, 1.59%, 2/22/21(2) | 1,100,000 | 1,096,778 | ||||
Harley-Davidson Motorcycle Trust, Series 2014-1, Class A2B, VRN, 0.37%, 11/16/15 | 346,232 | 345,972 | ||||
Hertz Fleet Lease Funding LP, Series 2014-1, Class A, VRN, 0.60%, 11/10/15(2) | 856,785 | 854,282 | ||||
Hilton Grand Vacations Trust, Series 2013-A, Class A SEQ, 2.28%, 1/25/26(2) | 191,141 | 191,640 | ||||
Hilton Grand Vacations Trust, Series 2014-AA, Class A SEQ, 1.77%, 11/25/26(2) | 1,011,652 | 999,487 | ||||
Invitation Homes Trust, Series 2014-SFR1, Class A, VRN, 1.20%, 11/17/15(2) | 475,000 | 465,212 | ||||
Invitation Homes Trust, Series 2015-SFR1, Class A, VRN, 1.65%, 11/17/15(2) | 613,123 | 608,155 |
34
Shares/ Principal Amount | Value | |||||
John Deere Owner Trust, Series 2014-A, Class A2 SEQ, 0.45%, 9/15/16 | $ | 262,051 | $ | 262,020 | ||
John Deere Owner Trust, Series 2014-A, Class A3 SEQ, 0.92%, 4/16/18 | 629,029 | 628,121 | ||||
MVW Owner Trust, Series 2014-1A, Class A, 2.25%, 9/22/31(2) | 538,581 | 537,548 | ||||
MVW Owner Trust, Series 2015-1A, Class A SEQ, 2.52%, 12/20/32(2) | 670,667 | 674,427 | ||||
Sierra Timeshare Receivables Funding LLC, Series 2015-1A, Class A, 2.40%, 3/22/32(2) | 543,909 | 542,079 | ||||
Toyota Auto Receivables Owner Trust, Series 2015-C, Class A2B, VRN, 0.53%, 11/16/15 | 850,000 | 850,158 | ||||
US Airways Pass-Through Trust, Series 2013-1, Class A, 3.95%, 5/15/27 | 159,299 | 161,888 | ||||
Volvo Financial Equipment LLC, Series 2015-1A, Class A2, 0.95%, 11/15/17(2) | 675,000 | 674,874 | ||||
TOTAL ASSET-BACKED SECURITIES (Cost $13,858,214) | 13,826,472 | |||||
SOVEREIGN GOVERNMENTS AND AGENCIES — 0.6% | ||||||
Brazil — 0.1% | ||||||
Brazilian Government International Bond, 5.875%, 1/15/19 | 320,000 | 341,920 | ||||
Brazilian Government International Bond, 4.875%, 1/22/21 | 20,000 | 19,720 | ||||
Brazilian Government International Bond, 2.625%, 1/5/23 | 260,000 | 215,410 | ||||
577,050 | ||||||
Canada† | ||||||
Province of Ontario Canada, 1.00%, 7/22/16 | 150,000 | 150,442 | ||||
Chile† | ||||||
Chile Government International Bond, 3.25%, 9/14/21 | 100,000 | 104,750 | ||||
Chile Government International Bond, 3.625%, 10/30/42 | 100,000 | 88,500 | ||||
193,250 | ||||||
Colombia — 0.1% | ||||||
Colombia Government International Bond, 4.375%, 7/12/21 | 310,000 | 319,765 | ||||
Colombia Government International Bond, 6.125%, 1/18/41 | 100,000 | 103,250 | ||||
423,015 | ||||||
Italy† | ||||||
Italy Government International Bond, 6.875%, 9/27/23 | 220,000 | 277,022 | ||||
Mexico — 0.2% | ||||||
Mexico Government International Bond, MTN, 5.95%, 3/19/19 | 420,000 | 472,815 | ||||
Mexico Government International Bond, 5.125%, 1/15/20 | 330,000 | 365,145 | ||||
Mexico Government International Bond, 4.00%, 10/2/23 | 100,000 | 103,450 | ||||
Mexico Government International Bond, 6.05%, 1/11/40 | 50,000 | 56,687 | ||||
Mexico Government International Bond, MTN, 4.75%, 3/8/44 | 400,000 | 381,000 | ||||
1,379,097 | ||||||
Peru† | ||||||
Peruvian Government International Bond, 6.55%, 3/14/37 | 70,000 | 84,875 | ||||
Peruvian Government International Bond, 5.625%, 11/18/50 | 170,000 | 184,450 | ||||
269,325 | ||||||
Philippines — 0.1% | ||||||
Philippine Government International Bond, 4.00%, 1/15/21 | 300,000 | 327,867 | ||||
Philippine Government International Bond, 6.375%, 10/23/34 | 150,000 | 201,780 | ||||
529,647 |
35
Shares/ Principal Amount | Value | |||||
Poland — 0.1% | ||||||
Poland Government International Bond, 5.125%, 4/21/21 | $ | 140,000 | $ | 158,772 | ||
Poland Government International Bond, 3.00%, 3/17/23 | 140,000 | 141,688 | ||||
300,460 | ||||||
South Africa† | ||||||
South Africa Government International Bond, 4.67%, 1/17/24 | 110,000 | 111,375 | ||||
South Korea† | ||||||
Korea Development Bank (The), 3.25%, 3/9/16 | 130,000 | 130,991 | ||||
Turkey† | ||||||
Turkey Government International Bond, 3.25%, 3/23/23 | 300,000 | 279,513 | ||||
Uruguay† | ||||||
Uruguay Government International Bond, 4.125%, 11/20/45 | 120,000 | 98,400 | ||||
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $4,599,445) | 4,719,587 | |||||
MUNICIPAL SECURITIES — 0.5% | ||||||
Bay Area Toll Authority Toll Bridge Rev., Series 2010 S-1, (Building Bonds), 6.92%, 4/1/40 | 195,000 | 258,488 | ||||
California GO, (Building Bonds), 7.55%, 4/1/39 | 100,000 | 148,252 | ||||
California GO, (Building Bonds), 7.30%, 10/1/39 | 290,000 | 411,841 | ||||
California GO, (Building Bonds), 7.60%, 11/1/40 | 80,000 | 120,040 | ||||
Illinois GO, (Taxable Pension), 5.10%, 6/1/33 | 245,000 | 226,500 | ||||
Los Angeles Community College District GO, Series 2010 D, (Election of 2008), 6.68%, 8/1/36 | 100,000 | 130,665 | ||||
Los Angeles Department of Water & Power Rev., (Building Bonds), 5.72%, 7/1/39 | 60,000 | 72,541 | ||||
Metropolitan Transportation Authority Rev., Series 2010 C-1, (Building Bonds), 6.69%, 11/15/40 | 105,000 | 137,954 | ||||
Metropolitan Transportation Authority Rev., Series 2010 E, (Building Bonds), 6.81%, 11/15/40 | 60,000 | 79,571 | ||||
Missouri Highways & Transportation Commission Rev., (Building Bonds), 5.45%, 5/1/33 | 130,000 | 154,084 | ||||
New Jersey State Turnpike Authority Rev., Series 2009 F, (Building Bonds), 7.41%, 1/1/40 | 200,000 | 281,710 | ||||
New Jersey State Turnpike Authority Rev., Series 2010 A, (Building Bonds), 7.10%, 1/1/41 | 95,000 | 129,817 | ||||
New York GO, Series 2010 F-1, (Building Bonds), 6.27%, 12/1/37 | 95,000 | 121,618 | ||||
Ohio Water Development Authority Pollution Control Rev., Series 2010 B-2, (Building Bonds), 4.88%, 12/1/34 | 110,000 | 124,465 | ||||
Oregon State Department of Transportation Highway User Tax Rev., Series 2010 A, (Building Bonds), 5.83%, 11/15/34 | 70,000 | 89,151 | ||||
Port Authority of New York & New Jersey Rev., 4.93%, 10/1/51 | 50,000 | 53,317 | ||||
Port Authority of New York & New Jersey Rev., (Consolidated Bonds), 4.46%, 10/1/62 | 245,000 | 236,734 | ||||
Rutgers State University Rev., Series 2010 H, (Building Bonds), 5.67%, 5/1/40 | 205,000 | 241,431 | ||||
Sacramento Municipal Utility District Electric Rev., Series 2010 W, (Building Bonds), 6.16%, 5/15/36 | 210,000 | 258,428 | ||||
Salt River Agricultural Improvement & Power District Electric Rev., Series 2010 A, (Building Bonds), 4.84%, 1/1/41 | 95,000 | 111,087 | ||||
San Francisco City & County Public Utilities Water Commission Rev., Series 2010 B, (Building Bonds), 6.00%, 11/1/40 | 105,000 | 127,685 |
36
Shares/ Principal Amount | Value | |||||
San Francisco City & County Public Utilities Water Commission Rev., Series 2010 FG, (Building Bonds), 6.95%, 11/1/50 | $ | 65,000 | $ | 91,520 | ||
Santa Clara Valley Transportation Authority Sales Tax Rev., Series 2010 A, (Building Bonds), 5.88%, 4/1/32 | 120,000 | 145,832 | ||||
Texas GO, (Building Bonds), 5.52%, 4/1/39 | 50,000 | 63,131 | ||||
Washington GO, Series 2010 F, (Building Bonds), 5.14%, 8/1/40 | 20,000 | 23,767 | ||||
TOTAL MUNICIPAL SECURITIES (Cost $3,314,444) | 3,839,629 | |||||
TEMPORARY CASH INVESTMENTS — 1.1% | ||||||
SSgA U.S. Government Money Market Fund, Class N | 5,138,316 | 5,138,316 | ||||
State Street Institutional Liquid Reserves Fund, Premier Class | 3,792,279 | 3,792,279 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,930,595) | 8,930,595 | |||||
TOTAL INVESTMENT SECURITIES — 102.5% (Cost $789,568,088) | 864,448,049 | |||||
OTHER ASSETS AND LIABILITIES — (2.5)% | (21,009,096) | |||||
TOTAL NET ASSETS — 100.0% | $ | 843,438,953 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
FHLMC | - | Federal Home Loan Mortgage Corporation |
FNMA | - | Federal National Mortgage Association |
GNMA | - | Government National Mortgage Association |
GO | - | General Obligation |
MTN | - | Medium Term Note |
SEQ | - | Sequential Payer |
VRN | - | Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end. |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
(2) | Restricted security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold without restriction to qualified institutional investors. The aggregate value of these securities at the period end was $31,839,697, which represented 3.8% of total net assets. |
(3) | When-issued security. The issue price and yield are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. |
(4) | The rate indicated is the yield to maturity at purchase. |
(5) | Final maturity date indicated, unless otherwise noted. |
(6) | Forward commitment. Settlement date is indicated. |
See Notes to Financial Statements.
37
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $789,568,088) | $ | 864,448,049 | |
Cash | 52,170 | ||
Receivable for investments sold | 27,657,744 | ||
Receivable for capital shares sold | 137,307 | ||
Dividends and interest receivable | 2,777,428 | ||
895,072,698 | |||
Liabilities | |||
Payable for investments purchased | 50,465,626 | ||
Payable for capital shares redeemed | 540,028 | ||
Accrued management fees | 628,091 | ||
51,633,745 | |||
Net Assets | $ | 843,438,953 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 733,879,570 | |
Undistributed net investment income | 1,494,993 | ||
Undistributed net realized gain | 33,184,429 | ||
Net unrealized appreciation | 74,879,961 | ||
$ | 843,438,953 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $789,209,015 | 44,063,520 | $17.91 | |
Institutional Class, $0.01 Par Value | $54,229,938 | 3,026,036 | $17.92 |
See Notes to Financial Statements.
38
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $5,748) | $ | 11,292,184 | |
Interest | 9,023,323 | ||
20,315,507 | |||
Expenses: | |||
Management fees | 7,760,601 | ||
Directors' fees and expenses | 29,034 | ||
Other expenses | 228 | ||
7,789,863 | |||
Net investment income (loss) | 12,525,644 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 36,663,061 | ||
Futures contract transactions | 32,609 | ||
36,695,670 | |||
Change in net unrealized appreciation (depreciation) on investments | (40,507,302 | ) | |
Net realized and unrealized gain (loss) | (3,811,632 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 8,714,012 |
See Notes to Financial Statements.
39
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 12,525,644 | $ | 11,199,202 | ||
Net realized gain (loss) | 36,695,670 | 62,541,609 | ||||
Change in net unrealized appreciation (depreciation) | (40,507,302 | ) | 9,796,675 | |||
Net increase (decrease) in net assets resulting from operations | 8,714,012 | 83,537,486 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (12,448,959 | ) | (11,400,287 | ) | ||
Institutional Class | (874,926 | ) | (817,811 | ) | ||
From net realized gains: | ||||||
Investor Class | (57,795,802 | ) | (54,390,743 | ) | ||
Institutional Class | (3,452,739 | ) | (3,584,868 | ) | ||
Decrease in net assets from distributions | (74,572,426 | ) | (70,193,709 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 44,652,515 | 82,774,430 | ||||
Net increase (decrease) in net assets | (21,205,899 | ) | 96,118,207 | |||
Net Assets | ||||||
Beginning of period | 864,644,852 | 768,526,645 | ||||
End of period | $ | 843,438,953 | $ | 864,644,852 | ||
Undistributed net investment income | $ | 1,494,993 | $ | 1,319,897 |
See Notes to Financial Statements.
40
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Balanced Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth and current income by investing approximately 60% of its assets in equity securities and the remainder in bonds and other fixed-income securities.
The fund offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price.
Fixed income securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Fixed income securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors: trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information.
Open-end management investment companies are valued at the reported net asset value per share. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the
41
fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Inflation adjustments related to inflation-linked debt securities are reflected as interest income.
Forward Commitments — The fund may engage in securities transactions on a forward commitment basis. In these transactions, the securities’ prices and yields are fixed on the date of the commitment. The fund may sell a to-be-announced (TBA) 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 TBA 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 known as “TBA roll” transactions and are accounted for as purchases and sales. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investments, including, but not limited to, futures contracts, forward commitments, when-issued securities, swap agreements and certain forward foreign currency exchange contracts. American Century Investment Management, Inc. (ACIM) (the investment advisor) monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts, forward commitments and swap agreements.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
42
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.800% to 0.900% for the Investor Class. The annual management fee schedule ranges from 0.600% to 0.700% for the Institutional Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.90% for the Investor Class and 0.70% for the Institutional Class.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the year ended October 31, 2015 totaled $818,846,383, of which $305,163,155 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 totaled $819,775,148, of which $306,400,710 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||
Shares | Amount | Shares | Amount | |||||
Investor Class/Shares Authorized | 300,000,000 | 250,000,000 | ||||||
Sold | 4,908,713 | $ | 90,458,642 | 6,263,780 | $ | 117,386,844 | ||
Issued in reinvestment of distributions | 3,820,611 | 68,651,270 | 3,565,008 | 64,242,576 | ||||
Redeemed | (6,753,372) | (123,350,081) | (5,340,834) | (100,173,536) | ||||
1,975,952 | 35,759,831 | 4,487,954 | 81,455,884 | |||||
Institutional Class/Shares Authorized | 20,000,000 | 15,000,000 | ||||||
Sold | 776,376 | 14,093,875 | 504,596 | 9,504,663 | ||||
Issued in reinvestment of distributions | 240,729 | 4,327,665 | 244,093 | 4,402,679 | ||||
Redeemed | (518,681) | (9,528,856) | (669,392) | (12,588,796) | ||||
498,424 | 8,892,684 | 79,297 | 1,318,546 | |||||
Net increase (decrease) | 2,474,376 | $ | 44,652,515 | 4,567,251 | $ | 82,774,430 |
43
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 503,702,683 | — | — | ||||
Corporate Bonds | — | $ | 104,853,526 | — | ||||
U.S. Treasury Securities | — | 102,470,951 | — | |||||
U.S. Government Agency Mortgage-Backed Securities | — | 88,714,212 | — | |||||
Collateralized Mortgage Obligations | — | 16,920,494 | — | |||||
Commercial Mortgage-Backed Securities | — | 16,469,900 | — | |||||
Asset-Backed Securities | — | 13,826,472 | — | |||||
Sovereign Governments and Agencies | — | 4,719,587 | — | |||||
Municipal Securities | — | 3,839,629 | — | |||||
Temporary Cash Investments | 8,930,595 | — | — | |||||
$ | 512,633,278 | $ | 351,814,771 | — |
7. Derivative Instruments
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund participated in interest rate risk derivative instruments for temporary investment purposes.
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities. For the year ended October 31, 2015, the effect of interest rate risk derivative instruments on the Statement of Operations was $32,609 in net realized gain (loss) on futures contract transactions.
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8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 29,626,086 | $ | 36,593,314 | ||
Long-term capital gains | $ | 44,946,340 | $ | 33,600,395 |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 792,130,849 | |
Gross tax appreciation of investments | $ | 90,485,225 | |
Gross tax depreciation of investments | (18,168,025 | ) | |
Net tax appreciation (depreciation) of investments | $ | 72,317,200 | |
Other book-to-tax adjustments | $ | (81,278 | ) |
Undistributed ordinary income | $ | 1,494,993 | |
Accumulated long-term gains | $ | 35,828,468 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. Other book-to-tax adjustments are attributable primarily to the tax deferral of losses on straddle positions.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $19.38 | 0.26 | (0.08) | 0.18 | (0.28) | (1.37) | (1.65) | $17.91 | 0.98% | 0.90% | 1.43% | 94% | $789,209 | ||
2014 | $19.19 | 0.25 | 1.66 | 1.91 | (0.28) | (1.44) | (1.72) | $19.38 | 10.76% | 0.90% | 1.36% | 64% | $815,636 | ||
2013 | $17.41 | 0.30 | 2.25 | 2.55 | (0.31) | (0.46) | (0.77) | $19.19 | 15.21% | 0.90% | 1.64% | 81% | $721,523 | ||
2012 | $15.96 | 0.29 | 1.47 | 1.76 | (0.31) | — | (0.31) | $17.41 | 11.12% | 0.90% | 1.75% | 82% | $609,476 | ||
2011 | $15.02 | 0.29 | 0.94 | 1.23 | (0.29) | — | (0.29) | $15.96 | 8.26% | 0.90% | 1.84% | 87% | $511,829 | ||
Institutional Class | |||||||||||||||
2015 | $19.39 | 0.30 | (0.09) | 0.21 | (0.31) | (1.37) | (1.68) | $17.92 | 1.19% | 0.70% | 1.63% | 94% | $54,230 | ||
2014 | $19.20 | 0.29 | 1.65 | 1.94 | (0.31) | (1.44) | (1.75) | $19.39 | 10.98% | 0.70% | 1.56% | 64% | $49,009 | ||
2013 | $17.41 | 0.32 | 2.28 | 2.60 | (0.35) | (0.46) | (0.81) | $19.20 | 15.49% | 0.70% | 1.84% | 81% | $47,004 | ||
2012 | $15.96 | 0.32 | 1.47 | 1.79 | (0.34) | — | (0.34) | $17.41 | 11.34% | 0.70% | 1.95% | 82% | $19,667 | ||
2011 | $15.02 | 0.32 | 0.94 | 1.26 | (0.32) | — | (0.32) | $15.96 | 8.48% | 0.70% | 2.04% | 87% | $9,736 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Balanced Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading
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activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $10,183,502, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $16,328,885 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $44,946,340, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87633 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Capital Value Fund
Table of Contents |
President’s Letter | 2 |
Performance | 3 |
Portfolio Commentary | |
Fund Characteristics | |
Shareholder Fee Example | |
Schedule of Investments | |
Statement of Assets and Liabilities | |
Statement of Operations | |
Statement of Changes in Net Assets | |
Notes to Financial Statements | |
Financial Highlights | |
Report of Independent Registered Public Accounting Firm | |
Management | |
Approval of Management Agreement | |
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/jonathanthomassig.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | ACTIX | 0.61%(1) | 12.72%(1) | 5.60%(1) | 6.04%(1) | 3/31/99 |
Russell 1000 Value Index | — | 0.53% | 13.25% | 6.75% | 6.16% | — |
Institutional Class | ACPIX | 0.72%(1) | 12.92%(1) | 5.81%(1) | 6.04%(1) | 3/1/02 |
A Class(2) | ACCVX | 5/14/03 | ||||
No sales charge* | 0.34%(1) | 12.43%(1) | 5.33%(1) | 7.09%(1) | ||
With sales charge* | -5.43%(1) | 11.10%(1) | 4.70%(1) | 6.58%(1) |
* 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 and may be 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) | Returns would have been lower if a portion of the management fee had not been waived. |
(2) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/acmf103115_chart-23817.jpg)
Value on October 31, 2015 | |
Investor Class — $17,257* | |
Russell 1000 Value Index — $19,224 | |
*Ending value would have been lower if a portion of the management fee had not been waived.
Total Annual Fund Operating Expenses | ||
Investor Class | Institutional Class | A Class |
1.10% | 0.90% | 1.35% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: Brendan Healy and Matt Titus
Performance Summary
Capital Value returned 0.61%* for the 12 months ended October 31, 2015. By comparison, its benchmark, the Russell 1000 Value Index, returned 0.53%. The fund’s return reflects operating expenses, while the index’s returns do not.
The reporting period was marked by significant declines in oil and natural gas prices, sparked by concerns about oversupply and decreasing demand, particularly from China and other emerging markets. As a result, consumers were left with more discretionary income and energy stocks were broadly weakened throughout much of the period. The beginning and end of the period saw increased market volatility, particularly in the third quarter of 2015, as U.S. markets experienced the first correction since 2011 amid concerns over slowing growth in China and uncertainty around the U.S. Federal Reserve’s (Fed’s) exit strategy for stimulative monetary policies implemented during the 2008 financial crisis. The Fed’s highly anticipated raising of interest rates has yet to materialize, as inflation has remained below target levels, but economic growth and recovery in the U.S. has continued at a moderate pace. During the second half of the period, certain defensive segments such as utilities and real estate investments trusts (REITs) outperformed as interest rates declined. In this environment, large-cap stocks outperformed small- and mid-cap stocks, and growth stocks outperformed value stocks.
Capital Value performed roughly in line with its benchmark. The portfolio benefited from investments in the consumer staples, materials, utilities, and industrials sectors. Positions in the health care, financials, and information technology sectors detracted from relative performance.
Consumer Staples Boosted Results
In the consumer staples sector, stock selection added value to relative results, especially among food and staples retailing companies, though an overweight position in the segment partially offset some of the relative gain. Lack of exposure to Wal-Mart was helpful as the company’s stock dipped in the second quarter on disappointing earnings per share results and narrower operating margins. The company subsequently provided 2017 fiscal year guidance that was below consensus. A portfolio-only position in The Kroger Co. was among the portfolio’s top five contributors.
Information Technology Sector Source of Top Contributor
While the portfolio’s holdings in the information technology sector detracted on a relative basis, the sector was also the source of the portfolio’s top contributor, interactive entertainment software company Electronic Arts, Inc. The company has outperformed in 2015 and fiscal first quarter results were better than expected. Revenues and margins have exceeded estimates, game sales have been good and the company shifted its revenue mix toward higher margin digital sales. We believe the company’s outlook remains favorable, with a strong slate of upcoming releases and continued improvement in margins.
* | All fund returns referenced in this commentary are for Investor Class shares. Returns would have been lower if a portion of the management fee had not been waived. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
5
Conversely, the sector was also the source of the portfolio’s top detractor. In the semiconductors and semiconductor equipment industry, the portfolio’s overweight position in Applied Materials, Inc. dampened relative performance. Recently, the semiconductor equipment segment underperformed in general due to concerns about reduced equipment demand as customer capital expenditures will be lower for 2015 than previously anticipated. There is also increasing uncertainty on both foundry and memory consumer spending in future years.
Consumer Discretionary Positioning Added Value
The portfolio benefited from an overweight position in consumer discretionary stocks. Security selection in the specialty retail industry boosted relative results, due to a portfolio-only position in Lowe’s Cos., Inc. The home improvement chain benefited from strong sales in the home improvement space as the housing market continued to pick up.
Health Care Dampened Results
Security selection in the health care sector weighed on relative returns, especially in the pharmaceuticals industry. However, the sector was also the source of one of the portfolio’s top contributors, Aetna. Several managed care companies surged late in June after a U.S. Supreme Court ruling that upheld subsidies for federal exchanges.
Industrials Contributed Positively Overall
Stock selection in the industrials sector added significantly to relative performance, most notably among machinery companies. However, an underweight position in industrial conglomerate General Electric Co. was among top detractors for the period. The company announced it would sell off finance businesses from GE Capital, including its real estate, commercial lending and leasing, and consumer finance businesses. The remaining finance businesses will directly support the company’s industrial businesses.
Energy Slowed Performance
Falling oil and gas prices have had a broad dampening effect on the energy sector. Several energy names were among the portfolio’s top detractors, including portfolio-only positions in Imperial Oil Ltd. and Total SA, and overweight positions in Halliburton Co. and Chevron Corp.
Outlook
We continue to be bottom-up investment managers, evaluating each company individually and building our portfolio one stock at a time. The Russell benchmarks were reconfigured at the end of June, altering some of the portfolio’s relative weightings. As of October 31, 2015, Capital Value is broadly diversified, with the greatest overweight positions in the consumer discretionary and health care sectors. Our valuation work is also directing us toward smaller relative weightings in utilities, telecommunication services, and consumer staples.
6
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
JPMorgan Chase & Co. | 3.9% |
Wells Fargo & Co. | 3.5% |
Total SA(1) | 2.4% |
Medtronic plc | 2.4% |
Johnson & Johnson | 2.3% |
Oracle Corp. | 2.3% |
Chevron Corp. | 2.3% |
Ingersoll-Rand plc | 2.3% |
Honeywell International, Inc. | 2.2% |
Merck & Co., Inc. | 2.2% |
(1)Includes shares traded on all exchanges. | |
Top Five Industries | % of net assets |
Banks | 14.7% |
Oil, Gas and Consumable Fuels | 10.5% |
Pharmaceuticals | 6.6% |
Insurance | 6.3% |
Capital Markets | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.6% |
Temporary Cash Investments | 0.5% |
Other Assets and Liabilities | (0.1)% |
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $970.00 | $4.97 | 1.00% |
Investor Class (before waiver) | $1,000 | $970.00(2) | $5.46 | 1.10% |
Institutional Class (after waiver) | $1,000 | $970.10 | $3.97 | 0.80% |
Institutional Class (before waiver) | $1,000 | $970.10(2) | $4.47 | 0.90% |
A Class (after waiver) | $1,000 | $967.80 | $6.20 | 1.25% |
A Class (before waiver) | $1,000 | $967.80(2) | $6.70 | 1.35% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,020.16 | $5.09 | 1.00% |
Investor Class (before waiver) | $1,000 | $1,019.66 | $5.60 | 1.10% |
Institutional Class (after waiver) | $1,000 | $1,021.17 | $4.08 | 0.80% |
Institutional Class (before waiver) | $1,000 | $1,020.67 | $4.58 | 0.90% |
A Class (after waiver) | $1,000 | $1,018.90 | $6.36 | 1.25% |
A Class (before waiver) | $1,000 | $1,018.40 | $6.87 | 1.35% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 99.6% | ||||
Aerospace and Defense — 4.8% | ||||
Honeywell International, Inc. | 32,110 | $ | 3,316,321 | |
Huntington Ingalls Industries, Inc. | 6,340 | 760,419 | ||
Precision Castparts Corp. | 5,030 | 1,160,974 | ||
Raytheon Co. | 15,730 | 1,846,702 | ||
United Technologies Corp. | 1,370 | 134,822 | ||
7,219,238 | ||||
Auto Components — 1.7% | ||||
BorgWarner, Inc. | 14,030 | 600,765 | ||
Delphi Automotive plc | 23,410 | 1,947,478 | ||
2,548,243 | ||||
Automobiles — 1.3% | ||||
Ford Motor Co. | 89,930 | 1,331,863 | ||
Harley-Davidson, Inc. | 12,140 | 600,323 | ||
1,932,186 | ||||
Banks — 14.7% | ||||
Bank of America Corp. | 187,200 | 3,141,216 | ||
Citigroup, Inc. | 21,150 | 1,124,546 | ||
JPMorgan Chase & Co. | 91,210 | 5,860,242 | ||
KeyCorp | 101,560 | 1,261,375 | ||
PNC Financial Services Group, Inc. (The) | 27,920 | 2,520,059 | ||
U.S. Bancorp | 71,470 | 3,014,605 | ||
Wells Fargo & Co. | 98,530 | 5,334,414 | ||
22,256,457 | ||||
Biotechnology — 1.3% | ||||
Amgen, Inc. | 9,560 | 1,512,201 | ||
Gilead Sciences, Inc. | 3,950 | 427,113 | ||
1,939,314 | ||||
Building Products — 0.7% | ||||
Masco Corp. | 35,950 | 1,042,550 | ||
Capital Markets — 5.0% | ||||
Ameriprise Financial, Inc. | 14,760 | 1,702,714 | ||
BlackRock, Inc. | 4,250 | 1,495,873 | ||
Goldman Sachs Group, Inc. (The) | 11,380 | 2,133,750 | ||
Invesco Ltd. | 50,830 | 1,686,031 | ||
Morgan Stanley | 16,690 | 550,269 | ||
7,568,637 | ||||
Chemicals — 1.6% | ||||
Dow Chemical Co. (The) | 27,870 | 1,440,043 | ||
LyondellBasell Industries NV, Class A | 10,050 | 933,745 | ||
2,373,788 |
10
Shares | Value | |||
Communications Equipment — 2.0% | ||||
Cisco Systems, Inc. | 105,070 | $ | 3,031,270 | |
Consumer Finance — 1.9% | ||||
Capital One Financial Corp. | 25,580 | 2,018,262 | ||
Discover Financial Services | 16,590 | 932,690 | ||
2,950,952 | ||||
Diversified Financial Services — 1.2% | ||||
Berkshire Hathaway, Inc., Class B(1) | 13,830 | 1,881,157 | ||
Diversified Telecommunication Services — 0.6% | ||||
AT&T, Inc. | 27,210 | 911,807 | ||
Electric Utilities — 2.4% | ||||
PPL Corp. | 44,170 | 1,519,448 | ||
Westar Energy, Inc. | 23,360 | 927,392 | ||
Xcel Energy, Inc. | 31,310 | 1,115,575 | ||
3,562,415 | ||||
Electrical Equipment — 1.7% | ||||
Eaton Corp. plc | 45,830 | 2,562,355 | ||
Energy Equipment and Services — 2.3% | ||||
Baker Hughes, Inc. | 18,990 | 1,000,393 | ||
Halliburton Co. | 24,250 | 930,715 | ||
Oceaneering International, Inc. | 15,180 | 637,864 | ||
Schlumberger Ltd. | 10,890 | 851,162 | ||
3,420,134 | ||||
Food and Staples Retailing — 2.8% | ||||
CVS Health Corp. | 26,550 | 2,622,609 | ||
Kroger Co. (The) | 29,560 | 1,117,368 | ||
Sysco Corp. | 12,970 | 535,013 | ||
4,274,990 | ||||
Food Products — 0.2% | ||||
Hershey Co. (The) | 4,330 | 384,028 | ||
Health Care Equipment and Supplies — 4.0% | ||||
Abbott Laboratories | 40,850 | 1,830,080 | ||
Medtronic plc | 48,300 | 3,570,336 | ||
Zimmer Biomet Holdings, Inc. | 6,430 | 672,385 | ||
6,072,801 | ||||
Health Care Providers and Services — 3.1% | ||||
Aetna, Inc. | 13,290 | 1,525,426 | ||
Anthem, Inc. | 10,560 | 1,469,424 | ||
HCA Holdings, Inc.(1) | 15,250 | 1,049,048 | ||
Laboratory Corp. of America Holdings(1) | 2,700 | 331,398 | ||
McKesson Corp. | 1,820 | 325,416 | ||
4,700,712 | ||||
Hotels, Restaurants and Leisure — 0.5% | ||||
Marriott International, Inc., Class A | 9,730 | 747,069 | ||
Household Durables — 1.3% | ||||
Whirlpool Corp. | 11,850 | 1,897,659 |
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Shares | Value | |||
Household Products — 0.6% | ||||
Procter & Gamble Co. (The) | 12,720 | $ | 971,554 | |
Industrial Conglomerates — 0.6% | ||||
General Electric Co. | 33,940 | 981,545 | ||
Insurance — 6.3% | ||||
Allstate Corp. (The) | 27,300 | 1,689,324 | ||
American International Group, Inc. | 29,880 | 1,884,233 | ||
MetLife, Inc. | 39,410 | 1,985,475 | ||
Principal Financial Group, Inc. | 14,400 | 722,304 | ||
Prudential Financial, Inc. | 18,800 | 1,551,000 | ||
Travelers Cos., Inc. (The) | 15,110 | 1,705,768 | ||
9,538,104 | ||||
Machinery — 3.1% | ||||
Ingersoll-Rand plc | 58,190 | 3,448,340 | ||
Stanley Black & Decker, Inc. | 11,880 | 1,259,042 | ||
4,707,382 | ||||
Media — 3.4% | ||||
AMC Networks, Inc.(1) | 6,920 | 511,319 | ||
Comcast Corp., Class A | 25,370 | 1,588,669 | ||
Time Warner Cable, Inc. | 4,400 | 833,360 | ||
Time Warner, Inc. | 28,830 | 2,172,052 | ||
5,105,400 | ||||
Multiline Retail — 0.8% | ||||
Macy's, Inc. | 24,840 | 1,266,343 | ||
Oil, Gas and Consumable Fuels — 10.5% | ||||
Apache Corp. | 15,750 | 742,297 | ||
Chevron Corp. | 37,990 | 3,452,531 | ||
Exxon Mobil Corp. | 33,640 | 2,783,374 | ||
Imperial Oil Ltd. | 58,290 | 1,939,582 | ||
Oasis Petroleum, Inc.(1) | 44,890 | 522,071 | ||
Occidental Petroleum Corp. | 20,090 | 1,497,509 | ||
Total SA | 26,086 | 1,266,320 | ||
Total SA ADR | 48,981 | 2,362,354 | ||
Valero Energy Corp. | 19,160 | 1,263,027 | ||
15,829,065 | ||||
Paper and Forest Products — 0.4% | ||||
International Paper Co. | 13,100 | 559,239 | ||
Pharmaceuticals — 6.6% | ||||
Allergan plc(1) | 3,500 | 1,079,645 | ||
Johnson & Johnson | 34,700 | 3,505,741 | ||
Merck & Co., Inc. | 60,670 | 3,316,222 | ||
Pfizer, Inc. | 60,590 | 2,049,154 | ||
9,950,762 | ||||
Real Estate Investment Trusts (REITs) — 0.6% | ||||
Brixmor Property Group, Inc. | 34,760 | 890,551 |
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Shares | Value | |||
Semiconductors and Semiconductor Equipment — 2.8% | ||||
Applied Materials, Inc. | 132,070 | $ | 2,214,814 | |
Microchip Technology, Inc. | 29,660 | 1,432,281 | ||
NXP Semiconductors NV(1) | 4,570 | 358,060 | ||
ON Semiconductor Corp.(1) | 21,230 | 233,530 | ||
4,238,685 | ||||
Software — 4.7% | ||||
Electronic Arts, Inc.(1) | 38,260 | 2,757,398 | ||
Microsoft Corp. | 18,110 | 953,311 | ||
Oracle Corp. | 89,430 | 3,473,461 | ||
7,184,170 | ||||
Specialty Retail — 1.6% | ||||
Lowe's Cos., Inc. | 32,430 | 2,394,307 | ||
Technology Hardware, Storage and Peripherals — 0.7% | ||||
Western Digital Corp. | 15,260 | 1,019,673 | ||
Tobacco — 1.8% | ||||
Altria Group, Inc. | 21,300 | 1,288,011 | ||
Philip Morris International, Inc. | 15,690 | 1,386,996 | ||
2,675,007 | ||||
TOTAL COMMON STOCKS (Cost $104,207,775) | 150,589,549 | |||
TEMPORARY CASH INVESTMENTS — 0.5% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $306,884), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $300,914) | 300,914 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.125%, 2/15/43, valued at $515,419), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $501,000) | 501,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 681 | 681 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $802,595) | 802,595 | |||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $105,010,370) | 151,392,144 | |||
OTHER ASSETS AND LIABILITIES — (0.1)% | (119,322) | |||
TOTAL NET ASSETS — 100.0% | $ | 151,272,822 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 1,348,478 | CAD | 1,786,355 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | (17,410 | ) |
USD | 2,727,229 | EUR | 2,468,907 | UBS AG | 11/30/15 | 11,385 | ||
$ | (6,025 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $105,010,370) | $ | 151,392,144 | |
Cash | 11,705 | ||
Foreign currency holdings, at value (cost of $5,237) | 5,343 | ||
Receivable for capital shares sold | 18,326 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 11,385 | ||
Dividends and interest receivable | 185,757 | ||
151,624,660 | |||
Liabilities | |||
Payable for investments purchased | 143,014 | ||
Payable for capital shares redeemed | 65,646 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 17,410 | ||
Accrued management fees | 124,837 | ||
Distribution and service fees payable | 931 | ||
351,838 | |||
Net Assets | $ | 151,272,822 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 95,153,519 | |
Undistributed net investment income | 1,924,142 | ||
Undistributed net realized gain | 7,819,328 | ||
Net unrealized appreciation | 46,375,833 | ||
$ | 151,272,822 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $143,697,696 | 15,883,521 | $9.05 | |||
Institutional Class, $0.01 Par Value | $3,071,097 | 338,411 | $9.08 | |||
A Class, $0.01 Par Value | $4,504,029 | 499,862 | $9.01* |
*Maximum offering price $9.56 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $31,192) | $ | 3,581,191 | |
Interest | 176 | ||
3,581,367 | |||
Expenses: | |||
Management fees | 1,722,128 | ||
Distribution and service fees — A Class | 11,075 | ||
Directors' fees and expenses | 5,224 | ||
Other expenses | 118 | ||
1,738,545 | |||
Fees waived | (157,098 | ) | |
1,581,447 | |||
Net investment income (loss) | 1,999,920 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 9,367,579 | ||
Foreign currency transactions | 465,187 | ||
9,832,766 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (10,793,977 | ) | |
Translation of assets and liabilities in foreign currencies | (30,791 | ) | |
(10,824,768 | ) | ||
Net realized and unrealized gain (loss) | (992,002 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 1,007,918 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 1,999,920 | $ | 2,009,905 | ||
Net realized gain (loss) | 9,832,766 | 10,829,207 | ||||
Change in net unrealized appreciation (depreciation) | (10,824,768 | ) | 9,236,308 | |||
Net increase (decrease) in net assets resulting from operations | 1,007,918 | 22,075,420 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (2,061,009 | ) | (1,920,651 | ) | ||
Institutional Class | (47,038 | ) | (51,046 | ) | ||
A Class | (48,794 | ) | (36,557 | ) | ||
From net realized gains: | ||||||
Investor Class | (8,800,770 | ) | — | |||
Institutional Class | (175,620 | ) | — | |||
A Class | (254,043 | ) | — | |||
Decrease in net assets from distributions | (11,387,274 | ) | (2,008,254 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 2,811,062 | (6,554,884 | ) | |||
Net increase (decrease) in net assets | (7,568,294 | ) | 13,512,282 | |||
Net Assets | ||||||
Beginning of period | 158,841,116 | 145,328,834 | ||||
End of period | $ | 151,272,822 | $ | 158,841,116 | ||
Undistributed net investment income | $ | 1,924,142 | $ | 1,704,334 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Capital Value Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class and the A Class. The A Class may incur an initial sales charge and may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
17
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
18
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.900% to 1.100% for the Investor Class and A Class. The annual management fee ranges from 0.700% to 0.900% for the Institutional Class. During the year ended October 31, 2015, the investment advisor voluntarily agreed to waive 0.100% of its management fee. The investment advisor expects the fee waiver to continue until February 28, 2017, and cannot terminate it prior to such date without the approval of the Board of Directors. The total amount of the waiver for each class for the year ended October 31, 2015 was $149,692, $2,976 and $4,430 for the Investor Class, Institutional Class and A Class, respectively. The effective annual management fee before waiver for each class for the year ended October 31, 2015 was 1.10% for the Investor Class and A Class and 0.90% for the Institutional Class. The effective annual management fee after waiver for each class for the year ended October 31, 2015 was 1.00% for the Investor Class and A Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a Master Distribution and Individual Shareholder Services Plan (the plan) for the A Class, pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed and accrued daily based on the A 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $47,910,472 and $53,981,369, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 1,064,442 | $ | 9,812,362 | 1,267,771 | $ | 11,567,934 | ||||
Issued in reinvestment of distributions | 1,187,673 | 10,463,399 | 216,834 | 1,847,429 | ||||||
Redeemed | (1,990,525 | ) | (18,394,474 | ) | (2,174,796 | ) | (19,739,614 | ) | ||
261,590 | 1,881,287 | (690,191 | ) | (6,324,251 | ) | |||||
Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||
Sold | 45,367 | 399,750 | 15,136 | 134,931 | ||||||
Issued in reinvestment of distributions | 15,972 | 140,869 | 5,746 | 49,014 | ||||||
Redeemed | (32,895 | ) | (288,560 | ) | (96,090 | ) | (873,186 | ) | ||
28,444 | 252,059 | (75,208 | ) | (689,241 | ) | |||||
A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 155,347 | 1,419,624 | 183,136 | 1,647,219 | ||||||
Issued in reinvestment of distributions | 34,040 | 299,551 | 4,248 | 36,111 | ||||||
Redeemed | (114,102 | ) | (1,041,459 | ) | (134,836 | ) | (1,224,722 | ) | ||
75,285 | 677,716 | 52,548 | 458,608 | |||||||
Net increase (decrease) | 365,319 | $ | 2,811,062 | (712,851 | ) | $ | (6,554,884 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 147,383,647 | $ | 3,205,902 | — | |||
Temporary Cash Investments | 681 | 801,914 | — | |||||
$ | 147,384,328 | $ | 4,007,816 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 11,385 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (17,410 | ) | — |
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7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $3,515,597.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as an asset of $11,385 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $17,410 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $466,613 in net realized gain (loss) on foreign currency transactions and $(33,065) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 2,153,239 | $ | 2,008,254 | ||
Long-term capital gains | $ | 9,234,035 | — |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 106,122,111 | |
Gross tax appreciation of investments | $ | 47,906,235 | |
Gross tax depreciation of investments | (2,636,202 | ) | |
Net tax appreciation (depreciation) of investments | 45,270,033 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | 84 | ||
Net tax appreciation (depreciation) | $ | 45,270,117 | |
Undistributed ordinary income | $ | 1,918,117 | |
Accumulated long-term gains | $ | 8,931,069 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
21
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||||
2015 | $9.71 | 0.12 | (0.08) | 0.04 | (0.13) | (0.57) | (0.70) | $9.05 | 0.61% | 1.00% | 1.10% | 1.28% | 1.18% | 31% | $143,698 | ||
2014 | $8.51 | 0.12 | 1.20 | 1.32 | (0.12) | — | (0.12) | $9.71 | 15.68% | 1.00% | 1.10% | 1.32% | 1.22% | 31% | $151,715 | ||
2013 | $6.89 | 0.13 | 1.61 | 1.74 | (0.12) | — | (0.12) | $8.51 | 25.67% | 1.00% | 1.10% | 1.66% | 1.56% | 26% | $138,884 | ||
2012 | $5.96 | 0.11 | 0.93 | 1.04 | (0.11) | — | (0.11) | $6.89 | 17.80% | 1.00% | 1.10% | 1.76% | 1.66% | 32% | $117,210 | ||
2011 | $5.73 | 0.09 | 0.23 | 0.32 | (0.09) | — | (0.09) | $5.96 | 5.67% | 1.00% | 1.10% | 1.53% | 1.43% | 37% | $111,188 | ||
Institutional Class | |||||||||||||||||
2015 | $9.74 | 0.14 | (0.08) | 0.06 | (0.15) | (0.57) | (0.72) | $9.08 | 0.72% | 0.80% | 0.90% | 1.48% | 1.38% | 31% | $3,071 | ||
2014 | $8.54 | 0.14 | 1.20 | 1.34 | (0.14) | — | (0.14) | $9.74 | 15.86% | 0.80% | 0.90% | 1.52% | 1.42% | 31% | $3,019 | ||
2013 | $6.90 | 0.15 | 1.62 | 1.77 | (0.13) | — | (0.13) | $8.54 | 26.00% | 0.80% | 0.90% | 1.86% | 1.76% | 26% | $3,289 | ||
2012 | $5.97 | 0.12 | 0.93 | 1.05 | (0.12) | — | (0.12) | $6.90 | 18.00% | 0.80% | 0.90% | 1.96% | 1.86% | 32% | $3,943 | ||
2011 | $5.74 | 0.10 | 0.24 | 0.34 | (0.11) | — | (0.11) | $5.97 | 5.87% | 0.80% | 0.90% | 1.73% | 1.63% | 37% | $3,618 |
22
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
A Class | |||||||||||||||||
2015 | $9.67 | 0.09 | (0.07) | 0.02 | (0.11) | (0.57) | (0.68) | $9.01 | 0.34% | 1.25% | 1.35% | 1.03% | 0.93% | 31% | $4,504 | ||
2014 | $8.48 | 0.10 | 1.19 | 1.29 | (0.10) | — | (0.10) | $9.67 | 15.32% | 1.25% | 1.35% | 1.07% | 0.97% | 31% | $4,107 | ||
2013 | $6.87 | 0.11 | 1.62 | 1.73 | (0.12) | — | (0.12) | $8.48 | 25.51% | 1.25% | 1.35% | 1.41% | 1.31% | 26% | $3,155 | ||
2012 | $5.95 | 0.10 | 0.92 | 1.02 | (0.10) | — | (0.10) | $6.87 | 17.37% | 1.25% | 1.35% | 1.51% | 1.41% | 32% | $2,796 | ||
2011 | $5.72 | 0.08 | 0.23 | 0.31 | (0.08) | — | (0.08) | $5.95 | 5.41% | 1.25% | 1.35% | 1.28% | 1.18% | 37% | $3,326 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
23
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capital Value Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
24
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one- and three-year periods and slightly below its benchmark for the five- and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading
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activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board and the Advisor agreed to a reduction of the Fund's annual unified management fee of 0.10% (e.g., the Investor Class unified fee will be reduced from 1.10% to 1.00%) for at least one year, beginning August 1, 2015. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $2,153,239, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $9,234,035 or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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Notes |
34
Notes |
35
Notes |
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87638 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Focused Growth Fund
Table of Contents |
President’s Letter | 2 |
Performance | 3 |
Portfolio Commentary | |
Fund Characteristics | |
Shareholder Fee Example | |
Schedule of Investments | |
Statement of Assets and Liabilities | |
Statement of Operations | |
Statement of Changes in Net Assets | |
Notes to Financial Statements | |
Financial Highlights | |
Report of Independent Registered Public Accounting Firm | |
Management | |
Approval of Management Agreement | |
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | AFSIX | 6.41% | 12.51% | 7.43% | 7.47% | 2/28/05 |
Russell 1000 Growth Index | — | 9.18% | 15.29% | 9.08% | 8.85% | — |
Institutional Class | AFGNX | 6.51% | 12.73% | — | 6.70% | 9/28/07 |
A Class | AFGAX | 9/28/07 | ||||
No sales charge* | 6.11% | 12.24% | — | 6.23% | ||
With sales charge* | -0.02% | 10.92% | — | 5.46% | ||
C Class | AFGCX | 5.28% | 11.38% | — | 5.43% | 9/28/07 |
R Class | AFGRX | 5.85% | 11.96% | — | 5.96% | 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 and may be subject to a maximum CDSC of 1.00%. 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. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $20,489 | |
Russell 1000 Growth Index — $23,870 | |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Portfolio Commentary |
Portfolio Managers: Greg Woodhams and Joe Reiland
Performance Summary
Focused Growth returned 6.41%* for the 12 months ended October 31, 2015, trailing the 9.18% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted strong returns during the reporting period amid volatility and considerable variation within sector returns. Within the Russell 1000 Growth Index, consumer discretionary was the top-performing sector, gaining about 20%. Consumer staples and information technology also registered double-digit gains. Energy stocks continued to struggle with plunging commodity prices and fell nearly 31%. Utilities also declined sharply.
Focused Growth received positive contributions to absolute return from most sectors in which it was invested, led by consumer discretionary and information technology. Financials, energy and materials were negative contributors. Stock decisions in the consumer staples, financials, and consumer discretionary detracted from performance relative to the Russell 1000 Growth Index. Stock selection in health care and energy aided relative results.
Consumer Staples and Financials Were Key Detractors
Stock selection in the consumer staples sector, especially in the food products industry, was a significant source of underperformance versus the benchmark. Baby formula maker Mead Johnson Nutrition was a significant detractor, dragged down by a difficult environment in Hong Kong. We think this is a transitory issue and continue to have a positive view of the underlying growth rate for the company.
In financials, stock choices hampered results, especially among capital markets firms. Asset manager Franklin Resources detracted on emerging markets weakness, which has reduced assets under management and fund flows. The holding was eliminated. Not owning real estate investment trusts detracted as the industry performed better than expected due to the Federal Reserve’s caution in raising interest rates.
Stock decisions in the consumer discretionary sector also weighed on relative performance. Not owning Starbucks was a major detractor in the sector as the coffee retailer is benefiting from its Starbucks Rewards program. Underweighting Amazon.com also hurt performance. The internet retailer reported strong revenue growth, aided by its Prime membership program.
Elsewhere, digital consumer review service Yelp detracted despite reporting positive results. The stock suffered along with other internet-related names as earnings multiples compressed and high-growth/high-volatility stocks struggled early in 2015. Yelp was eliminated. Other significant individual detractors included industrial equipment company Caterpillar, which struggled as investors worried about weak global growth, especially in China. Caterpillar was eliminated from the portfolio.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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Health Care and Energy Aided Relative Results
Stock selection in the health care sector, especially within the biotechnology industry, was a top contributor to performance versus the benchmark, although an overweight allocation to the sector mitigated some of the gain. Biotech firm Incyte reported strong results and benefited from acquisition speculation. Underweighting biotech company Gilead Sciences also benefited performance. The stock declined as news late in the fiscal year focused on high prescription drug prices. Gilead is also feeling competitive pressure in its hepatitis C business.
Stock decisions and an underweight in energy benefited performance as both producers and equipment and services companies suffered as oil prices declined. Not owning energy equipment provider Schlumberger was the major contributor in the sector.
Other key contributors included video game maker Electronic Arts, which continued to execute, reporting strong results consistent with our investment thesis of improving operating margins driven by cost controls, a higher percentage of video games being delivered digitally, and a gaming console refresh cycle. Online travel agent Expedia continued to report very strong results with hotel room nights, bookings, and revenue growth all better than expected in both the U.S. and globally. The company benefited from regulatory approval of its planned purchase of rival Orbitz, as well as from exiting its money-losing Chinese partnership.
Outlook
We understand that investors use the Focused Growth portfolio as a building block in their larger investment strategy. Maintaining low cash balances and avoiding style drift we believe provides our clients with the large-cap growth representation they seek.
In our opinion, stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result, the portfolio’s sector and industry selection as well as capitalization range allocations are primarily a result of identifying what we believe to be superior individual securities. As of October 31, 2015, the health care and industrials sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in consumer staples, financials, and information technology.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc., Class A | 4.8% |
Walt Disney Co. (The) | 4.3% |
Visa, Inc., Class A | 4.2% |
PepsiCo, Inc. | 4.1% |
Comcast Corp., Class A | 3.8% |
Boeing Co. (The) | 3.8% |
Oracle Corp. | 3.3% |
O'Reilly Automotive, Inc. | 3.1% |
Dow Chemical Co. (The) | 3.1% |
Lockheed Martin Corp. | 3.1% |
Top Five Industries | % of net assets |
Software | 10.1% |
Media | 8.4% |
Biotechnology | 7.6% |
Internet Software and Services | 7.3% |
Aerospace and Defense | 6.9% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.6% |
Exchange-Traded Funds | 0.7% |
Total Equity Exposure | 98.3% |
Temporary Cash Investments | 2.1% |
Other Assets and Liabilities | (0.4)% |
7
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. 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.
8
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15-10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,019.30 | $5.04 | 0.99% |
Institutional Class | $1,000 | $1,020.10 | $4.02 | 0.79% |
A Class | $1,000 | $1,017.80 | $6.31 | 1.24% |
C Class | $1,000 | $1,013.50 | $10.10 | 1.99% |
R Class | $1,000 | $1,016.30 | $7.57 | 1.49% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.22 | $5.04 | 0.99% |
Institutional Class | $1,000 | $1,021.22 | $4.02 | 0.79% |
A Class | $1,000 | $1,018.96 | $6.31 | 1.24% |
C Class | $1,000 | $1,015.17 | $10.11 | 1.99% |
R Class | $1,000 | $1,017.69 | $7.58 | 1.49% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | ||||
COMMON STOCKS — 97.6% | |||||
Aerospace and Defense — 6.9% | |||||
Boeing Co. (The) | 4,289 | $ | 635,072 | ||
Lockheed Martin Corp. | 2,349 | 516,381 | |||
1,151,453 | |||||
Airlines — 2.9% | |||||
Alaska Air Group, Inc. | 3,730 | 284,413 | |||
Delta Air Lines, Inc. | 4,004 | 203,563 | |||
487,976 | |||||
Beverages — 4.1% | |||||
PepsiCo, Inc. | 6,739 | 688,658 | |||
Biotechnology — 7.6% | |||||
Alexion Pharmaceuticals, Inc.(1) | 1,996 | 351,296 | |||
Biogen, Inc.(1) | 1,005 | 291,963 | |||
Gilead Sciences, Inc. | 2,601 | 281,246 | |||
Incyte Corp.(1) | 2,972 | 349,299 | |||
1,273,804 | |||||
Chemicals — 3.5% | |||||
Dow Chemical Co. (The) | 9,994 | 516,390 | |||
Sherwin-Williams Co. (The) | 269 | 71,777 | |||
588,167 | |||||
Communications Equipment — 1.1% | |||||
QUALCOMM, Inc. | 3,046 | 180,993 | |||
Energy Equipment and Services — 1.4% | |||||
Halliburton Co. | 5,855 | 224,715 | |||
Food Products — 2.3% | |||||
Mead Johnson Nutrition Co. | 4,682 | 383,924 | |||
Health Care Equipment and Supplies — 2.6% | |||||
C.R. Bard, Inc. | 2,318 | 431,959 | |||
Health Care Providers and Services — 4.1% | |||||
Cardinal Health, Inc. | 5,119 | 420,782 | |||
Express Scripts Holding Co.(1) | 3,114 | 268,987 | |||
689,769 | |||||
Hotels, Restaurants and Leisure — 1.6% | |||||
Las Vegas Sands Corp. | 5,301 | 262,453 | |||
Insurance — 2.8% | |||||
American International Group, Inc. | 7,436 | 468,914 | |||
Internet and Catalog Retail — 3.5% | |||||
Amazon.com, Inc.(1) | 124 | 77,612 | |||
Expedia, Inc. | 3,654 | 498,040 | |||
575,652 | |||||
Internet Software and Services — 7.3% | |||||
Alphabet, Inc., Class A(1) | 1,097 | 808,917 | |||
Facebook, Inc., Class A(1) | 4,031 | 411,041 | |||
1,219,958 |
10
Shares | Value | ||||
IT Services — 6.0% | |||||
Cognizant Technology Solutions Corp., Class A(1) | 277 | $ | 18,866 | ||
Fiserv, Inc.(1) | 2,956 | 285,284 | |||
Visa, Inc., Class A | 9,008 | 698,841 | |||
1,002,991 | |||||
Machinery — 2.4% | |||||
Parker-Hannifin Corp. | 2,255 | 236,099 | |||
WABCO Holdings, Inc.(1) | 1,428 | 160,264 | |||
396,363 | |||||
Media — 8.4% | |||||
Comcast Corp., Class A | 10,265 | 642,794 | |||
Sirius XM Holdings, Inc.(1) | 9,918 | 40,465 | |||
Walt Disney Co. (The) | 6,271 | 713,264 | |||
1,396,523 | |||||
Multiline Retail — 2.2% | |||||
Macy's, Inc. | 7,081 | 360,989 | |||
Oil, Gas and Consumable Fuels — 0.1% | |||||
Concho Resources, Inc.(1) | 189 | 21,907 | |||
Personal Products — 0.7% | |||||
Estee Lauder Cos., Inc. (The), Class A | 1,512 | 121,656 | |||
Pharmaceuticals — 5.5% | |||||
Johnson & Johnson | 2,462 | 248,736 | |||
Perrigo Co. plc | 576 | 90,858 | |||
Pfizer, Inc. | 5,856 | 198,050 | |||
Teva Pharmaceutical Industries Ltd. ADR | 6,506 | 385,090 | |||
922,734 | |||||
Road and Rail — 1.8% | |||||
Union Pacific Corp. | 3,303 | 295,123 | |||
Semiconductors and Semiconductor Equipment — 0.7% | |||||
Skyworks Solutions, Inc. | 688 | 53,141 | |||
Xilinx, Inc. | 1,454 | 69,240 | |||
122,381 | |||||
Software — 10.1% | |||||
Electronic Arts, Inc.(1) | 6,732 | 485,175 | |||
Intuit, Inc. | 4,829 | 470,489 | |||
Oracle Corp. | 14,209 | 551,878 | |||
Splunk, Inc.(1) | 3,293 | 184,935 | |||
1,692,477 | |||||
Specialty Retail — 3.7% | |||||
O'Reilly Automotive, Inc.(1) | 1,875 | 517,987 | |||
Ross Stores, Inc. | 1,345 | 68,030 | |||
TJX Cos., Inc. (The) | 373 | 27,300 | |||
613,317 | |||||
Textiles, Apparel and Luxury Goods — 1.6% | |||||
Carter's, Inc. | 2,960 | 269,005 | |||
Wireless Telecommunication Services — 2.7% | |||||
SBA Communications Corp., Class A(1) | 3,758 | 447,277 | |||
TOTAL COMMON STOCKS (Cost $13,014,339) | 16,291,138 | ||||
EXCHANGE-TRADED FUNDS — 0.7% | |||||
iShares Russell 1000 Growth ETF (Cost $119,339) | 1,223 | 123,633 |
11
Shares | Value | ||||
TEMPORARY CASH INVESTMENTS — 2.1% | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $136,053), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $133,406) | $ | 133,406 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.125%, 2/15/43, valued at $229,075), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $222,000) | 222,000 | ||||
State Street Institutional Liquid Reserves Fund, Premier Class | 414 | 414 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $355,820) | 355,820 | ||||
TOTAL INVESTMENT SECURITIES — 100.4% (Cost $13,489,498) | 16,770,591 | ||||
OTHER ASSETS AND LIABILITIES — (0.4)% | (73,904 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 16,696,687 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
(1) | Non-income producing. |
See Notes to Financial Statements.
12
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $13,489,498) | $ | 16,770,591 | |
Cash | 4,318 | ||
Receivable for investments sold | 71,360 | ||
Receivable for capital shares sold | 1,922 | ||
Dividends and interest receivable | 557 | ||
16,848,748 | |||
Liabilities | |||
Payable for investments purchased | 138,167 | ||
Accrued management fees | 13,479 | ||
Distribution and service fees payable | 415 | ||
152,061 | |||
Net Assets | $ | 16,696,687 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 12,707,728 | |
Undistributed net investment income | 28,332 | ||
Undistributed net realized gain | 679,534 | ||
Net unrealized appreciation | 3,281,093 | ||
$ | 16,696,687 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $15,637,638 | 1,236,385 | $12.65 | |||
Institutional Class, $0.01 Par Value | $42,279 | 3,339 | $12.66 | |||
A Class, $0.01 Par Value | $583,288 | 46,282 | $12.60* | |||
C Class, $0.01 Par Value | $298,932 | 24,928 | $11.99 | |||
R Class, $0.01 Par Value | $134,550 | 10,774 | $12.49 |
*Maximum offering price $13.37 (net asset value divided by 0.9425).
See Notes to Financial Statements.
13
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $1,211) | $ | 228,634 | |
Interest | 76 | ||
228,710 | |||
Expenses: | |||
Management fees | 168,343 | ||
Distribution and service fees: | |||
A Class | 1,652 | ||
C Class | 3,680 | ||
R Class | 616 | ||
Directors' fees and expenses | 563 | ||
174,854 | |||
Net investment income (loss) | 53,856 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 793,586 | ||
Change in net unrealized appreciation (depreciation) on investments | 198,421 | ||
Net realized and unrealized gain (loss) | 992,007 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 1,045,863 |
See Notes to Financial Statements.
14
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 53,856 | $ | 58,084 | ||
Net realized gain (loss) | 793,586 | 3,833,059 | ||||
Change in net unrealized appreciation (depreciation) | 198,421 | (1,675,354 | ) | |||
Net increase (decrease) in net assets resulting from operations | 1,045,863 | 2,215,789 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (58,116 | ) | (64,380 | ) | ||
Institutional Class | (222 | ) | (216 | ) | ||
A Class | (750 | ) | (1,153 | ) | ||
From net realized gains: | ||||||
Investor Class | (3,294,997 | ) | (1,657,959 | ) | ||
Institutional Class | (8,120 | ) | (3,744 | ) | ||
A Class | (137,956 | ) | (75,832 | ) | ||
C Class | (80,522 | ) | (48,564 | ) | ||
R Class | (24,279 | ) | (11,461 | ) | ||
Decrease in net assets from distributions | (3,604,962 | ) | (1,863,309 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 1,882,415 | (613,458 | ) | |||
Net increase (decrease) in net assets | (676,684 | ) | (260,978 | ) | ||
Net Assets | ||||||
Beginning of period | 17,373,371 | 17,634,349 | ||||
End of period | $ | 16,696,687 | $ | 17,373,371 | ||
Undistributed net investment income | $ | 28,332 | $ | 41,472 |
See Notes to Financial Statements.
15
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Focused Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could
16
affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually. The fund may elect to treat a portion of its payment to a redeeming shareholder, which represents the pro rata share of undistributed net investment income and net realized gains, as a distribution for federal income tax purposes (tax equalization).
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
17
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.800% to 0.990% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.99% for the Investor Class, A 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $10,130,493 and $11,792,714, respectively.
18
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 130,836 | $ | 1,660,216 | 83,756 | $ | 1,199,614 | ||||
Issued in reinvestment of distributions | 280,501 | 3,295,886 | 126,729 | 1,704,510 | ||||||
Redeemed | (230,077 | ) | (2,845,220 | ) | (207,315 | ) | (2,973,387 | ) | ||
181,260 | 2,110,882 | 3,170 | (69,263 | ) | ||||||
Institutional Class/Shares Authorized | 20,000,000 | 10,000,000 | ||||||||
Issued in reinvestment of distributions | 711 | 8,342 | 295 | 3,960 | ||||||
A Class/Shares Authorized | 15,000,000 | 10,000,000 | ||||||||
Sold | 10,274 | 128,143 | 31,298 | 441,244 | ||||||
Issued in reinvestment of distributions | 11,513 | 135,042 | 5,575 | 74,867 | ||||||
Redeemed | (37,614 | ) | (521,417 | ) | (26,665 | ) | (378,220 | ) | ||
(15,827 | ) | (258,232 | ) | 10,208 | 137,891 | |||||
C Class/Shares Authorized | 15,000,000 | 10,000,000 | ||||||||
Sold | 1,852 | 22,305 | 3,194 | 45,140 | ||||||
Issued in reinvestment of distributions | 5,686 | 63,915 | 3,058 | 39,961 | ||||||
Redeemed | (8,610 | ) | (99,638 | ) | (10,239 | ) | (139,779 | ) | ||
(1,072 | ) | (13,418 | ) | (3,987 | ) | (54,678 | ) | |||
R Class/Shares Authorized | 15,000,000 | 10,000,000 | ||||||||
Sold | 1,038 | 12,798 | 436 | 6,356 | ||||||
Issued in reinvestment of distributions | 2,084 | 24,279 | 856 | 11,461 | ||||||
Redeemed | (174 | ) | (2,236 | ) | (42,964 | ) | (649,185 | ) | ||
2,948 | 34,841 | (41,672 | ) | (631,368 | ) | |||||
Net increase (decrease) | 168,020 | $ | 1,882,415 | (31,986 | ) | $ | (613,458 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
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The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 16,291,138 | — | — | ||||
Exchange-Traded Funds | 123,633 | — | — | |||||
Temporary Cash Investments | 414 | $ | 355,406 | — | ||||
$ | 16,415,185 | $ | 355,406 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 269,775 | $ | 65,749 | ||
Long-term capital gains | $ | 3,335,187 | $ | 1,797,560 |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 13,510,950 | |
Gross tax appreciation of investments | $ | 3,539,277 | |
Gross tax depreciation of investments | (279,636 | ) | |
Net tax appreciation (depreciation) of investments | $ | 3,259,641 | |
Undistributed ordinary income | $ | 28,332 | |
Accumulated long-term gains | $ | 700,986 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $15.08 | 0.04 | 0.67 | 0.71 | (0.05) | (3.09) | (3.14) | $12.65 | 6.41% | 0.99% | 0.35% | 61% | $15,638 | ||
2014 | $14.89 | 0.05 | 1.80 | 1.85 | (0.06) | (1.60) | (1.66) | $15.08 | 13.75% | 1.00% | 0.38% | 97% | $15,906 | ||
2013 | $12.00 | 0.08 | 2.89 | 2.97 | (0.08) | — | (0.08) | $14.89 | 24.93% | 1.00% | 0.64% | 73% | $15,664 | ||
2012 | $10.70 | 0.08 | 1.28 | 1.36 | (0.06) | — | (0.06) | $12.00 | 12.78% | 1.01% | 0.70% | 59% | $13,828 | ||
2011 | $10.17 | 0.06 | 0.53 | 0.59 | (0.06) | — | (0.06) | $10.70 | 5.76% | 1.00% | 0.54% | 91% | $14,335 | ||
Institutional Class | |||||||||||||||
2015 | $15.10 | 0.07 | 0.66 | 0.73 | (0.08) | (3.09) | (3.17) | $12.66 | 6.51% | 0.79% | 0.55% | 61% | $42 | ||
2014 | $14.91 | 0.08 | 1.80 | 1.88 | (0.09) | (1.60) | (1.69) | $15.10 | 14.06% | 0.80% | 0.58% | 97% | $40 | ||
2013 | $12.01 | 0.11 | 2.88 | 2.99 | (0.09) | — | (0.09) | $14.91 | 25.06% | 0.80% | 0.84% | 73% | $35 | ||
2012 | $10.70 | 0.10 | 1.29 | 1.39 | (0.08) | — | (0.08) | $12.01 | 13.09% | 0.81% | 0.90% | 59% | $28 | ||
2011 | $10.17 | 0.08 | 0.53 | 0.61 | (0.08) | — | (0.08) | $10.70 | 5.98% | 0.80% | 0.74% | 91% | $25 | ||
A Class | |||||||||||||||
2015 | $15.03 | 0.02 | 0.66 | 0.68 | (0.02) | (3.09) | (3.11) | $12.60 | 6.11% | 1.24% | 0.10% | 61% | $583 | ||
2014 | $14.84 | 0.02 | 1.79 | 1.81 | (0.02) | (1.60) | (1.62) | $15.03 | 13.49% | 1.25% | 0.13% | 97% | $933 | ||
2013 | $11.99 | 0.05 | 2.88 | 2.93 | (0.08) | — | (0.08) | $14.84 | 24.53% | 1.25% | 0.39% | 73% | $770 | ||
2012 | $10.68 | 0.05 | 1.29 | 1.34 | (0.03) | — | (0.03) | $11.99 | 12.62% | 1.26% | 0.45% | 59% | $1,376 | ||
2011 | $10.15 | 0.04 | 0.52 | 0.56 | (0.03) | — | (0.03) | $10.68 | 5.51% | 1.25% | 0.29% | 91% | $1,040 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||
2015 | $14.52 | (0.08) | 0.64 | 0.56 | — | (3.09) | (3.09) | $11.99 | 5.28% | 1.99% | (0.65)% | 61% | $299 | ||
2014 | $14.47 | (0.09) | 1.74 | 1.65 | — | (1.60) | (1.60) | $14.52 | 12.66% | 2.00% | (0.62)% | 97% | $378 | ||
2013 | $11.75 | (0.05) | 2.82 | 2.77 | (0.05) | — | (0.05) | $14.47 | 23.65% | 2.00% | (0.36)% | 73% | $434 | ||
2012 | $10.52 | (0.03) | 1.26 | 1.23 | — | — | — | $11.75 | 11.69% | 2.01% | (0.30)% | 59% | $311 | ||
2011 | $10.05 | (0.05) | 0.52 | 0.47 | — | — | — | $10.52 | 4.68% | 2.00% | (0.46)% | 91% | $346 | ||
R Class | |||||||||||||||
2015 | $14.93 | (0.02) | 0.67 | 0.65 | — | (3.09) | (3.09) | $12.49 | 5.85% | 1.49% | (0.15)% | 61% | $135 | ||
2014 | $14.77 | 0.02 | 1.74 | 1.76 | — | (1.60) | (1.60) | $14.93 | 13.20% | 1.50% | (0.12)% | 97% | $117 | ||
2013 | $11.95 | 0.02 | 2.87 | 2.89 | (0.07) | — | (0.07) | $14.77 | 24.27% | 1.50% | 0.14% | 73% | $731 | ||
2012 | $10.65 | 0.02 | 1.29 | 1.31 | (0.01) | — | (0.01) | $11.95 | 12.29% | 1.51% | 0.20% | 59% | $558 | ||
2011 | $10.12 | 0.01 | 0.52 | 0.53 | —(3) | — | —(3) | $10.65 | 5.26% | 1.50% | 0.04% | 91% | $480 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Focused Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Focused Growth Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
27
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of
28
shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
29
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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
30
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $227,238, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $210,787 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $3,413,059, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
The fund utilized earnings and profits of $83,120 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87637 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Fundamental Equity Fund
Table of Contents |
President's Letter | 2 |
Performance | 3 |
Portfolio Commentary | |
Fund Characteristics | |
Shareholder Fee Example | |
Schedule of Investments | |
Statement of Assets and Liabilities | |
Statement of Operations | |
Statement of Changes in Net Assets. | |
Notes to Financial Statements | |
Financial Highlights | |
Report of Independent Registered Public Accounting Firm | |
Management | |
Approval of Management Agreement | |
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
A Class | AFDAX | 11/30/04 | ||||
No sales charge* | 3.21% | 13.82% | 8.62% | 8.84% | ||
With sales charge* | -2.75% | 12.47% | 7.98% | 8.25% | ||
S&P 500 Index | — | 5.20% | 14.32% | 7.84% | 7.59% | — |
Investor Class | AFDIX | 3.51% | 14.10% | 8.88% | 8.81% | 7/29/05 |
Institutional Class | AFEIX | 3.66% | 14.34% | 9.09% | 9.02% | 7/29/05 |
C Class | AFDCX | 2.42% | 12.98% | 7.79% | 8.02% | 11/30/04 |
R Class | AFDRX | 3.01% | 13.54% | 8.33% | 8.26% | 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 and may be subject to a maximum CDSC of 1.00%. 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.
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005* |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
A Class — $21,551 | |
S&P 500 Index — $21,288 | |
* The A Class’s initial investment is $9,425 to reflect the maximum 5.75% initial sales charge.
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: Greg Woodhams, Prescott LeGard, Justin Brown, and Joe Reiland
Performance Summary
Fundamental Equity returned 3.51%* for the 12 months ended October 31, 2015, compared with the 5.20% return of the portfolio’s benchmark, the S&P 500 Index.
U.S. stock indices delivered positive returns during the reporting period amid volatility and considerable variation among sectors. Within the S&P 500 Index, consumer discretionary stocks posted the best total return, gaining nearly 21%. Information technology, consumer staples, and health care also performed well. Energy was the worst-performing sector, losing more than 19%. Materials, telecommunication services, and utilities also registered losses.
Fundamental Equity received positive contributions to absolute return from most sectors, led by information technology and consumer staples. Energy stocks were the most significant negative contributors. Stock decisions in the consumer discretionary and information technology sectors detracted most from performance relative to the S&P 500 Index. Stock selection in the consumer staples and financials sectors aided results versus the benchmark.
Consumer Discretionary and Information Technology Led Detractors
Stock selection in the consumer discretionary sector was a major source of underperformance relative to the S&P 500 Index, especially in the hotels, restaurants, and leisure and textile, apparel, and luxury goods industries. Underweighting internet and catalog retailers also hampered performance. Underweighting Amazon.com was a significant detractor as the online retailer reported strong revenue growth. Margins are improving through efficiency gains, and profitability from its cloud hosting services has been higher than expected. Not owning index component Starbucks also detracted as the coffee retailer posted solid results.
The information technology sector also hampered relative performance, largely due to stock choices. An overweight allocation to communication chipmaker QUALCOMM detracted as the company suffered from a competitive business environment, issues with royalty payments, and slower growth in China.
Other key individual detractors came from sectors and companies affected by falling energy prices and slowing global growth. Energy equipment and services firm National Oilwell Varco suffered as demand for its rigs and other services declined. The economic slowdown in emerging markets such as Brazil and China hurt engine maker Cummins and construction equipment maker Caterpillar. Falling oil prices also hurt road and rail company Union Pacific as investors worried about declining rail volumes.
Consumer Staples and Financials Holdings Aided Results
Stock decisions in the consumer staples sector contributed most to relative performance, driven by stock selection in the food and staples retailing industry and positioning in the household products industry. An overweight allocation to grocery chain Kroger was a key contributor. The company continued to report strong sales and profit growth, beating analyst expectations.
In financials, stock selection among insurers and banks aided results. American International Group was a top contributor, reporting better-than-expected earnings. The large insurer has also come under pressure from an outside investor to create shareholder value by breaking up the company.
*All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes.
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Elsewhere, significant individual contributors included online travel agent Expedia, which continued to report very strong results with hotel room nights, bookings, and revenue growth all better than expected in both the U.S. and globally. The company benefited from regulatory approval of its planned purchase of rival Orbitz, as well as from exiting its money-losing Chinese partnership. Credit card company Visa was a significant contributor, reporting strong results that beat expectations. The company continues to benefit from the transition of consumer purchases from check to credit. In addition, the market is looking forward to the potential benefits from an acquisition of Visa Europe. Video game maker Electronic Arts was a top contributor. The company continued to execute, reporting strong results with improving operating margins driven by cost controls.
Outlook
Fundamental Equity generally invests in larger-sized companies, although it may invest in companies of any size. We use 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.
As of October 31, 2015, the fund’s largest sector overweights were in information technology and health care. The key underweights were in consumer discretionary and telecommunication services. Regardless of market conditions, we will remain focused on our methodology of identifying attractively valued companies with growth characteristics.
6
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 4.0% |
Johnson & Johnson | 3.0% |
Alphabet, Inc.* | 2.8% |
Exxon Mobil Corp. | 2.8% |
JPMorgan Chase & Co. | 2.7% |
Pfizer, Inc. | 2.6% |
Citigroup, Inc. | 2.3% |
Visa, Inc., Class A | 2.3% |
Comcast Corp., Class A | 2.2% |
Home Depot, Inc. (The) | 2.2% |
*Includes all classes of the issuer. | |
Top Five Industries | % of net assets |
Banks | 7.6% |
Pharmaceuticals | 6.3% |
Oil, Gas and Consumable Fuels | 5.4% |
Technology Hardware, Storage and Peripherals | 5.4% |
Internet Software and Services | 4.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.0% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | 0.1% |
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $997.70 | $4.98 | 0.99% |
Institutional Class | $1,000 | $998.20 | $3.98 | 0.79% |
A Class | $1,000 | $996.30 | $6.24 | 1.24% |
C Class | $1,000 | $992.50 | $9.99 | 1.99% |
R Class | $1,000 | $995.40 | $7.49 | 1.49% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.22 | $5.04 | 0.99% |
Institutional Class | $1,000 | $1,021.22 | $4.02 | 0.79% |
A Class | $1,000 | $1,018.96 | $6.31 | 1.24% |
C Class | $1,000 | $1,015.17 | $10.11 | 1.99% |
R Class | $1,000 | $1,017.69 | $7.58 | 1.49% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | ||||
COMMON STOCKS — 99.0% | |||||
Aerospace and Defense — 3.8% | |||||
Boeing Co. (The) | 16,981 | $ | 2,514,377 | ||
General Dynamics Corp. | 17,775 | 2,641,009 | |||
Northrop Grumman Corp. | 24,208 | 4,545,052 | |||
9,700,438 | |||||
Airlines — 1.7% | |||||
Delta Air Lines, Inc. | 83,876 | 4,264,256 | |||
Southwest Airlines Co. | 1,957 | 90,589 | |||
United Continental Holdings, Inc.(1) | 1,513 | 91,249 | |||
4,446,094 | |||||
Automobiles — 0.4% | |||||
Ford Motor Co. | 72,885 | 1,079,427 | |||
Banks — 7.6% | |||||
BancorpSouth, Inc. | 8,917 | 222,301 | |||
Citigroup, Inc. | 112,043 | 5,957,326 | |||
Fifth Third Bancorp | 1,376 | 26,213 | |||
JPMorgan Chase & Co. | 109,914 | 7,061,975 | |||
KeyCorp | 19,017 | 236,191 | |||
M&T Bank Corp. | 425 | 50,936 | |||
PacWest Bancorp | 6,373 | 287,040 | |||
Wells Fargo & Co. | 106,379 | 5,759,359 | |||
19,601,341 | |||||
Beverages — 2.2% | |||||
Coca-Cola Enterprises, Inc. | 16,356 | 839,717 | |||
Dr Pepper Snapple Group, Inc. | 17,278 | 1,544,135 | |||
PepsiCo, Inc. | 31,517 | 3,220,722 | |||
5,604,574 | |||||
Biotechnology — 4.5% | |||||
AbbVie, Inc. | 20,081 | 1,195,824 | |||
Amgen, Inc. | 17,768 | 2,810,542 | |||
Biogen, Inc.(1) | 11,088 | 3,221,175 | |||
Gilead Sciences, Inc. | 37,918 | 4,100,073 | |||
Regeneron Pharmaceuticals, Inc.(1) | 592 | 329,975 | |||
11,657,589 | |||||
Capital Markets — 1.5% | |||||
Ameriprise Financial, Inc. | 12,115 | 1,397,586 | |||
BlackRock, Inc. | 1,917 | 674,727 | |||
Franklin Resources, Inc. | 12,480 | 508,685 | |||
Legg Mason, Inc. | 26,020 | 1,164,395 | |||
3,745,393 | |||||
Chemicals — 1.8% | |||||
CF Industries Holdings, Inc. | 15,536 | 788,763 |
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Shares | Value | ||||
Dow Chemical Co. (The) | 11,360 | $ | 586,971 | ||
LyondellBasell Industries NV, Class A | 16,199 | 1,505,049 | |||
PPG Industries, Inc. | 730 | 76,110 | |||
Sherwin-Williams Co. (The) | 6,469 | 1,726,123 | |||
4,683,016 | |||||
Commercial Services and Supplies — 0.3% | |||||
Deluxe Corp. | 1,558 | 92,779 | |||
Tyco International plc | 15,052 | 548,495 | |||
641,274 | |||||
Communications Equipment — 3.2% | |||||
ARRIS Group, Inc.(1) | 9,313 | 263,185 | |||
Cisco Systems, Inc. | 127,682 | 3,683,626 | |||
Harris Corp. | 1,935 | 153,117 | |||
Motorola Solutions, Inc. | 27,216 | 1,904,304 | |||
QUALCOMM, Inc. | 36,701 | 2,180,773 | |||
8,185,005 | |||||
Construction and Engineering — 0.1% | |||||
Fluor Corp. | 5,229 | 249,998 | |||
Diversified Consumer Services — 0.3% | |||||
H&R Block, Inc. | 24,087 | 897,482 | |||
Diversified Financial Services — 1.0% | |||||
Berkshire Hathaway, Inc., Class B(1) | 5,555 | 755,591 | |||
McGraw Hill Financial, Inc. | 13,393 | 1,240,728 | |||
Moody's Corp. | 5,218 | 501,763 | |||
2,498,082 | |||||
Diversified Telecommunication Services — 1.7% | |||||
AT&T, Inc. | 51,730 | 1,733,472 | |||
CenturyLink, Inc. | 46,599 | 1,314,558 | |||
Level 3 Communications, Inc.(1) | 2,087 | 106,332 | |||
Verizon Communications, Inc. | 28,302 | 1,326,798 | |||
4,481,160 | |||||
Electric Utilities — 1.0% | |||||
Duke Energy Corp. | 1,115 | 79,689 | |||
Edison International | 9,545 | 577,663 | |||
Entergy Corp. | 15,584 | 1,062,205 | |||
Xcel Energy, Inc. | 22,542 | 803,172 | |||
2,522,729 | |||||
Electrical Equipment† | |||||
Emerson Electric Co. | 1,148 | 54,220 | |||
Electronic Equipment, Instruments and Components† | |||||
Dolby Laboratories, Inc., Class A | 629 | 21,807 | |||
FLIR Systems, Inc. | 1,529 | 40,779 | |||
62,586 | |||||
Energy Equipment and Services — 1.8% | |||||
Cameron International Corp.(1) | 7,096 | 482,599 | |||
Diamond Offshore Drilling, Inc. | 23,515 | 467,478 | |||
Halliburton Co. | 22,417 | 860,364 |
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Shares | Value | ||||
Nabors Industries Ltd. | 6,767 | $ | 67,941 | ||
National Oilwell Varco, Inc. | 66,821 | 2,515,142 | |||
Schlumberger Ltd. | 2,311 | 180,628 | |||
4,574,152 | |||||
Food and Staples Retailing — 3.5% | |||||
CVS Health Corp. | 48,424 | 4,783,323 | |||
Kroger Co. (The) | 88,465 | 3,343,977 | |||
Rite Aid Corp.(1) | 19,788 | 155,929 | |||
SUPERVALU, Inc.(1) | 49,463 | 324,972 | |||
Wal-Mart Stores, Inc. | 9,521 | 544,982 | |||
9,153,183 | |||||
Food Products — 2.6% | |||||
Archer-Daniels-Midland Co. | 11,836 | 540,432 | |||
Campbell Soup Co. | 5,930 | 301,185 | |||
ConAgra Foods, Inc. | 19,301 | 782,655 | |||
General Mills, Inc. | 18,351 | 1,066,377 | |||
Pinnacle Foods, Inc. | 23,041 | 1,015,647 | |||
Tyson Foods, Inc., Class A | 70,042 | 3,107,063 | |||
6,813,359 | |||||
Health Care Equipment and Supplies — 1.5% | |||||
Abbott Laboratories | 56,375 | 2,525,600 | |||
Boston Scientific Corp.(1) | 21,983 | 401,849 | |||
C.R. Bard, Inc. | 1,966 | 366,364 | |||
Edwards Lifesciences Corp.(1) | 1,080 | 169,722 | |||
Hologic, Inc.(1) | 3,197 | 124,236 | |||
Intuitive Surgical, Inc.(1) | 302 | 149,973 | |||
ResMed, Inc. | 365 | 21,028 | |||
3,758,772 | |||||
Health Care Providers and Services — 2.9% | |||||
Aetna, Inc. | 10,965 | 1,258,563 | |||
AmerisourceBergen Corp. | 22,137 | 2,136,442 | |||
Cigna Corp. | 12,959 | 1,737,024 | |||
Express Scripts Holding Co.(1) | 23,927 | 2,066,814 | |||
HCA Holdings, Inc.(1) | 2,877 | 197,909 | |||
7,396,752 | |||||
Hotels, Restaurants and Leisure — 0.5% | |||||
Brinker International, Inc. | 13,301 | 605,328 | |||
Carnival Corp. | 3,424 | 185,170 | |||
Cheesecake Factory, Inc. (The) | 2,917 | 140,599 | |||
Las Vegas Sands Corp. | 5,366 | 265,671 | |||
Yum! Brands, Inc. | 1,012 | 71,761 | |||
1,268,529 | |||||
Household Products — 0.3% | |||||
Kimberly-Clark Corp. | 7,024 | 840,843 | |||
Independent Power and Renewable Electricity Producers — 0.1% | |||||
AES Corp. (The) | 27,536 | 301,519 | |||
NRG Energy, Inc. | 2,292 | 29,544 | |||
331,063 |
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Shares | Value | ||||
Industrial Conglomerates — 1.1% | |||||
3M Co. | 15,815 | $ | 2,486,276 | ||
General Electric Co. | 8,647 | 250,071 | |||
2,736,347 | |||||
Insurance — 4.0% | |||||
American International Group, Inc. | 73,045 | 4,606,218 | |||
MetLife, Inc. | 27,103 | 1,365,449 | |||
Principal Financial Group, Inc. | 1,368 | 68,619 | |||
Travelers Cos., Inc. (The) | 38,155 | 4,307,318 | |||
10,347,604 | |||||
Internet and Catalog Retail — 1.1% | |||||
Amazon.com, Inc.(1) | 185 | 115,792 | |||
Expedia, Inc. | 18,951 | 2,583,021 | |||
Liberty Interactive Corp. QVC Group, Class A(1) | 8,882 | 243,100 | |||
2,941,913 | |||||
Internet Software and Services — 4.7% | |||||
Alphabet, Inc., Class A(1) | 5,952 | 4,388,945 | |||
Alphabet, Inc., Class C(1) | 4,092 | 2,908,635 | |||
eBay, Inc.(1) | 1,739 | 48,518 | |||
Facebook, Inc., Class A(1) | 42,294 | 4,312,719 | |||
IAC/InterActiveCorp | 2,762 | 185,082 | |||
VeriSign, Inc.(1) | 2,679 | 215,927 | |||
Yelp, Inc.(1) | 6,771 | 150,655 | |||
12,210,481 | |||||
IT Services — 3.7% | |||||
Alliance Data Systems Corp.(1) | 4,522 | 1,344,436 | |||
Computer Sciences Corp. | 5,138 | 342,139 | |||
International Business Machines Corp. | 10,272 | 1,438,902 | |||
Visa, Inc., Class A | 75,623 | 5,866,832 | |||
Western Union Co. (The) | 27,910 | 537,268 | |||
Xerox Corp. | 10,473 | 98,341 | |||
9,627,918 | |||||
Life Sciences Tools and Services — 0.1% | |||||
Agilent Technologies, Inc. | 9,815 | 370,614 | |||
Machinery — 2.3% | |||||
Caterpillar, Inc. | 31,933 | 2,330,790 | |||
Cummins, Inc. | 24,703 | 2,557,007 | |||
Dover Corp. | 12,479 | 804,022 | |||
Flowserve Corp. | 3,206 | 148,630 | |||
Parker-Hannifin Corp. | 1,758 | 184,063 | |||
6,024,512 | |||||
Media — 4.1% | |||||
Comcast Corp., Class A | 92,828 | 5,812,889 | |||
DISH Network Corp., Class A(1) | 2,865 | 180,409 | |||
Time Warner Cable, Inc. | 1,509 | 285,805 | |||
Time Warner, Inc. | 15,274 | 1,150,743 | |||
Viacom, Inc., Class B | 33,213 | 1,637,733 |
13
Shares | Value | ||||
Walt Disney Co. (The) | 13,430 | $ | 1,527,528 | ||
10,595,107 | |||||
Multi-Utilities — 1.4% | |||||
Ameren Corp. | 22,688 | 991,012 | |||
CenterPoint Energy, Inc. | 5,582 | 103,546 | |||
DTE Energy Co. | 6,508 | 530,988 | |||
PG&E Corp. | 15,588 | 832,399 | |||
Public Service Enterprise Group, Inc. | 29,487 | 1,217,518 | |||
3,675,463 | |||||
Multiline Retail — 1.9% | |||||
Big Lots, Inc. | 10,342 | 476,766 | |||
Kohl's Corp. | 7,976 | 367,853 | |||
Macy's, Inc. | 23,092 | 1,177,230 | |||
Target Corp. | 35,658 | 2,752,085 | |||
4,773,934 | |||||
Oil, Gas and Consumable Fuels — 5.4% | |||||
Apache Corp. | 3,626 | 170,894 | |||
Chevron Corp. | 2,260 | 205,389 | |||
Concho Resources, Inc.(1) | 4,024 | 466,422 | |||
ConocoPhillips | 23,034 | 1,228,864 | |||
EOG Resources, Inc. | 6,774 | 581,548 | |||
Exxon Mobil Corp. | 86,742 | 7,177,033 | |||
HollyFrontier Corp. | 9,291 | 454,980 | |||
Murphy Oil Corp. | 5,845 | 166,173 | |||
Occidental Petroleum Corp. | 14,178 | 1,056,828 | |||
Valero Energy Corp. | 37,146 | 2,448,664 | |||
13,956,795 | |||||
Paper and Forest Products — 0.6% | |||||
International Paper Co. | 39,078 | 1,668,240 | |||
Personal Products — 0.1% | |||||
Estee Lauder Cos., Inc. (The), Class A | 3,886 | 312,668 | |||
Pharmaceuticals — 6.3% | |||||
Eli Lilly & Co. | 15,927 | 1,299,165 | |||
Johnson & Johnson | 77,751 | 7,855,184 | |||
Merck & Co., Inc. | 2,235 | 122,165 | |||
Mylan NV(1) | 8,193 | 361,229 | |||
Pfizer, Inc. | 195,614 | 6,615,666 | |||
16,253,409 | |||||
Professional Services — 0.1% | |||||
Equifax, Inc. | 2,982 | 317,792 | |||
Real Estate Investment Trusts (REITs) — 1.7% | |||||
Annaly Capital Management, Inc. | 20,835 | 207,308 | |||
AvalonBay Communities, Inc. | 1,306 | 228,328 | |||
CBL & Associates Properties, Inc. | 4,920 | 71,734 | |||
Crown Castle International Corp. | 1,204 | 102,894 | |||
Digital Realty Trust, Inc. | 1,430 | 105,763 | |||
Host Hotels & Resorts, Inc. | 59,643 | 1,033,613 |
14
Shares | Value | ||||
Iron Mountain, Inc. | 2,524 | $ | 77,335 | ||
Macerich Co. (The) | 583 | 49,403 | |||
ProLogis, Inc. | 5,642 | 241,083 | |||
Public Storage | 7,886 | 1,809,521 | |||
Simon Property Group, Inc. | 1,645 | 331,402 | |||
Weyerhaeuser Co. | 4,484 | 131,516 | |||
4,389,900 | |||||
Road and Rail — 0.6% | |||||
Ryder System, Inc. | 2,737 | 196,462 | |||
Union Pacific Corp. | 14,720 | 1,315,232 | |||
1,511,694 | |||||
Semiconductors and Semiconductor Equipment — 2.7% | |||||
Altera Corp. | 3,445 | 181,035 | |||
First Solar, Inc.(1) | 4,413 | 251,850 | |||
Intel Corp. | 52,497 | 1,777,548 | |||
KLA-Tencor Corp. | 15,688 | 1,052,979 | |||
Micron Technology, Inc.(1) | 36,669 | 607,239 | |||
NVIDIA Corp. | 27,051 | 767,437 | |||
Texas Instruments, Inc. | 32,838 | 1,862,571 | |||
Xilinx, Inc. | 10,236 | 487,438 | |||
6,988,097 | |||||
Software — 3.0% | |||||
CA, Inc. | 1,602 | 44,391 | |||
Citrix Systems, Inc.(1) | 771 | 63,299 | |||
Electronic Arts, Inc.(1) | 22,893 | 1,649,899 | |||
Microsoft Corp. | 32,137 | 1,691,692 | |||
MicroStrategy, Inc., Class A(1) | 585 | 100,661 | |||
Oracle Corp. | 56,851 | 2,208,093 | |||
Red Hat, Inc.(1) | 5,879 | 465,088 | |||
salesforce.com, inc.(1) | 657 | 51,055 | |||
Symantec Corp. | 65,130 | 1,341,678 | |||
7,615,856 | |||||
Specialty Retail — 3.4% | |||||
Bed Bath & Beyond, Inc.(1) | 1,094 | 65,235 | |||
Best Buy Co., Inc. | 6,517 | 228,291 | |||
Gap, Inc. (The) | 36,435 | 991,761 | |||
Home Depot, Inc. (The) | 46,827 | 5,789,690 | |||
Lowe's Cos., Inc. | 6,201 | 457,820 | |||
Pier 1 Imports, Inc. | 3,438 | 25,510 | |||
Rent-A-Center, Inc. | 2,042 | 37,552 | |||
Ross Stores, Inc. | 1,848 | 93,472 | |||
TJX Cos., Inc. (The) | 14,879 | 1,088,994 | |||
8,778,325 | |||||
Technology Hardware, Storage and Peripherals — 5.4% | |||||
Apple, Inc. | 87,027 | 10,399,726 | |||
EMC Corp. | 28,940 | 758,807 | |||
Hewlett Packard Enterprise Co.(1)(2) | 95,266 | 1,402,316 |
15
Shares | Value | ||||
Hewlett-Packard Co. | 95,266 | $ | 1,155,577 | ||
NetApp, Inc. | 1,614 | 54,876 | |||
Western Digital Corp. | 2,325 | 155,356 | |||
13,926,658 | |||||
Textiles, Apparel and Luxury Goods — 0.4% | |||||
Coach, Inc. | 2,895 | 90,324 | |||
Ralph Lauren Corp. | 7,372 | 816,596 | |||
906,920 | |||||
Tobacco — 0.6% | |||||
Altria Group, Inc. | 25,036 | 1,513,927 | |||
Trading Companies and Distributors† | |||||
W.W. Grainger, Inc. | 287 | 60,270 | |||
TOTAL COMMON STOCKS (Cost $190,602,374) | 255,751,505 | ||||
TEMPORARY CASH INVESTMENTS — 0.9% | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $889,863), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $872,551) | 872,550 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.125%, 2/15/43, valued at $1,483,781), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $1,454,000) | 1,454,000 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,326,550) | 2,326,550 | ||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $192,928,924) | 258,078,055 | ||||
OTHER ASSETS AND LIABILITIES — 0.1% | 279,598 | ||||
TOTAL NET ASSETS — 100.0% | $ | 258,357,653 |
NOTES TO SCHEDULE OF INVESTMENTS |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
(2) | When-issued security. The issue price and yield are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. |
See Notes to Financial Statements.
16
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $192,928,924) | $ | 258,078,055 | |
Cash | 4,445 | ||
Receivable for investments sold | 72,145 | ||
Receivable for capital shares sold | 463,125 | ||
Dividends and interest receivable | 250,905 | ||
258,868,675 | |||
Liabilities | |||
Payable for capital shares redeemed | 258,844 | ||
Accrued management fees | 207,514 | ||
Distribution and service fees payable | 44,664 | ||
511,022 | |||
Net Assets | $ | 258,357,653 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 231,075,843 | |
Undistributed net investment income | 1,744,553 | ||
Accumulated net realized loss | (39,611,874) | ||
Net unrealized appreciation | 65,149,131 | ||
$ | 258,357,653 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $95,072,349 | 4,366,930 | $21.77 | |
Institutional Class, $0.01 Par Value | $14,076,774 | 644,684 | $21.84 | |
A Class, $0.01 Par Value | $122,492,260 | 5,646,792 | $21.69* | |
C Class, $0.01 Par Value | $21,035,990 | 987,841 | $21.29 | |
R Class, $0.01 Par Value | $5,680,280 | 263,266 | $21.58 |
*Maximum offering price $23.01 (net asset value divided by 0.9425).
See Notes to Financial Statements.
17
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends | $ | 5,603,668 | |
Interest | 611 | ||
5,604,279 | |||
Expenses: | |||
Management fees | 2,476,423 | ||
Distribution and service fees: | |||
A Class | 303,127 | ||
B Class | 23,496 | ||
C Class | 189,727 | ||
R Class | 27,877 | ||
Directors' fees and expenses | 8,347 | ||
Other expenses | 434 | ||
3,029,431 | |||
Net investment income (loss) | 2,574,848 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 12,459,810 | ||
Change in net unrealized appreciation (depreciation) on investments | (7,358,924) | ||
Net realized and unrealized gain (loss) | 5,100,886 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 7,675,734 |
See Notes to Financial Statements.
18
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 2,574,848 | $ | 2,240,486 | ||
Net realized gain (loss) | 12,459,810 | 41,107,598 | ||||
Change in net unrealized appreciation (depreciation) | (7,358,924 | ) | (7,784,637 | ) | ||
Net increase (decrease) in net assets resulting from operations | 7,675,734 | 35,563,447 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (983,981) | (884,103) | ||||
Institutional Class | (156,428) | (143,856) | ||||
A Class | (1,149,742) | (1,093,090) | ||||
B Class | (7,167) | (5,373) | ||||
C Class | (42,651) | (27,587) | ||||
R Class | (40,456) | (32,137) | ||||
Decrease in net assets from distributions | (2,380,425) | (2,186,146) | ||||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 23,773,890 | (27,318,260 | ) | |||
Net increase (decrease) in net assets | 29,069,199 | 6,059,041 | ||||
Net Assets | ||||||
Beginning of period | 229,288,454 | 223,229,413 | ||||
End of period | $ | 258,357,653 | $ | 229,288,454 | ||
Undistributed net investment income | $ | 1,744,553 | $ | 1,664,108 |
See Notes to Financial Statements.
19
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Fundamental Equity Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a
20
specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
21
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.800% to 0.990% for the Investor Class, A Class, B Class, C Class and R Class. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.99% for the Investor Class, A 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $104,844,344 and $81,469,108, respectively.
22
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 2,320,787 | $ | 50,159,516 | 1,240,505 | $ | 24,046,130 | ||||
Issued in reinvestment of distributions | 44,610 | 925,208 | 45,454 | 843,629 | ||||||
Redeemed | (1,613,312 | ) | (35,082,313 | ) | (1,386,474 | ) | (27,284,419 | ) | ||
752,085 | 16,002,411 | (100,515 | ) | (2,394,660 | ) | |||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 223,403 | 4,826,023 | 50,921 | 1,012,141 | ||||||
Issued in reinvestment of distributions | 7,535 | 156,428 | 7,739 | 143,856 | ||||||
Redeemed | (88,445 | ) | (1,932,126 | ) | (122,317 | ) | (2,428,789 | ) | ||
142,493 | 3,050,325 | (63,657 | ) | (1,272,792 | ) | |||||
A Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||
Sold | 1,094,041 | 23,727,128 | 562,114 | 10,904,874 | ||||||
Issued in reinvestment of distributions | 52,390 | 1,085,009 | 54,286 | 1,006,471 | ||||||
Redeemed | (985,870 | ) | (21,268,538 | ) | (1,635,326 | ) | (32,004,656 | ) | ||
160,561 | 3,543,599 | (1,018,926 | ) | (20,093,311 | ) | |||||
B Class/Shares Authorized | 20,000,000 | 25,000,000 | ||||||||
Sold | 5,457 | 116,461 | 7,348 | 141,987 | ||||||
Issued in reinvestment of distributions | 312 | 6,391 | 269 | 4,937 | ||||||
Redeemed | (150,262 | ) | (3,158,132 | ) | (47,860 | ) | (919,712 | ) | ||
(144,493 | ) | (3,035,280 | ) | (40,243 | ) | (772,788 | ) | |||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 273,473 | 5,865,142 | 67,666 | 1,293,651 | ||||||
Issued in reinvestment of distributions | 1,564 | 31,997 | 1,079 | 19,765 | ||||||
Redeemed | (92,353 | ) | (1,960,770 | ) | (189,694 | ) | (3,655,169 | ) | ||
182,684 | 3,936,369 | (120,949 | ) | (2,341,753 | ) | |||||
R Class/Shares Authorized | 20,000,000 | 10,000,000 | ||||||||
Sold | 53,138 | 1,144,388 | 40,435 | 792,329 | ||||||
Issued in reinvestment of distributions | 1,960 | 40,456 | 1,739 | 32,137 | ||||||
Redeemed | (42,563 | ) | (908,378 | ) | (65,414 | ) | (1,267,422 | ) | ||
12,535 | 276,466 | (23,240 | ) | (442,956 | ) | |||||
Net increase (decrease) | 1,105,865 | $ | 23,773,890 | (1,367,530 | ) | $ | (27,318,260 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
23
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 255,751,505 | — | — | ||||
Temporary Cash Investments | — | $ | 2,326,550 | — | ||||
$ | 255,751,505 | $ | 2,326,550 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 2,380,425 | $ | 2,186,146 | ||
Long-term capital gains | — | — |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 195,133,701 | |
Gross tax appreciation of investments | $ | 71,143,081 | |
Gross tax depreciation of investments | (8,198,727 | ) | |
Net tax appreciation (depreciation) of investments | $ | 62,944,354 | |
Undistributed ordinary income | $ | 1,744,553 | |
Accumulated short-term capital losses | $ | (37,407,097 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||
2015 | $21.31 | 0.26 | 0.46 | 0.72 | (0.26) | $21.77 | 3.51% | 0.99% | 1.23% | 33% | $95,072 | ||
2014 | $18.41 | 0.24 | 2.88 | 3.12 | (0.22) | $21.31 | 17.06% | 1.00% | 1.19% | 41% | $77,015 | ||
2013 | $14.82 | 0.23 | 3.55 | 3.78 | (0.19) | $18.41 | 25.83% | 1.01% | 1.44% | 36% | $68,416 | ||
2012 | $12.97 | 0.20 | 1.81 | 2.01 | (0.16) | $14.82 | 15.65% | 1.01% | 1.39% | 18% | $38,250 | ||
2011 | $11.95 | 0.14 | 1.02 | 1.16 | (0.14) | $12.97 | 9.72% | 1.01% | 1.11% | 18% | $45,991 | ||
Institutional Class | |||||||||||||
2015 | $21.37 | 0.31 | 0.47 | 0.78 | (0.31) | $21.84 | 3.66% | 0.79% | 1.43% | 33% | $14,077 | ||
2014 | $18.47 | 0.28 | 2.88 | 3.16 | (0.26) | $21.37 | 17.29% | 0.80% | 1.39% | 41% | $10,731 | ||
2013 | $14.85 | 0.27 | 3.55 | 3.82 | (0.20) | $18.47 | 26.06% | 0.81% | 1.64% | 36% | $10,451 | ||
2012 | $12.99 | 0.21 | 1.83 | 2.04 | (0.18) | $14.85 | 15.93% | 0.81% | 1.59% | 18% | $9,225 | ||
2011 | $11.96 | 0.17 | 1.02 | 1.19 | (0.16) | $12.99 | 10.02% | 0.81% | 1.31% | 18% | $103 | ||
A Class | |||||||||||||
2015 | $21.23 | 0.21 | 0.46 | 0.67 | (0.21) | $21.69 | 3.21% | 1.24% | 0.98% | 33% | $122,492 | ||
2014 | $18.35 | 0.19 | 2.86 | 3.05 | (0.17) | $21.23 | 16.76% | 1.25% | 0.94% | 41% | $116,462 | ||
2013 | $14.80 | 0.20 | 3.53 | 3.73 | (0.18) | $18.35 | 25.51% | 1.26% | 1.19% | 36% | $119,358 | ||
2012 | $12.94 | 0.16 | 1.82 | 1.98 | (0.12) | $14.80 | 15.48% | 1.26% | 1.14% | 18% | $105,718 | ||
2011 | $11.93 | 0.11 | 1.01 | 1.12 | (0.11) | $12.94 | 9.38% | 1.26% | 0.86% | 18% | $106,159 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||
2015 | $20.84 | 0.05 | 0.45 | 0.50 | (0.05) | $21.29 | 2.42% | 1.99% | 0.23% | 33% | $21,036 | ||
2014 | $18.01 | 0.04 | 2.82 | 2.86 | (0.03) | $20.84 | 15.90% | 2.00% | 0.19% | 41% | $16,777 | ||
2013 | $14.61 | 0.07 | 3.48 | 3.55 | (0.15) | $18.01 | 24.54% | 2.01% | 0.44% | 36% | $16,679 | ||
2012 | $12.78 | 0.05 | 1.81 | 1.86 | (0.03) | $14.61 | 14.59% | 2.01% | 0.39% | 18% | $14,967 | ||
2011 | $11.77 | 0.01 | 1.01 | 1.02 | (0.01) | $12.78 | 8.68% | 2.01% | 0.11% | 18% | $13,990 | ||
R Class | |||||||||||||
2015 | $21.11 | 0.16 | 0.47 | 0.63 | (0.16) | $21.58 | 3.01% | 1.49% | 0.73% | 33% | $5,680 | ||
2014 | $18.25 | 0.14 | 2.84 | 2.98 | (0.12) | $21.11 | 16.45% | 1.50% | 0.69% | 41% | $5,294 | ||
2013 | $14.74 | 0.15 | 3.53 | 3.68 | (0.17) | $18.25 | 25.25% | 1.51% | 0.94% | 36% | $5,000 | ||
2012 | $12.90 | 0.13 | 1.80 | 1.93 | (0.09) | $14.74 | 15.09% | 1.51% | 0.89% | 18% | $2,817 | ||
2011 | $11.89 | 0.08 | 1.00 | 1.08 | (0.07) | $12.90 | 9.14% | 1.51% | 0.61% | 18% | $2,456 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Fundamental Equity Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Fundamental Equity Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading
32
activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
33
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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
34
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $2,380,425, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87636 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Growth Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCGX | 9.07% | 13.26% | 8.64% | 13.39% | 6/30/71(1) |
Russell 1000 Growth Index | — | 9.18% | 15.29% | 9.08% | N/A(2) | — |
Institutional Class | TWGIX | 9.30% | 13.48% | 8.86% | 6.86% | 6/16/97 |
A Class(3) | TCRAX | 6/4/97 | ||||
No sales charge* | 8.78% | 12.98% | 8.37% | 6.68% | ||
With sales charge* | 2.54% | 11.65% | 7.73% | 6.34% | ||
C Class | TWRCX | 7.95% | 12.13% | — | 12.12% | 3/1/10 |
R Class | AGWRX | 8.50% | 12.69% | 8.10% | 8.09% | 8/29/03 |
R6 Class | AGRDX | 9.46% | — | — | 13.85% | 7/26/13 |
* | 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 and may be subject to a maximum CDSC of 1.00%. 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 October 31, 1958, this inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. |
(2) | Benchmark data first available December 1978. |
(3) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $22,917 | |
Russell 1000 Growth Index — $23,870 | |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
0.97% | 0.77% | 1.22% | 1.97% | 1.47% | 0.62% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: Gregory Woodhams and Prescott LeGard
Performance Summary
Growth returned 9.07%* for the 12 months ended October 31, 2015, in line with the 9.18% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted strong returns during the reporting period amid volatility and considerable variation within sector returns. Within the Russell 1000 Growth Index, consumer discretionary was the top-performing sector, gaining about 20%. Consumer staples and information technology also registered double-digit gains. Energy stocks continued to struggle with plunging commodity prices and fell nearly 31%. Utilities also declined sharply.
Growth received positive contributions to absolute return from most sectors in which it was invested, led by information technology and consumer discretionary. Energy and financials were the only negative contributors. Stock decisions in the consumer staples, financials, and consumer discretionary sectors were the primary sources of underperformance relative to the Russell index. Stock selection and an overweight to information technology aided relative performance, as did stock selection in materials and energy.
Consumer Staples and Financials Were Key Detractors
In consumer staples, stock selection in the tobacco and food products industries weighed on performance. Not owning index components Altria Group and Reynolds American detracted. We continue to prefer Philip Morris International in the tobacco industry. An overweight position in baby formula maker Mead Johnson Nutrition was a significant detractor, as a difficult environment in Hong Kong dragged down the stock. We believe this is a transitory issue and continue to have a positive view of the underlying growth rate for the company.
In financials, underweighting real estate investment trusts hampered results as the industry performed better than expected due to the Federal Reserve’s caution in raising interest rates. Asset manager Franklin Resources detracted as assets under management and fund flows have deteriorated. The holding was eliminated.
Stock decisions in the consumer discretionary sector hurt performance. Not owning index component Starbucks was a major detractor in the sector as the coffee retailer is benefiting from its Starbucks Rewards program. The rollout of its mobile ordering application has exceeded expectations as well.
Other significant individual detractors included Exxon Mobil and Caterpillar. Petroleum giant Exxon Mobil suffered as oil prices plunged. Industrial equipment company Caterpillar struggled as investors worried about weak global growth, especially in China. Both Exxon Mobil and Caterpillar were eliminated from the portfolio.
Information Technology Aided Performance
Stock selection in the information technology and an overweight in the sector helped relative performance. Credit card company Visa was a significant contributor, reporting strong results that beat expectations. The market is looking forward to the potential benefits from an acquisition of Visa Europe. Video game maker Electronic Arts continued to execute, reporting strong results consistent with our investment thesis of improving operating margins.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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Stock selection in the materials sector, especially among chemicals firms, benefited performance. Underweighting the weak sector also was positive. Positioning in energy was similarly beneficial, especially among energy equipment and services companies, as the sector struggled with falling prices and concerns about global growth.
Significant individual contributors included online travel agent Expedia, which continued to report very strong results with hotel room nights, bookings, and revenue growth all better than expected in both the U.S. and globally. The company benefited from regulatory approval of its planned purchase of rival Orbitz, as well as from exiting its money-losing Chinese partnership. O’Reilly Automotive was a top contributor. The auto parts retailer continued to report stronger-than-expected sales on favorable trends of higher vehicle miles driven and lower gasoline prices.
Outlook
We believe stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result of this approach, the portfolio’s sector and industry selection, as well as capitalization range allocations, are primarily due to identifying what the investment team believes to be superior individual securities.
As of October 31, 2015, this process pointed the portfolio toward overweight positions relative to the Russell 1000 Growth Index in the health care and information technology sectors. Financials and consumer staples represented the largest underweights.
The health care allocation recognizes that medical device companies should see a better environment from higher utilization. Pharmaceutical and biotechnology pipelines are robust, with ample clinical trial readouts, and recently launched products are materially additive. Positioning in the IT services, communications equipment, and software industries drove the information technology sector overweight.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc., Class A | 5.3% |
Apple, Inc. | 4.9% |
Visa, Inc., Class A | 4.4% |
Amazon.com, Inc. | 4.0% |
PepsiCo, Inc. | 3.7% |
Facebook, Inc., Class A | 3.4% |
Comcast Corp., Class A | 2.9% |
Lockheed Martin Corp. | 2.5% |
O'Reilly Automotive, Inc. | 2.4% |
Walt Disney Co. (The) | 2.4% |
Top Five Industries | % of net assets |
Internet Software and Services | 10.0% |
IT Services | 6.5% |
Internet and Catalog Retail | 6.2% |
Pharmaceuticals | 6.2% |
Biotechnology | 6.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.5% |
Temporary Cash Investments | 0.5% |
Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets.
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,037.00 | $4.98 | 0.97% |
Institutional Class | $1,000 | $1,037.80 | $3.96 | 0.77% |
A Class | $1,000 | $1,035.50 | $6.26 | 1.22% |
C Class | $1,000 | $1,031.20 | $10.09 | 1.97% |
R Class | $1,000 | $1,033.90 | $7.54 | 1.47% |
R6 Class | $1,000 | $1,038.50 | $3.19 | 0.62% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.32 | $4.94 | 0.97% |
Institutional Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
A Class | $1,000 | $1,019.06 | $6.21 | 1.22% |
C Class | $1,000 | $1,015.28 | $10.01 | 1.97% |
R Class | $1,000 | $1,017.80 | $7.48 | 1.47% |
R6 Class | $1,000 | $1,022.08 | $3.16 | 0.62% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 99.5% | ||||
Aerospace and Defense — 4.8% | ||||
Boeing Co. (The) | 1,314,431 | $ | 194,627,798 | |
Lockheed Martin Corp. | 941,222 | 206,908,832 | ||
401,536,630 | ||||
Airlines — 1.3% | ||||
Alaska Air Group, Inc. | 587,661 | 44,809,151 | ||
Delta Air Lines, Inc. | 1,293,639 | 65,768,607 | ||
110,577,758 | ||||
Beverages — 3.7% | ||||
PepsiCo, Inc. | 3,060,334 | 312,735,531 | ||
Biotechnology — 6.1% | ||||
Alexion Pharmaceuticals, Inc.(1) | 600,980 | 105,772,480 | ||
Biogen, Inc.(1) | 465,083 | 135,111,262 | ||
Gilead Sciences, Inc. | 1,531,812 | 165,634,832 | ||
Incyte Corp.(1) | 368,545 | 43,315,094 | ||
Regeneron Pharmaceuticals, Inc.(1) | 109,884 | 61,248,243 | ||
511,081,911 | ||||
Chemicals — 3.0% | ||||
Dow Chemical Co. (The) | 1,801,975 | 93,108,048 | ||
PPG Industries, Inc. | 603,754 | 62,947,392 | ||
Sherwin-Williams Co. (The) | 350,045 | 93,402,508 | ||
249,457,948 | ||||
Communications Equipment — 1.4% | ||||
Cisco Systems, Inc. | 2,023,414 | 58,375,494 | ||
QUALCOMM, Inc. | 961,127 | 57,110,166 | ||
115,485,660 | ||||
Energy Equipment and Services — 0.7% | ||||
Halliburton Co. | 1,511,617 | 58,015,860 | ||
Food and Staples Retailing — 0.8% | ||||
Kroger Co. (The) | 1,758,386 | 66,466,991 | ||
Food Products — 1.7% | ||||
ConAgra Foods, Inc. | 974,646 | 39,521,895 | ||
Mead Johnson Nutrition Co. | 1,291,946 | 105,939,572 | ||
145,461,467 | ||||
Health Care Equipment and Supplies — 2.4% | ||||
C.R. Bard, Inc. | 329,891 | 61,475,188 | ||
Cooper Cos., Inc. (The) | 341,246 | 51,992,240 | ||
Intuitive Surgical, Inc.(1) | 179,460 | 89,119,836 | ||
202,587,264 | ||||
Health Care Providers and Services — 2.9% | ||||
Cardinal Health, Inc. | 1,216,661 | 100,009,534 | ||
Express Scripts Holding Co.(1) | 1,686,114 | 145,646,528 | ||
245,656,062 |
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Shares | Value | |||
Health Care Technology — 0.6% | ||||
Cerner Corp.(1) | 743,004 | $ | 49,253,735 | |
Hotels, Restaurants and Leisure — 1.6% | ||||
Chipotle Mexican Grill, Inc.(1) | 132,344 | 84,730,599 | ||
Las Vegas Sands Corp. | 1,089,367 | 53,934,560 | ||
138,665,159 | ||||
Household Products — 0.6% | ||||
Church & Dwight Co., Inc. | 594,309 | 51,164,062 | ||
Industrial Conglomerates — 1.9% | ||||
3M Co. | 1,007,934 | 158,457,304 | ||
Insurance — 1.5% | ||||
Aflac, Inc. | 953,976 | 60,815,970 | ||
American International Group, Inc. | 1,070,131 | 67,482,461 | ||
128,298,431 | ||||
Internet and Catalog Retail — 6.2% | ||||
Amazon.com, Inc.(1) | 538,917 | 337,308,151 | ||
Expedia, Inc. | 1,083,330 | 147,657,879 | ||
TripAdvisor, Inc.(1) | 431,008 | 36,109,850 | ||
521,075,880 | ||||
Internet Software and Services — 10.0% | ||||
Alphabet, Inc., Class A(1) | 607,708 | 448,117,802 | ||
Facebook, Inc., Class A(1) | 2,834,099 | 288,993,075 | ||
LinkedIn Corp., Class A(1) | 308,699 | 74,356,328 | ||
Pandora Media, Inc.(1) | 2,401,254 | 27,638,434 | ||
839,105,639 | ||||
IT Services — 6.5% | ||||
Alliance Data Systems Corp.(1) | 198,075 | 58,889,678 | ||
Cognizant Technology Solutions Corp., Class A(1) | 442,510 | 30,139,356 | ||
Fiserv, Inc.(1) | 950,027 | 91,687,106 | ||
Visa, Inc., Class A | 4,765,037 | 369,671,571 | ||
550,387,711 | ||||
Life Sciences Tools and Services — 1.2% | ||||
Illumina, Inc.(1) | 327,918 | 46,984,091 | ||
Mettler-Toledo International, Inc.(1) | 68,642 | 21,346,976 | ||
Waters Corp.(1) | 282,315 | 36,079,857 | ||
104,410,924 | ||||
Machinery — 1.6% | ||||
Parker-Hannifin Corp. | 411,236 | 43,056,409 | ||
WABCO Holdings, Inc.(1) | 303,444 | 34,055,520 | ||
Wabtec Corp. | 711,026 | 58,922,725 | ||
136,034,654 | ||||
Media — 5.8% | ||||
Comcast Corp., Class A | 3,836,005 | 240,210,633 | ||
Sirius XM Holdings, Inc.(1) | 12,136,172 | 49,515,582 | ||
Walt Disney Co. (The) | 1,756,341 | 199,766,225 | ||
489,492,440 |
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Shares | Value | |||
Multiline Retail — 1.9% | ||||
Dollar Tree, Inc.(1) | 1,738,994 | $ | 113,886,717 | |
Macy's, Inc. | 849,910 | 43,328,412 | ||
157,215,129 | ||||
Oil, Gas and Consumable Fuels — 0.8% | ||||
Concho Resources, Inc.(1) | 554,012 | 64,215,531 | ||
Personal Products — 0.7% | ||||
Estee Lauder Cos., Inc. (The), Class A | 713,843 | 57,435,808 | ||
Pharmaceuticals — 6.2% | ||||
Allergan plc(1) | 208,586 | 64,342,523 | ||
Bristol-Myers Squibb Co. | 1,877,948 | 123,850,670 | ||
Jazz Pharmaceuticals plc(1) | 162,849 | 22,355,911 | ||
Johnson & Johnson | 735,723 | 74,330,095 | ||
Perrigo Co. plc | 308,570 | 48,673,832 | ||
Pfizer, Inc. | 2,472,990 | 83,636,522 | ||
Teva Pharmaceutical Industries Ltd. ADR | 1,019,425 | 60,339,766 | ||
Zoetis, Inc. | 999,549 | 42,990,602 | ||
520,519,921 | ||||
Real Estate Investment Trusts (REITs) — 1.0% | ||||
Simon Property Group, Inc. | 418,575 | 84,326,120 | ||
Road and Rail — 0.8% | ||||
Union Pacific Corp. | 783,560 | 70,011,086 | ||
Semiconductors and Semiconductor Equipment — 2.2% | ||||
Maxim Integrated Products, Inc. | 1,729,565 | 70,877,574 | ||
Skyworks Solutions, Inc. | 355,881 | 27,488,248 | ||
Xilinx, Inc. | 1,758,248 | 83,727,770 | ||
182,093,592 | ||||
Software — 5.8% | ||||
Adobe Systems, Inc.(1) | 870,882 | 77,212,398 | ||
Electronic Arts, Inc.(1) | 1,153,017 | 83,097,935 | ||
Intuit, Inc. | 657,742 | 64,083,803 | ||
Microsoft Corp. | 582,991 | 30,688,646 | ||
Oracle Corp. | 4,814,645 | 187,000,812 | ||
Splunk, Inc.(1) | 802,300 | 45,057,168 | ||
487,140,762 | ||||
Specialty Retail — 5.2% | ||||
O'Reilly Automotive, Inc.(1) | 723,545 | 199,886,542 | ||
Ross Stores, Inc. | 1,767,848 | 89,417,752 | ||
TJX Cos., Inc. (The) | 2,074,993 | 151,868,737 | ||
441,173,031 | ||||
Technology Hardware, Storage and Peripherals — 4.9% | ||||
Apple, Inc. | 3,484,046 | 416,343,497 | ||
Textiles, Apparel and Luxury Goods — 0.6% | ||||
Carter's, Inc. | 596,096 | 54,173,204 | ||
Tobacco — 1.5% | ||||
Philip Morris International, Inc. | 1,484,917 | 131,266,663 |
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Shares | Value | |||
Wireless Telecommunication Services — 1.6% | ||||
SBA Communications Corp., Class A(1) | 1,104,093 | $ | 131,409,149 | |
TOTAL COMMON STOCKS (Cost $6,533,338,012) | 8,382,732,514 | |||
TEMPORARY CASH INVESTMENTS — 0.5% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $16,870,658), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $16,542,444) | 16,542,430 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 2.00%, 2/15/25, valued at $28,132,413), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $27,577,000) | 27,577,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 2,409 | 2,409 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $44,121,839) | 44,121,839 | |||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $6,577,459,851) | 8,426,854,353 | |||
OTHER ASSETS AND LIABILITIES† | (1,043,199) | |||
TOTAL NET ASSETS — 100.0% | $ | 8,425,811,154 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
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Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $6,577,459,851) | $ | 8,426,854,353 | |
Cash | 1,069,030 | ||
Receivable for investments sold | 130,767,065 | ||
Receivable for capital shares sold | 2,673,089 | ||
Dividends and interest receivable | 956,164 | ||
8,562,319,701 | |||
Liabilities | |||
Payable for investments purchased | 113,084,564 | ||
Payable for capital shares redeemed | 16,925,504 | ||
Payable for variation margin on futures contracts | 24,545 | ||
Accrued management fees | 6,356,367 | ||
Distribution and service fees payable | 117,567 | ||
136,508,547 | |||
Net Assets | $ | 8,425,811,154 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 6,041,345,273 | |
Undistributed net investment income | 30,468,660 | ||
Undistributed net realized gain | 504,602,912 | ||
Net unrealized appreciation | 1,849,394,309 | ||
$ | 8,425,811,154 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $5,952,798,269 | 194,751,040 | $30.57 | |||
Institutional Class, $0.01 Par Value | $1,723,219,227 | 55,532,585 | $31.03 | |||
A Class, $0.01 Par Value | $290,076,669 | 9,739,734 | $29.78* | |||
C Class, $0.01 Par Value | $11,712,688 | 402,831 | $29.08 | |||
R Class, $0.01 Par Value | $114,671,618 | 3,911,858 | $29.31 | |||
R6 Class, $0.01 Par Value | $333,332,683 | 10,739,500 | $31.04 |
*Maximum offering price $31.60 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $175,549) | $ | 119,258,630 | |
Interest | 16,194 | ||
119,274,824 | |||
Expenses: | |||
Management fees | 81,881,774 | ||
Distribution and service fees: | |||
A Class | 1,338,307 | ||
C Class | 127,740 | ||
R Class | 645,789 | ||
Directors' fees and expenses | 300,152 | ||
Other expenses | 5,408 | ||
84,299,170 | |||
Net investment income (loss) | 34,975,654 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 649,957,223 | ||
Futures contract transactions | 3,608,098 | ||
653,565,321 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 121,810,197 | ||
Translation of assets and liabilities in foreign currencies | (163 | ) | |
121,810,034 | |||
Net realized and unrealized gain (loss) | 775,375,355 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 810,351,009 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 34,975,654 | $ | 36,134,621 | ||
Net realized gain (loss) | 653,565,321 | 2,198,704,083 | ||||
Change in net unrealized appreciation (depreciation) | 121,810,034 | (898,224,384 | ) | |||
Net increase (decrease) in net assets resulting from operations | 810,351,009 | 1,336,614,320 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (16,585,425 | ) | (22,778,559 | ) | ||
Institutional Class | (10,940,258 | ) | (15,873,908 | ) | ||
A Class | (217,419 | ) | (888,505 | ) | ||
R6 Class | (4,181,750 | ) | (106,884 | ) | ||
From net realized gains: | ||||||
Investor Class | (1,198,333,475 | ) | (363,165,714 | ) | ||
Institutional Class | (462,150,035 | ) | (162,417,278 | ) | ||
A Class | (141,524,178 | ) | (46,907,160 | ) | ||
C Class | (2,779,036 | ) | (847,836 | ) | ||
R Class | (29,100,730 | ) | (8,690,601 | ) | ||
R6 Class | (134,632,055 | ) | (862,082 | ) | ||
Decrease in net assets from distributions | (2,000,444,361 | ) | (622,538,527 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (329,633,462 | ) | (930,608,672 | ) | ||
Net increase (decrease) in net assets | (1,519,726,814 | ) | (216,532,879 | ) | ||
Net Assets | ||||||
Beginning of period | 9,945,537,968 | 10,162,070,847 | ||||
End of period | $ | 8,425,811,154 | $ | 9,945,537,968 | ||
Undistributed net investment income | $ | 30,468,660 | $ | 31,909,075 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
17
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
18
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually. The fund may elect to treat a portion of its payment to a redeeming shareholder, which represents the pro rata share of undistributed net investment income and net realized gains, as a distribution for federal income tax purposes (tax equalization).
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 strategy assets of the fund also include the assets of NT Growth Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.800% to 0.990% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class and 0.450% to 0.640% for the R6 Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.97% for the Investor Class, A Class, C Class and R Class, 0.77% for the Institutional Class and 0.62% for the R6 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $4,397,258,112 and $6,696,794,453, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,300,000,000 | 800,000,000 | ||||||||
Sold | 18,485,200 | $ | 560,677,873 | 13,332,918 | $ | 445,451,613 | ||||
Issued in reinvestment of distributions | 42,695,891 | 1,180,114,422 | 11,936,516 | 375,642,112 | ||||||
Redeemed | (36,577,463 | ) | (1,108,049,747 | ) | (46,275,518 | ) | (1,573,721,708 | ) | ||
24,603,628 | 632,742,548 | (21,006,084 | ) | (752,627,983 | ) | |||||
Institutional Class/Shares Authorized | 400,000,000 | 345,000,000 | ||||||||
Sold | 11,177,091 | 340,793,902 | 19,929,594 | 680,057,728 | ||||||
Issued in reinvestment of distributions | 16,531,989 | 463,061,000 | 5,462,288 | 173,755,364 | ||||||
Redeemed | (41,473,294 | ) | (1,282,347,776 | ) | (40,962,347 | ) | (1,379,407,350 | ) | ||
(13,764,214 | ) | (478,492,874 | ) | (15,570,465 | ) | (525,594,258 | ) | |||
A Class/Shares Authorized | 300,000,000 | 310,000,000 | ||||||||
Sold | 2,271,840 | 66,169,613 | 2,580,515 | 84,073,659 | ||||||
Issued in reinvestment of distributions | 4,969,965 | 134,139,352 | 1,452,224 | 44,844,664 | ||||||
Redeemed | (18,241,406 | ) | (540,778,384 | ) | (8,476,259 | ) | (280,585,369 | ) | ||
(10,999,601 | ) | (340,469,419 | ) | (4,443,520 | ) | (151,667,046 | ) | |||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 61,912 | 1,753,477 | 46,991 | 1,539,309 | ||||||
Issued in reinvestment of distributions | 75,478 | 2,001,685 | 19,381 | 594,604 | ||||||
Redeemed | (126,773 | ) | (3,649,693 | ) | (123,535 | ) | (3,974,728 | ) | ||
10,617 | 105,469 | (57,163 | ) | (1,840,815 | ) | |||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||
Sold | 859,031 | 24,682,075 | 601,554 | 19,559,453 | ||||||
Issued in reinvestment of distributions | 1,071,849 | 28,532,630 | 276,271 | 8,459,424 | ||||||
Redeemed | (2,186,151 | ) | (63,135,342 | ) | (1,229,483 | ) | (40,169,460 | ) | ||
(255,271 | ) | (9,920,637 | ) | (351,658 | ) | (12,150,583 | ) | |||
R6 Class/Shares Authorized | 80,000,000 | 50,000,000 | ||||||||
Sold | 7,521,520 | 245,615,273 | 16,405,541 | 548,650,322 | ||||||
Issued in reinvestment of distributions | 4,961,180 | 138,813,805 | 30,490 | 968,966 | ||||||
Redeemed | (17,559,794 | ) | (518,027,627 | ) | (1,073,663 | ) | (36,347,275 | ) | ||
(5,077,094 | ) | (133,598,549 | ) | 15,362,368 | 513,272,013 | |||||
Net increase (decrease) | (5,481,935 | ) | $ | (329,633,462 | ) | (26,066,522 | ) | $ | (930,608,672 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
20
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 8,382,732,514 | — | — | ||||
Temporary Cash Investments | 2,409 | $ | 44,119,430 | — | ||||
$ | 8,382,734,923 | $ | 44,119,430 | — |
7. Derivative Instruments
Equity Price Risk — The fund is subject to equity price risk in the normal course of pursuing its investment objectives. A fund may enter into futures contracts based on an equity index in order to manage its exposure to changes in market conditions. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund 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 a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund participated in equity price risk derivative instruments for temporary investment purposes.
The value of equity price risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as a liability of $24,545 in payable for variation margin on futures contracts. For the year ended October 31, 2015, the effect of equity price risk derivative instruments on the Statement of Operations was $3,608,098 in net realized gain (loss) on futures contract transactions.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 266,491,180 | $ | 141,541,055 | ||
Long-term capital gains | $ | 1,733,953,181 | $ | 480,997,472 |
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
The reclassifications, which are primarily due to tax equalization, were made to capital $149,466,398, undistributed net investment income $(4,491,217), and undistributed net realized gain $(144,975,181).
21
As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 6,582,689,825 | |
Gross tax appreciation of investments | $ | 1,989,158,015 | |
Gross tax depreciation of investments | (144,993,487 | ) | |
Net tax appreciation (depreciation) of investments | 1,844,164,528 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (193 | ) | |
Net tax appreciation (depreciation) | $ | 1,844,164,335 | |
Undistributed ordinary income | $ | 172,865,765 | |
Accumulated long-term gains | $ | 367,435,781 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
22
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $35.39 | 0.10 | 2.34 | 2.44 | (0.10) | (7.16) | (7.26) | $30.57 | 9.07% | 0.97% | 0.35% | 49% | $5,952,798 | ||
2014 | $33.10 | 0.11 | 4.22 | 4.33 | (0.12) | (1.92) | (2.04) | $35.39 | 13.84% | 0.97% | 0.32% | 103% | $6,021,115 | ||
2013 | $27.48 | 0.21 | 6.53 | 6.74 | (0.25) | (0.87) | (1.12) | $33.10 | 25.42% | 0.97% | 0.71% | 67% | $6,327,674 | ||
2012 | $25.88 | 0.14 | 2.50 | 2.64 | (0.13) | (0.91) | (1.04) | $27.48 | 10.67% | 0.97% | 0.54% | 74% | $5,593,916 | ||
2011 | $24.00 | 0.16 | 1.81 | 1.97 | (0.09) | — | (0.09) | $25.88 | 8.20% | 0.98% | 0.58% | 79% | $5,377,431 | ||
Institutional Class | |||||||||||||||
2015 | $35.83 | 0.17 | 2.36 | 2.53 | (0.17) | (7.16) | (7.33) | $31.03 | 9.30% | 0.77% | 0.55% | 49% | $1,723,219 | ||
2014 | $33.49 | 0.18 | 4.27 | 4.45 | (0.19) | (1.92) | (2.11) | $35.83 | 14.03% | 0.77% | 0.52% | 103% | $2,482,606 | ||
2013 | $27.75 | 0.27 | 6.60 | 6.87 | (0.26) | (0.87) | (1.13) | $33.49 | 25.68% | 0.77% | 0.91% | 67% | $2,842,185 | ||
2012 | $26.13 | 0.20 | 2.51 | 2.71 | (0.18) | (0.91) | (1.09) | $27.75 | 10.86% | 0.77% | 0.74% | 74% | $2,237,708 | ||
2011 | $24.23 | 0.20 | 1.84 | 2.04 | (0.14) | — | (0.14) | $26.13 | 8.42% | 0.78% | 0.78% | 79% | $2,080,463 | ||
A Class | |||||||||||||||
2015 | $34.65 | 0.04 | 2.26 | 2.30 | (0.01) | (7.16) | (7.17) | $29.78 | 8.78% | 1.22% | 0.10% | 49% | $290,077 | ||
2014 | $32.45 | 0.03 | 4.13 | 4.16 | (0.04) | (1.92) | (1.96) | $34.65 | 13.53% | 1.22% | 0.07% | 103% | $718,640 | ||
2013 | $27.00 | 0.13 | 6.42 | 6.55 | (0.23) | (0.87) | (1.10) | $32.45 | 25.14% | 1.22% | 0.46% | 67% | $817,166 | ||
2012 | $25.45 | 0.07 | 2.46 | 2.53 | (0.07) | (0.91) | (0.98) | $27.00 | 10.37% | 1.22% | 0.29% | 74% | $701,313 | ||
2011 | $23.60 | 0.08 | 1.79 | 1.87 | (0.02) | — | (0.02) | $25.45 | 7.93% | 1.23% | 0.33% | 79% | $628,634 |
23
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||
2015 | $34.20 | (0.19) | 2.23 | 2.04 | — | (7.16) | (7.16) | $29.08 | 7.95% | 1.97% | (0.65)% | 49% | $11,713 | ||
2014 | $32.24 | (0.22) | 4.10 | 3.88 | — | (1.92) | (1.92) | $34.20 | 12.71% | 1.97% | (0.68)% | 103% | $13,413 | ||
2013 | $26.98 | (0.08) | 6.38 | 6.30 | (0.17) | (0.87) | (1.04) | $32.24 | 24.16% | 1.97% | (0.29)% | 67% | $14,489 | ||
2012 | $25.55 | (0.12) | 2.46 | 2.34 | — | (0.91) | (0.91) | $26.98 | 9.55% | 1.97% | (0.46)% | 74% | $14,084 | ||
2011 | $23.85 | (0.12) | 1.82 | 1.70 | — | — | — | $25.55 | 7.13% | 1.98% | (0.42)% | 79% | $14,730 | ||
R Class | |||||||||||||||
2015 | $34.28 | (0.04) | 2.23 | 2.19 | — | (7.16) | (7.16) | $29.31 | 8.50% | 1.47% | (0.15)% | 49% | $114,672 | ||
2014 | $32.16 | (0.06) | 4.10 | 4.04 | — | (1.92) | (1.92) | $34.28 | 13.26% | 1.47% | (0.18)% | 103% | $142,845 | ||
2013 | $26.82 | 0.06 | 6.36 | 6.42 | (0.21) | (0.87) | (1.08) | $32.16 | 24.80% | 1.47% | 0.21% | 67% | $145,337 | ||
2012 | $25.28 | 0.01 | 2.44 | 2.45 | —(3) | (0.91) | (0.91) | $26.82 | 10.12% | 1.47% | 0.04% | 74% | $115,208 | ||
2011 | $23.49 | —(3) | 1.79 | 1.79 | — | — | — | $25.28 | 7.62% | 1.48% | 0.08% | 79% | $79,569 | ||
R6 Class | |||||||||||||||
2015 | $35.84 | 0.23 | 2.35 | 2.58 | (0.22) | (7.16) | (7.38) | $31.04 | 9.46% | 0.62% | 0.70% | 49% | $333,333 | ||
2014 | $33.51 | 0.18 | 4.31 | 4.49 | (0.24) | (1.92) | (2.16) | $35.84 | 14.20% | 0.62% | 0.67% | 103% | $566,919 | ||
2013(4) | $31.22 | 0.05 | 2.24 | 2.29 | — | — | — | $33.51 | 7.34% | 0.62%(5) | 0.64%(5) | 67%(6) | $15,219 |
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Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Growth Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the ten-year period and below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain
31
effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
33
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
34
Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $118,146,974, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $250,312,294 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $1,830,846,851, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
The fund utilized earnings and profits of $116,121,622 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
35
Notes |
36
![]() | ||
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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87635 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Heritage Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWHIX | 7.11% | 11.89% | 11.03% | 11.59% | 11/10/87 |
Russell Midcap Growth Index | — | 4.94% | 14.09% | 9.07% | 11.03%(1) | — |
Institutional Class | ATHIX | 7.33% | 12.11% | 11.26% | 9.33% | 6/16/97 |
A Class(2) | ATHAX | 7/11/97 | ||||
No sales charge* | 6.88% | 11.62% | 10.76% | 8.59% | ||
With sales charge* | 0.74% | 10.31% | 10.11% | 8.24% | ||
C Class | AHGCX | 6.09% | 10.79% | 9.94% | 7.11% | 6/26/01 |
R Class | ATHWX | 6.60% | 11.34% | — | 5.95% | 9/28/07 |
R6 Class | ATHDX | 7.48% | — | — | 10.57% | 7/26/13 |
* | 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 and may be subject to a maximum CDSC of 1.00%. 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) | Since October 31, 1987, the date nearest the Investor Class’s inception for which data are available. |
(2) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/acmf103115_chart-23701.jpg)
Value on October 31, 2015 | |
Investor Class — $28,499 | |
Russell Midcap Growth Index — $23,844 | |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% | 0.65% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: David Hollond and Greg Walsh
Performance Summary
Heritage returned 7.11%* for the 12 months ended October 31, 2015, outperforming the 4.94% return of the portfolio’s benchmark, the Russell Midcap Growth Index.
U.S. stock indices delivered positive returns during the reporting period amid volatility and a wide variation in sector returns. Within the Russell Midcap Growth Index, all sectors except energy (-35%) and utilities (-22%) posted positive returns on a total-return basis. Health care was the top-performing sector, followed closely by consumer staples.
Heritage received positive absolute contributions from all sectors it was invested in except energy and industrials. Information technology was the top absolute contributor. Stock decisions in the information technology, energy, and consumer staples sectors aided performance relative to the Russell Midcap Growth Index. An underweight to energy also helped. Stock selection in the industrials, health care, and consumer discretionary sectors detracted from relative results.
Information Technology Stocks Led Contributors
Stock choices in the information technology sector, especially in the software industry, contributed significantly to performance relative to the benchmark. Video game maker Electronic Arts was a top contributor. The company continued to execute, reporting strong results consistent with our investment thesis of improving operating margins driven by cost controls, more video games being delivered digitally, and a gaming console refresh cycle. Semiconductor firm Avago Technologies was another top contributor. The company makes components for smartphones and other electronic devices and continued to post accelerating revenue growth and margin improvement on strength in its wireless business, primarily from Apple and Samsung.
In the energy sector, stock selection and an underweight allocation benefited performance. The portfolio largely avoided both producers and equipment and services firms as plunging prices and weak global growth weighed on energy firms.
In consumer staples, Constellation Brands, a producer and marketer of beer, wine, and spirits, was a top contributor as the company continued to see very strong sales volume and pricing in its Corona and Modelo brands. Topline results came in better than expected. Other major contributors included sports apparel maker Under Armour, which is gaining market share in the U.S. and is being aided by strong growth outside the U.S. Despite weakness toward the end of the reporting period, foodservice equipment company Middleby was a top contributor. The company stands to benefit from acquisitions such as U.K. firm AGA Rangemaster.
Industrials and Health Care Detracted
Stock selection in the industrials sector detracted from relative performance, especially among road and rail companies and airlines. The rail industry has been affected by a number of factors, including oil prices, weather, and West Coast port strikes. Portfolio-only position Canadian Pacific Railway declined as oil prices weighed on its crude-by-rail business. Kansas City Southern was hurt by currency headwinds in its Mexican business. Spirit Airlines suffered from competition from Southwest Airlines, which is ramping up capacity in Dallas, a key hub for Spirit.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
5
In health care, stock selection among pharmaceuticals and biotechnology companies hurt performance. Specialty pharmaceutical firm Horizon Pharma, which is not in the index, detracted despite reporting solid results as the stock was caught up in the late sector sell-off that was sparked by increased scrutiny of high prescription drug prices. The holding was eliminated.
In the industrials sector, the portfolio’s overweight in machinery company Flowserve detracted. The company makes pumps, seals, and valves to end users in the oil and gas, power, chemicals, and water industries, and was caught up in concerns about plunging oil prices. The holding was eliminated. Airlines parts maker Esterline Technologies, which serves both commercial and defense customers, detracted. The company disappointed investors with the execution of its turnaround strategy, reporting inconsistent quarters. Esterline was eliminated.
Outlook
Heritage’s investment process focuses primarily on medium-sized and smaller companies with accelerating earnings growth rates and share price momentum. The fund’s positioning remains largely stock specific. As of October 31, 2015, the largest overweights were in telecommunication services and industrials, while the largest underweights were in financials and materials. Current investment themes are represented in various sectors throughout the portfolio, including health care companies that are benefiting from the Affordable Care Act, companies that can take advantage of the upturn in nonresidential construction, and avoiding real estate investment trusts, which are likely to suffer once interest rates start to rise.
6
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
SBA Communications Corp., Class A | 3.2% |
Electronic Arts, Inc. | 3.1% |
Teleflex, Inc. | 2.9% |
Constellation Brands, Inc., Class A | 2.6% |
Middleby Corp. (The) | 2.2% |
Alliance Data Systems Corp. | 2.1% |
Motorola Solutions, Inc. | 2.1% |
Affiliated Managers Group, Inc. | 1.9% |
Canadian Pacific Railway Ltd., New York Shares | 1.8% |
Mohawk Industries, Inc. | 1.8% |
Top Five Industries | % of net assets |
Software | 6.6% |
Specialty Retail | 6.0% |
Machinery | 5.7% |
Health Care Equipment and Supplies | 5.5% |
Household Durables | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.2% |
Temporary Cash Investments | 2.1% |
Other Assets and Liabilities | (0.3)% |
7
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. 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.
8
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $982.00 | $5.00 | 1.00% |
Institutional Class | $1,000 | $983.10 | $4.00 | 0.80% |
A Class | $1,000 | $981.10 | $6.24 | 1.25% |
C Class | $1,000 | $977.40 | $9.97 | 2.00% |
R Class | $1,000 | $979.60 | $7.48 | 1.50% |
R6 Class | $1,000 | $983.90 | $3.25 | 0.65% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
R6 Class | $1,000 | $1,021.93 | $3.31 | 0.65% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 98.2% | ||||
Aerospace and Defense — 0.5% | ||||
B/E Aerospace, Inc. | 583,460 | $ | 27,393,447 | |
Airlines — 1.7% | ||||
Alaska Air Group, Inc. | 547,342 | 41,734,828 | ||
American Airlines Group, Inc. | 679,529 | 31,407,830 | ||
Spirit Airlines, Inc.(1) | 589,474 | 21,881,275 | ||
95,023,933 | ||||
Auto Components — 0.8% | ||||
Delphi Automotive plc | 542,223 | 45,107,531 | ||
Banks — 2.1% | ||||
BankUnited, Inc. | 937,019 | 34,838,367 | ||
Signature Bank(1) | 361,263 | 53,799,286 | ||
SVB Financial Group(1) | 247,431 | 30,203,902 | ||
118,841,555 | ||||
Beverages — 4.3% | ||||
Boston Beer Co., Inc. (The), Class A(1) | 117,456 | 25,792,163 | ||
Brown-Forman Corp., Class B | 651,908 | 69,219,591 | ||
Constellation Brands, Inc., Class A | 1,080,927 | 145,708,960 | ||
240,720,714 | ||||
Biotechnology — 2.5% | ||||
BioMarin Pharmaceutical, Inc.(1) | 504,318 | 59,025,378 | ||
Incyte Corp.(1) | 416,541 | 48,956,064 | ||
Vertex Pharmaceuticals, Inc.(1) | 255,481 | 31,868,700 | ||
139,850,142 | ||||
Building Products — 1.2% | ||||
Lennox International, Inc. | 510,499 | 67,799,372 | ||
Capital Markets — 1.9% | ||||
Affiliated Managers Group, Inc.(1) | 591,834 | 106,683,997 | ||
Chemicals — 0.8% | ||||
Axalta Coating Systems Ltd.(1) | 1,584,180 | 43,770,893 | ||
Commercial Services and Supplies — 1.9% | ||||
KAR Auction Services, Inc. | 1,657,091 | 63,632,294 | ||
Stericycle, Inc.(1) | 350,278 | 42,513,241 | ||
106,145,535 | ||||
Communications Equipment — 2.6% | ||||
Juniper Networks, Inc. | 1,023,106 | 32,115,297 | ||
Motorola Solutions, Inc. | 1,653,018 | 115,661,670 | ||
147,776,967 | ||||
Consumer Finance — 0.8% | ||||
Discover Financial Services | 786,926 | 44,240,980 |
10
Shares | Value | |||
Containers and Packaging — 1.6% | ||||
Ball Corp. | 859,164 | $ | 58,852,734 | |
Berry Plastics Group, Inc.(1) | 961,989 | 32,226,631 | ||
91,079,365 | ||||
Distributors — 0.8% | ||||
LKQ Corp.(1) | 1,497,378 | 44,337,363 | ||
Diversified Financial Services — 1.1% | ||||
McGraw Hill Financial, Inc. | 672,768 | 62,325,228 | ||
Electrical Equipment — 1.0% | ||||
Acuity Brands, Inc. | 248,198 | 54,256,083 | ||
Electronic Equipment, Instruments and Components — 1.0% | ||||
TE Connectivity Ltd. | 896,671 | 57,781,479 | ||
Food and Staples Retailing — 1.2% | ||||
Costco Wholesale Corp. | 427,516 | 67,598,830 | ||
Food Products — 2.1% | ||||
Hain Celestial Group, Inc. (The)(1) | 757,320 | 37,752,402 | ||
Hershey Co. (The) | 231,167 | 20,502,201 | ||
J.M. Smucker Co. (The) | 241,370 | 28,334,425 | ||
WhiteWave Foods Co. (The), Class A(1) | 741,799 | 30,398,923 | ||
116,987,951 | ||||
Health Care Equipment and Supplies — 5.5% | ||||
Cooper Cos., Inc. (The) | 222,549 | 33,907,566 | ||
DexCom, Inc.(1) | 500,750 | 41,722,490 | ||
Hologic, Inc.(1) | 958,812 | 37,259,434 | ||
NuVasive, Inc.(1) | 749,958 | 35,368,019 | ||
Teleflex, Inc. | 1,221,310 | 162,434,230 | ||
310,691,739 | ||||
Health Care Providers and Services — 3.4% | ||||
AmerisourceBergen Corp. | 626,653 | 60,478,281 | ||
Universal Health Services, Inc., Class B | 535,113 | 65,331,946 | ||
VCA, Inc.(1) | 1,154,666 | 63,241,057 | ||
189,051,284 | ||||
Hotels, Restaurants and Leisure — 2.2% | ||||
Buffalo Wild Wings, Inc.(1) | 154,468 | 23,829,778 | ||
Chipotle Mexican Grill, Inc.(1) | 4,235 | 2,711,374 | ||
Hilton Worldwide Holdings, Inc. | 1,915,035 | 47,856,725 | ||
La Quinta Holdings, Inc.(1) | 158,175 | 2,396,351 | ||
Papa John's International, Inc. | 627,218 | 44,011,887 | ||
120,806,115 | ||||
Household Durables — 5.0% | ||||
Harman International Industries, Inc. | 514,019 | 56,521,529 | ||
Jarden Corp.(1) | 1,768,723 | 79,238,790 | ||
Mohawk Industries, Inc.(1) | 502,533 | 98,245,202 | ||
Newell Rubbermaid, Inc. | 1,051,987 | 44,635,809 | ||
278,641,330 |
11
Shares | Value | |||
Internet and Catalog Retail — 1.6% | ||||
Expedia, Inc. | 641,643 | $ | 87,455,941 | |
Internet Software and Services — 2.9% | ||||
Akamai Technologies, Inc.(1) | 155,802 | 9,475,878 | ||
CoStar Group, Inc.(1) | 425,735 | 86,454,006 | ||
LinkedIn Corp., Class A(1) | 281,545 | 67,815,744 | ||
163,745,628 | ||||
IT Services — 4.8% | ||||
Alliance Data Systems Corp.(1) | 399,742 | 118,847,294 | ||
Sabre Corp. | 2,409,493 | 70,646,335 | ||
Vantiv, Inc., Class A(1) | 1,554,028 | 77,934,504 | ||
267,428,133 | ||||
Leisure Products — 1.6% | ||||
Brunswick Corp. | 899,299 | 48,391,279 | ||
Polaris Industries, Inc. | 346,637 | 38,941,201 | ||
87,332,480 | ||||
Machinery — 5.7% | ||||
Ingersoll-Rand plc | 937,076 | 55,531,123 | ||
ITT Corp. | 428,441 | 16,957,695 | ||
Middleby Corp. (The)(1) | 1,054,894 | 123,359,304 | ||
Snap-On, Inc. | 502,011 | 83,278,605 | ||
WABCO Holdings, Inc.(1) | 367,112 | 41,200,980 | ||
320,327,707 | ||||
Media — 1.5% | ||||
Charter Communications, Inc., Class A(1) | 440,715 | 84,150,122 | ||
Multiline Retail — 2.4% | ||||
Burlington Stores, Inc.(1) | 1,077,448 | 51,803,700 | ||
Dollar Tree, Inc.(1) | 1,243,903 | 81,463,207 | ||
133,266,907 | ||||
Oil, Gas and Consumable Fuels — 1.3% | ||||
Concho Resources, Inc.(1) | 442,287 | 51,265,486 | ||
Gulfport Energy Corp.(1) | 732,831 | 22,329,361 | ||
73,594,847 | ||||
Pharmaceuticals — 2.1% | ||||
Endo International plc(1) | 553,153 | 33,183,649 | ||
Zoetis, Inc. | 1,969,510 | 84,708,625 | ||
117,892,274 | ||||
Professional Services — 1.9% | ||||
Nielsen Holdings plc | 1,632,092 | 77,540,691 | ||
Verisk Analytics, Inc., Class A(1) | 382,008 | 27,355,593 | ||
104,896,284 | ||||
Real Estate Management and Development — 1.5% | ||||
Jones Lang LaSalle, Inc. | 509,956 | 85,014,765 | ||
Road and Rail — 3.0% | ||||
Canadian Pacific Railway Ltd., New York Shares | 716,154 | 100,619,637 | ||
J.B. Hunt Transport Services, Inc. | 534,377 | 40,810,371 |
12
Shares | Value | |||
Kansas City Southern | 330,121 | $ | 27,320,814 | |
168,750,822 | ||||
Semiconductors and Semiconductor Equipment — 2.9% | ||||
Avago Technologies Ltd. | 447,075 | 55,048,345 | ||
Cree, Inc.(1) | 1,098,995 | 27,683,684 | ||
Freescale Semiconductor Ltd.(1) | 906,896 | 30,371,947 | ||
NXP Semiconductors NV(1) | 636,655 | 49,881,919 | ||
162,985,895 | ||||
Software — 6.6% | ||||
Activision Blizzard, Inc. | 1,228,616 | 42,706,692 | ||
CDK Global, Inc. | 838,464 | 41,747,123 | ||
Electronic Arts, Inc.(1) | 2,414,647 | 174,023,609 | ||
Intuit, Inc. | 569,072 | 55,444,685 | ||
Tyler Technologies, Inc.(1) | 326,690 | 55,654,908 | ||
369,577,017 | ||||
Specialty Retail — 6.0% | ||||
AutoZone, Inc.(1) | 82,351 | 64,596,948 | ||
Restoration Hardware Holdings, Inc.(1) | 333,611 | 34,391,958 | ||
Signet Jewelers Ltd. | 640,783 | 96,719,786 | ||
Tractor Supply Co. | 848,929 | 78,432,550 | ||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 369,462 | 64,271,610 | ||
338,412,852 | ||||
Textiles, Apparel and Luxury Goods — 3.2% | ||||
Hanesbrands, Inc. | 1,850,151 | 59,093,823 | ||
lululemon athletica, Inc.(1) | 751,495 | 36,951,009 | ||
Under Armour, Inc., Class A(1) | 887,822 | 84,414,116 | ||
180,458,948 | ||||
Wireless Telecommunication Services — 3.2% | ||||
SBA Communications Corp., Class A(1) | 1,492,872 | 177,681,625 | ||
TOTAL COMMON STOCKS (Cost $4,277,610,088) | 5,499,884,080 | |||
TEMPORARY CASH INVESTMENTS — 2.1% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $45,938,527), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $45,044,807) | 45,044,769 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 2.125% - 6.00%, 5/15/25 - 2/15/26, valued at $76,601,600), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $75,093,000) | 75,093,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 4,601 | 4,601 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $120,142,370) | 120,142,370 | |||
TOTAL INVESTMENT SECURITIES — 100.3% (Cost $4,397,752,458) | 5,620,026,450 | |||
OTHER ASSETS AND LIABILITIES — (0.3)% | (17,032,347) | |||
TOTAL NET ASSETS — 100.0% | $ | 5,602,994,103 |
13
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
CAD | 6,703,413 | USD | 5,080,961 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | 44,622 | |
USD | 98,289,525 | CAD | 130,206,099 | JPMorgan Chase Bank N.A. | 11/30/15 | (1,269,031 | ) | |
$ | (1,224,409 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
14
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $4,397,752,458) | $ | 5,620,026,450 | |
Foreign currency holdings, at value (cost of $17,853) | 14,140 | ||
Receivable for investments sold | 34,636,906 | ||
Receivable for capital shares sold | 1,776,651 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 44,622 | ||
Dividends and interest receivable | 382,074 | ||
5,656,880,843 | |||
Liabilities | |||
Payable for investments purchased | 44,081,167 | ||
Payable for capital shares redeemed | 3,625,766 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 1,269,031 | ||
Accrued management fees | 4,610,284 | ||
Distribution and service fees payable | 300,492 | ||
53,886,740 | |||
Net Assets | $ | 5,602,994,103 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 3,788,791,651 | |
Accumulated net investment loss | (22,293,754 | ) | |
Undistributed net realized gain | 615,422,627 | ||
Net unrealized appreciation | 1,221,073,579 | ||
$ | 5,602,994,103 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $4,349,601,164 | 176,913,483 | $24.59 | |||
Institutional Class, $0.01 Par Value | $163,669,734 | 6,387,446 | $25.62 | |||
A Class, $0.01 Par Value | $798,879,229 | 34,245,331 | $23.33* | |||
C Class, $0.01 Par Value | $134,096,071 | 6,603,251 | $20.31 | |||
R Class, $0.01 Par Value | $53,731,206 | 2,288,216 | $23.48 | |||
R6 Class, $0.01 Par Value | $103,016,699 | 4,006,057 | $25.72 |
*Maximum offering price $24.75 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $320,673) | $ | 33,595,114 | |
Interest | 18,528 | ||
33,613,642 | |||
Expenses: | |||
Management fees | 57,346,695 | ||
Distribution and service fees: | |||
A Class | 2,122,194 | ||
B Class | 24,464 | ||
C Class | 1,319,909 | ||
R Class | 292,969 | ||
Directors' fees and expenses | 192,204 | ||
Other expenses | 812 | ||
61,299,247 | |||
Net investment income (loss) | (27,685,605 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 687,471,190 | ||
Futures contract transactions | 2,754,731 | ||
Foreign currency transactions | 15,573,418 | ||
705,799,339 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (279,477,831 | ) | |
Translation of assets and liabilities in foreign currencies | (1,773,615 | ) | |
(281,251,446 | ) | ||
Net realized and unrealized gain (loss) | 424,547,893 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 396,862,288 |
See Notes to Financial Statements.
16
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | (27,685,605 | ) | $ | (35,891,230 | ) |
Net realized gain (loss) | 705,799,339 | 968,944,726 | ||||
Change in net unrealized appreciation (depreciation) | (281,251,446 | ) | (464,877,475 | ) | ||
Net increase (decrease) in net assets resulting from operations | 396,862,288 | 468,176,021 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Investor Class | (627,197,211 | ) | (377,362,029 | ) | ||
Institutional Class | (26,142,114 | ) | (30,282,537 | ) | ||
A Class | (127,268,570 | ) | (140,744,405 | ) | ||
B Class | (380,363 | ) | (416,601 | ) | ||
C Class | (21,063,349 | ) | (19,841,840 | ) | ||
R Class | (8,236,815 | ) | (7,088,192 | ) | ||
R6 Class | (7,912,123 | ) | (9,153 | ) | ||
Decrease in net assets from distributions | (818,200,545 | ) | (575,744,757 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 260,661,006 | 1,321,732,036 | ||||
Net increase (decrease) in net assets | (160,677,251 | ) | 1,214,163,300 | |||
Net Assets | ||||||
Beginning of period | 5,763,671,354 | 4,549,508,054 | ||||
End of period | $ | 5,602,994,103 | $ | 5,763,671,354 | ||
Accumulated net investment loss | $ | (22,293,754 | ) | $ | (32,365,845 | ) |
See Notes to Financial Statements.
17
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Heritage Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a
18
security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms
19
and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually. The fund may elect to treat a portion of its payment to a redeeming shareholder, which represents the pro rata share of undistributed net investment income and net realized gains, as a distribution for federal income tax purposes (tax equalization).
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The annual management fee is 1.00% for the Investor Class, A Class, B Class, C Class and R Class, 0.80% for the Institutional Class and 0.65% for the R6 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $3,540,418,134 and $4,141,187,478, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,160,000,000 | 1,150,000,000 | ||||||||
Sold | 17,995,858 | $ | 448,520,966 | 19,443,145 | $ | 506,861,274 | ||||
Issued in connection with reorganization (Note 10) | — | — | 57,086,650 | 1,417,578,208 | ||||||
Issued in reinvestment of distributions | 27,126,049 | 608,166,025 | 14,781,644 | 364,367,525 | ||||||
Redeemed | (33,649,543 | ) | (842,439,307 | ) | (31,920,610 | ) | (828,419,741 | ) | ||
11,472,364 | 214,247,684 | 59,390,829 | 1,460,387,266 | |||||||
Institutional Class/Shares Authorized | 120,000,000 | 120,000,000 | ||||||||
Sold | 1,797,320 | 46,415,350 | 2,215,202 | 59,672,546 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 2,456,543 | 62,960,928 | ||||||
Issued in reinvestment of distributions | 1,077,578 | 25,139,900 | 1,186,665 | 30,200,632 | ||||||
Redeemed | (3,638,578 | ) | (94,836,634 | ) | (7,034,757 | ) | (189,801,647 | ) | ||
(763,680 | ) | (23,281,384 | ) | (1,176,347 | ) | (36,967,541 | ) | |||
A Class/Shares Authorized | 510,000,000 | 510,000,000 | ||||||||
Sold | 8,462,173 | 201,503,323 | 6,854,460 | 171,181,761 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 2,306,433 | 55,013,464 | ||||||
Issued in reinvestment of distributions | 5,811,176 | 123,894,272 | 5,786,878 | 137,033,276 | ||||||
Redeemed | (13,756,959 | ) | (323,412,390 | ) | (20,982,643 | ) | (525,622,531 | ) | ||
516,390 | 1,985,205 | (6,034,872 | ) | (162,394,030 | ) | |||||
B Class/Shares Authorized | 30,000,000 | 35,000,000 | ||||||||
Sold | 4,258 | 96,931 | 3,351 | 85,668 | ||||||
Issued in reinvestment of distributions | 16,976 | 350,214 | 16,762 | 388,880 | ||||||
Redeemed | (126,015 | ) | (2,818,601 | ) | (33,378 | ) | (817,653 | ) | ||
(104,781 | ) | (2,371,456 | ) | (13,265 | ) | (343,105 | ) | |||
C Class/Shares Authorized | 85,000,000 | 85,000,000 | ||||||||
Sold | 1,322,874 | 27,092,021 | 742,832 | 16,581,958 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 5,312 | 114,258 | ||||||
Issued in reinvestment of distributions | 956,169 | 17,861,230 | 767,435 | 16,392,408 | ||||||
Redeemed | (1,240,586 | ) | (25,713,987 | ) | (1,477,752 | ) | (33,088,095 | ) | ||
1,038,457 | 19,239,264 | 37,827 | 529 | |||||||
R Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 979,206 | 23,473,597 | 554,024 | 13,999,728 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 568,103 | 13,685,676 | ||||||
Issued in reinvestment of distributions | 382,413 | 8,225,706 | 296,453 | 7,088,192 | ||||||
Redeemed | (1,322,788 | ) | (31,758,123 | ) | (1,121,755 | ) | (27,935,786 | ) | ||
38,831 | (58,820 | ) | 296,825 | 6,837,810 | ||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 2,929,320 | 76,749,542 | 2,267,161 | 60,858,580 | ||||||
Issued in reinvestment of distributions | 338,414 | 7,912,123 | 359 | 9,153 | ||||||
Redeemed | (1,287,420 | ) | (33,761,152 | ) | (244,291 | ) | (6,656,626 | ) | ||
1,980,314 | 50,900,513 | 2,023,229 | 54,211,107 | |||||||
Net increase (decrease) | 14,177,895 | $ | 260,661,006 | 54,524,226 | $ | 1,321,732,036 |
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6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 5,499,884,080 | — | — | ||||
Temporary Cash Investments | 4,601 | $ | 120,137,769 | — | ||||
$ | 5,499,888,681 | $ | 120,137,769 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 44,622 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (1,269,031 | ) | — |
7. Derivative Instruments
Equity Price Risk — The fund is subject to equity price risk in the normal course of pursuing its investment objectives. A fund may enter into futures contracts based on an equity index in order to manage its exposure to changes in market conditions. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund 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 a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund participated in equity price risk derivative instruments for temporary investment purposes.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange
22
rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $107,103,183.
Value of Derivative Instruments as of October 31, 2015 | ||||||||
Asset Derivatives | Liability Derivatives | |||||||
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | Location on Statement of Assets and Liabilities | Value | ||||
Foreign Currency Risk | Unrealized appreciation on forward foreign currency exchange contracts | $ | 44,622 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 1,269,031 | ||
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2015 | ||||||||
Net Realized Gain (Loss) | Change in Net Unrealized Appreciation (Depreciation) | |||||||
Type of Risk Exposure | Location on Statement of Operations | Value | Location on Statement of Operations | Value | ||||
Equity Price Risk | Net realized gain (loss) on futures contract transactions | $ | 2,754,731 | Change in net unrealized appreciation (depreciation) on futures contracts | — | |||
Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | 15,584,442 | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $ | (1,765,931 | ) | ||
$ | 18,339,173 | $ | (1,765,931 | ) |
8. Risk Factors
The fund invests 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.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | — | $ | 14,863,680 | |||
Long-term capital gains | $ | 818,200,545 | $ | 560,881,077 |
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
The reclassifications, which are primarily due to net operating losses and tax equalization, were made to capital $40,221,639, accumulated net investment loss $37,757,696, and undistributed net realized gain $(77,979,335).
23
As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 4,403,809,587 | |
Gross tax appreciation of investments | $ | 1,341,709,666 | |
Gross tax depreciation of investments | (125,492,803 | ) | |
Net tax appreciation (depreciation) of investments | 1,216,216,863 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | 23,996 | ||
Net tax appreciation (depreciation) | $ | 1,216,240,859 | |
Undistributed ordinary income | — | ||
Accumulated long-term gains | $ | 621,479,756 | |
Late-year ordinary loss deferral | $ | (23,518,163 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
10. Reorganization
On September 12, 2013, the Board of Directors approved an agreement and plan of reorganization (the reorganization), whereby the net assets of Vista Fund (Vista), one fund in a series issued by the corporation, were transferred to Heritage Fund (Heritage) in exchange for shares of Heritage. The purpose of the transaction was to combine two funds with matching investment objectives and similar underlying securities. The financial statements and performance history of Heritage survived after the reorganization. The reorganization was effective at the close of the NYSE on December 6, 2013.
The reorganization was accomplished by a tax-free exchange of shares. On December 6, 2013, Vista exchanged its shares for shares of Heritage as follows:
Original Fund/Class | Shares Exchanged | New Fund/Class | Shares Received | ||
Vista – Investor Class | 66,205,582 | Heritage – Investor Class | 57,086,650 | ||
Vista – Institutional Class | 2,836,089 | Heritage – Institutional Class | 2,456,543 | ||
Vista – A Class | 2,682,028 | Heritage – A Class | 2,306,433 | ||
Vista – C Class | 5,555 | Heritage – C Class | 5,312 | ||
Vista – R Class | 668,896 | Heritage – R Class | 568,103 |
The net assets of Vista and Heritage immediately before the reorganization were $1,549,352,534 and $4,468,145,045, respectively. Vista’s unrealized appreciation of $520,936,072 was combined with that of Heritage. Immediately after the reorganization, the combined net assets were $6,017,497,579.
Assuming the reorganization had been completed on November 1, 2013, the beginning of the annual reporting period, the pro forma results of operations for the year ended October 31, 2014 are as follows:
Net investment income (loss) | $ | (36,359,829 | ) |
Net realized and unrealized gain (loss) | 522,241,877 | ||
Net increase (decrease) in net assets resulting from operations | $ | 485,882,048 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the reorganization was completed, it is not practicable to separate the amounts of revenue and earnings of Vista that have been included in the fund’s Statement of Operations since December 6, 2013.
24
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||
2015 | $26.89 | (0.11) | 1.66 | 1.55 | (3.85) | $24.59 | 7.11% | 1.00% | (0.42)% | 62% | $4,349,601 | ||
2014 | $28.45 | (0.14) | 2.18 | 2.04 | (3.60) | $26.89 | 8.33% | 1.00% | (0.55)% | 73% | $4,449,377 | ||
2013 | $22.44 | (0.07) | 6.55 | 6.48 | (0.47) | $28.45 | 29.43% | 1.00% | (0.29)% | 70% | $3,016,930 | ||
2012 | $20.51 | (0.06) | 1.99 | 1.93 | — | $22.44 | 9.41% | 1.01% | (0.28)% | 72% | $2,499,048 | ||
2011 | $19.21 | (0.07) | 1.37 | 1.30 | — | $20.51 | 6.77% | 1.01% | (0.35)% | 95% | $2,395,881 | ||
Institutional Class | |||||||||||||
2015 | $27.81 | (0.06) | 1.72 | 1.66 | (3.85) | $25.62 | 7.33% | 0.80% | (0.22)% | 62% | $163,670 | ||
2014 | $29.25 | (0.09) | 2.25 | 2.16 | (3.60) | $27.81 | 8.53% | 0.80% | (0.35)% | 73% | $198,895 | ||
2013 | $23.01 | (0.02) | 6.73 | 6.71 | (0.47) | $29.25 | 29.70% | 0.80% | (0.09)% | 70% | $243,548 | ||
2012 | $20.99 | (0.01) | 2.03 | 2.02 | — | $23.01 | 9.62% | 0.81% | (0.08)% | 72% | $187,984 | ||
2011 | $19.62 | (0.03) | 1.40 | 1.37 | — | $20.99 | 6.98% | 0.81% | (0.15)% | 95% | $156,681 | ||
A Class | |||||||||||||
2015 | $25.78 | (0.16) | 1.56 | 1.40 | (3.85) | $23.33 | 6.88% | 1.25% | (0.67)% | 62% | $798,879 | ||
2014 | $27.48 | (0.20) | 2.10 | 1.90 | (3.60) | $25.78 | 8.04% | 1.25% | (0.80)% | 73% | $869,381 | ||
2013 | $21.74 | (0.13) | 6.34 | 6.21 | (0.47) | $27.48 | 29.13% | 1.25% | (0.54)% | 70% | $1,092,574 | ||
2012 | $19.92 | (0.11) | 1.93 | 1.82 | — | $21.74 | 9.08% | 1.26% | (0.53)% | 72% | $972,795 | ||
2011 | $18.70 | (0.12) | 1.34 | 1.22 | — | $19.92 | 6.58% | 1.26% | (0.60)% | 95% | $973,051 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||
2015 | $23.10 | (0.30) | 1.36 | 1.06 | (3.85) | $20.31 | 6.09% | 2.00% | (1.42)% | 62% | $134,096 | ||
2014 | $25.16 | (0.35) | 1.89 | 1.54 | (3.60) | $23.10 | 7.25% | 2.00% | (1.55)% | 73% | $128,522 | ||
2013 | $20.09 | (0.28) | 5.82 | 5.54 | (0.47) | $25.16 | 28.10% | 2.00% | (1.29)% | 70% | $139,064 | ||
2012 | $18.55 | (0.25) | 1.79 | 1.54 | — | $20.09 | 8.30% | 2.01% | (1.28)% | 72% | $117,580 | ||
2011 | $17.55 | (0.26) | 1.26 | 1.00 | — | $18.55 | 5.75% | 2.01% | (1.35)% | 95% | $115,641 | ||
R Class | |||||||||||||
2015 | $25.97 | (0.22) | 1.58 | 1.36 | (3.85) | $23.48 | 6.60% | 1.50% | (0.92)% | 62% | $53,731 | ||
2014 | $27.72 | (0.27) | 2.12 | 1.85 | (3.60) | $25.97 | 7.80% | 1.50% | (1.05)% | 73% | $58,426 | ||
2013 | $21.99 | (0.20) | 6.40 | 6.20 | (0.47) | $27.72 | 28.74% | 1.50% | (0.79)% | 70% | $54,129 | ||
2012 | $20.20 | (0.16) | 1.95 | 1.79 | — | $21.99 | 8.86% | 1.51% | (0.78)% | 72% | $39,314 | ||
2011 | $19.01 | (0.18) | 1.37 | 1.19 | — | $20.20 | 6.26% | 1.51% | (0.85)% | 95% | $32,023 | ||
R6 Class | |||||||||||||
2015 | $27.86 | (0.02) | 1.73 | 1.71 | (3.85) | $25.72 | 7.48% | 0.65% | (0.07)% | 62% | $103,017 | ||
2014 | $29.25 | (0.07) | 2.28 | 2.21 | (3.60) | $27.86 | 8.72% | 0.65% | (0.20)% | 73% | $56,442 | ||
2013(3) | $27.22 | —(4) | 2.03 | 2.03 | — | $29.25 | 7.46% | 0.65%(5) | (0.07)%(5) | 70%(6) | $74 |
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Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(4) | Per-share amount was less than $0.005. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Heritage Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Heritage Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the ten-year period and below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain
33
effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
34
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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
35
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
36
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $874,400,892, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
The fund utilized earnings and profits of $56,200,347 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
37
Notes |
38
Notes |
39
Notes |
40
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87643 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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New Opportunities Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/jonathanthomassig.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWNOX | 3.54%(1) | 12.36%(1) | 8.12% | 7.59% | 12/26/96 |
Russell 2500 Growth Index | — | 4.17% | 14.24% | 9.29% | 7.79% | — |
Institutional Class | TWNIX | 3.77%(1) | 12.59%(1) | — | 13.47% | 3/1/10 |
A Class | TWNAX | 3/1/10 | ||||
No sales charge* | 3.31%(1) | 12.08%(1) | — | 12.97%(1) | ||
With sales charge* | -2.66%(1) | 10.75%(1) | — | 11.79%(1) | ||
C Class | TWNCX | 2.59%(1) | 11.26%(1) | — | 12.12%(1) | 3/1/10 |
R Class | TWNRX | 3.08%(1) | 11.79%(1) | — | 12.68%(1) | 3/1/10 |
* 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 and may be subject to a maximum CDSC of 1.00%. 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) | Returns would have been lower if a portion of the management fee 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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/acmf103115_chart-24135.jpg)
Value on October 31, 2015 | |
Investor Class — $21,830* | |
Russell 2500 Growth Index — $24,313 | |
*Ending value would have been lower if a portion of the management fee had not been waived.
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.51% | 1.31% | 1.76% | 2.51% | 2.01% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: Matthew Ferretti and Jackie Wagner
In March 2015, portfolio manager Jeffrey Otto left the New Opportunities management team and portfolio manager Jackie Wagner was promoted from Senior Analyst on the team.
Performance Summary
New Opportunities returned 3.54%* for the 12 months ended October 31, 2015, lagging the 4.17% return of the portfolio’s benchmark, the Russell 2500 Growth Index.
U.S. stock indices delivered positive returns during the reporting period amid considerable volatility and variation among sector returns. Within the Russell 2500 Growth Index, information technology and health care were the top-performing sectors on a total-return basis, gaining a little over 10% each. Energy stocks fell nearly 40% as commodity prices plunged. Telecommunication services stocks also declined sharply.
New Opportunities received positive absolute contributions from all sectors in which it was invested except energy and consumer staples. Stock decisions in the health care, information technology, and consumer staples sectors were key performance detractors relative to the Russell index. Stock selection in the financials, consumer discretionary, and industrials sectors benefited results versus the benchmark.
Health Care Stocks Hampered Relative Results
Stock choices in the health care sector detracted from relative results, although an overweight allocation to the sector was beneficial. Although health care stocks performed well over the 12-month period, news stories late in the fiscal year focused on high prescription drug prices, which have now become a topic of the 2016 presidential election. The pricing scrutiny led to a broad-based sell-off in the health care sector. Specialty pharmaceutical firm Horizon Pharma detracted despite reporting solid results as the stock was caught up in the drug pricing sell-off. Medical device maker Cardiovascular Systems also fell following weak results attributed to poor sales force execution. The holding was eliminated from the portfolio.
In information technology, stock selection hurt performance. Barracuda Networks was a significant detractor. The company, which provides security, networking, and application delivery, as well
as data storage, protection and disaster recovery services, reported better-than-expected results, but billings growth—a leading indicator of future revenues—decelerated. Barracuda was eliminated.
Among other key detractors, Horsehead Holding, a producer of specialty zinc and zinc-based products, reported lower-than-expected production in June. Zinc prices have fallen significantly since May as rising exports from China and Japan deepen the global oversupply. The holding was eliminated. LKQ, which primarily provides after-market and recycled collision and mechanical parts for automobiles, was hurt by currency exposure to the euro and falling scrap steel prices. Additionally, investors appeared impatient with progress in Europe following acquisitions there last year.
*All fund returns referenced in this commentary are for Investor Class shares. Returns would have been lower
if a portion of the management fee had not been waived. Performance for other share classes will vary due to
differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other
share classes may not. See page 3 for returns for all share classes.
5
Financials and Consumer Discretionary Stocks Aided Performance
Stock selection among financials stocks was the top contributor to performance relative to the benchmark. Choices in the consumer finance and real estate management and development industries were especially beneficial.
Stock selection in the consumer discretionary sector was also positive, led by decisions in the textiles, apparel, and luxury goods industry. Footwear wholesaler and retailer Skechers U.S.A. benefited from positive trends in athletic shoes and has a strong product portfolio in the U.S. Non-U.S. markets are driving the company’s long-term growth. Pizza chain Papa John’s International continued to grow same-store sales. Its better use of technology, including mobile ordering, allows its restaurants to take market share from local “mom and pop” pizza restaurants.
Elsewhere, payment-processing company Vantiv was a top contributor. The company reported solid results with improving margins and topline growth. In health care, biotechnology firm Anacor Pharmaceuticals, which focuses on topical applications, announced positive results for its drug to treat eczema, which is expected to get FDA approval next year. The company also has benefited from strong sales growth for its drug to treat toenail fungus.
Outlook
As of October 31, 2015, energy and materials stocks were the largest overweights relative to the Russell index, while health care and telecommunication services represented the largest underweights. New Opportunities’ investment process focuses on small and mid-sized 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 2500 Growth Index.
6
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Middleby Corp. (The) | 2.0% |
CoStar Group, Inc. | 2.0% |
Vantiv, Inc., Class A | 1.8% |
LKQ Corp. | 1.7% |
Snap-On, Inc. | 1.7% |
Fortune Brands Home & Security, Inc. | 1.7% |
Tyler Technologies, Inc. | 1.6% |
Brunswick Corp. | 1.5% |
Signature Bank | 1.5% |
Sabre Corp. | 1.4% |
Top Five Industries | % of net assets |
Biotechnology | 6.3% |
Software | 5.8% |
Hotels, Restaurants and Leisure | 5.2% |
IT Services | 5.2% |
Health Care Equipment and Supplies | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.3% |
Temporary Cash Investments | 2.4% |
Other Assets and Liabilities | 0.3% |
7
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. 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.
8
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15-10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $958.30 | $6.81 | 1.38% |
Investor Class (before waiver) | $1,000 | $958.30(2) | $7.40 | 1.50% |
Institutional Class (after waiver) | $1,000 | $959.60 | $5.83 | 1.18% |
Institutional Class (before waiver) | $1,000 | $959.60(2) | $6.42 | 1.30% |
A Class (after waiver) | $1,000 | $956.90 | $8.04 | 1.63% |
A Class (before waiver) | $1,000 | $956.90(2) | $8.63 | 1.75% |
C Class (after waiver) | $1,000 | $954.10 | $11.72 | 2.38% |
C Class (before waiver) | $1,000 | $954.10(2) | $12.31 | 2.50% |
R Class (after waiver) | $1,000 | $956.30 | $9.27 | 1.88% |
R Class (before waiver) | $1,000 | $956.30(2) | $9.86 | 2.00% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,018.25 | $7.02 | 1.38% |
Investor Class (before waiver) | $1,000 | $1,017.64 | $7.63 | 1.50% |
Institutional Class (after waiver) | $1,000 | $1,019.26 | $6.01 | 1.18% |
Institutional Class (before waiver) | $1,000 | $1,018.65 | $6.61 | 1.30% |
A Class (after waiver) | $1,000 | $1,016.99 | $8.29 | 1.63% |
A Class (before waiver) | $1,000 | $1,016.38 | $8.89 | 1.75% |
C Class (after waiver) | $1,000 | $1,013.21 | $12.08 | 2.38% |
C Class (before waiver) | $1,000 | $1,012.60 | $12.68 | 2.50% |
R Class (after waiver) | $1,000 | $1,015.73 | $9.55 | 1.88% |
R Class (before waiver) | $1,000 | $1,015.12 | $10.16 | 2.00% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | ||||
COMMON STOCKS — 97.3% | |||||
Aerospace and Defense — 0.5% | |||||
B/E Aerospace, Inc. | 21,468 | $ | 1,007,923 | ||
Air Freight and Logistics — 0.6% | |||||
XPO Logistics, Inc.(1) | 40,067 | 1,112,260 | |||
Airlines — 0.7% | |||||
Alaska Air Group, Inc. | 16,806 | 1,281,458 | |||
Banks — 3.8% | |||||
BankUnited, Inc. | 38,415 | 1,428,270 | |||
Cathay General Bancorp | 42,006 | 1,314,788 | |||
FCB Financial Holdings, Inc., Class A(1) | 47,999 | 1,706,844 | |||
Signature Bank(1) | 18,609 | 2,771,252 | |||
7,221,154 | |||||
Beverages — 0.5% | |||||
Coca-Cola Bottling Co. Consolidated | 4,927 | 1,040,632 | |||
Biotechnology — 6.3% | |||||
ACADIA Pharmaceuticals, Inc.(1) | 9,636 | 335,526 | |||
Agios Pharmaceuticals, Inc.(1) | 4,536 | 330,493 | |||
Aimmune Therapeutics, Inc.(1) | 16,608 | 249,950 | |||
Alder Biopharmaceuticals, Inc.(1) | 14,561 | 465,661 | |||
Alkermes plc(1) | 14,126 | 1,015,942 | |||
AMAG Pharmaceuticals, Inc.(1) | 7,036 | 281,440 | |||
Anacor Pharmaceuticals, Inc.(1) | 9,459 | 1,063,286 | |||
Bluebird Bio, Inc.(1) | 3,870 | 298,493 | |||
Cepheid, Inc.(1) | 8,433 | 281,662 | |||
Clovis Oncology, Inc.(1) | 4,606 | 460,186 | |||
Dyax Corp.(1) | 20,272 | 558,088 | |||
Eagle Pharmaceuticals, Inc.(1) | 6,180 | 393,728 | |||
Exelixis, Inc.(1) | 48,923 | 294,516 | |||
Intercept Pharmaceuticals, Inc.(1) | 2,317 | 364,232 | |||
Isis Pharmaceuticals, Inc.(1) | 14,339 | 690,423 | |||
Kite Pharma, Inc.(1) | 6,248 | 425,176 | |||
Neurocrine Biosciences, Inc.(1) | 10,004 | 491,096 | |||
Novavax, Inc.(1) | 42,336 | 285,768 | |||
Opko Health, Inc.(1) | 39,090 | 369,401 | |||
Portola Pharmaceuticals, Inc.(1) | 8,104 | 385,831 | |||
Radius Health, Inc.(1) | 5,508 | 353,779 | |||
Seattle Genetics, Inc.(1) | 12,907 | 535,511 | |||
Spark Therapeutics, Inc.(1) | 4,831 | 260,391 | |||
TESARO, Inc.(1) | 6,148 | 279,550 | |||
Ultragenyx Pharmaceutical, Inc.(1) | 5,176 | 514,236 | |||
United Therapeutics Corp.(1) | 5,712 | 837,551 | |||
11,821,916 |
10
Shares | Value | ||||
Building Products — 4.3% | |||||
Apogee Enterprises, Inc. | 23,853 | $ | 1,181,439 | ||
Fortune Brands Home & Security, Inc. | 59,707 | 3,124,467 | |||
Lennox International, Inc. | 16,286 | 2,162,944 | |||
Masonite International Corp.(1) | 27,335 | 1,636,547 | |||
8,105,397 | |||||
Capital Markets — 1.5% | |||||
Evercore Partners, Inc., Class A | 22,299 | 1,204,146 | |||
Lazard Ltd., Class A | 33,204 | 1,538,009 | |||
2,742,155 | |||||
Chemicals — 3.0% | |||||
Ashland, Inc. | 17,470 | 1,916,808 | |||
Huntsman Corp. | 53,481 | 704,345 | |||
International Flavors & Fragrances, Inc. | 16,043 | 1,861,950 | |||
PolyOne Corp. | 36,297 | 1,213,772 | |||
5,696,875 | |||||
Commercial Services and Supplies — 2.0% | |||||
KAR Auction Services, Inc. | 52,698 | 2,023,603 | |||
Multi-Color Corp. | 23,394 | 1,820,989 | |||
3,844,592 | |||||
Communications Equipment — 1.5% | |||||
Infinera Corp.(1) | 50,365 | 995,212 | |||
Palo Alto Networks, Inc.(1) | 5,017 | 807,737 | |||
Ruckus Wireless, Inc.(1) | 94,977 | 1,071,341 | |||
2,874,290 | |||||
Construction Materials — 1.3% | |||||
Headwaters, Inc.(1) | 60,400 | 1,241,220 | |||
Summit Materials, Inc., Class A(1) | 59,844 | 1,260,315 | |||
2,501,535 | |||||
Containers and Packaging — 2.6% | |||||
Ball Corp. | 28,545 | 1,955,333 | |||
Berry Plastics Group, Inc.(1) | 45,998 | 1,540,933 | |||
Graphic Packaging Holding Co. | 100,014 | 1,416,198 | |||
4,912,464 | |||||
Distributors — 1.7% | |||||
LKQ Corp.(1) | 109,031 | 3,228,408 | |||
Diversified Consumer Services — 1.4% | |||||
Nord Anglia Education, Inc.(1) | 64,581 | 1,265,788 | |||
ServiceMaster Global Holdings, Inc.(1) | 38,807 | 1,383,469 | |||
2,649,257 | |||||
Diversified Financial Services — 2.3% | |||||
CBOE Holdings, Inc. | 13,779 | 923,744 | |||
MarketAxess Holdings, Inc. | 12,717 | 1,288,359 | |||
MSCI, Inc., Class A | 31,403 | 2,104,001 | |||
4,316,104 |
11
Shares | Value | ||||
Electrical Equipment — 1.1% | |||||
Acuity Brands, Inc. | 9,713 | $ | 2,123,262 | ||
Electronic Equipment, Instruments and Components — 0.4% | |||||
Mercury Systems, Inc.(1) | 43,013 | 738,103 | |||
Food and Staples Retailing — 0.6% | |||||
United Natural Foods, Inc.(1) | 20,722 | 1,045,425 | |||
Food Products — 2.1% | |||||
Flowers Foods, Inc. | 57,787 | 1,560,249 | |||
Hain Celestial Group, Inc. (The)(1) | 30,162 | 1,503,576 | |||
J&J Snack Foods Corp. | 7,077 | 868,985 | |||
3,932,810 | |||||
Health Care Equipment and Supplies — 5.0% | |||||
ABIOMED, Inc.(1) | 4,457 | 328,303 | |||
Align Technology, Inc.(1) | 8,315 | 544,300 | |||
Cooper Cos., Inc. (The) | 4,817 | 733,918 | |||
DexCom, Inc.(1) | 17,774 | 1,480,930 | |||
Glaukos Corp.(1) | 15,610 | 312,824 | |||
Nevro Corp.(1) | 18,563 | 756,813 | |||
NuVasive, Inc.(1) | 38,412 | 1,811,510 | |||
STERIS Corp. | 15,617 | 1,170,494 | |||
Teleflex, Inc. | 17,165 | 2,282,945 | |||
9,422,037 | |||||
Health Care Providers and Services — 3.4% | |||||
Adeptus Health, Inc., Class A(1) | 36,851 | 2,391,262 | |||
AMN Healthcare Services, Inc.(1) | 9,689 | 274,877 | |||
Centene Corp.(1) | 13,913 | 827,545 | |||
ExamWorks Group, Inc.(1) | 45,641 | 1,288,902 | |||
LHC Group, Inc.(1) | 17,540 | 790,440 | |||
Team Health Holdings, Inc.(1) | 7,757 | 462,860 | |||
Tenet Healthcare Corp.(1) | 13,287 | 416,813 | |||
6,452,699 | |||||
Health Care Technology — 1.7% | |||||
athenahealth, Inc.(1) | 4,838 | 737,553 | |||
Evolent Health, Inc.(1) | 54,462 | 699,837 | |||
HMS Holdings Corp.(1) | 55,974 | 589,406 | |||
Medidata Solutions, Inc.(1) | 12,432 | 534,576 | |||
Press Ganey Holdings, Inc.(1) | 22,647 | 709,757 | |||
3,271,129 | |||||
Hotels, Restaurants and Leisure — 5.2% | |||||
Buffalo Wild Wings, Inc.(1) | 3,367 | 519,427 | |||
ClubCorp Holdings, Inc. | 108,521 | 2,218,169 | |||
Dave & Buster's Entertainment, Inc.(1) | 47,148 | 1,818,970 | |||
Madison Square Garden Co. (The)(1) | 7,189 | 1,283,237 | |||
Papa John's International, Inc. | 37,334 | 2,619,727 | |||
Texas Roadhouse, Inc. | 39,095 | 1,342,913 | |||
9,802,443 |
12
Shares | Value | ||||
Household Durables — 2.3% | |||||
Harman International Industries, Inc. | 12,130 | $ | 1,333,815 | ||
Installed Building Products, Inc.(1) | 45,593 | 1,009,885 | |||
Jarden Corp.(1) | 44,127 | 1,976,889 | |||
4,320,589 | |||||
Insurance — 1.3% | |||||
Allied World Assurance Co. Holdings Ltd. | 40,701 | 1,479,888 | |||
First American Financial Corp. | 28,053 | 1,069,661 | |||
2,549,549 | |||||
Internet Software and Services — 4.8% | |||||
comScore, Inc.(1) | 36,870 | 1,577,299 | |||
CoStar Group, Inc.(1) | 18,144 | 3,684,502 | |||
Demandware, Inc.(1) | 15,548 | 881,572 | |||
Envestnet, Inc.(1) | 33,070 | 987,470 | |||
Marketo, Inc.(1) | 49,029 | 1,442,923 | |||
Pandora Media, Inc.(1) | 23,945 | 275,607 | |||
Q2 Holdings, Inc.(1) | 9,254 | 228,111 | |||
9,077,484 | |||||
IT Services — 5.2% | |||||
EPAM Systems, Inc.(1) | 23,958 | 1,853,151 | |||
Sabre Corp. | 92,427 | 2,709,960 | |||
Vantiv, Inc., Class A(1) | 68,829 | 3,451,774 | |||
Virtusa Corp.(1) | 29,979 | 1,721,694 | |||
9,736,579 | |||||
Leisure Products — 1.9% | |||||
Brunswick Corp. | 51,730 | 2,783,591 | |||
MCBC Holdings, Inc.(1) | 55,199 | 726,971 | |||
3,510,562 | |||||
Life Sciences Tools and Services — 1.5% | |||||
Mettler-Toledo International, Inc.(1) | 2,753 | 856,156 | |||
PRA Health Sciences, Inc.(1) | 36,477 | 1,278,154 | |||
Quintiles Transnational Holdings, Inc.(1) | 11,746 | 747,633 | |||
2,881,943 | |||||
Machinery — 4.8% | |||||
ITT Corp. | 18,749 | 742,085 | |||
Middleby Corp. (The)(1) | 32,399 | 3,788,739 | |||
Snap-On, Inc. | 18,967 | 3,146,436 | |||
WABCO Holdings, Inc.(1) | 12,271 | 1,377,174 | |||
9,054,434 | |||||
Multiline Retail — 0.6% | |||||
Burlington Stores, Inc.(1) | 21,886 | 1,052,279 | |||
Oil, Gas and Consumable Fuels — 1.3% | |||||
Diamondback Energy, Inc.(1) | 12,151 | 897,230 | |||
Enviva Partners, LP | 66,598 | 1,018,949 | |||
Gulfport Energy Corp.(1) | 19,986 | 608,974 | |||
2,525,153 |
13
Shares | Value | ||||
Pharmaceuticals — 0.9% | |||||
Horizon Pharma plc(1) | 39,576 | $ | 622,135 | ||
Lannett Co., Inc.(1) | 11,066 | 495,425 | |||
Pacira Pharmaceuticals, Inc.(1) | 8,754 | 437,262 | |||
ZS Pharma, Inc.(1) | 1,839 | 119,553 | |||
1,674,375 | |||||
Professional Services — 1.2% | |||||
Huron Consulting Group, Inc.(1) | 13,432 | 648,766 | |||
Korn/Ferry International | 46,530 | 1,692,296 | |||
2,341,062 | |||||
Real Estate Investment Trusts (REITs) — 0.8% | |||||
Sun Communities, Inc. | 21,800 | 1,461,036 | |||
Real Estate Management and Development — 0.7% | |||||
FirstService Corp. | 38,536 | 1,355,656 | |||
Semiconductors and Semiconductor Equipment — 2.2% | |||||
Integrated Device Technology, Inc.(1) | 64,055 | 1,633,402 | |||
M/A-COM Technology Solutions Holdings, Inc.(1) | 27,988 | 944,315 | |||
Monolithic Power Systems, Inc. | 24,385 | 1,522,112 | |||
4,099,829 | |||||
Software — 5.8% | |||||
Callidus Software, Inc.(1) | 84,301 | 1,464,308 | |||
FireEye, Inc.(1) | 19,470 | 509,141 | |||
Manhattan Associates, Inc.(1) | 17,644 | 1,285,366 | |||
Qlik Technologies, Inc.(1) | 60,679 | 1,903,500 | |||
ServiceNow, Inc.(1) | 12,228 | 998,416 | |||
Splunk, Inc.(1) | 14,865 | 834,818 | |||
Tableau Software, Inc., Class A(1) | 10,830 | 909,287 | |||
Tyler Technologies, Inc.(1) | 18,126 | 3,087,945 | |||
10,992,781 | |||||
Specialty Retail — 4.3% | |||||
American Eagle Outfitters, Inc. | 71,256 | 1,088,792 | |||
Men's Wearhouse, Inc. (The) | 46,276 | 1,850,114 | |||
Restoration Hardware Holdings, Inc.(1) | 20,645 | 2,128,293 | |||
Signet Jewelers Ltd. | 11,675 | 1,762,225 | |||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 7,350 | 1,278,606 | |||
8,108,030 | |||||
Technology Hardware, Storage and Peripherals — 1.1% | |||||
Super Micro Computer, Inc.(1) | 73,264 | 2,066,777 | |||
Textiles, Apparel and Luxury Goods — 2.3% | |||||
Hanesbrands, Inc. | 76,266 | 2,435,936 | |||
Skechers U.S.A., Inc., Class A(1) | 61,152 | 1,907,942 | |||
4,343,878 | |||||
Trading Companies and Distributors — 0.8% | |||||
HD Supply Holdings, Inc.(1) | 49,395 | 1,471,477 | |||
TOTAL COMMON STOCKS (Cost $156,465,225) | 183,767,801 |
14
Shares | Value | ||||
TEMPORARY CASH INVESTMENTS — 2.4% | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $1,743,061), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $1,709,150) | $ | 1,709,149 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.125%, 2/15/43, valued at $2,910,294), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $2,849,000) | 2,849,000 | ||||
State Street Institutional Liquid Reserves Fund, Premier Class | 521 | 521 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $4,558,670) | 4,558,670 | ||||
TOTAL INVESTMENT SECURITIES — 99.7% (Cost $161,023,895) | 188,326,471 | ||||
OTHER ASSETS AND LIABILITIES — 0.3% | 552,397 | ||||
TOTAL NET ASSETS — 100.0% | $ | 188,878,868 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 1,130,754 | CAD | 1,497,933 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | (14,599 | ) |
USD | 47,710 | CAD | 62,775 | JPMorgan Chase Bank N.A. | 11/30/15 | (290 | ) | |
$ | (14,889 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
15
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $161,023,895) | $ | 188,326,471 | |
Receivable for investments sold | 3,939,454 | ||
Receivable for capital shares sold | 4,318 | ||
Dividends and interest receivable | 22,778 | ||
192,293,021 | |||
Liabilities | |||
Payable for investments purchased | 3,087,450 | ||
Payable for capital shares redeemed | 95,326 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 14,889 | ||
Accrued management fees | 216,103 | ||
Distribution and service fees payable | 385 | ||
3,414,153 | |||
Net Assets | $ | 188,878,868 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 141,535,941 | |
Accumulated net investment loss | (1,539,601 | ) | |
Undistributed net realized gain | 21,594,841 | ||
Net unrealized appreciation | 27,287,687 | ||
$ | 188,878,868 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $187,604,596 | 16,322,893 | $11.49 | |||
Institutional Class, $0.01 Par Value | $58,888 | 5,064 | $11.63 | |||
A Class, $0.01 Par Value | $860,431 | 76,015 | $11.32* | |||
C Class, $0.01 Par Value | $153,786 | 14,217 | $10.82 | |||
R Class, $0.01 Par Value | $201,167 | 18,040 | $11.15 |
*Maximum offering price $12.01 (net asset value divided by 0.9425).
See Notes to Financial Statements.
16
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $2,525) | $ | 1,026,242 | |
Interest | 955 | ||
1,027,197 | |||
Expenses: | |||
Management fees | 2,926,777 | ||
Distribution and service fees: | |||
A Class | 1,395 | ||
C Class | 1,044 | ||
R Class | 636 | ||
Directors' fees and expenses | 6,471 | ||
2,936,323 | |||
Fees waived | (219,866 | ) | |
2,716,457 | |||
Net investment income (loss) | (1,689,260 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 21,674,540 | ||
Foreign currency transactions | 19,644 | ||
21,694,184 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (14,174,102 | ) | |
Translation of assets and liabilities in foreign currencies | (14,889 | ) | |
(14,188,991 | ) | ||
Net realized and unrealized gain (loss) | 7,505,193 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 5,815,933 |
See Notes to Financial Statements.
17
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | (1,689,260 | ) | $ | (1,763,797 | ) |
Net realized gain (loss) | 21,694,184 | 21,490,206 | ||||
Change in net unrealized appreciation (depreciation) | (14,188,991 | ) | (4,048,543 | ) | ||
Net increase (decrease) in net assets resulting from operations | 5,815,933 | 15,677,866 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Investor Class | (11,647,699 | ) | — | |||
Institutional Class | (3,143 | ) | — | |||
A Class | (26,309 | ) | — | |||
C Class | (5,042 | ) | — | |||
R Class | (7,030 | ) | — | |||
Decrease in net assets from distributions | (11,689,223 | ) | — | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 7,979,713 | (19,993,842 | ) | |||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 11,491 | 8,985 | ||||
Net increase (decrease) in net assets | 2,117,914 | (4,306,991 | ) | |||
Net Assets | ||||||
Beginning of period | 186,760,954 | 191,067,945 | ||||
End of period | $ | 188,878,868 | $ | 186,760,954 | ||
Accumulated net investment loss | $ | (1,539,601 | ) | $ | (1,539,393 | ) |
See Notes to Financial Statements.
18
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. New Opportunities Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
19
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
20
Redemption Fees — The fund may impose a 2.00% redemption fee on shares held less than 60 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 1.100% to 1.500% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.900% to 1.300% for the Institutional Class. From November 1, 2014 through July 31, 2015, the investment advisor voluntarily agreed to waive 0.10% of the fund's management fee. Effective August 1, 2015, the investment advisor voluntarily agreed to waive 0.15% of the fund's management fee. The investment advisor expects this waiver to continue until February 28, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors. The total amount of the waiver for each class for the year ended October 31, 2015 was $218,875, $64, $658, $123, and $146 for the Investor Class, Institutional Class, A Class, C Class and R Class, respectively. The effective annual management fee before waiver for each class for the year ended October 31, 2015 was 1.50% for the Investor Class, A Class, C Class and R Class and 1.30% for the Institutional Class. The effective annual management fee after waiver for each class for the year ended October 31, 2015 was 1.39% for the Investor Class, A Class, C Class and R Class and 1.19% 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $176,955,780 and $183,057,579, respectively.
21
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 1,400,696 | $ | 17,280,896 | 670,786 | $ | 7,648,874 | ||||
Issued in reinvestment of distributions | 1,005,158 | 10,905,967 | — | — | ||||||
Redeemed | (1,762,751 | ) | (20,908,191 | ) | (2,422,255 | ) | (27,644,383 | ) | ||
643,103 | 7,278,672 | (1,751,469 | ) | (19,995,509 | ) | |||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 658 | 8,455 | — | — | ||||||
Issued in reinvestment of distributions | 287 | 3,143 | — | — | ||||||
945 | 11,598 | — | — | |||||||
A Class/Shares Authorized | 20,000,000 | 25,000,000 | ||||||||
Sold | 48,512 | 578,726 | 7,111 | 80,085 | ||||||
Issued in reinvestment of distributions | 2,393 | 25,627 | — | — | ||||||
Redeemed | (8,474 | ) | (99,565 | ) | (3,258 | ) | (35,806 | ) | ||
42,431 | 504,788 | 3,853 | 44,279 | |||||||
C Class/Shares Authorized | 20,000,000 | 25,000,000 | ||||||||
Sold | 7,590 | 89,494 | 967 | 10,481 | ||||||
Issued in reinvestment of distributions | 489 | 5,042 | — | — | ||||||
Redeemed | (520 | ) | (6,169 | ) | (5,463 | ) | (60,448 | ) | ||
7,559 | 88,367 | (4,496 | ) | (49,967 | ) | |||||
R Class/Shares Authorized | 20,000,000 | 25,000,000 | ||||||||
Sold | 12,577 | 138,440 | 972 | 10,912 | ||||||
Issued in reinvestment of distributions | 665 | 7,030 | — | — | ||||||
Redeemed | (4,523 | ) | (49,182 | ) | (319 | ) | (3,557 | ) | ||
8,719 | 96,288 | 653 | 7,355 | |||||||
Net increase (decrease) | 702,757 | $ | 7,979,713 | (1,751,459 | ) | $ | (19,993,842 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
22
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 182,412,145 | $ | 1,355,656 | — | |||
Temporary Cash Investments | 521 | 4,558,149 | — | |||||
$ | 182,412,666 | $ | 5,913,805 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (14,889 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $1,118,270.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as a liability of $14,889 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $18,046 in net realized gain (loss) on foreign currency transactions and $(14,889) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
The fund invests 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.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | ||||
Distributions Paid From | |||||
Ordinary income | — | — | |||
Long-term capital gains | $ | 11,689,223 | — |
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.
23
As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 162,177,562 | |
Gross tax appreciation of investments | $ | 35,639,663 | |
Gross tax depreciation of investments | (9,490,754 | ) | |
Net tax appreciation (depreciation) of investments | $ | 26,148,909 | |
Undistributed ordinary income | — | ||
Accumulated long-term gains | $ | 22,748,508 | |
Late-year ordinary loss deferral | $ | (1,554,490 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
24
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $11.87 | (0.10) | 0.48 | 0.38 | (0.76) | $11.49 | 3.54% | 1.39% | 1.50% | (0.86)% | (0.97)% | 93% | $187,605 | ||
2014 | $10.93 | (0.11) | 1.05 | 0.94 | — | $11.87 | 8.60% | 1.48% | 1.50% | (0.93)% | (0.95)% | 76% | $186,134 | ||
2013 | $8.13 | (0.06) | 2.86 | 2.80 | — | $10.93 | 34.44% | 1.50% | 1.50% | (0.62)% | (0.62)% | 79% | $190,490 | ||
2012 | $7.47 | (0.02) | 0.68 | 0.66 | — | $8.13 | 8.84% | 1.50% | 1.50% | (0.22)% | (0.22)% | 63% | $154,517 | ||
2011 | $6.86 | (0.07) | 0.68 | 0.61 | — | $7.47 | 8.89% | 1.50% | 1.50% | (0.95)% | (0.95)% | 107% | $158,117 | ||
Institutional Class | |||||||||||||||
2015 | $11.98 | (0.08) | 0.49 | 0.41 | (0.76) | $11.63 | 3.77% | 1.19% | 1.30% | (0.66)% | (0.77)% | 93% | $59 | ||
2014 | $11.01 | (0.08) | 1.05 | 0.97 | — | $11.98 | 8.81% | 1.28% | 1.30% | (0.73)% | (0.75)% | 76% | $49 | ||
2013 | $8.17 | (0.04) | 2.88 | 2.84 | — | $11.01 | 34.76% | 1.30% | 1.30% | (0.42)% | (0.42)% | 79% | $45 | ||
2012 | $7.49 | —(3) | 0.68 | 0.68 | — | $8.17 | 9.08% | 1.30% | 1.30% | (0.02)% | (0.02)% | 63% | $34 | ||
2011 | $6.87 | (0.06) | 0.68 | 0.62 | — | $7.49 | 9.02% | 1.30% | 1.30% | (0.75)% | (0.75)% | 107% | $31 | ||
A Class | |||||||||||||||
2015 | $11.73 | (0.13) | 0.48 | 0.35 | (0.76) | $11.32 | 3.31% | 1.64% | 1.75% | (1.11)% | (1.22)% | 93% | $860 | ||
2014 | $10.83 | (0.13) | 1.03 | 0.90 | — | $11.73 | 8.31% | 1.73% | 1.75% | (1.18)% | (1.20)% | 76% | $394 | ||
2013 | $8.08 | (0.08) | 2.83 | 2.75 | — | $10.83 | 34.03% | 1.75% | 1.75% | (0.87)% | (0.87)% | 79% | $322 | ||
2012 | $7.44 | (0.04) | 0.68 | 0.64 | — | $8.08 | 8.60% | 1.75% | 1.75% | (0.47)% | (0.47)% | 63% | $239 | ||
2011 | $6.85 | (0.09) | 0.68 | 0.59 | — | $7.44 | 8.61% | 1.75% | 1.75% | (1.20)% | (1.20)% | 107% | $282 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||
2015 | $11.33 | (0.21) | 0.46 | 0.25 | (0.76) | $10.82 | 2.59% | 2.39% | 2.50% | (1.86)% | (1.97)% | 93% | $154 | ||
2014 | $10.53 | (0.21) | 1.01 | 0.80 | — | $11.33 | 7.50% | 2.48% | 2.50% | (1.93)% | (1.95)% | 76% | $75 | ||
2013 | $7.91 | (0.15) | 2.77 | 2.62 | — | $10.53 | 33.12% | 2.50% | 2.50% | (1.62)% | (1.62)% | 79% | $117 | ||
2012 | $7.34 | (0.09) | 0.66 | 0.57 | — | $7.91 | 7.77% | 2.50% | 2.50% | (1.22)% | (1.22)% | 63% | $80 | ||
2011 | $6.81 | (0.15) | 0.68 | 0.53 | — | $7.34 | 7.78% | 2.50% | 2.50% | (1.95)% | (1.95)% | 107% | $57 | ||
R Class | |||||||||||||||
2015 | $11.59 | (0.16) | 0.48 | 0.32 | (0.76) | $11.15 | 3.08% | 1.89% | 2.00% | (1.36)% | (1.47)% | 93% | $201 | ||
2014 | $10.73 | (0.16) | 1.02 | 0.86 | — | $11.59 | 8.12% | 1.98% | 2.00% | (1.43)% | (1.45)% | 76% | $108 | ||
2013 | $8.02 | (0.11) | 2.82 | 2.71 | — | $10.73 | 33.67% | 2.00% | 2.00% | (1.12)% | (1.12)% | 79% | $93 | ||
2012 | $7.40 | (0.06) | 0.68 | 0.62 | — | $8.02 | 8.38% | 2.00% | 2.00% | (0.72)% | (0.72)% | 63% | $62 | ||
2011 | $6.84 | (0.11) | 0.67 | 0.56 | — | $7.40 | 8.19% | 2.00% | 2.00% | (1.45)% | (1.45)% | 107% | $48 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of New Opportunities Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
27
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the five- and ten-year periods and slightly below its benchmark for the one- and three-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain
32
effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board and the Advisor agreed to a reduction of the Fund's annual unified management fee of 0.15% (e.g., the Investor Class unified fee will be reduced from 1.50% to 1.35%) for at least one year, beginning August 1, 2015. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
33
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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
34
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
35
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $11,689,223, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87640 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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NT Growth Fund
Table of Contents |
Performance | 2 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Performance |
Total Returns as of October 31, 2015 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Institutional Class | ACLTX | 8.97% | 13.41% | 8.75% | 5/12/06 |
Russell 1000 Growth Index | — | 9.18% | 15.29% | 9.02% | — |
R6 Class | ACDTX | 9.16% | — | 13.73% | 7/26/13 |
Growth of $10,000 Over Life of Class |
$10,000 investment made May 12, 2006 |
Performance for other share classes will vary due to differences in fee structure. |
![](https://capedge.com/proxy/N-CSR/0000100334-16-000089/acmf103115_chart-24405.jpg)
Value on October 31, 2015 | |
Institutional Class — $22,146 | |
Russell 1000 Growth Index — $22,672 | |
*From May 12, 2006, the Institutional Class’s inception date. Not annualized.
Total Annual Fund Operating Expenses | |
Institutional Class | R6 Class |
0.77% | 0.62% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
2
Portfolio Commentary |
Portfolio Managers: Gregory Woodhams and Prescott LeGard
Performance Summary
NT Growth returned 8.97%* for the 12 months ended October 31, 2015, in line with the 9.18% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted strong returns during the reporting period amid volatility and considerable variation within sector returns. Within the Russell 1000 Growth Index, consumer discretionary was the top-performing sector, gaining about 20%. Consumer staples and information technology also registered double-digit gains. Energy stocks continued to struggle with plunging commodity prices and fell nearly 31%. Utilities also declined sharply.
NT Growth received positive contributions to absolute return from most sectors in which it was invested, led by information technology and consumer discretionary. Energy and financials were the only negative contributors. Stock decisions in the consumer discretionary, consumer staples, and financials sectors were the primary sources of underperformance relative to the Russell index. Stock selection and an overweight to information technology aided relative performance, as did stock selection in materials and energy.
Consumer Discretionary and Staples Were Key Detractors
Stock decisions in the consumer discretionary sector hurt performance. Not owning index component Starbucks was a major detractor in the sector as the coffee retailer is benefiting from its Starbucks Rewards program. The rollout of its mobile ordering application has exceeded expectations as well.
In consumer staples, stock selection in the food products industry, and no exposure to the tobacco industry, weighed on performance. Because the fund does not invest in tobacco stocks, performance relative to the benchmark will benefit in periods when these companies underperform, and will suffer when they outperform. Tobacco stocks performed well during the reporting period, so not owning index components Altria Group and Reynolds American detracted. An overweight position in baby formula maker Mead Johnson Nutrition was a significant detractor, as a difficult environment in Hong Kong dragged down the stock. We believe this is a transitory issue and continue to have a positive view of the underlying growth rate for the company.
In financials, underweighting real estate investment trusts hampered results as the industry performed better than expected due to the Federal Reserve’s caution in raising interest rates. Asset manager Franklin Resources detracted as assets under management and fund flows have deteriorated. The holding was eliminated.
Other significant individual detractors included Exxon Mobil and Caterpillar. Petroleum giant Exxon Mobil, which is not in the index, suffered as oil prices plunged. Industrial equipment company Caterpillar struggled as investors worried about weak global growth, especially in China. Both holdings were eliminated from the portfolio.
* | All fund returns referenced in this commentary are for Institutional Class shares. Performance for other share classes will vary due to differences in fee structure; when Institutional Class performance exceeds that of the fund's benchmark, other share classes may not. See page 2 for returns for all share classes. |
3
Information Technology Aided Performance
Stock selection in information technology and an overweight in the sector helped relative performance. Credit card company Visa was a significant contributor, reporting strong results that beat expectations. The market is looking forward to the potential benefits from an acquisition of Visa Europe. Video game maker Electronic Arts continued to execute, reporting strong results consistent with our investment thesis of improving operating margins.
Stock selection in the materials sector, especially among chemicals firms, benefited performance. Underweighting the weak sector also was positive. Positioning in energy was similarly beneficial, especially among energy equipment and services companies, as the sector struggled with falling prices and concerns about global growth.
Significant individual contributors included online travel agent Expedia, which continued to report very strong results with hotel room nights, bookings, and revenue growth all better than expected in both the U.S. and globally. The company benefited from regulatory approval of its planned purchase of rival Orbitz, as well as from exiting its money-losing Chinese partnership. O’Reilly Automotive was a top contributor. The auto parts retailer continues to report stronger-than-expected sales on favorable trends of higher vehicle miles driven and lower gasoline prices.
Outlook
We believe stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result of this approach, the portfolio’s sector and industry selection, as well as capitalization range allocations, are primarily due to identifying what the investment team believes to be superior individual securities.
As of October 31, 2015, this process pointed the portfolio toward overweight positions relative to the Russell 1000 Growth Index in the health care and technology sectors. Financials and consumer staples represented the largest underweights.
Positioning in the IT services, communications equipment, and software industries drove the information technology sector overweight. The health care allocation recognizes that medical device companies should see a better environment from higher utilization. Pharmaceutical and biotechnology pipelines are robust, with ample clinical trial readouts, and recently launched products are materially additive.
4
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc., Class A | 5.3% |
PepsiCo, Inc. | 5.3% |
Apple, Inc. | 4.9% |
Visa, Inc., Class A | 4.4% |
Amazon.com, Inc. | 4.0% |
Facebook, Inc., Class A | 3.4% |
Comcast Corp., Class A | 2.8% |
Lockheed Martin Corp. | 2.5% |
O'Reilly Automotive, Inc. | 2.4% |
Walt Disney Co. (The) | 2.4% |
Top Five Industries | % of net assets |
Internet Software and Services | 10.0% |
IT Services | 6.5% |
Pharmaceuticals | 6.2% |
Internet and Catalog Retail | 6.2% |
Biotechnology | 6.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.3% |
Exchange-Traded Funds | 0.1% |
Total Equity Exposure | 99.4% |
Other Assets and Liabilities | 0.6% |
5
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class | $1,000 | $1,037.30 | $3.95 | 0.77% |
R6 Class | $1,000 | $1,038.00 | $3.18 | 0.62% |
Hypothetical | ||||
Institutional Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
R6 Class | $1,000 | $1,022.08 | $3.16 | 0.62% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
6
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 99.3% | ||||
Aerospace and Defense — 4.8% | ||||
Boeing Co. (The) | 173,461 | $ | 25,684,370 | |
Lockheed Martin Corp. | 124,029 | 27,265,295 | ||
52,949,665 | ||||
Airlines — 1.3% | ||||
Alaska Air Group, Inc. | 77,466 | 5,906,782 | ||
Delta Air Lines, Inc. | 170,528 | 8,669,644 | ||
14,576,426 | ||||
Beverages — 5.3% | ||||
PepsiCo, Inc. | 572,273 | 58,480,578 | ||
Biotechnology — 6.1% | ||||
Alexion Pharmaceuticals, Inc.(1) | 79,030 | 13,909,280 | ||
Biogen, Inc.(1) | 60,705 | 17,635,410 | ||
Gilead Sciences, Inc. | 201,925 | 21,834,150 | ||
Incyte Corp.(1) | 49,268 | 5,790,468 | ||
Regeneron Pharmaceuticals, Inc.(1) | 14,512 | 8,088,844 | ||
67,258,152 | ||||
Chemicals — 2.9% | ||||
Dow Chemical Co. (The) | 235,704 | 12,178,826 | ||
PPG Industries, Inc. | 79,678 | 8,307,228 | ||
Sherwin-Williams Co. (The) | 45,787 | 12,217,345 | ||
32,703,399 | ||||
Communications Equipment — 1.4% | ||||
Cisco Systems, Inc. | 260,739 | 7,522,320 | ||
QUALCOMM, Inc. | 126,369 | 7,508,846 | ||
15,031,166 | ||||
Energy Equipment and Services — 0.7% | ||||
Halliburton Co. | 199,134 | 7,642,763 | ||
Food and Staples Retailing — 0.8% | ||||
Kroger Co. (The) | 230,599 | 8,716,642 | ||
Food Products — 1.7% | ||||
ConAgra Foods, Inc. | 129,298 | 5,243,034 | ||
Mead Johnson Nutrition Co. | 168,224 | 13,794,368 | ||
19,037,402 | ||||
Health Care Equipment and Supplies — 2.4% | ||||
C.R. Bard, Inc. | 43,151 | 8,041,189 | ||
Cooper Cos., Inc. (The) | 44,745 | 6,817,348 | ||
Intuitive Surgical, Inc.(1) | 23,668 | 11,753,529 | ||
26,612,066 | ||||
Health Care Providers and Services — 2.9% | ||||
Cardinal Health, Inc. | 160,083 | 13,158,823 | ||
Express Scripts Holding Co.(1) | 220,082 | 19,010,683 | ||
32,169,506 |
7
Shares | Value | |||
Health Care Technology — 0.6% | ||||
Cerner Corp.(1) | 96,981 | $ | 6,428,870 | |
Hotels, Restaurants and Leisure — 1.6% | ||||
Chipotle Mexican Grill, Inc.(1) | 17,386 | 11,131,039 | ||
Las Vegas Sands Corp. | 143,719 | 7,115,527 | ||
18,246,566 | ||||
Household Products — 0.6% | ||||
Church & Dwight Co., Inc. | 76,377 | 6,575,296 | ||
Industrial Conglomerates — 1.9% | ||||
3M Co. | 132,991 | 20,907,515 | ||
Insurance — 1.5% | ||||
Aflac, Inc. | 124,519 | 7,938,086 | ||
American International Group, Inc. | 139,680 | 8,808,221 | ||
16,746,307 | ||||
Internet and Catalog Retail — 6.2% | ||||
Amazon.com, Inc.(1) | 70,740 | 44,276,166 | ||
Expedia, Inc. | 142,314 | 19,397,398 | ||
TripAdvisor, Inc.(1) | 56,585 | 4,740,691 | ||
68,414,255 | ||||
Internet Software and Services — 10.0% | ||||
Alphabet, Inc., Class A(1) | 80,080 | 59,050,191 | ||
Facebook, Inc., Class A(1) | 372,260 | 37,959,352 | ||
LinkedIn Corp., Class A(1) | 40,492 | 9,753,308 | ||
Pandora Media, Inc.(1) | 318,280 | 3,663,403 | ||
110,426,254 | ||||
IT Services — 6.5% | ||||
Alliance Data Systems Corp.(1) | 26,110 | 7,762,764 | ||
Cognizant Technology Solutions Corp., Class A(1) | 58,133 | 3,959,439 | ||
Fiserv, Inc.(1) | 124,003 | 11,967,529 | ||
Visa, Inc., Class A | 627,908 | 48,713,103 | ||
72,402,835 | ||||
Life Sciences Tools and Services — 1.2% | ||||
Illumina, Inc.(1) | 42,417 | 6,077,508 | ||
Mettler-Toledo International, Inc.(1) | 8,521 | 2,649,946 | ||
Waters Corp.(1) | 36,254 | 4,633,261 | ||
13,360,715 | ||||
Machinery — 1.6% | ||||
Parker-Hannifin Corp. | 53,194 | 5,569,412 | ||
WABCO Holdings, Inc.(1) | 39,619 | 4,446,440 | ||
Wabtec Corp. | 93,649 | 7,760,693 | ||
17,776,545 | ||||
Media — 5.8% | ||||
Comcast Corp., Class A | 504,228 | 31,574,757 | ||
Sirius XM Holdings, Inc.(1) | 1,604,403 | 6,545,964 | ||
Walt Disney Co. (The) | 231,440 | 26,323,986 | ||
64,444,707 |
8
Shares | Value | |||
Multiline Retail — 1.9% | ||||
Dollar Tree, Inc.(1) | 226,984 | $ | 14,865,182 | |
Macy's, Inc. | 111,650 | 5,691,917 | ||
20,557,099 | ||||
Oil, Gas and Consumable Fuels — 0.8% | ||||
Concho Resources, Inc.(1) | 73,004 | 8,461,894 | ||
Personal Products — 0.7% | ||||
Estee Lauder Cos., Inc. (The), Class A | 93,812 | 7,548,114 | ||
Pharmaceuticals — 6.2% | ||||
Allergan plc(1) | 27,416 | 8,457,014 | ||
Bristol-Myers Squibb Co. | 247,552 | 16,326,054 | ||
Jazz Pharmaceuticals plc(1) | 21,769 | 2,988,448 | ||
Johnson & Johnson | 96,650 | 9,764,550 | ||
Perrigo Co. plc | 40,431 | 6,377,586 | ||
Pfizer, Inc. | 325,049 | 10,993,157 | ||
Teva Pharmaceutical Industries Ltd. ADR | 133,919 | 7,926,666 | ||
Zoetis, Inc. | 131,915 | 5,673,664 | ||
68,507,139 | ||||
Real Estate Investment Trusts (REITs) — 1.0% | ||||
Simon Property Group, Inc. | 54,635 | 11,006,767 | ||
Road and Rail — 0.8% | ||||
Union Pacific Corp. | 102,508 | 9,159,090 | ||
Semiconductors and Semiconductor Equipment — 2.1% | ||||
Maxim Integrated Products, Inc. | 226,510 | 9,282,380 | ||
Skyworks Solutions, Inc. | 46,473 | 3,589,574 | ||
Xilinx, Inc. | 229,497 | 10,928,647 | ||
23,800,601 | ||||
Software — 5.8% | ||||
Adobe Systems, Inc.(1) | 114,121 | 10,117,968 | ||
Electronic Arts, Inc.(1) | 152,317 | 10,977,486 | ||
Intuit, Inc. | 86,649 | 8,442,212 | ||
Microsoft Corp. | 76,455 | 4,024,591 | ||
Oracle Corp. | 634,445 | 24,641,844 | ||
Splunk, Inc.(1) | 105,031 | 5,898,541 | ||
64,102,642 | ||||
Specialty Retail — 5.2% | ||||
O'Reilly Automotive, Inc.(1) | 95,344 | 26,339,734 | ||
Ross Stores, Inc. | 233,069 | 11,788,630 | ||
TJX Cos., Inc. (The) | 273,744 | 20,035,323 | ||
58,163,687 | ||||
Technology Hardware, Storage and Peripherals — 4.9% | ||||
Apple, Inc. | 459,107 | 54,863,287 | ||
Textiles, Apparel and Luxury Goods — 0.6% | ||||
Carter's, Inc. | 78,730 | 7,154,982 | ||
Wireless Telecommunication Services — 1.5% | ||||
SBA Communications Corp., Class A(1) | 144,113 | 17,152,329 | ||
TOTAL COMMON STOCKS (Cost $870,432,667) | 1,101,385,261 |
9
Shares | Value | |||
EXCHANGE-TRADED FUNDS — 0.1% | ||||
iShares Russell 1000 Growth ETF (Cost $985,213) | 10,497 | $ | 1,061,142 | |
TOTAL INVESTMENT SECURITIES — 99.4% (Cost $871,417,880) | 1,102,446,403 | |||
OTHER ASSETS AND LIABILITIES — 0.6% | 6,266,379 | |||
TOTAL NET ASSETS — 100.0% | $ | 1,108,712,782 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
(1) | Non-income producing. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $871,417,880) | $ | 1,102,446,403 | |
Receivable for investments sold | 24,259,824 | ||
Dividends and interest receivable | 122,908 | ||
1,126,829,135 | |||
Liabilities | |||
Disbursements in excess of demand deposit cash | 2,481,474 | ||
Payable for investments purchased | 14,857,965 | ||
Payable for capital shares redeemed | 82,172 | ||
Accrued management fees | 694,742 | ||
18,116,353 | |||
Net Assets | $ | 1,108,712,782 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 813,719,582 | |
Undistributed net investment income | 3,573,823 | ||
Undistributed net realized gain | 60,390,854 | ||
Net unrealized appreciation | 231,028,523 | ||
$ | 1,108,712,782 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Institutional Class, $0.01 Par Value | $1,051,077,097 | 67,521,133 | $15.57 | |||
R6 Class, $0.01 Par Value | $57,635,685 | 3,702,503 | $15.57 |
See Notes to Financial Statements.
11
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $23,417) | $ | 15,055,747 | |
Interest | 3,963 | ||
15,059,710 | |||
Expenses: | |||
Management fees | 8,842,658 | ||
Directors' fees and expenses | 38,529 | ||
Other expenses | 635 | ||
8,881,822 | |||
Net investment income (loss) | 6,177,888 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 77,109,050 | ||
Futures contract transactions | 2,886,730 | ||
79,995,780 | |||
Change in net unrealized appreciation (depreciation) on investments | 29,436,427 | ||
Net realized and unrealized gain (loss) | 109,432,207 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 115,610,095 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 6,177,888 | $ | 5,886,437 | ||
Net realized gain (loss) | 79,995,780 | 190,149,182 | ||||
Change in net unrealized appreciation (depreciation) | 29,436,427 | (42,727,202 | ) | |||
Net increase (decrease) in net assets resulting from operations | 115,610,095 | 153,308,417 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Institutional Class | (6,018,552 | ) | (5,994,161 | ) | ||
R6 Class | (241,854 | ) | (63,884 | ) | ||
From net realized gains: | ||||||
Institutional Class | (176,148,301 | ) | (39,897,401 | ) | ||
R6 Class | (5,428,799 | ) | (337,944 | ) | ||
Decrease in net assets from distributions | (187,837,506 | ) | (46,293,390 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (90,080,395 | ) | 160,105,574 | |||
Net increase (decrease) in net assets | (162,307,806 | ) | 267,120,601 | |||
Net Assets | ||||||
Beginning of period | 1,271,020,588 | 1,003,899,987 | ||||
End of period | $ | 1,108,712,782 | $ | 1,271,020,588 | ||
Undistributed net investment income | $ | 3,573,823 | $ | 4,316,340 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is not the result of any difference in advisory or custodial fees or other expenses related to management of the fund’s assets, which do not vary by class. The fund’s R6 Class shares are available for purchase exclusively by certain American Century Investments funds of funds that are offered only through employer-sponsored retirement plans where a financial intermediary provides retirement recordkeeping services to plan participants. Because financial intermediaries do not receive any service, distribution or administrative fees for offering such funds of funds, American Century Investment Management, Inc. (ACIM) (the investment advisor) is able to charge the R6 Class a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
14
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually. The fund may elect to treat a portion of its payment to a redeeming shareholder, which represents the pro rata share of undistributed net investment income and net realized gains, as a distribution for federal income tax purposes (tax equalization).
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
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maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The 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 strategy assets of the fund also include the assets of Growth Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class and 0.450% to 0.640% for the R6 Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.77% for the Institutional Class and 0.62% for the R6 Class.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $939,593,338 and $1,215,168,810, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Institutional Class/Shares Authorized | 420,000,000 | 300,000,000 | ||||||||
Sold | 12,706,258 | $ | 190,286,851 | 10,717,121 | $ | 168,204,864 | ||||
Issued in reinvestment of distributions | 12,910,479 | 182,166,853 | 3,073,782 | 45,891,562 | ||||||
Redeemed | (31,516,204 | ) | (485,196,366 | ) | (4,925,067 | ) | (79,243,577 | ) | ||
(5,899,467 | ) | (112,742,662 | ) | 8,865,836 | 134,852,849 | |||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 2,849,575 | 42,900,849 | 1,838,061 | 28,823,154 | ||||||
Issued in reinvestment of distributions | 402,459 | 5,670,653 | 26,932 | 401,828 | ||||||
Redeemed | (1,703,424 | ) | (25,909,235 | ) | (250,670 | ) | (3,972,257 | ) | ||
1,548,610 | 22,662,267 | 1,614,323 | 25,252,725 | |||||||
Net increase (decrease) | (4,350,857 | ) | $ | (90,080,395 | ) | 10,480,159 | $ | 160,105,574 |
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6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||
Assets | |||||||
Investment Securities | |||||||
Common Stocks | $ | 1,101,385,261 | — | — | |||
Exchange-Traded Funds | 1,061,142 | — | — | ||||
$ | 1,102,446,403 | — | — |
7. Derivative Instruments
Equity Price Risk — The fund is subject to equity price risk in the normal course of pursuing its investment objectives. A fund may enter into futures contracts based on an equity index in order to manage its exposure to changes in market conditions. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund 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 a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund participated in equity price risk derivative instruments for temporary investment purposes.
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities. For the year ended October 31, 2015, the effect of equity price risk derivative instruments on the Statement of Operations was $2,886,730 in net realized gain (loss) on futures contract transactions.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 33,540,159 | $ | 13,537,820 | ||
Long-term capital gains | $ | 154,297,347 | $ | 32,755,570 |
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The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
The reclassifications, which are primarily due to tax equalization, were made to capital $17,424,512, undistributed net investment income $(659,999), and undistributed net realized gain $(16,764,513).
As of October 31, 2015, the components of investments for federal income tax purposes were as follows:
Federal tax cost of investments | $ | 876,247,462 | |
Gross tax appreciation of investments | $ | 243,655,438 | |
Gross tax depreciation of investments | (17,456,497 | ) | |
Net tax appreciation (depreciation) of investments | $ | 226,198,941 | |
Undistributed ordinary income | $ | 28,779,644 | |
Accumulated long-term gains | $ | 40,014,615 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Institutional Class | |||||||||||||||
2015 | $16.82 | 0.08 | 1.17 | 1.25 | (0.08) | (2.42) | (2.50) | $15.57 | 8.97% | 0.77% | 0.52% | 82% | $1,051,077 | ||
2014 | $15.42 | 0.08 | 2.02 | 2.10 | (0.09) | (0.61) | (0.70) | $16.82 | 14.17% | 0.77% | 0.50% | 119% | $1,234,784 | ||
2013 | $12.72 | 0.12 | 3.08 | 3.20 | (0.10) | (0.40) | (0.50) | $15.42 | 26.05% | 0.77% | 0.85% | 77% | $995,575 | ||
2012 | $11.92 | 0.09 | 1.09 | 1.18 | (0.08) | (0.30) | (0.38) | $12.72 | 10.33% | 0.77% | 0.71% | 87% | $635,906 | ||
2011 | $11.06 | 0.09 | 0.85 | 0.94 | (0.08) | — | (0.08) | $11.92 | 8.48% | 0.78% | 0.78% | 95% | $461,845 | ||
R6 Class | |||||||||||||||
2015 | $16.82 | 0.10 | 1.18 | 1.28 | (0.11) | (2.42) | (2.53) | $15.57 | 9.16% | 0.62% | 0.67% | 82% | $57,636 | ||
2014 | $15.43 | 0.10 | 2.01 | 2.11 | (0.11) | (0.61) | (0.72) | $16.82 | 14.27% | 0.62% | 0.65% | 119% | $36,237 | ||
2013(3) | $14.38 | —(4) | 1.05 | 1.05 | — | — | — | $15.43 | 7.30% | 0.62%(5) | 0.09%(5) | 77%(6) | $8,325 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(4) | Per-share amount was less than $0.005. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
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Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 NT Growth Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of
25
shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
27
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
28
Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $13,620,375, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $30,165,205 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $168,310,368, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
The fund utilized earnings and profits of $17,429,475 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
29
Notes |
30
Notes |
31
Notes |
32
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87655 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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NT Heritage Fund
Table of Contents |
Performance | 2 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
Performance |
Total Returns as of October 31, 2015 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Institutional Class | ACLWX | 7.20% | 11.63% | 5.36% | 5/12/06 |
Russell Midcap Growth Index | — | 4.94% | 14.09% | 8.14% | — |
R6 Class | ACDUX | 7.42% | — | 10.26% | 7/26/13 |
Growth of $10,000 Over Life of Class |
$10,000 investment made May 12, 2006 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Institutional Class — $16,406 | |
Russell Midcap Growth Index — $20,988 | |
*From May 12, 2006, the Institutional Class’s inception date. Not annualized.
Total Annual Fund Operating Expenses | |
Institutional Class | R6 Class |
0.80% | 0.65% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
2
Portfolio Commentary |
Portfolio Managers: David Hollond and Greg Walsh
Performance Summary
NT Heritage returned 7.20%* for the 12 months ended October 31, 2015, outperforming the 4.94% return of the portfolio’s benchmark, the Russell Midcap Growth Index.
U.S. stock indices delivered positive returns during the reporting period amid volatility and a wide variation in sector returns. Within the Russell Midcap Growth Index, all sectors except energy (-35%) and utilities (-22%) posted positive returns on a total-return basis. Health care was the top-performing sector, followed closely by consumer staples.
NT Heritage received positive absolute contributions from all sectors it was invested in except energy and industrials. Information technology was the top absolute contributor. Stock decisions in the information technology, energy, and consumer staples sectors aided performance relative to the Russell Midcap Growth Index. An underweight to energy also helped. Stock selection in the industrials, health care, and consumer discretionary sectors detracted from results versus the benchmark.
Information Technology Stocks Led Contributors
Stock choices in the information technology sector, especially in the software industry, contributed significantly to performance relative to the benchmark. Video game maker Electronic Arts was a top contributor. The company continued to execute, reporting strong results consistent with our investment thesis of improving operating margins driven by cost controls, more video games being delivered digitally, and a gaming console refresh cycle. Semiconductor firm Avago Technologies was another top contributor. The company makes components for smartphones and other electronic devices and continued to post accelerating revenue growth and margin improvement on strength in its wireless business, primarily from Apple and Samsung.
In the energy sector, stock selection and an underweight allocation benefited performance. The portfolio largely avoided both producers and equipment and services firms as plunging prices and weak global growth weighed on energy firms.
In consumer staples, Constellation Brands, a producer and marketer of beer, wine, and spirits, was a top contributor as the company continued to see very strong sales volume and pricing in its Corona and Modelo brands. Topline results came in better than expected. Other major contributors included sports apparel maker Under Armour, which is gaining market share in the U.S. and is being aided by strong growth outside the U.S. Despite weakness toward the end of the reporting period, foodservice equipment company Middleby was a top contributor. The company stands to benefit from acquisitions such as U.K. firm AGA Rangemaster.
Industrials and Health Care Detracted
Stock selection in the industrials sector detracted from relative performance, especially among road and rail companies and airlines. The rail industry has been affected by a number of factors, including oil prices, weather, and West Coast port strikes. Portfolio-only position Canadian Pacific Railway declined as oil prices weighed on its crude-by-rail business. Kansas City Southern was hurt by currency headwinds in its Mexican business. Spirit Airlines suffered from competition from Southwest Airlines, which is ramping up capacity in Dallas, a key hub for Spirit.
* | All fund returns referenced in this commentary are for Institutional Class shares. Performance for other share classes will vary due to differences in fee structure; when Institutional Class performance exceeds that of the fund's benchmark, other share classes may not. See page 2 for returns for all share classes. |
3
In health care, stock selection among pharmaceuticals and biotechnology companies hurt performance. Specialty pharmaceutical firm Horizon Pharma, which is not in the index, detracted despite reporting solid results as the stock was caught up in the late sector sell-off that was sparked by increased scrutiny of high prescription drug prices. The holding was eliminated.
In the industrials sector, the portfolio’s overweight in machinery company Flowserve detracted. The company makes pumps, seals, and valves to end users in the oil and gas, power, chemicals, and water industries, and was caught up in concerns about plunging oil prices. The holding was eliminated. Airlines parts maker Esterline Technologies, which serves both commercial and defense customers, detracted. The company has disappointed investors with the execution of its turnaround strategy, reporting inconsistent quarters. Esterline was eliminated.
Outlook
NT Heritage’s investment process focuses primarily on medium-sized and smaller companies with accelerating earnings growth rates and share price momentum. The fund’s positioning remains largely stock specific. As of October 31, 2015, the largest overweights were in telecommunication services and industrials, while the largest underweights were in financials and materials. Current investment themes are represented in various sectors throughout the portfolio, including health care companies that are benefiting from the Affordable Care Act, companies that can take advantage of the upturn in nonresidential construction, and avoiding real estate investment trusts, which are likely to suffer once interest rates start to rise.
4
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
SBA Communications Corp., Class A | 3.1% |
Electronic Arts, Inc. | 3.1% |
Teleflex, Inc. | 2.9% |
Constellation Brands, Inc., Class A | 2.6% |
Middleby Corp. (The) | 2.2% |
Alliance Data Systems Corp. | 2.1% |
Motorola Solutions, Inc. | 2.1% |
Affiliated Managers Group, Inc. | 1.9% |
Canadian Pacific Railway Ltd., New York Shares | 1.8% |
Mohawk Industries, Inc. | 1.7% |
Top Five Industries | % of net assets |
Software | 6.6% |
Specialty Retail | 6.1% |
Machinery | 5.7% |
Health Care Equipment and Supplies | 5.5% |
Household Durables | 4.9% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.9% |
Temporary Cash Investments | 2.3% |
Other Assets and Liabilities | (0.2)% |
5
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class | $1,000 | $982.70 | $4.00 | 0.80% |
R6 Class | $1,000 | $983.50 | $3.25 | 0.65% |
Hypothetical | ||||
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
R6 Class | $1,000 | $1,021.93 | $3.31 | 0.65% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
6
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 97.9% | ||||
Aerospace and Defense — 0.5% | ||||
B/E Aerospace, Inc. | 69,592 | $ | 3,267,344 | |
Airlines — 1.7% | ||||
Alaska Air Group, Inc. | 62,694 | 4,780,418 | ||
American Airlines Group, Inc. | 81,583 | 3,770,766 | ||
Spirit Airlines, Inc.(1) | 64,624 | 2,398,843 | ||
10,950,027 | ||||
Auto Components — 0.8% | ||||
Delphi Automotive plc | 59,732 | 4,969,105 | ||
Banks — 2.1% | ||||
BankUnited, Inc. | 103,278 | 3,839,876 | ||
Signature Bank(1) | 40,407 | 6,017,410 | ||
SVB Financial Group(1) | 28,313 | 3,456,168 | ||
13,313,454 | ||||
Beverages — 4.3% | ||||
Boston Beer Co., Inc. (The), Class A(1) | 13,361 | 2,933,942 | ||
Brown-Forman Corp., Class B | 74,794 | 7,941,627 | ||
Constellation Brands, Inc., Class A | 123,833 | 16,692,688 | ||
27,568,257 | ||||
Biotechnology — 2.5% | ||||
BioMarin Pharmaceutical, Inc.(1) | 57,860 | 6,771,935 | ||
Incyte Corp.(1) | 47,646 | 5,599,834 | ||
Vertex Pharmaceuticals, Inc.(1) | 29,307 | 3,655,755 | ||
16,027,524 | ||||
Building Products — 1.2% | ||||
Lennox International, Inc. | 59,077 | 7,846,016 | ||
Capital Markets — 1.9% | ||||
Affiliated Managers Group, Inc.(1) | 67,635 | 12,191,885 | ||
Chemicals — 0.8% | ||||
Axalta Coating Systems Ltd.(1) | 181,688 | 5,020,040 | ||
Commercial Services and Supplies — 1.9% | ||||
KAR Auction Services, Inc. | 191,010 | 7,334,784 | ||
Stericycle, Inc.(1) | 40,163 | 4,874,583 | ||
12,209,367 | ||||
Communications Equipment — 2.6% | ||||
Juniper Networks, Inc. | 117,310 | 3,682,361 | ||
Motorola Solutions, Inc. | 189,342 | 13,248,260 | ||
16,930,621 | ||||
Consumer Finance — 0.8% | ||||
Discover Financial Services | 90,246 | 5,073,630 |
7
Shares | Value | |||
Containers and Packaging — 1.6% | ||||
Ball Corp. | 99,266 | $ | 6,799,721 | |
Berry Plastics Group, Inc.(1) | 114,149 | 3,823,992 | ||
10,623,713 | ||||
Distributors — 0.8% | ||||
LKQ Corp.(1) | 171,794 | 5,086,820 | ||
Diversified Financial Services — 1.1% | ||||
McGraw Hill Financial, Inc. | 78,104 | 7,235,555 | ||
Electrical Equipment — 1.0% | ||||
Acuity Brands, Inc. | 28,824 | 6,300,926 | ||
Electronic Equipment, Instruments and Components — 1.0% | ||||
TE Connectivity Ltd. | 99,869 | 6,435,558 | ||
Food and Staples Retailing — 1.2% | ||||
Costco Wholesale Corp. | 48,871 | 7,727,483 | ||
Food Products — 2.0% | ||||
Hain Celestial Group, Inc. (The)(1) | 86,851 | 4,329,522 | ||
Hershey Co. (The) | 26,442 | 2,345,141 | ||
J.M. Smucker Co. (The) | 26,604 | 3,123,044 | ||
WhiteWave Foods Co. (The), Class A(1) | 82,582 | 3,384,210 | ||
13,181,917 | ||||
Health Care Equipment and Supplies — 5.5% | ||||
Cooper Cos., Inc. (The) | 25,457 | 3,878,629 | ||
DexCom, Inc.(1) | 56,479 | 4,705,830 | ||
Hologic, Inc.(1) | 109,401 | 4,251,323 | ||
NuVasive, Inc.(1) | 85,787 | 4,045,715 | ||
Teleflex, Inc. | 139,477 | 18,550,441 | ||
35,431,938 | ||||
Health Care Providers and Services — 3.3% | ||||
AmerisourceBergen Corp. | 70,562 | 6,809,939 | ||
Universal Health Services, Inc., Class B | 61,344 | 7,489,489 | ||
VCA, Inc.(1) | 131,315 | 7,192,122 | ||
21,491,550 | ||||
Hotels, Restaurants and Leisure — 2.1% | ||||
Buffalo Wild Wings, Inc.(1) | 17,711 | 2,732,276 | ||
Chipotle Mexican Grill, Inc.(1) | 486 | 311,152 | ||
Hilton Worldwide Holdings, Inc. | 219,634 | 5,488,654 | ||
La Quinta Holdings, Inc.(1) | 18,147 | 274,927 | ||
Papa John's International, Inc. | 70,990 | 4,981,368 | ||
13,788,377 | ||||
Household Durables — 4.9% | ||||
Harman International Industries, Inc. | 57,982 | 6,375,701 | ||
Jarden Corp.(1) | 202,644 | 9,078,451 | ||
Mohawk Industries, Inc.(1) | 57,318 | 11,205,669 | ||
Newell Rubbermaid, Inc. | 119,982 | 5,090,836 | ||
31,750,657 |
8
Shares | Value | |||
Internet and Catalog Retail — 1.6% | ||||
Expedia, Inc. | 73,274 | $ | 9,987,246 | |
Internet Software and Services — 3.0% | ||||
Akamai Technologies, Inc.(1) | 17,164 | 1,043,914 | ||
CoStar Group, Inc.(1) | 49,427 | 10,037,141 | ||
LinkedIn Corp., Class A(1) | 32,857 | 7,914,266 | ||
18,995,321 | ||||
IT Services — 4.8% | ||||
Alliance Data Systems Corp.(1) | 45,843 | 13,629,583 | ||
Sabre Corp. | 279,197 | 8,186,056 | ||
Vantiv, Inc., Class A(1) | 178,447 | 8,949,117 | ||
30,764,756 | ||||
Leisure Products — 1.6% | ||||
Brunswick Corp. | 106,580 | 5,735,070 | ||
Polaris Industries, Inc. | 39,745 | 4,464,953 | ||
10,200,023 | ||||
Machinery — 5.7% | ||||
Ingersoll-Rand plc | 109,949 | 6,515,578 | ||
ITT Corp. | 49,155 | 1,945,555 | ||
Middleby Corp. (The)(1) | 120,777 | 14,123,662 | ||
Snap-On, Inc. | 57,575 | 9,551,117 | ||
WABCO Holdings, Inc.(1) | 41,536 | 4,661,585 | ||
36,797,497 | ||||
Media — 1.5% | ||||
Charter Communications, Inc., Class A(1) | 51,051 | 9,747,678 | ||
Multiline Retail — 2.4% | ||||
Burlington Stores, Inc.(1) | 122,892 | 5,908,647 | ||
Dollar Tree, Inc.(1) | 143,260 | 9,382,098 | ||
15,290,745 | ||||
Oil, Gas and Consumable Fuels — 1.3% | ||||
Concho Resources, Inc.(1) | 49,863 | 5,779,620 | ||
Gulfport Energy Corp.(1) | 84,027 | 2,560,303 | ||
8,339,923 | ||||
Pharmaceuticals — 2.1% | ||||
Endo International plc(1) | 63,273 | 3,795,747 | ||
Zoetis, Inc. | 224,790 | 9,668,218 | ||
13,463,965 | ||||
Professional Services — 1.9% | ||||
Nielsen Holdings plc | 186,975 | 8,883,182 | ||
Verisk Analytics, Inc., Class A(1) | 43,815 | 3,137,592 | ||
12,020,774 | ||||
Real Estate Management and Development — 1.5% | ||||
Jones Lang LaSalle, Inc. | 58,907 | 9,820,386 | ||
Road and Rail — 3.0% | ||||
Canadian Pacific Railway Ltd., New York Shares | 81,887 | 11,505,124 | ||
J.B. Hunt Transport Services, Inc. | 61,131 | 4,668,574 |
9
Shares | Value | |||
Kansas City Southern | 37,002 | $ | 3,062,286 | |
19,235,984 | ||||
Semiconductors and Semiconductor Equipment — 2.9% | ||||
Avago Technologies Ltd. | 52,067 | 6,411,010 | ||
Cree, Inc.(1) | 120,756 | 3,041,843 | ||
Freescale Semiconductor Ltd.(1) | 103,884 | 3,479,075 | ||
NXP Semiconductors NV(1) | 71,719 | 5,619,184 | ||
18,551,112 | ||||
Software — 6.6% | ||||
Activision Blizzard, Inc. | 143,993 | 5,005,197 | ||
CDK Global, Inc. | 96,056 | 4,782,628 | ||
Electronic Arts, Inc.(1) | 276,954 | 19,960,075 | ||
Intuit, Inc. | 65,250 | 6,357,307 | ||
Tyler Technologies, Inc.(1) | 37,370 | 6,366,353 | ||
42,471,560 | ||||
Specialty Retail — 6.1% | ||||
AutoZone, Inc.(1) | 9,512 | 7,461,308 | ||
Restoration Hardware Holdings, Inc.(1) | 40,979 | 4,224,525 | ||
Signet Jewelers Ltd. | 73,494 | 11,093,184 | ||
Tractor Supply Co. | 96,535 | 8,918,869 | ||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 42,301 | 7,358,682 | ||
39,056,568 | ||||
Textiles, Apparel and Luxury Goods — 3.2% | ||||
Hanesbrands, Inc. | 212,235 | 6,778,786 | ||
lululemon athletica, Inc.(1) | 88,094 | 4,331,582 | ||
Under Armour, Inc., Class A(1) | 101,491 | 9,649,764 | ||
20,760,132 | ||||
Wireless Telecommunication Services — 3.1% | ||||
SBA Communications Corp., Class A(1) | 170,274 | 20,266,012 | ||
TOTAL COMMON STOCKS (Cost $513,093,281) | 630,191,446 | |||
TEMPORARY CASH INVESTMENTS — 2.3% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $5,644,444), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $5,534,633) | 5,534,628 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 4.375%, 5/15/40, valued at $9,414,319), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $9,226,000) | 9,226,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 1,289 | 1,289 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $14,761,917) | 14,761,917 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $527,855,198) | 644,953,363 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (1,521,715) | |||
TOTAL NET ASSETS — 100.0% | $ | 643,431,648 |
10
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
CAD | 766,486 | USD | 580,971 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | 5,102 | |
USD | 11,238,692 | CAD | 14,888,120 | JPMorgan Chase Bank N.A. | 11/30/15 | (145,104 | ) | |
$ | (140,002 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
11
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $527,855,198) | $ | 644,953,363 | |
Receivable for investments sold | 3,821,680 | ||
Receivable for capital shares sold | 401,903 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 5,102 | ||
Dividends and interest receivable | 19,919 | ||
649,201,967 | |||
Liabilities | |||
Payable for investments purchased | 5,202,351 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 145,104 | ||
Accrued management fees | 422,864 | ||
5,770,319 | |||
Net Assets | $ | 643,431,648 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 479,143,528 | |
Accumulated net investment loss | (1,042,137 | ) | |
Undistributed net realized gain | 48,372,094 | ||
Net unrealized appreciation | 116,958,163 | ||
$ | 643,431,648 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Institutional Class, $0.01 Par Value | $609,840,882 | 44,665,076 | $13.65 | |
R6 Class, $0.01 Par Value | $33,590,766 | 2,451,585 | $13.70 |
See Notes to Financial Statements.
12
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $34,066) | $ | 3,612,760 | |
Interest | 2,948 | ||
3,615,708 | |||
Expenses: | |||
Management fees | 4,953,257 | ||
Directors' fees and expenses | 20,530 | ||
4,973,787 | |||
Net investment income (loss) | (1,358,079 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 48,538,331 | ||
Futures contract transactions | 1,316,877 | ||
Foreign currency transactions | 1,704,437 | ||
51,559,645 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (3,192,053 | ) | |
Translation of assets and liabilities in foreign currencies | (194,626 | ) | |
(3,386,679 | ) | ||
Net realized and unrealized gain (loss) | 48,172,966 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 46,814,887 |
See Notes to Financial Statements.
13
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | (1,358,079 | ) | $ | (1,662,340 | ) |
Net realized gain (loss) | 51,559,645 | 26,740,021 | ||||
Change in net unrealized appreciation (depreciation) | (3,386,679 | ) | 20,366,104 | |||
Net increase (decrease) in net assets resulting from operations | 46,814,887 | 45,443,785 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Institutional Class | (26,719,040 | ) | (51,250,181 | ) | ||
R6 Class | (826,114 | ) | (433,893 | ) | ||
Decrease in net assets from distributions | (27,545,154 | ) | (51,684,074 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 35,084,809 | 131,572,665 | ||||
Net increase (decrease) in net assets | 54,354,542 | 125,332,376 | ||||
Net Assets | ||||||
Beginning of period | 589,077,106 | 463,744,730 | ||||
End of period | $ | 643,431,648 | $ | 589,077,106 | ||
Accumulated net investment loss | $ | (1,042,137 | ) | $ | (1,642,488 | ) |
See Notes to Financial Statements.
14
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Heritage Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is not the result of any difference in advisory or custodial fees or other expenses related to management of the fund’s assets, which do not vary by class. The fund’s R6 Class shares are available for purchase exclusively by certain American Century Investments funds of funds that are offered only through employer-sponsored retirement plans where a financial intermediary provides retirement recordkeeping services to plan participants. Because financial intermediaries do not receive any service, distribution or administrative fees for offering such funds of funds, American Century Investment Management, Inc. (ACIM) (the investment advisor) is able to charge the R6 Class a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been
15
declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
16
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class's daily net assets and paid monthly in arrears. The annual management fee is 0.80% for the Institutional Class and 0.65% for the R6 Class.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $505,472,853 and $501,124,647, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Institutional Class/Shares Authorized | 275,000,000 | 150,000,000 | ||||||||
Sold | 7,084,059 | $ | 95,797,215 | 7,340,306 | $ | 94,685,851 | ||||
Issued in reinvestment of distributions | 2,147,833 | 26,719,040 | 4,197,394 | 51,250,181 | ||||||
Redeemed | (7,358,993 | ) | (103,376,982 | ) | (2,037,795 | ) | (26,819,633 | ) | ||
1,872,899 | 19,139,273 | 9,499,905 | 119,116,399 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 1,609,018 | 21,940,103 | 1,085,310 | 13,736,485 | ||||||
Issued in reinvestment of distributions | 66,248 | 826,114 | 35,507 | 433,893 | ||||||
Redeemed | (492,311 | ) | (6,820,681 | ) | (132,053 | ) | (1,714,112 | ) | ||
1,182,955 | 15,945,536 | 988,764 | 12,456,266 | |||||||
Net increase (decrease) | 3,055,854 | $ | 35,084,809 | 10,488,669 | $ | 131,572,665 |
17
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 630,191,446 | — | — | ||||
Temporary Cash Investments | 1,289 | $ | 14,760,628 | — | ||||
$ | 630,192,735 | $ | 14,760,628 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 5,102 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (145,104 | ) | — |
7. Derivative Instruments
Equity Price Risk — The fund is subject to equity price risk in the normal course of pursuing its investment objectives. A fund may enter into futures contracts based on an equity index in order to manage its exposure to changes in market conditions. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund 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 a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period, the fund participated in equity price risk derivative instruments for temporary investment purposes.
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by
18
a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $11,523,258.
Value of Derivative Instruments as of October 31, 2015 | ||||||||
Asset Derivatives | Liability Derivatives | |||||||
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | Location on Statement of Assets and Liabilities | Value | ||||
Foreign Currency Risk | Unrealized appreciation on forward foreign currency exchange contracts | $ | 5,102 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 145,104 | ||
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2015 | ||||||||
Net Realized Gain (Loss) | Change in Net Unrealized Appreciation (Depreciation) | |||||||
Type of Risk Exposure | Location on Statement of Operations | Value | Location on Statement of Operations | Value | ||||
Equity Price Risk | Net realized gain (loss) on futures contract transactions | $ | 1,316,877 | Change in net unrealized appreciation (depreciation) on futures contracts | — | |||
Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | 1,705,635 | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $ | (194,626 | ) | ||
$ | 3,022,512 | $ | (194,626 | ) |
8. Risk Factors
The fund invests 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.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | — | $ | 9,980,242 | |||
Long-term capital gains | $ | 27,545,154 | $ | 41,703,832 |
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.
19
As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 529,945,534 | |
Gross tax appreciation of investments | $ | 129,283,841 | |
Gross tax depreciation of investments | (14,276,012 | ) | |
Net tax appreciation (depreciation) of investments | $ | 115,007,829 | |
Undistributed ordinary income | — | ||
Accumulated long-term gains | $ | 50,462,430 | |
Late-year ordinary loss deferral | $ | (1,182,139 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
20
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Institutional Class | |||||||||||||||
2015 | $13.37 | (0.03) | 0.93 | 0.90 | — | (0.62) | (0.62) | $13.65 | 7.20% | 0.80% | (0.22)% | 83% | $609,841 | ||
2014 | $13.81 | (0.04) | 1.08 | 1.04 | — | (1.48) | (1.48) | $13.37 | 8.53% | 0.80% | (0.31)% | 76% | $572,085 | ||
2013 | $10.61 | (0.01) | 3.23 | 3.22 | (0.02) | — | (0.02) | $13.81 | 30.38% | 0.80% | (0.10)% | 113% | $459,877 | ||
2012 | $10.03 | —(3) | 0.74 | 0.74 | — | (0.16) | (0.16) | $10.61 | 7.59% | 0.81% | (0.02)% | 92% | $297,429 | ||
2011 | $9.44 | (0.03) | 0.62 | 0.59 | — | — | — | $10.03 | 6.25% | 0.80% | (0.27)% | 115% | $215,060 | ||
R6 Class | |||||||||||||||
2015 | $13.39 | (0.01) | 0.94 | 0.93 | — | (0.62) | (0.62) | $13.70 | 7.42% | 0.65% | (0.07)% | 83% | $33,591 | ||
2014 | $13.82 | (0.02) | 1.07 | 1.05 | — | (1.48) | (1.48) | $13.39 | 8.60% | 0.65% | (0.16)% | 76% | $16,992 | ||
2013(4) | $12.92 | —(3) | 0.90 | 0.90 | — | — | — | $13.82 | 6.97% | 0.65%(5) | 0.03%(5) | 113%(6) | $3,867 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
21
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Heritage Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 NT Heritage Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
22
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was below its benchmark for the one-, three-, and five-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of
27
shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Directors also requested and received information from the Advisor concerning the nature of the services, fees, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
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Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $27,545,154, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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Notes |
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![]() | ||
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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87656 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Select Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCIX | 10.93% | 14.34% | 7.78% | 12.33% | 6/30/71(1) |
Russell 1000 Growth Index | — | 9.18% | 15.29% | 9.08% | N/A(2) | — |
Institutional Class | TWSIX | 11.16% | 14.58% | 8.00% | 6.85% | 3/13/97 |
A Class(3) | TWCAX | 8/8/97 | ||||
No sales charge* | 10.67% | 14.06% | 7.51% | 5.37% | ||
With sales charge* | 4.30% | 12.72% | 6.88% | 5.03% | ||
C Class | ACSLX | 9.83% | 13.21% | 6.71% | 7.43% | 1/31/03 |
R Class | ASERX | 10.38% | 13.77% | 7.24% | 6.68% | 7/29/05 |
R6 Class | ASDEX | 11.31% | — | — | 16.09% | 7/26/13 |
* | 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 and may be subject to a maximum CDSC of 1.00%. 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 October 31, 1958, this inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. |
(2) | Benchmark data first available December 1978. |
(3) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $21,166 | |
Russell 1000 Growth Index — $23,870 | |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% | 0.65% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
4
Portfolio Commentary |
Portfolio Managers: Keith Lee, Michael Li, and Chris Krantz
Performance Summary
Select returned 10.93%* for the 12 months ended October 31, 2015, outpacing the 9.18% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted strong returns during the reporting period amid volatility and considerable variation within sector returns. Within the Russell 1000 Growth Index, consumer discretionary was the top-performing sector, gaining about 20%. Consumer staples and information technology also registered double-digit gains. Energy stocks continued to struggle with plunging commodity prices and fell nearly 31%. Utilities also declined sharply.
Select received positive contributions to absolute return from most sectors in which it was invested, led by consumer discretionary and information technology. Energy, materials, and financials were negative contributors. Stock decisions in the consumer discretionary, industrials, and health care sectors contributed most to performance relative to the Russell index. Stock selection in financials and materials detracted from results versus the benchmark.
Consumer Discretionary and Industrials Led Contributors
Stock selection in the consumer discretionary sector was the largest source of outperformance relative to the Russell 1000 Growth Index. Starbucks was a major contributor in the sector as the coffee retailer is benefiting from its Starbucks Rewards program. The rollout of its mobile ordering application has exceeded expectations as well. Overweighting Amazon.com benefited performance. The internet retailer reported strong revenue growth, aided by its Prime membership program. Margins are improving through efficiency gains, and profitability from its cloud hosting services has been higher than expected.
In the industrials sector, stock selection aided performance. Underweighting road and rail companies also helped as the industry suffered from concerns about declining rail volumes due to weakness in the energy sector. Not owning index component Union Pacific was a top contributor to relative performance.
Other key contributors included video game maker Electronic Arts, which continued to execute, reporting strong results consistent with our investment thesis of improving operating margins driven by cost controls, a higher percentage of video games being delivered digitally, and a gaming console refresh cycle. The latest “Star Wars” movie should provide support for sales of the company’s new “Star Wars” game. Alphabet (formerly Google) was another top contributor in the information technology sector. The company’s top line is accelerating, expenses are being controlled, and the new CFO is showing greater transparency and may drive better capital allocation. Constellation Brands, a producer and marketer of beer, wine, and spirits was a top contributor as the company continues to see very strong sales volume and pricing in its Corona and Modelo brands.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
5
Financials and Materials Detracted
In financials, stock choices hampered results, especially among capital markets firms. Asset manager Franklin Resources detracted on emerging markets weakness, which has reduced assets under management and fund flows. An underweight in real estate investment trusts detracted as the industry performed better than expected due to the Federal Reserve’s caution in raising interest rates.
Stock selection in materials also weighed on performance, especially in the chemicals industry. Agrochemical firm Monsanto underperformed in conjunction with falling grain prices and a stalled takeover attempt of a competitor.
Although stock selection in health care was positive, there were some major detractors in the sector. Health care stocks fell sharply late in the fiscal year as prescription drug prices became a political issue. In addition to the broad sector decline, Biogen gave disappointing guidance on its multiple sclerosis drug. We believe there is upside in its pipeline, however. In consumer staples, baby formula maker Mead Johnson Nutrition was a significant detractor, dragged down by a difficult environment in Hong Kong. We think this is a transitory issue and continue to have a positive view of the underlying growth rate for the company.
Outlook
We remain confident in our belief that stocks that exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Our portfolio positioning reflects where we are seeing opportunities as a result of the application of that philosophy and process.
As of October 31, 2015, this process pointed the portfolio toward overweight positions relative to the Russell 1000 Growth Index in the consumer discretionary, industrials, and health care sectors. The telecommunication services and materials sectors represented the largest underweights.
The consumer discretionary overweight reflects improving consumer spending trends as a result of falling energy prices, slow and steady economic improvement, a continued housing recovery, and the potential for better wage trends, especially at lower income levels. In the telecommunications sector, competition among wireless carriers is intensifying, likely leading to higher capital spending, lower free cash flow, lower valuations, and lower margins.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 9.1% |
Alphabet, Inc.* | 5.8% |
UnitedHealth Group, Inc. | 3.4% |
Walt Disney Co. (The) | 3.4% |
Amazon.com, Inc. | 3.4% |
Starbucks Corp. | 3.3% |
MasterCard, Inc., Class A | 3.1% |
Gilead Sciences, Inc. | 3.1% |
Bristol-Myers Squibb Co. | 3.1% |
Costco Wholesale Corp. | 2.9% |
*Includes all classes of the issuer. | |
Top Five Industries | % of net assets |
Internet Software and Services | 10.1% |
Technology Hardware, Storage and Peripherals | 9.4% |
Specialty Retail | 7.9% |
Biotechnology | 6.7% |
Pharmaceuticals | 5.8% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 93.4% |
Foreign Common Stocks** | 5.9% |
Total Common Stocks | 99.3% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | (0.2)% |
**Includes depositary shares, dual listed securities and foreign ordinary shares. |
7
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. 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.
8
Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,041.40 | $5.09 | 0.99% |
Institutional Class | $1,000 | $1,042.50 | $4.07 | 0.79% |
A Class | $1,000 | $1,040.10 | $6.38 | 1.24% |
C Class | $1,000 | $1,036.20 | $10.21 | 1.99% |
R Class | $1,000 | $1,038.80 | $7.66 | 1.49% |
R6 Class | $1,000 | $1,043.20 | $3.30 | 0.64% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.22 | $5.04 | 0.99% |
Institutional Class | $1,000 | $1,021.22 | $4.02 | 0.79% |
A Class | $1,000 | $1,018.96 | $6.31 | 1.24% |
C Class | $1,000 | $1,015.17 | $10.11 | 1.99% |
R Class | $1,000 | $1,017.69 | $7.58 | 1.49% |
R6 Class | $1,000 | $1,021.98 | $3.26 | 0.64% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
9
Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 99.3% | ||||
Aerospace and Defense — 2.4% | ||||
Boeing Co. (The) | 340,500 | $ | 50,417,835 | |
United Technologies Corp. | 117,000 | 11,513,970 | ||
61,931,805 | ||||
Auto Components — 2.1% | ||||
Delphi Automotive plc | 390,700 | 32,502,333 | ||
Gentex Corp. | 1,232,900 | 20,207,231 | ||
52,709,564 | ||||
Banks — 0.9% | ||||
JPMorgan Chase & Co. | 360,800 | 23,181,400 | ||
Beverages — 3.7% | ||||
Constellation Brands, Inc., Class A | 507,100 | 68,357,080 | ||
Diageo plc | 873,300 | 25,289,845 | ||
93,646,925 | ||||
Biotechnology — 6.7% | ||||
Biogen, Inc.(1) | 195,100 | 56,678,501 | ||
Celgene Corp.(1) | 218,500 | 26,812,135 | ||
Gilead Sciences, Inc. | 733,400 | 79,302,542 | ||
Vertex Pharmaceuticals, Inc.(1) | 55,500 | 6,923,070 | ||
169,716,248 | ||||
Capital Markets — 0.9% | ||||
Franklin Resources, Inc. | 546,200 | 22,263,112 | ||
Chemicals — 2.2% | ||||
Ashland, Inc. | 226,800 | 24,884,496 | ||
Monsanto Co. | 326,700 | 30,454,974 | ||
55,339,470 | ||||
Communications Equipment — 0.6% | ||||
QUALCOMM, Inc. | 276,500 | 16,429,630 | ||
Diversified Financial Services — 1.6% | ||||
CBOE Holdings, Inc. | 611,600 | 41,001,664 | ||
Energy Equipment and Services — 0.7% | ||||
Core Laboratories NV | 65,900 | 7,666,147 | ||
Schlumberger Ltd. | 141,200 | 11,036,192 | ||
18,702,339 | ||||
Food and Staples Retailing — 2.9% | ||||
Costco Wholesale Corp. | 466,400 | 73,747,168 | ||
Food Products — 1.4% | ||||
Mead Johnson Nutrition Co. | 430,000 | 35,260,000 | ||
Health Care Providers and Services — 4.8% | ||||
Cigna Corp. | 141,400 | 18,953,256 | ||
Express Scripts Holding Co.(1) | 191,200 | 16,515,856 |
10
Shares | Value | |||
UnitedHealth Group, Inc. | 732,500 | $ | 86,273,850 | |
121,742,962 | ||||
Hotels, Restaurants and Leisure — 4.3% | ||||
Papa John's International, Inc. | 351,400 | 24,657,738 | ||
Starbucks Corp. | 1,347,200 | 84,294,304 | ||
108,952,042 | ||||
Industrial Conglomerates — 2.1% | ||||
Roper Technologies, Inc. | 284,100 | 52,942,035 | ||
Insurance — 1.2% | ||||
MetLife, Inc. | 578,500 | 29,144,830 | ||
Internet and Catalog Retail — 3.4% | ||||
Amazon.com, Inc.(1) | 136,100 | 85,184,990 | ||
Internet Software and Services — 10.1% | ||||
Alphabet, Inc., Class A(1) | 98,600 | 72,706,654 | ||
Alphabet, Inc., Class C(1) | 105,100 | 74,706,131 | ||
Baidu, Inc. ADR(1) | 102,400 | 19,196,928 | ||
Facebook, Inc., Class A(1) | 644,700 | 65,740,059 | ||
LinkedIn Corp., Class A(1) | 98,100 | 23,629,347 | ||
255,979,119 | ||||
IT Services — 3.3% | ||||
MasterCard, Inc., Class A | 802,700 | 79,459,273 | ||
Teradata Corp.(1) | 169,900 | 4,775,889 | ||
84,235,162 | ||||
Leisure Products — 0.5% | ||||
Polaris Industries, Inc. | 112,200 | 12,604,548 | ||
Machinery — 4.9% | ||||
FANUC Corp. | 105,800 | 18,898,807 | ||
Graco, Inc. | 364,100 | 26,724,940 | ||
KUKA AG | 274,400 | 23,201,099 | ||
Middleby Corp. (The)(1) | 314,000 | 36,719,160 | ||
Nordson Corp. | 243,900 | 17,375,436 | ||
122,919,442 | ||||
Media — 5.0% | ||||
Time Warner, Inc. | 534,300 | 40,254,162 | ||
Walt Disney Co. (The) | 757,500 | 86,158,050 | ||
126,412,212 | ||||
Oil, Gas and Consumable Fuels — 0.5% | ||||
EOG Resources, Inc. | 140,500 | 12,061,925 | ||
Personal Products — 0.9% | ||||
Estee Lauder Cos., Inc. (The), Class A | 284,100 | 22,858,686 | ||
Pharmaceuticals — 5.8% | ||||
Allergan plc(1) | 91,400 | 28,194,158 | ||
Bristol-Myers Squibb Co. | 1,176,800 | 77,609,960 | ||
Teva Pharmaceutical Industries Ltd. ADR | 695,400 | 41,160,726 | ||
146,964,844 |
11
Shares | Value | |||
Professional Services — 2.0% | ||||
IHS, Inc., Class A(1) | 80,400 | $ | 9,611,016 | |
Verisk Analytics, Inc., Class A(1) | 565,700 | 40,509,777 | ||
50,120,793 | ||||
Real Estate Investment Trusts (REITs) — 1.5% | ||||
American Tower Corp. | 362,300 | 37,037,929 | ||
Road and Rail — 0.5% | ||||
Canadian Pacific Railway Ltd. | 90,900 | 12,773,689 | ||
Semiconductors and Semiconductor Equipment — 1.0% | ||||
Linear Technology Corp. | 587,900 | 26,114,518 | ||
Software — 3.2% | ||||
Electronic Arts, Inc.(1) | 662,500 | 47,746,375 | ||
Mobileye NV(1) | 225,800 | 10,278,416 | ||
Oracle Corp. | 620,800 | 24,111,872 | ||
82,136,663 | ||||
Specialty Retail — 7.9% | ||||
AutoZone, Inc.(1) | 76,200 | 59,772,042 | ||
Home Depot, Inc. (The) | 500,800 | 61,918,912 | ||
L Brands, Inc. | 203,900 | 19,570,322 | ||
TJX Cos., Inc. (The) | 805,000 | 58,917,950 | ||
200,179,226 | ||||
Technology Hardware, Storage and Peripherals — 9.4% | ||||
Apple, Inc. | 1,926,200 | 230,180,900 | ||
EMC Corp. | 315,900 | 8,282,898 | ||
238,463,798 | ||||
Tobacco — 0.9% | ||||
Philip Morris International, Inc. | 264,800 | 23,408,320 | ||
TOTAL COMMON STOCKS (Cost $1,365,030,889) | 2,516,167,058 | |||
TEMPORARY CASH INVESTMENTS — 0.9% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $8,616,515), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $8,448,883) | 8,448,876 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 6.25%, 8/15/23, valued at $14,368,963), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $14,085,000) | 14,085,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 899 | 899 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $22,534,775) | 22,534,775 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $1,387,565,664) | 2,538,701,833 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (4,502,518) | |||
TOTAL NET ASSETS — 100.0% | $ | 2,534,199,315 |
12
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 699,556 | CAD | 928,358 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | (10,288 | ) |
USD | 9,677,215 | CAD | 12,819,600 | JPMorgan Chase Bank N.A. | 11/30/15 | (124,944 | ) | |
USD | 19,109,448 | EUR | 17,299,411 | UBS AG | 11/30/15 | 79,775 | ||
USD | 598,770 | EUR | 545,782 | UBS AG | 11/30/15 | (1,599 | ) | |
USD | 21,172,596 | GBP | 13,795,738 | Credit Suisse AG | 11/30/15 | (91,420 | ) | |
JPY | 47,662,900 | USD | 396,109 | Credit Suisse AG | 11/30/15 | (1,034 | ) | |
USD | 15,283,775 | JPY | 1,839,967,800 | Credit Suisse AG | 11/30/15 | 32,402 | ||
USD | 694,512 | JPY | 84,084,550 | Credit Suisse AG | 11/30/15 | (2,460 | ) | |
USD | 384,121 | JPY | 46,313,950 | Credit Suisse AG | 11/30/15 | 227 | ||
$ | (119,341 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
EUR | - | Euro |
GBP | - | British Pound |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $1,387,565,664) | $ | 2,538,701,833 | |
Foreign currency holdings, at value (cost of $870,890) | 876,699 | ||
Receivable for investments sold | 664,290 | ||
Receivable for capital shares sold | 666,196 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 112,404 | ||
Dividends and interest receivable | 1,098,145 | ||
2,542,119,567 | |||
Liabilities | |||
Payable for investments purchased | 5,076,367 | ||
Payable for capital shares redeemed | 560,590 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 231,745 | ||
Accrued management fees | 2,036,850 | ||
Distribution and service fees payable | 14,700 | ||
7,920,252 | |||
Net Assets | $ | 2,534,199,315 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 1,231,469,577 | |
Undistributed net investment income | 10,298,399 | ||
Undistributed net realized gain | 141,410,950 | ||
Net unrealized appreciation | 1,151,020,389 | ||
$ | 2,534,199,315 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $2,440,318,528 | 39,636,551 | $61.57 | |||
Institutional Class, $0.01 Par Value | $33,075,414 | 529,313 | $62.49 | |||
A Class, $0.01 Par Value | $41,737,081 | 690,931 | $60.41* | |||
C Class, $0.01 Par Value | $5,931,793 | 105,754 | $56.09 | |||
R Class, $0.01 Par Value | $3,295,189 | 54,726 | $60.21 | |||
R6 Class, $0.01 Par Value | $9,841,310 | 157,433 | $62.51 |
*Maximum offering price $64.10 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $246,643) | $ | 32,969,807 | |
Interest | 2,671 | ||
32,972,478 | |||
Expenses: | |||
Management fees | 24,278,320 | ||
Distribution and service fees: | |||
A Class | 97,717 | ||
C Class | 57,096 | ||
R Class | 15,735 | ||
Directors' fees and expenses | 81,314 | ||
Other expenses | 2,351 | ||
24,532,533 | |||
Net investment income (loss) | 8,439,945 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 145,056,537 | ||
Foreign currency transactions | 2,800,106 | ||
147,856,643 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 97,470,858 | ||
Translation of assets and liabilities in foreign currencies | (1,039,676 | ) | |
96,431,182 | |||
Net realized and unrealized gain (loss) | 244,287,825 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 252,727,770 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 8,439,945 | $ | 7,707,013 | ||
Net realized gain (loss) | 147,856,643 | 209,270,269 | ||||
Change in net unrealized appreciation (depreciation) | 96,431,182 | 132,769,313 | ||||
Net increase (decrease) in net assets resulting from operations | 252,727,770 | 349,746,595 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (8,938,027 | ) | (9,365,514 | ) | ||
Institutional Class | (156,488 | ) | (245,709 | ) | ||
A Class | (56,611 | ) | (82,331 | ) | ||
R6 Class | (55,615 | ) | (214 | ) | ||
From net realized gains: | ||||||
Investor Class | (201,146,776 | ) | (8,633,102 | ) | ||
Institutional Class | (2,344,544 | ) | (155,106 | ) | ||
A Class | (3,423,892 | ) | (178,850 | ) | ||
C Class | (533,273 | ) | (34,463 | ) | ||
R Class | (268,899 | ) | (14,057 | ) | ||
R6 Class | (666,192 | ) | (109 | ) | ||
Decrease in net assets from distributions | (217,590,317 | ) | (18,709,455 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 119,601,168 | (165,037,117 | ) | |||
Net increase (decrease) in net assets | 154,738,621 | 166,000,023 | ||||
Net Assets | ||||||
Beginning of period | 2,379,460,694 | 2,213,460,671 | ||||
End of period | $ | 2,534,199,315 | $ | 2,379,460,694 | ||
Undistributed net investment income | $ | 10,298,399 | $ | 8,260,833 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Select Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
17
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
18
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.800% to 0.990% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class and 0.450% to 0.640% for the R6 Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.99% for the Investor Class, A Class, C Class and R Class, 0.79% for the Institutional Class and 0.64% for the R6 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $583,444,515 and $651,309,219, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 300,000,000 | 300,000,000 | ||||||||
Sold | 1,972,555 | $ | 117,198,082 | 1,013,144 | $ | 57,402,134 | ||||
Issued in reinvestment of distributions | 3,711,291 | 200,706,584 | 318,597 | 17,156,436 | ||||||
Redeemed | (3,460,978) | (205,089,478) | (3,857,942) | (218,157,619) | ||||||
2,222,868 | 112,815,188 | (2,526,201) | (143,599,049) | |||||||
Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 269,381 | 15,887,264 | 161,413 | 9,211,409 | ||||||
Issued in reinvestment of distributions | 45,621 | 2,499,550 | 6,433 | 350,521 | ||||||
Redeemed | (254,396) | (15,401,415) | (429,102) | (25,087,621) | ||||||
60,606 | 2,985,399 | (261,256) | (15,525,691) | |||||||
A Class/Shares Authorized | 75,000,000 | 75,000,000 | ||||||||
Sold | 188,110 | 11,072,552 | 116,938 | 6,632,877 | ||||||
Issued in reinvestment of distributions | 62,450 | 3,320,470 | 4,668 | 247,529 | ||||||
Redeemed | (220,012) | (12,776,504) | (291,832) | (16,281,685) | ||||||
30,548 | 1,616,518 | (170,226) | (9,401,279) | |||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||
Sold | 24,446 | 1,330,931 | 12,065 | 623,486 | ||||||
Issued in reinvestment of distributions | 8,094 | 402,289 | 379 | 19,014 | ||||||
Redeemed | (31,467) | (1,733,109) | (71,078) | (3,785,994) | ||||||
1,073 | 111 | (58,634) | (3,143,494) | |||||||
R Class/Shares Authorized | 40,000,000 | 50,000,000 | ||||||||
Sold | 4,876 | 283,145 | 8,774 | 488,474 | ||||||
Issued in reinvestment of distributions | 5,062 | 268,899 | 265 | 14,057 | ||||||
Redeemed | (5,942) | (348,849) | (21,213) | (1,181,480) | ||||||
3,996 | 203,195 | (12,174) | (678,949) | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 34,624 | 2,083,020 | 129,561 | 7,711,850 | ||||||
Issued in reinvestment of distributions | 13,186 | 721,807 | 6 | 323 | ||||||
Redeemed | (13,768) | (824,070) | (6,676 | ) | (400,828 | ) | ||||
34,042 | 1,980,757 | 122,891 | 7,311,345 | |||||||
Net increase (decrease) | 2,353,133 | $ | 119,601,168 | (2,905,600) | $ | (165,037,117 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
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The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 2,436,003,618 | $ | 80,163,440 | — | |||
Temporary Cash Investments | 899 | 22,533,876 | — | |||||
$ | 2,436,004,517 | $ | 102,697,316 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 112,404 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (231,745 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $65,454,275.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as an asset of $112,404 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $231,745 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $2,808,706 in net realized gain (loss) on foreign currency transactions and $(1,060,993) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
21
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 12,245,087 | $ | 9,693,768 | ||
Long-term capital gains | $ | 205,345,230 | $ | 9,015,687 |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 1,390,173,380 | |
Gross tax appreciation of investments | $ | 1,162,839,780 | |
Gross tax depreciation of investments | (14,311,327 | ) | |
Net tax appreciation (depreciation) of investments | 1,148,528,453 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | 1,963 | ||
Net tax appreciation (depreciation) | $ | 1,148,530,416 | |
Undistributed ordinary income | $ | 10,180,656 | |
Accumulated long-term gains | $ | 144,018,666 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
22
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||
2015 | $61.31 | 0.21 | 5.71 | 5.92 | (0.24) | (5.42) | (5.66) | $61.57 | 10.93% | 0.99% | 0.35% | 24% | $2,440,319 | ||
2014 | $53.07 | 0.19 | 8.51 | 8.70 | (0.24) | (0.22) | (0.46) | $61.31 | 16.50% | 1.00% | 0.34% | 25% | $2,293,893 | ||
2013 | $43.52 | 0.35 | 9.51 | 9.86 | (0.31) | — | (0.31) | $53.07 | 22.80% | 1.00% | 0.74% | 31% | $2,119,523 | ||
2012 | $39.14 | 0.17 | 4.31 | 4.48 | (0.10) | — | (0.10) | $43.52 | 11.50% | 1.00% | 0.41% | 17% | $1,861,545 | ||
2011 | $35.54 | 0.10 | 3.62 | 3.72 | (0.12) | — | (0.12) | $39.14 | 10.49% | 1.00% | 0.26% | 17% | $1,765,718 | ||
Institutional Class | |||||||||||||||
2015 | $62.15 | 0.34 | 5.78 | 6.12 | (0.36) | (5.42) | (5.78) | $62.49 | 11.16% | 0.79% | 0.55% | 24% | $33,075 | ||
2014 | $53.79 | 0.32 | 8.61 | 8.93 | (0.35) | (0.22) | (0.57) | $62.15 | 16.74% | 0.80% | 0.54% | 25% | $29,130 | ||
2013 | $44.04 | 0.36 | 9.72 | 10.08 | (0.33) | — | (0.33) | $53.79 | 23.05% | 0.80% | 0.94% | 31% | $39,263 | ||
2012 | $39.60 | 0.24 | 4.38 | 4.62 | (0.18) | — | (0.18) | $44.04 | 11.73% | 0.80% | 0.61% | 17% | $16,828 | ||
2011 | $35.95 | 0.18 | 3.67 | 3.85 | (0.20) | — | (0.20) | $39.60 | 10.73% | 0.80% | 0.46% | 17% | $5,133 | ||
A Class | |||||||||||||||
2015 | $60.25 | 0.06 | 5.61 | 5.67 | (0.09) | (5.42) | (5.51) | $60.41 | 10.67% | 1.24% | 0.10% | 24% | $41,737 | ||
2014 | $52.15 | 0.06 | 8.36 | 8.42 | (0.10) | (0.22) | (0.32) | $60.25 | 16.21% | 1.25% | 0.09% | 25% | $39,786 | ||
2013 | $42.85 | 0.25 | 9.33 | 9.58 | (0.28) | — | (0.28) | $52.15 | 22.48% | 1.25% | 0.49% | 31% | $43,318 | ||
2012 | $38.54 | 0.06 | 4.26 | 4.32 | (0.01) | — | (0.01) | $42.85 | 11.22% | 1.25% | 0.16% | 17% | $45,355 | ||
2011 | $34.99 | —(3) | 3.58 | 3.58 | (0.03) | — | (0.03) | $38.54 | 10.23% | 1.25% | 0.01% | 17% | $24,573 |
23
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||
2015 | $56.64 | (0.36) | 5.23 | 4.87 | — | (5.42) | (5.42) | $56.09 | 9.83% | 1.99% | (0.65)% | 24% | $5,932 | ||
2014 | $49.32 | (0.34) | 7.88 | 7.54 | — | (0.22) | (0.22) | $56.64 | 15.34% | 2.00% | (0.66)% | 25% | $5,929 | ||
2013 | $40.75 | (0.14) | 8.90 | 8.76 | (0.19) | — | (0.19) | $49.32 | 21.57% | 2.00% | (0.26)% | 31% | $8,054 | ||
2012 | $36.92 | (0.25) | 4.08 | 3.83 | — | — | — | $40.75 | 10.37% | 2.00% | (0.59)% | 17% | $5,666 | ||
2011 | $33.74 | (0.28) | 3.46 | 3.18 | — | — | — | $36.92 | 9.43% | 2.00% | (0.74)% | 17% | $571 | ||
R Class | |||||||||||||||
2015 | $60.12 | (0.09) | 5.60 | 5.51 | — | (5.42) | (5.42) | $60.21 | 10.38% | 1.49% | (0.15)% | 24% | $3,295 | ||
2014 | $52.07 | (0.08) | 8.35 | 8.27 | — | (0.22) | (0.22) | $60.12 | 15.92% | 1.50% | (0.16)% | 25% | $3,050 | ||
2013 | $42.86 | 0.03 | 9.43 | 9.46 | (0.25) | — | (0.25) | $52.07 | 22.18% | 1.50% | 0.24% | 31% | $3,275 | ||
2012 | $38.64 | (0.06) | 4.28 | 4.22 | — | — | — | $42.86 | 10.92% | 1.50% | (0.09)% | 17% | $1,456 | ||
2011 | $35.14 | (0.08) | 3.58 | 3.50 | — | — | — | $38.64 | 9.96% | 1.50% | (0.24)% | 17% | $59 | ||
R6 Class | |||||||||||||||
2015 | $62.18 | 0.41 | 5.79 | 6.20 | (0.45) | (5.42) | (5.87) | $62.51 | 11.31% | 0.64% | 0.70% | 24% | $9,841 | ||
2014 | $53.81 | 0.18 | 8.84 | 9.02 | (0.43) | (0.22) | (0.65) | $62.18 | 16.92% | 0.65% | 0.69% | 25% | $7,672 | ||
2013(4) | $49.95 | 0.10 | 3.76 | 3.86 | — | — | — | $53.81 | 7.73% | 0.65%(5) | 0.72%(5) | 31%(6) | $27 |
24
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
25
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Select Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Select Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
26
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
27
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
28
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
29
Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was below its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of
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shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $12,245,087, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $2,877,255 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $205,345,230, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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Notes |
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![]() | ||
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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87634 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Small Cap Growth Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | ANOIX | 1.87% | 11.92% | 8.24% | 8.06% | 6/1/01 |
Russell 2000 Growth Index | — | 3.52% | 13.55% | 8.67% | 6.56% | — |
Institutional Class | ANONX | 2.00% | 12.14% | — | 5.89% | 5/18/07 |
A Class | ANOAX | 1/31/03 | ||||
No sales charge* | 1.59% | 11.65% | 7.97% | 10.49% | ||
With sales charge* | -4.28% | 10.33% | 7.33% | 9.99% | ||
C Class | ANOCX | 0.76% | 10.78% | 7.15% | 9.70%(1) | 1/31/03 |
R Class | ANORX | 1.29% | 11.36% | — | 4.29% | 9/28/07 |
R6 Class | ANODX | 2.15% | — | — | 7.37% | 7/26/13 |
* 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 and may be subject to a maximum CDSC of 1.00%. 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) | Returns would have been lower if a portion of the distribution and service 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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $22,088 | |
Russell 2000 Growth Index — $22,967 | |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
1.41% | 1.21% | 1.66% | 2.41% | 1.91% | 1.06% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Portfolio Commentary |
Portfolio Managers: Matthew Ferretti and Jackie Wagner
In March 2015, portfolio manager Jeffrey Otto left the Small Cap Growth management team and portfolio manager Jackie Wagner was promoted from Senior Analyst on the team.
Performance Summary
Small Cap Growth returned 1.87%* for the 12 months ended October 31, 2015, lagging the 3.52% return of the portfolio’s benchmark, the Russell 2000 Growth Index.
U.S. stock indices registered gains during the reporting period amid volatility and considerable variation in sector performance. Within the Russell 2000 Growth Index, utilities and information technology were the best-performing sectors, posting double-digit gains. Energy was by far the worst sector, plunging more than 40% as oil prices fell and investors worried about global growth. Materials and industrials were the only other sectors to lose ground.
Small Cap Growth received positive absolute contributions from all sectors it was invested in except industrials, energy, and consumer staples. Stock decisions in information technology and health care were major sources of underperformance relative to the Russell 2000 Growth Index. Stock selection in consumer discretionary and financials aided performance.
Information Technology Stocks Detracted
In information technology, stock selection hurt performance. Barracuda Networks was a significant detractor. The company, which provides security, networking, and application delivery, as well as data storage, protection and disaster recovery services, reported better-than-expected results, but billings growth—a leading indicator of future revenues—decelerated. Barracuda was eliminated.
Stock choices in the health care sector detracted from relative results, although an overweight allocation to the sector was beneficial. Although health care stocks performed well over the 12-month period, news stories late in the fiscal year focused on high prescription drug prices, which have now become a topic of the 2016 presidential election. The pricing scrutiny led to a broad-based sell-off in the health care sector. Specialty pharmaceutical firm Horizon Pharma detracted despite reporting a solid quarter as the stock was caught up in the drug pricing sell-off. Medical device maker Cardiovascular Systems also fell following weak results attributed to poor sales force execution. The holding was eliminated from the portfolio.
Among other key detractors, Horsehead Holding, a producer of specialty zinc and zinc-based products, reported lower-than-expected production in June. Zinc prices fell significantly as rising exports from China and Japan added to the global oversupply. The holding was eliminated. Falling oil prices hurt H&E Equipment Services, which rents heavy equipment to construction companies and is exposed to the slowing Gulf Coast region. We eliminated the position.
Consumer Discretionary and Financials Aided Results
Stock selection in the consumer discretionary sector was a top contributor to performance, led by choices in the textiles, apparel, and luxury goods industry. Footwear wholesaler and retailer Skechers U.S.A. benefited from positive trends in athletic shoes and has a strong product portfolio in the U.S. Non-U.S. markets are driving the company’s long-term growth. Pizza chain Papa John’s International continued to grow same-store sales. Its better use of technology, including mobile ordering, allows its restaurants to take market share from local “mom and pop” pizza restaurants.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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Stock selection among financials stocks was a significant contributor to relative performance. Underweighting the real estate management and development industry and overweighting banks and diversified financial services companies also contributed positively.
Elsewhere, biotechnology firm Anacor Pharmaceuticals, which focuses on topical applications, announced positive results for its drug to treat eczema, which is expected to get FDA approval next year. The company also has benefited from strong sales growth for its drug to treat toenail fungus. In industrials, Multi-Color was a key contributor. The maker of labels that support branding in the beverage, personal care, and other industries supplemented its organic growth with some accretive bolt-on acquisitions. Tyler Technologies also aided performance. The company develops back-office financial management, tax, and other software. Its customers are primarily state and local governments that are replacing legacy systems now that budgets are improving. Tyler continued to take market share from its competitors and announced an attractive acquisition.
Outlook
The portfolio positioning remains largely stock specific, with few thematic trends. As of October 31, 2015, consumer discretionary and financials were the largest overweight sectors; health care and telecommunication services were the largest underweights. Small Cap Growth’s investment process focuses on 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 2000 Growth Index.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Tyler Technologies, Inc. | 2.1% |
Papa John's International, Inc. | 1.7% |
Adeptus Health, Inc., Class A | 1.5% |
ClubCorp Holdings, Inc. | 1.5% |
Korn/Ferry International | 1.4% |
Restoration Hardware Holdings, Inc. | 1.4% |
CoStar Group, Inc. | 1.4% |
EPAM Systems, Inc. | 1.4% |
Brunswick Corp. | 1.3% |
Middleby Corp. (The) | 1.3% |
Top Five Industries | % of net assets |
Biotechnology | 9.8% |
Software | 7.1% |
Hotels, Restaurants and Leisure | 6.5% |
Internet Software and Services | 5.7% |
Health Care Equipment and Supplies | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.1% |
Temporary Cash Investments | 2.3% |
Other Assets and Liabilities | 0.6% |
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15-10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $941.60 | $6.75 | 1.38% |
Institutional Class | $1,000 | $942.50 | $5.68 | 1.16% |
A Class | $1,000 | $940.90 | $7.97 | 1.63% |
C Class | $1,000 | $936.30 | $11.62 | 2.38% |
R Class | $1,000 | $938.70 | $9.19 | 1.88% |
R6 Class | $1,000 | $943.30 | $5.05 | 1.03% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.25 | $7.02 | 1.38% |
Institutional Class | $1,000 | $1,019.36 | $5.90 | 1.16% |
A Class | $1,000 | $1,016.99 | $8.29 | 1.63% |
C Class | $1,000 | $1,013.21 | $12.08 | 2.38% |
R Class | $1,000 | $1,015.73 | $9.55 | 1.88% |
R6 Class | $1,000 | $1,020.01 | $5.24 | 1.03% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | ||||
COMMON STOCKS — 97.1% | |||||
Air Freight and Logistics — 1.0% | |||||
XPO Logistics, Inc.(1) | 198,011 | $ | 5,496,785 | ||
Airlines — 0.4% | |||||
Allegiant Travel Co. | 10,148 | 2,003,723 | |||
Banks — 3.4% | |||||
BankUnited, Inc. | 143,303 | 5,328,006 | |||
Cathay General Bancorp | 144,480 | 4,522,224 | |||
FCB Financial Holdings, Inc., Class A(1) | 174,872 | 6,218,448 | |||
Signature Bank(1) | 23,074 | 3,436,180 | |||
19,504,858 | |||||
Beverages — 1.1% | |||||
Boston Beer Co., Inc. (The), Class A(1) | 10,786 | 2,368,498 | |||
Coca-Cola Bottling Co. Consolidated | 17,701 | 3,738,628 | |||
6,107,126 | |||||
Biotechnology — 9.8% | |||||
ACADIA Pharmaceuticals, Inc.(1) | 58,938 | 2,052,221 | |||
Acceleron Pharma, Inc.(1) | 34,915 | 1,089,697 | |||
Aimmune Therapeutics, Inc.(1) | 54,882 | 825,974 | |||
Alder Biopharmaceuticals, Inc.(1) | 51,360 | 1,642,493 | |||
AMAG Pharmaceuticals, Inc.(1) | 37,594 | 1,503,760 | |||
Anacor Pharmaceuticals, Inc.(1) | 42,802 | 4,811,373 | |||
Bluebird Bio, Inc.(1) | 7,432 | 573,230 | |||
Celldex Therapeutics, Inc.(1) | 58,599 | 706,704 | |||
Cepheid, Inc.(1) | 55,725 | 1,861,215 | |||
Chimerix, Inc.(1) | 38,290 | 1,500,202 | |||
Clovis Oncology, Inc.(1) | 24,805 | 2,478,268 | |||
Dyax Corp.(1) | 119,096 | 3,278,713 | |||
Dynavax Technologies Corp.(1) | 64,066 | 1,454,939 | |||
Eagle Pharmaceuticals, Inc.(1) | 19,672 | 1,253,303 | |||
Exelixis, Inc.(1) | 236,097 | 1,421,304 | |||
Halozyme Therapeutics, Inc.(1) | 109,045 | 1,706,554 | |||
ImmunoGen, Inc.(1) | 107,592 | 1,258,826 | |||
Insmed, Inc.(1) | 67,566 | 1,340,509 | |||
Isis Pharmaceuticals, Inc.(1) | 14,878 | 716,376 | |||
Kite Pharma, Inc.(1) | 29,115 | 1,981,276 | |||
Ligand Pharmaceuticals, Inc., Class B(1) | 17,804 | 1,608,591 | |||
Merrimack Pharmaceuticals, Inc.(1) | 137,878 | 1,287,781 | |||
Momenta Pharmaceuticals, Inc.(1) | 64,788 | 1,063,171 | |||
Neurocrine Biosciences, Inc.(1) | 65,295 | 3,205,332 | |||
Novavax, Inc.(1) | 234,851 | 1,585,244 | |||
Portola Pharmaceuticals, Inc.(1) | 42,139 | 2,006,238 | |||
Prothena Corp. plc(1) | 28,316 | 1,458,557 | |||
PTC Therapeutics, Inc.(1) | 24,178 | 601,307 | |||
Radius Health, Inc.(1) | 26,005 | 1,670,301 | |||
Raptor Pharmaceutical Corp.(1) | 90,624 | 493,901 |
10
Shares | Value | ||||
Repligen Corp.(1) | 39,988 | $ | 1,329,201 | ||
Sarepta Therapeutics, Inc.(1) | 39,649 | 953,955 | |||
Spark Therapeutics, Inc.(1) | 19,092 | 1,029,059 | |||
TESARO, Inc.(1) | 29,660 | 1,348,640 | |||
Ultragenyx Pharmaceutical, Inc.(1) | 27,423 | 2,724,475 | |||
55,822,690 | |||||
Building Products — 3.2% | |||||
Apogee Enterprises, Inc. | 103,105 | 5,106,790 | |||
Lennox International, Inc. | 27,986 | 3,716,821 | |||
Masonite International Corp.(1) | 102,647 | 6,145,476 | |||
Trex Co., Inc.(1) | 88,314 | 3,450,428 | |||
18,419,515 | |||||
Capital Markets — 1.6% | |||||
Evercore Partners, Inc., Class A | 106,161 | 5,732,694 | |||
HFF, Inc., Class A | 97,971 | 3,381,959 | |||
9,114,653 | |||||
Chemicals — 1.6% | |||||
Huntsman Corp. | 117,442 | 1,546,711 | |||
Minerals Technologies, Inc. | 50,887 | 2,999,280 | |||
PolyOne Corp. | 140,665 | 4,703,838 | |||
9,249,829 | |||||
Commercial Services and Supplies — 3.1% | |||||
ABM Industries, Inc. | 110,243 | 3,130,901 | |||
HNI Corp. | 59,761 | 2,566,137 | |||
KAR Auction Services, Inc. | 117,599 | 4,515,802 | |||
Multi-Color Corp. | 94,650 | 7,367,556 | |||
17,580,396 | |||||
Communications Equipment — 1.3% | |||||
Infinera Corp.(1) | 194,287 | 3,839,111 | |||
Ruckus Wireless, Inc.(1) | 330,482 | 3,727,837 | |||
7,566,948 | |||||
Construction Materials — 1.5% | |||||
Headwaters, Inc.(1) | 228,707 | 4,699,929 | |||
Summit Materials, Inc., Class A(1) | 180,141 | 3,793,769 | |||
8,493,698 | |||||
Containers and Packaging — 1.2% | |||||
Berry Plastics Group, Inc.(1) | 207,142 | 6,939,257 | |||
Distributors — 0.7% | |||||
LKQ Corp.(1) | 126,370 | 3,741,816 | |||
Diversified Consumer Services — 2.7% | |||||
2U, Inc.(1) | 92,107 | 1,932,405 | |||
Bright Horizons Family Solutions, Inc.(1) | 102,376 | 6,554,111 | |||
Nord Anglia Education, Inc.(1) | 194,712 | 3,816,355 | |||
ServiceMaster Global Holdings, Inc.(1) | 88,538 | 3,156,380 | |||
15,459,251 | |||||
Diversified Financial Services — 0.9% | |||||
MarketAxess Holdings, Inc. | 50,133 | 5,078,974 | |||
Electronic Equipment, Instruments and Components — 0.7% | |||||
Mercury Systems, Inc.(1) | 128,341 | 2,202,331 | |||
Universal Display Corp.(1) | 54,009 | 1,853,049 | |||
4,055,380 |
11
Shares | Value | ||||
Food and Staples Retailing — 0.7% | |||||
United Natural Foods, Inc.(1) | 76,327 | $ | 3,850,697 | ||
Food Products — 1.3% | |||||
Flowers Foods, Inc. | 163,089 | 4,403,403 | |||
J&J Snack Foods Corp. | 24,876 | 3,054,524 | |||
7,457,927 | |||||
Health Care Equipment and Supplies — 5.0% | |||||
ABIOMED, Inc.(1) | 28,263 | 2,081,852 | |||
Cantel Medical Corp. | 38,482 | 2,281,213 | |||
Glaukos Corp.(1) | 46,948 | 940,838 | |||
Globus Medical, Inc.(1) | 123,024 | 2,749,586 | |||
Nevro Corp.(1) | 67,344 | 2,745,615 | |||
NuVasive, Inc.(1) | 138,331 | 6,523,690 | |||
STERIS Corp. | 85,165 | 6,383,117 | |||
Teleflex, Inc. | 36,305 | 4,828,565 | |||
28,534,476 | |||||
Health Care Providers and Services — 4.2% | |||||
Adeptus Health, Inc., Class A(1) | 131,752 | 8,549,387 | |||
Air Methods Corp.(1) | 43,189 | 1,767,726 | |||
AMN Healthcare Services, Inc.(1) | 40,354 | 1,144,843 | |||
ExamWorks Group, Inc.(1) | 163,759 | 4,624,554 | |||
LHC Group, Inc.(1) | 62,382 | 2,811,245 | |||
Molina Healthcare, Inc.(1) | 29,084 | 1,803,208 | |||
Team Health Holdings, Inc.(1) | 51,855 | 3,094,188 | |||
23,795,151 | |||||
Health Care Technology — 1.7% | |||||
Evolent Health, Inc.(1) | 147,727 | 1,898,292 | |||
HMS Holdings Corp.(1) | 255,623 | 2,691,710 | |||
Medidata Solutions, Inc.(1) | 58,699 | 2,524,057 | |||
Press Ganey Holdings, Inc.(1) | 71,823 | 2,250,933 | |||
9,364,992 | |||||
Hotels, Restaurants and Leisure — 6.5% | |||||
Buffalo Wild Wings, Inc.(1) | 16,989 | 2,620,893 | |||
ClubCorp Holdings, Inc. | 413,987 | 8,461,894 | |||
Dave & Buster's Entertainment, Inc.(1) | 154,595 | 5,964,275 | |||
Madison Square Garden Co. (The)(1) | 23,241 | 4,148,518 | |||
Papa John's International, Inc. | 137,821 | 9,670,900 | |||
Texas Roadhouse, Inc. | 172,851 | 5,937,432 | |||
36,803,912 | |||||
Household Durables — 0.7% | |||||
Installed Building Products, Inc.(1) | 178,163 | 3,946,310 | |||
Insurance — 1.1% | |||||
First American Financial Corp. | 98,953 | 3,773,078 | |||
Patriot National, Inc.(1) | 177,711 | 2,256,930 | |||
6,030,008 | |||||
Internet Software and Services — 5.7% | |||||
comScore, Inc.(1) | 146,361 | 6,261,324 | |||
CoStar Group, Inc.(1) | 38,420 | 7,801,949 | |||
Demandware, Inc.(1) | 62,451 | 3,540,972 | |||
Envestnet, Inc.(1) | 125,428 | 3,745,280 |
12
Shares | Value | ||||
Marketo, Inc.(1) | 164,894 | $ | 4,852,830 | ||
Q2 Holdings, Inc.(1) | 240,335 | 5,924,258 | |||
32,126,613 | |||||
IT Services — 4.3% | |||||
Blackhawk Network Holdings, Inc.(1) | 144,059 | 6,134,032 | |||
EPAM Systems, Inc.(1) | 100,656 | 7,785,741 | |||
Virtusa Corp.(1) | 121,762 | 6,992,792 | |||
WEX, Inc.(1) | 40,434 | 3,635,421 | |||
24,547,986 | |||||
Leisure Products — 1.7% | |||||
Brunswick Corp. | 142,237 | 7,653,773 | |||
MCBC Holdings, Inc.(1) | 161,693 | 2,129,497 | |||
9,783,270 | |||||
Life Sciences Tools and Services — 1.2% | |||||
PAREXEL International Corp.(1) | 48,658 | 3,071,293 | |||
PRA Health Sciences, Inc.(1) | 109,777 | 3,846,586 | |||
6,917,879 | |||||
Machinery — 3.1% | |||||
ITT Corp. | 56,532 | 2,237,537 | |||
John Bean Technologies Corp. | 127,757 | 5,731,179 | |||
Middleby Corp. (The)(1) | 65,233 | 7,628,347 | |||
Rexnord Corp.(1) | 95,671 | 1,768,000 | |||
17,365,063 | |||||
Media — 0.1% | |||||
Rentrak Corp.(1) | 10,753 | 593,351 | |||
Multiline Retail — 0.9% | |||||
Burlington Stores, Inc.(1) | 107,357 | 5,161,725 | |||
Oil, Gas and Consumable Fuels — 1.5% | |||||
Carrizo Oil & Gas, Inc.(1) | 78,409 | 2,950,531 | |||
Enviva Partners, LP | 210,581 | 3,221,889 | |||
Gulfport Energy Corp.(1) | 73,835 | 2,249,752 | |||
8,422,172 | |||||
Pharmaceuticals — 1.8% | |||||
Cempra, Inc.(1) | 49,746 | 1,104,361 | |||
Horizon Pharma plc(1) | 140,075 | 2,201,979 | |||
Lannett Co., Inc.(1) | 56,684 | 2,537,743 | |||
Pacira Pharmaceuticals, Inc.(1) | 37,475 | 1,871,876 | |||
TherapeuticsMD, Inc.(1) | 193,608 | 1,136,479 | |||
ZS Pharma, Inc.(1) | 18,398 | 1,196,054 | |||
10,048,492 | |||||
Professional Services — 1.8% | |||||
Huron Consulting Group, Inc.(1) | 48,869 | 2,360,373 | |||
Korn/Ferry International | 220,619 | 8,023,913 | |||
10,384,286 | |||||
Real Estate Investment Trusts (REITs) — 0.8% | |||||
Sun Communities, Inc. | 71,521 | 4,793,337 | |||
Real Estate Management and Development — 0.7% | |||||
FirstService Corp. | 117,426 | 4,130,924 | |||
Semiconductors and Semiconductor Equipment — 4.0% | |||||
Cavium, Inc.(1) | 60,602 | 4,299,712 |
13
Shares | Value | ||||
Integrated Device Technology, Inc.(1) | 272,450 | $ | 6,947,475 | ||
M/A-COM Technology Solutions Holdings, Inc.(1) | 84,280 | 2,843,607 | |||
Monolithic Power Systems, Inc. | 90,230 | 5,632,157 | |||
Synaptics, Inc.(1) | 31,887 | 2,713,265 | |||
22,436,216 | |||||
Software — 7.1% | |||||
Callidus Software, Inc.(1) | 318,626 | 5,534,534 | |||
Manhattan Associates, Inc.(1) | 85,363 | 6,218,694 | |||
Proofpoint, Inc.(1) | 78,227 | 5,510,310 | |||
Qlik Technologies, Inc.(1) | 233,921 | 7,338,102 | |||
RingCentral, Inc., Class A(1) | 222,491 | 4,116,083 | |||
Tyler Technologies, Inc.(1) | 68,335 | 11,641,551 | |||
40,359,274 | |||||
Specialty Retail — 4.3% | |||||
American Eagle Outfitters, Inc. | 295,741 | 4,518,922 | |||
Kirkland's, Inc. | 215,261 | 4,948,850 | |||
Men's Wearhouse, Inc. (The) | 171,925 | 6,873,562 | |||
Restoration Hardware Holdings, Inc.(1) | 77,117 | 7,949,992 | |||
24,291,326 | |||||
Technology Hardware, Storage and Peripherals — 1.9% | |||||
Diebold, Inc. | 83,154 | 3,065,888 | |||
Super Micro Computer, Inc.(1) | 268,001 | 7,560,308 | |||
10,626,196 | |||||
Textiles, Apparel and Luxury Goods — 0.8% | |||||
Skechers U.S.A., Inc., Class A(1) | 137,845 | 4,300,764 | |||
TOTAL COMMON STOCKS (Cost $506,366,224) | 550,707,246 | ||||
TEMPORARY CASH INVESTMENTS — 2.3% | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $5,035,548), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $4,937,583) | 4,937,579 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.125%, 2/15/43, valued at $8,397,681), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $8,231,000) | 8,231,000 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $13,168,579) | 13,168,579 | ||||
TOTAL INVESTMENT SECURITIES — 99.4% (Cost $519,534,803) | 563,875,825 | ||||
OTHER ASSETS AND LIABILITIES — 0.6% | 3,155,780 | ||||
TOTAL NET ASSETS — 100.0% | $ | 567,031,605 |
14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 3,445,608 | CAD | 4,564,466 | JPMorgan Chase Bank N.A. | 11/30/15 | $ | (44,487 | ) |
USD | 145,380 | CAD | 191,287 | JPMorgan Chase Bank N.A. | 11/30/15 | (882 | ) | |
$ | (45,369 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
15
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $519,534,803) | $ | 563,875,825 | |
Receivable for investments sold | 11,451,132 | ||
Receivable for capital shares sold | 834,388 | ||
Dividends and interest receivable | 54,989 | ||
576,216,334 | |||
Liabilities | |||
Payable for investments purchased | 7,940,230 | ||
Payable for capital shares redeemed | 567,163 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 45,369 | ||
Accrued management fees | 599,425 | ||
Distribution and service fees payable | 32,542 | ||
9,184,729 | |||
Net Assets | $ | 567,031,605 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 605,932,603 | |
Accumulated net investment loss | (3,645,427 | ) | |
Accumulated net realized loss | (79,551,224 | ) | |
Net unrealized appreciation | 44,295,653 | ||
$ | 567,031,605 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $171,490,316 | 13,133,207 | $13.06 | |
Institutional Class, $0.01 Par Value | $256,000,555 | 19,294,521 | $13.27 | |
A Class, $0.01 Par Value | $103,712,522 | 8,142,152 | $12.74* | |
C Class, $0.01 Par Value | $11,457,602 | 962,389 | $11.91 | |
R Class, $0.01 Par Value | $2,135,397 | 170,089 | $12.55 | |
R6 Class, $0.01 Par Value | $22,235,213 | 1,670,480 | $13.31 |
*Maximum offering price $13.52 (net asset value divided by 0.9425).
See Notes to Financial Statements.
16
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $6,660) | $ | 2,068,165 | |
Interest | 3,475 | ||
2,071,640 | |||
Expenses: | |||
Management fees | 5,839,142 | ||
Distribution and service fees: | |||
A Class | 266,690 | ||
B Class | 5,589 | ||
C Class | 121,824 | ||
R Class | 8,208 | ||
Directors' fees and expenses | 14,790 | ||
Other expenses | 652 | ||
6,256,895 | |||
Net investment income (loss) | (4,185,255 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 30,396,653 | ||
Foreign currency transactions | 78,807 | ||
30,475,460 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (44,523,674 | ) | |
Translation of assets and liabilities in foreign currencies | (61,365 | ) | |
(44,585,039 | ) | ||
Net realized and unrealized gain (loss) | (14,109,579 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | (18,294,834 | ) |
See Notes to Financial Statements.
17
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | (4,185,255 | ) | $ | (4,072,462 | ) |
Net realized gain (loss) | 30,475,460 | 68,980,855 | ||||
Change in net unrealized appreciation (depreciation) | (44,585,039 | ) | (37,263,366 | ) | ||
Net increase (decrease) in net assets resulting from operations | (18,294,834 | ) | 27,645,027 | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 210,144,181 | (85,899,458 | ) | |||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 55,952 | 32,108 | ||||
Net increase (decrease) in net assets | 191,905,299 | (58,222,323 | ) | |||
Net Assets | ||||||
Beginning of period | 375,126,306 | 433,348,629 | ||||
End of period | $ | 567,031,605 | $ | 375,126,306 | ||
Accumulated net investment loss | $ | (3,645,427 | ) | $ | (3,554,664 | ) |
See Notes to Financial Statements.
18
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Small Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. On October 16, 2015, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
19
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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Redemption Fees — The fund may impose a 2.00% redemption fee on shares held less than 60 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 1.100% to 1.500% for the Investor Class, A Class, B Class, C Class and R Class. The annual management fee schedule ranges from 0.900% to 1.300% for the Institutional Class and 0.750% to 1.150% for the R6 Class. The effective annual management fee for each class for the year ended October 31, 2015 was 1.39% for the Investor Class, A Class, C Class and R Class, 1.17% for the Institutional Class and 1.04% for the R6 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $630,322,839 and $435,981,504, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 165,000,000 | 165,000,000 | ||||||||
Sold | 4,048,244 | $ | 57,398,527 | 2,973,559 | $ | 36,997,342 | ||||
Redeemed | (4,195,236 | ) | (58,081,513 | ) | (6,364,796 | ) | (78,560,612 | ) | ||
(146,992 | ) | (682,986 | ) | (3,391,237 | ) | (41,563,270 | ) | |||
Institutional Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||
Sold | 15,295,628 | 226,693,536 | 498,126 | 6,292,729 | ||||||
Redeemed | (1,577,566 | ) | (22,030,720 | ) | (3,476,777 | ) | (43,573,925 | ) | ||
13,718,062 | 204,662,816 | (2,978,651 | ) | (37,281,196 | ) | |||||
A Class/Shares Authorized | 110,000,000 | 110,000,000 | ||||||||
Sold | 1,587,003 | 21,914,685 | 794,104 | 9,618,573 | ||||||
Redeemed | (1,422,136 | ) | (19,220,665 | ) | (2,550,555 | ) | (30,759,719 | ) | ||
164,867 | 2,694,020 | (1,756,451 | ) | (21,141,146 | ) | |||||
B Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 2,498 | 34,126 | 8,571 | 97,098 | ||||||
Redeemed | (59,417 | ) | (728,188 | ) | (63,019 | ) | (720,580 | ) | ||
(56,919 | ) | (694,062 | ) | (54,448 | ) | (623,482 | ) | |||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 189,291 | 2,418,796 | 189,767 | 2,181,272 | ||||||
Redeemed | (219,855 | ) | (2,808,119 | ) | (381,341 | ) | (4,360,695 | ) | ||
(30,564 | ) | (389,323 | ) | (191,574 | ) | (2,179,423 | ) | |||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 84,279 | 1,131,737 | 29,376 | 350,874 | ||||||
Redeemed | (25,023 | ) | (330,330 | ) | (92,712 | ) | (1,120,090 | ) | ||
59,256 | 801,407 | (63,336 | ) | (769,216 | ) | |||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 532,300 | 7,687,468 | 1,440,038 | 17,986,045 | ||||||
Redeemed | (277,834 | ) | (3,935,159 | ) | (26,231 | ) | (327,770 | ) | ||
254,466 | 3,752,309 | 1,413,807 | 17,658,275 | |||||||
Net increase (decrease) | 13,962,176 | $ | 210,144,181 | (7,021,890 | ) | $ | (85,899,458 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
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The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 546,576,322 | $ | 4,130,924 | — | |||
Temporary Cash Investments | — | 13,168,579 | — | |||||
$ | 546,576,322 | $ | 17,299,503 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (45,369 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund participated in foreign currency risk derivative instruments during the period consistent with its exposure to foreign denominated securities. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $3,397,319.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as a liability of $45,369 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $74,523 in net realized gain (loss) on foreign currency transactions and $(61,522) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
The fund invests 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, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
9. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. There were no distributions paid by the fund during the years ended October 31, 2015 and October 31, 2014.
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As of October 31, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 525,009,204 | |
Gross tax appreciation of investments | $ | 75,792,530 | |
Gross tax depreciation of investments | (36,925,909 | ) | |
Net tax appreciation (depreciation) of investments | $ | 38,866,621 | |
Undistributed ordinary income | — | ||
Accumulated short-term capital losses | $ | (74,076,823 | ) |
Late-year ordinary loss deferral | $ | (3,690,796 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
24
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||
2015 | $12.82 | (0.13) | 0.37 | 0.24 | — | $13.06 | 1.87% | 1.39% | (0.92)% | 100% | $171,490 | ||
2014 | $11.95 | (0.11) | 0.98 | 0.87 | — | $12.82 | 7.28% | 1.40% | (0.93)% | 75% | $170,316 | ||
2013 | $8.79 | (0.05) | 3.23 | 3.18 | (0.02) | $11.95 | 36.23% | 1.42% | (0.47)% | 80% | $199,294 | ||
2012 | $8.06 | (0.01) | 0.74 | 0.73 | — | $8.79 | 9.06% | 1.42% | (0.12)% | 62% | $144,021 | ||
2011 | $7.45 | (0.07) | 0.68 | 0.61 | — | $8.06 | 8.19% | 1.40% | (0.84)% | 108% | $166,243 | ||
Institutional Class | |||||||||||||
2015 | $13.01 | (0.10) | 0.36 | 0.26 | — | $13.27 | 2.00% | 1.17% | (0.70)% | 100% | $256,001 | ||
2014 | $12.10 | (0.09) | 1.00 | 0.91 | — | $13.01 | 7.52% | 1.20% | (0.73)% | 75% | $72,542 | ||
2013 | $8.88 | (0.02) | 3.26 | 3.24 | (0.02) | $12.10 | 36.61% | 1.22% | (0.27)% | 80% | $103,520 | ||
2012 | $8.13 | 0.01 | 0.74 | 0.75 | — | $8.88 | 9.23% | 1.22% | 0.08% | 62% | $96,092 | ||
2011 | $7.50 | (0.05) | 0.68 | 0.63 | — | $8.13 | 8.40% | 1.20% | (0.64)% | 108% | $105,520 | ||
A Class | |||||||||||||
2015 | $12.54 | (0.16) | 0.36 | 0.20 | — | $12.74 | 1.59% | 1.64% | (1.17)% | 100% | $103,713 | ||
2014 | $11.72 | (0.14) | 0.96 | 0.82 | — | $12.54 | 7.00% | 1.65% | (1.18)% | 75% | $100,051 | ||
2013 | $8.63 | (0.07) | 3.17 | 3.10 | (0.01) | $11.72 | 36.00% | 1.67% | (0.72)% | 80% | $114,080 | ||
2012 | $7.94 | (0.03) | 0.72 | 0.69 | — | $8.63 | 8.69% | 1.67% | (0.37)% | 62% | $98,665 | ||
2011 | $7.35 | (0.09) | 0.68 | 0.59 | — | $7.94 | 8.03% | 1.65% | (1.09)% | 108% | $115,741 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||
2015 | $11.81 | (0.24) | 0.34 | 0.10 | — | $11.91 | 0.76% | 2.39% | (1.92)% | 100% | $11,458 | ||
2014 | $11.12 | (0.22) | 0.91 | 0.69 | — | $11.81 | 6.21% | 2.40% | (1.93)% | 75% | $11,727 | ||
2013 | $8.24 | (0.14) | 3.02 | 2.88 | — | $11.12 | 34.95% | 2.42% | (1.47)% | 80% | $13,171 | ||
2012 | $7.63 | (0.09) | 0.70 | 0.61 | — | $8.24 | 7.99% | 2.42% | (1.12)% | 62% | $11,291 | ||
2011 | $7.13 | (0.15) | 0.65 | 0.50 | — | $7.63 | 7.01% | 2.40% | (1.84)% | 108% | $12,691 | ||
R Class | |||||||||||||
2015 | $12.39 | (0.19) | 0.35 | 0.16 | — | $12.55 | 1.29% | 1.89% | (1.42)% | 100% | $2,135 | ||
2014 | $11.61 | (0.17) | 0.95 | 0.78 | — | $12.39 | 6.72% | 1.90% | (1.43)% | 75% | $1,373 | ||
2013 | $8.56 | (0.10) | 3.16 | 3.06 | (0.01) | $11.61 | 35.73% | 1.92% | (0.97)% | 80% | $2,022 | ||
2012 | $7.89 | (0.04) | 0.71 | 0.67 | — | $8.56 | 8.49% | 1.92% | (0.62)% | 62% | $1,570 | ||
2011 | $7.33 | (0.11) | 0.67 | 0.56 | — | $7.89 | 7.64% | 1.90% | (1.34)% | 108% | $1,266 | ||
R6 Class | |||||||||||||
2015 | $13.03 | (0.08) | 0.36 | 0.28 | — | $13.31 | 2.15% | 1.04% | (0.57)% | 100% | $22,235 | ||
2014 | $12.10 | (0.08) | 1.01 | 0.93 | — | $13.03 | 7.69% | 1.07% | (0.60)% | 75% | $18,447 | ||
2013(3) | $11.33 | (0.02) | 0.79 | 0.77 | — | $12.10 | 6.80% | 1.05%(4) | (0.55)%(4) | 80%(5) | $27 |
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Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
27
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Small Cap Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 Small Cap Growth Fund of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
28
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
29
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
30
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
31
Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the one-, three-, five-, and ten-year periods reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading
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activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87644 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Ultra® Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCUX | 9.72% | 15.10% | 7.82% | 11.58% | 11/2/81 |
Russell 1000 Growth Index | — | 9.18% | 15.29% | 9.08% | 10.75%(1) | — |
S&P 500 Index | — | 5.20% | 14.32% | 7.84% | 11.57%(1) | — |
Institutional Class | TWUIX | 9.96% | 15.34% | 8.04% | 6.98% | 11/14/96 |
A Class(2) | TWUAX | 10/2/96 | ||||
No sales charge* | 9.46% | 14.82% | 7.55% | 6.69% | ||
With sales charge* | 3.17% | 13.47% | 6.92% | 6.36% | ||
C Class | TWCCX | 8.63% | 13.96% | 6.75% | 5.46% | 10/29/01 |
R Class | AULRX | 9.19% | 14.53% | 7.29% | 7.21% | 8/29/03 |
R6 Class | AULDX | 10.12% | — | — | 15.83% | 7/26/13 |
* 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 and may be subject to a maximum CDSC of 1.00%. 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) | Since October 31,1981, the date nearest the Investor Class's inception for which data are available. |
(2) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
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. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $21,247 | |
Russell 1000 Growth Index — $23,870 | |
S&P 500 Index — $21,288 | |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
1.01% | 0.81% | 1.26% | 2.01% | 1.51% | 0.66% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
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Portfolio Commentary |
Portfolio Managers: Keith Lee, Michael Li, and Jeff Bourke
Performance Summary
Ultra returned 9.72%* for the 12 months ended October 31, 2015, outpacing the 9.18% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted strong returns during the reporting period amid volatility and considerable variation within sector returns. Within the Russell 1000 Growth Index, consumer discretionary was the top-performing sector, gaining about 20%. Consumer staples and information technology also registered double-digit gains. Energy stocks continued to struggle with plunging commodity prices and fell nearly 31%. Utilities also declined sharply.
Ultra received positive contributions to absolute return from most sectors in which it was invested, led by consumer discretionary and information technology. Energy, materials, and financials were negative contributors. Stock decisions in the consumer discretionary, health care, and industrials sectors contributed most to performance relative to the Russell index. Stock selection in information technology and financials detracted from results versus the benchmark.
Consumer Discretionary and Health Care Led Contributors
Stock selection in the consumer discretionary sector was the largest source of outperformance relative to the Russell 1000 Growth Index. Starbucks was a major contributor in the sector as the coffee retailer is benefiting from its Starbucks Rewards program. The rollout of its mobile ordering application has exceeded expectations as well. Overweighting Amazon.com helped performance. The internet retailer reported strong revenue growth, aided by its Prime membership program. Margins are improving through efficiency gains, and profitability from its cloud hosting services has been higher than expected.
In health care, stock decisions aided performance, especially among health care providers and services companies. UnitedHealth Group benefited from its announcement of a large acquisition of a competitor, which enabled the company to gain market share.
Stock selection in the industrials sector was positive. Underweighting road and rail companies also helped as the industry suffered from concerns about declining rail volumes due to weakness in the energy sector. Not owning index component Union Pacific was a significant contributor to relative performance.
Other key contributors included Constellation Brands, a producer and marketer of beer, wine, and spirits, which continues to see very strong sales volume and pricing in its Corona and Modelo brands.
Information Technology and Financials Detracted
Stock selection in the information technology sector, especially among software and communications equipment companies, hampered relative performance. Overweight positions in QUALCOMM and VMware were key detractors in the sector. In financials, stock decisions detracted, especially among capital markets firms. Asset manager Franklin Resources detracted on concerns that the firm’s assets under management and fund flows have deteriorated. Not owning real estate investment trusts (REITs) hurt as well. REITs benefited from the Federal Reserve’s caution in raising rates, as higher rates are likely to hurt the industry.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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In consumer staples, stock selection in the tobacco and food products industries weighed on performance. Not owning index components Altria Group and Reynolds American detracted. We continue to prefer Philip Morris International in the tobacco industry. Stock selection in materials also weighed on performance, especially in the chemicals industry. Agrochemical firm Monsanto underperformed due to falling grain prices and a stalled takeover attempt of a competitor.
Health care stocks fell sharply late in the fiscal year as prescription drug prices became a political issue. In addition to the broad sector decline, biotechnology company Gilead Sciences declined. Gilead is also feeling some competitive pressure in its hepatitis C business. The portfolio’s overweight in Wynn Resorts suffered as gambling in Macau declined amid a government crackdown on corruption and tighter visa policies for Chinese citizens visiting Macau. The holding was eliminated.
Outlook
We remain confident in our belief that stocks that exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Our portfolio positioning reflects where we are seeing opportunities as a result of the application of that philosophy and process.
As of October 31, 2015, this process pointed the portfolio toward overweight positions relative to the Russell 1000 Growth Index in the information technology, health care, and consumer discretionary sectors. The telecommunication services and materials sectors represented the largest underweights.
Positioning in the internet software and services, computers and peripherals, and communications equipment industries drove the information technology sector overweight. The telecommunications sector underweight is due to competition among wireless carriers, which is likely to lead to higher capital spending, lower free cash flow, lower valuations, and lower margins.
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Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 8.8% |
Alphabet, Inc.* | 5.4% |
Amazon.com, Inc. | 4.2% |
Starbucks Corp. | 3.6% |
Gilead Sciences, Inc. | 3.1% |
Facebook, Inc., Class A | 3.1% |
Celgene Corp. | 3.1% |
Visa, Inc., Class A | 2.9% |
Costco Wholesale Corp. | 2.9% |
UnitedHealth Group, Inc. | 2.8% |
*Includes all classes of the issuer. | |
Top Five Industries | % of net assets |
Internet Software and Services | 11.0% |
Biotechnology | 9.1% |
Technology Hardware, Storage and Peripherals | 8.8% |
IT Services | 5.6% |
Hotels, Restaurants and Leisure | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.6% |
Temporary Cash Investments | 1.4% |
Other Assets and Liabilities | —** |
**Category is less than 0.05% of total net assets.
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1) 5/1/15-10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,039.00 | $5.04 | 0.98% |
Institutional Class | $1,000 | $1,040.40 | $4.01 | 0.78% |
A Class | $1,000 | $1,037.90 | $6.32 | 1.23% |
C Class | $1,000 | $1,033.90 | $10.15 | 1.98% |
R Class | $1,000 | $1,036.40 | $7.60 | 1.48% |
R6 Class | $1,000 | $1,040.90 | $3.24 | 0.63% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.27 | $4.99 | 0.98% |
Institutional Class | $1,000 | $1,021.27 | $3.97 | 0.78% |
A Class | $1,000 | $1,019.01 | $6.26 | 1.23% |
C Class | $1,000 | $1,015.22 | $10.06 | 1.98% |
R Class | $1,000 | $1,017.75 | $7.53 | 1.48% |
R6 Class | $1,000 | $1,022.03 | $3.21 | 0.63% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | ||||
COMMON STOCKS — 98.6% | |||||
Aerospace and Defense — 3.5% | |||||
Boeing Co. (The) | 1,148,000 | $ | 169,984,360 | ||
Rockwell Collins, Inc. | 746,000 | 64,693,120 | |||
United Technologies Corp. | 677,000 | 66,623,570 | |||
301,301,050 | |||||
Automobiles — 0.8% | |||||
Tesla Motors, Inc.(1) | 352,000 | 72,839,360 | |||
Banks — 1.4% | |||||
JPMorgan Chase & Co. | 1,324,000 | 85,067,000 | |||
U.S. Bancorp | 916,000 | 38,636,880 | |||
123,703,880 | |||||
Beverages — 2.5% | |||||
Boston Beer Co., Inc. (The), Class A(1) | 275,000 | 60,387,250 | |||
Constellation Brands, Inc., Class A | 1,122,000 | 151,245,600 | |||
211,632,850 | |||||
Biotechnology — 9.1% | |||||
Alexion Pharmaceuticals, Inc.(1) | 191,000 | 33,616,000 | |||
Celgene Corp.(1) | 2,146,000 | 263,335,660 | |||
Gilead Sciences, Inc. | 2,496,000 | 269,892,480 | |||
Isis Pharmaceuticals, Inc.(1) | 467,000 | 22,486,050 | |||
Kite Pharma, Inc.(1) | 229,000 | 15,583,450 | |||
Regeneron Pharmaceuticals, Inc.(1) | 286,000 | 159,413,540 | |||
Spark Therapeutics, Inc.(1) | 275,000 | 14,822,500 | |||
779,149,680 | |||||
Capital Markets — 1.2% | |||||
Franklin Resources, Inc. | 842,000 | 34,319,920 | |||
T. Rowe Price Group, Inc. | 939,000 | 71,007,180 | |||
105,327,100 | |||||
Chemicals — 1.9% | |||||
Monsanto Co. | 1,005,000 | 93,686,100 | |||
Valspar Corp. (The) | 805,000 | 65,164,750 | |||
158,850,850 | |||||
Communications Equipment — 0.8% | |||||
QUALCOMM, Inc. | 1,094,000 | 65,005,480 | |||
Consumer Finance — 0.7% | |||||
American Express Co. | 801,000 | 58,681,260 | |||
Electrical Equipment — 1.9% | |||||
Acuity Brands, Inc. | 679,000 | 148,429,400 | |||
Eaton Corp. plc | 190,000 | 10,622,900 | |||
159,052,300 |
10
Shares | Value | ||||
Energy Equipment and Services — 0.5% | |||||
Core Laboratories NV | 377,000 | $ | 43,856,410 | ||
Food and Staples Retailing — 2.9% | |||||
Costco Wholesale Corp. | 1,577,000 | 249,355,240 | |||
Food Products — 1.3% | |||||
Mead Johnson Nutrition Co. | 981,000 | 80,442,000 | |||
Nestle SA | 412,000 | 31,511,154 | |||
111,953,154 | |||||
Health Care Equipment and Supplies — 2.4% | |||||
Intuitive Surgical, Inc.(1) | 290,342 | 144,183,837 | |||
St. Jude Medical, Inc. | 947,000 | 60,428,070 | |||
204,611,907 | |||||
Health Care Providers and Services — 4.3% | |||||
Cigna Corp. | 479,000 | 64,205,160 | |||
Express Scripts Holding Co.(1) | 721,000 | 62,279,980 | |||
UnitedHealth Group, Inc. | 2,072,000 | 244,040,160 | |||
370,525,300 | |||||
Health Care Technology — 1.1% | |||||
Cerner Corp.(1) | 1,418,000 | 93,999,220 | |||
Hotels, Restaurants and Leisure — 5.0% | |||||
Chipotle Mexican Grill, Inc.(1) | 179,000 | 114,601,170 | |||
Starbucks Corp. | 5,016,000 | 313,851,120 | |||
428,452,290 | |||||
Insurance — 1.2% | |||||
MetLife, Inc. | 1,997,000 | 100,608,860 | |||
Internet and Catalog Retail — 4.2% | |||||
Amazon.com, Inc.(1) | 580,000 | 363,022,000 | |||
Internet Software and Services — 11.0% | |||||
Alphabet, Inc., Class A(1) | 318,484 | 234,846,917 | |||
Alphabet, Inc., Class C(1) | 320,000 | 227,459,200 | |||
Baidu, Inc. ADR(1) | 308,000 | 57,740,760 | |||
Facebook, Inc., Class A(1) | 2,622,000 | 267,365,340 | |||
LinkedIn Corp., Class A(1) | 392,000 | 94,421,040 | |||
Tencent Holdings Ltd. | 3,215,000 | 60,810,647 | |||
942,643,904 | |||||
IT Services — 5.6% | |||||
MasterCard, Inc., Class A | 2,381,850 | 235,779,332 | |||
Visa, Inc., Class A | 3,215,000 | 249,419,700 | |||
485,199,032 | |||||
Machinery — 3.3% | |||||
Cummins, Inc. | 794,000 | 82,186,940 | |||
Donaldson Co., Inc. | 588,000 | 17,757,600 | |||
Flowserve Corp. | 873,000 | 40,472,280 | |||
WABCO Holdings, Inc.(1) | 558,000 | 62,624,340 | |||
Wabtec Corp. | 972,000 | 80,549,640 | |||
283,590,800 |
11
Shares | Value | ||||
Media — 4.6% | |||||
Time Warner, Inc. | 2,333,000 | $ | 175,768,220 | ||
Walt Disney Co. (The) | 1,956,000 | 222,475,440 | |||
398,243,660 | |||||
Oil, Gas and Consumable Fuels — 1.0% | |||||
Concho Resources, Inc.(1) | 279,000 | 32,338,890 | |||
EOG Resources, Inc. | 596,000 | 51,166,600 | |||
83,505,490 | |||||
Personal Products — 1.2% | |||||
Estee Lauder Cos., Inc. (The), Class A | 1,329,000 | 106,931,340 | |||
Pharmaceuticals — 1.0% | |||||
Pfizer, Inc. | 2,655,000 | 89,792,100 | |||
Professional Services — 0.9% | |||||
Nielsen Holdings plc | 1,687,000 | 80,149,370 | |||
Road and Rail — 0.6% | |||||
J.B. Hunt Transport Services, Inc. | 633,000 | 48,342,210 | |||
Semiconductors and Semiconductor Equipment — 1.1% | |||||
ARM Holdings plc | 2,595,000 | 41,004,614 | |||
Linear Technology Corp. | 1,199,000 | 53,259,580 | |||
94,264,194 | |||||
Software — 3.7% | |||||
NetSuite, Inc.(1) | 570,000 | 48,489,900 | |||
Oracle Corp. | 1,906,000 | 74,029,040 | |||
salesforce.com, inc.(1) | 1,029,000 | 79,963,590 | |||
Splunk, Inc.(1) | 587,000 | 32,965,920 | |||
Tableau Software, Inc., Class A(1) | 412,000 | 34,591,520 | |||
VMware, Inc., Class A(1) | 778,000 | 46,796,700 | |||
316,836,670 | |||||
Specialty Retail — 3.4% | |||||
O'Reilly Automotive, Inc.(1) | 430,000 | 118,791,800 | |||
TJX Cos., Inc. (The) | 2,364,000 | 173,021,160 | |||
291,812,960 | |||||
Technology Hardware, Storage and Peripherals — 8.8% | |||||
Apple, Inc. | 6,336,315 | 757,189,642 | |||
Textiles, Apparel and Luxury Goods — 4.2% | |||||
Burberry Group plc | 1,742,000 | 35,662,988 | |||
lululemon athletica, Inc.(1) | 547,000 | 26,895,990 | |||
NIKE, Inc., Class B | 1,575,000 | 206,372,250 | |||
Under Armour, Inc., Class A(1) | 1,000,000 | 95,080,000 | |||
364,011,228 | |||||
Tobacco — 1.5% | |||||
Philip Morris International, Inc. | 1,479,000 | 130,743,600 | |||
TOTAL COMMON STOCKS (Cost $3,837,825,371) | 8,475,184,391 |
12
Shares | Value | ||||
TEMPORARY CASH INVESTMENTS — 1.4% | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $46,861,693), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $45,950,012) | $ | 45,949,974 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 2.125% - 4.625%, 5/15/25 - 2/15/40, valued at $78,140,969), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $76,603,000) | 76,603,000 | ||||
State Street Institutional Liquid Reserves Fund, Premier Class | 4,410 | 4,410 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $122,557,384) | 122,557,384 | ||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $3,960,382,755) | 8,597,741,775 | ||||
OTHER ASSETS AND LIABILITIES† | 2,980,771 | ||||
TOTAL NET ASSETS — 100.0% | $ | 8,600,722,546 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
USD | 26,938,736 | CHF | 26,440,100 | Credit Suisse AG | 11/30/15 | $ | 167,546 | |
GBP | 1,363,358 | USD | 2,089,577 | Credit Suisse AG | 11/30/15 | 11,829 | ||
USD | 65,484,507 | GBP | 42,668,700 | Credit Suisse AG | 11/30/15 | (282,751 | ) | |
USD | 2,438,709 | GBP | 1,592,152 | Credit Suisse AG | 11/30/15 | (15,349 | ) | |
$ | (118,725 | ) |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CHF | - | Swiss Franc |
GBP | - | British Pound |
USD | - | United States Dollar |
† Category is less than 0.05% of total net assets.
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $3,960,382,755) | $ | 8,597,741,775 | |
Foreign currency holdings, at value (cost of $1,210,300) | 1,203,443 | ||
Receivable for investments sold | 19,684,489 | ||
Receivable for capital shares sold | 1,325,333 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 179,375 | ||
Dividends and interest receivable | 1,995,822 | ||
8,622,130,237 | |||
Liabilities | |||
Payable for investments purchased | 11,658,527 | ||
Payable for capital shares redeemed | 2,570,445 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 298,100 | ||
Accrued management fees | 6,859,803 | ||
Distribution and service fees payable | 20,816 | ||
21,407,691 | |||
Net Assets | $ | 8,600,722,546 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 3,547,517,440 | |
Undistributed net investment income | 19,217,785 | ||
Undistributed net realized gain | 396,809,920 | ||
Net unrealized appreciation | 4,637,177,401 | ||
$ | 8,600,722,546 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $8,273,588,724 | 218,813,776 | $37.81 | |
Institutional Class, $0.01 Par Value | $205,573,757 | 5,280,937 | $38.93 | |
A Class, $0.01 Par Value | $72,003,861 | 1,976,357 | $36.43* | |
C Class, $0.01 Par Value | $2,967,994 | 91,705 | $32.36 | |
R Class, $0.01 Par Value | $9,636,879 | 268,811 | $35.85 | |
R6 Class, $0.01 Par Value | $36,951,331 | 948,713 | $38.95 |
*Maximum offering price $38.65 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $516,495) | $ | 101,149,997 | |
Interest | 12,303 | ||
101,162,300 | |||
Expenses: | |||
Management fees | 82,072,398 | ||
Distribution and service fees: | |||
A Class | 180,107 | ||
C Class | 26,533 | ||
R Class | 42,896 | ||
Directors' fees and expenses | 399,968 | ||
Other expenses | 432 | ||
82,722,334 | |||
Net investment income (loss) | 18,439,966 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 432,729,783 | ||
Foreign currency transactions | 3,899,002 | ||
436,628,785 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 328,041,097 | ||
Translation of assets and liabilities in foreign currencies | (1,707,922 | ) | |
326,333,175 | |||
Net realized and unrealized gain (loss) | 762,961,960 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 781,401,926 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 18,439,966 | $ | 22,736,256 | ||
Net realized gain (loss) | 436,628,785 | 574,984,530 | ||||
Change in net unrealized appreciation (depreciation) | 326,333,175 | 560,375,653 | ||||
Net increase (decrease) in net assets resulting from operations | 781,401,926 | 1,158,096,439 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (25,643,784 | ) | (22,249,493 | ) | ||
Institutional Class | (1,043,481 | ) | (1,003,895 | ) | ||
A Class | (57,827 | ) | (36,312 | ) | ||
R6 Class | (199,356 | ) | (176 | ) | ||
From net realized gains: | ||||||
Investor Class | (539,477,977 | ) | (287,611,433 | ) | ||
Institutional Class | (13,666,153 | ) | (7,766,552 | ) | ||
A Class | (5,033,302 | ) | (2,913,158 | ) | ||
C Class | (192,382 | ) | (96,221 | ) | ||
R Class | (590,316 | ) | (274,425 | ) | ||
R6 Class | (2,035,262 | ) | (1,048 | ) | ||
Decrease in net assets from distributions | (587,939,840 | ) | (321,952,713 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 105,215,556 | (154,161,615 | ) | |||
Net increase (decrease) in net assets | 298,677,642 | 681,982,111 | ||||
Net Assets | ||||||
Beginning of period | 8,302,044,904 | 7,620,062,793 | ||||
End of period | $ | 8,600,722,546 | $ | 8,302,044,904 | ||
Undistributed net investment income | $ | 19,217,785 | $ | 25,351,601 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Ultra Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not
limited to, market information regarding the specific investment or comparable investments and correlation
17
with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
18
Distributions to Shareholders — 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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc. (ACIS), and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 0.800% to 0.990% for the Investor Class, A Class, C Class and R Class. The annual management fee schedule ranges from 0.600% to 0.790% for the Institutional Class and 0.450% to 0.640% for the R6 Class. The effective annual management fee for each class for the year ended October 31, 2015 was 0.98% for the Investor Class, A Class, C Class and R Class, 0.78% for the Institutional Class and 0.63% for the R6 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, 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 ACIS an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the 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, 2015 are detailed in the Statement of Operations.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $1,309,352,430 and $1,844,661,180, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 3,500,000,000 | 3,500,000,000 | ||||||||
Sold | 5,798,421 | $ | 211,134,665 | 6,200,249 | $ | 213,362,510 | ||||
Issued in reinvestment of distributions | 16,395,880 | 546,966,769 | 9,141,045 | 300,466,112 | ||||||
Redeemed | (17,932,247 | ) | (653,514,757 | ) | (19,472,162 | ) | (674,617,017 | ) | ||
4,262,054 | 104,586,677 | (4,130,868 | ) | (160,788,395 | ) | |||||
Institutional Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 729,215 | 27,402,685 | 768,139 | 27,328,125 | ||||||
Issued in reinvestment of distributions | 419,817 | 14,391,326 | 255,214 | 8,603,265 | ||||||
Redeemed | (1,478,946 | ) | (54,360,741 | ) | (1,281,115 | ) | (46,122,369 | ) | ||
(329,914 | ) | (12,566,730 | ) | (257,762 | ) | (10,190,979 | ) | |||
A Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||
Sold | 426,909 | 15,057,252 | 407,067 | 13,580,404 | ||||||
Issued in reinvestment of distributions | 152,311 | 4,905,938 | 88,201 | 2,806,562 | ||||||
Redeemed | (596,724 | ) | (20,989,171 | ) | (690,952 | ) | (23,193,216 | ) | ||
(17,504 | ) | (1,025,981 | ) | (195,684 | ) | (6,806,250 | ) | |||
C Class/Shares Authorized | 40,000,000 | 50,000,000 | ||||||||
Sold | 27,705 | 866,318 | 19,057 | 573,448 | ||||||
Issued in reinvestment of distributions | 4,717 | 135,843 | 2,224 | 64,240 | ||||||
Redeemed | (17,303 | ) | (539,564 | ) | (14,867 | ) | (456,659 | ) | ||
15,119 | 462,597 | 6,414 | 181,029 | |||||||
R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 92,187 | 3,206,940 | 89,195 | 2,986,075 | ||||||
Issued in reinvestment of distributions | 17,210 | 546,763 | 8,616 | 271,047 | ||||||
Redeemed | (65,738 | ) | (2,245,047 | ) | (76,899 | ) | (2,556,081 | ) | ||
43,659 | 1,508,656 | 20,912 | 701,041 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 425,005 | 16,007,551 | 635,580 | 23,373,082 | ||||||
Issued in reinvestment of distributions | 65,225 | 2,234,618 | 36 | 1,224 | ||||||
Redeemed | (160,774 | ) | (5,991,832 | ) | (17,151 | ) | (632,367 | ) | ||
329,456 | 12,250,337 | 618,465 | 22,741,939 | |||||||
Net increase (decrease) | 4,302,870 | $ | 105,215,556 | (3,938,523 | ) | $ | (154,161,615 | ) |
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
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• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 8,306,194,988 | $ | 168,989,403 | — | |||
Temporary Cash Investments | 4,410 | 122,552,974 | — | |||||
$ | 8,306,199,398 | $ | 291,542,377 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 179,375 | |||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (298,100 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $111,492,832.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as an asset of $179,375 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $298,100 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $3,886,979 in net realized gain (loss) on foreign currency transactions and $(1,694,723) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 26,763,959 | $ | 23,289,876 | ||
Long-term capital gains | $ | 561,175,881 | $ | 298,662,837 |
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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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 3,977,122,795 | |
Gross tax appreciation of investments | $ | 4,653,892,526 | |
Gross tax depreciation of investments | (33,273,546 | ) | |
Net tax appreciation (depreciation) of investments | 4,620,618,980 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (62,894 | ) | |
Net tax appreciation (depreciation) | $ | 4,620,556,086 | |
Undistributed ordinary income | $ | 19,099,060 | |
Accumulated long-term gains | $ | 413,549,960 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||||||
2015 | $37.20 | 0.08 | 3.18 | 3.26 | (0.12) | (2.53) | (2.65) | $37.81 | 9.72% | 0.98% | 0.98% | 0.22% | 0.22% | 16% | $8,273,589 | ||
2014 | $33.56 | 0.10 | 4.96 | 5.06 | (0.10) | (1.32) | (1.42) | $37.20 | 15.66% | 1.00% | 1.01% | 0.29% | 0.28% | 16% | $7,981,781 | ||
2013 | $25.68 | 0.15 | 7.86 | 8.01 | (0.13) | — | (0.13) | $33.56 | 31.34% | 0.99% | 0.99% | 0.52% | 0.52% | 26% | $7,338,222 | ||
2012 | $23.42 | 0.06 | 2.20 | 2.26 | — | — | — | $25.68 | 9.65% | 0.99% | 0.99% | 0.26% | 0.26% | 13% | $6,194,268 | ||
2011 | $21.22 | 0.04 | 2.20 | 2.24 | (0.04) | — | (0.04) | $23.42 | 10.59% | 0.99% | 0.99% | 0.16% | 0.16% | 13% | $5,984,972 | ||
Institutional Class | |||||||||||||||||
2015 | $38.22 | 0.16 | 3.27 | 3.43 | (0.19) | (2.53) | (2.72) | $38.93 | 9.96% | 0.78% | 0.78% | 0.42% | 0.42% | 16% | $205,574 | ||
2014 | $34.44 | 0.17 | 5.10 | 5.27 | (0.17) | (1.32) | (1.49) | $38.22 | 15.90% | 0.80% | 0.81% | 0.49% | 0.48% | 16% | $214,464 | ||
2013 | $26.32 | 0.17 | 8.10 | 8.27 | (0.15) | — | (0.15) | $34.44 | 31.56% | 0.79% | 0.79% | 0.72% | 0.72% | 26% | $202,118 | ||
2012 | $23.95 | 0.12 | 2.25 | 2.37 | — | — | — | $26.32 | 9.90% | 0.79% | 0.79% | 0.46% | 0.46% | 13% | $52,362 | ||
2011 | $21.69 | 0.08 | 2.27 | 2.35 | (0.09) | — | (0.09) | $23.95 | 10.85% | 0.79% | 0.79% | 0.36% | 0.36% | 13% | $52,751 | ||
A Class | |||||||||||||||||
2015 | $35.94 | (0.01) | 3.06 | 3.05 | (0.03) | (2.53) | (2.56) | $36.43 | 9.46% | 1.23% | 1.23% | (0.03)% | (0.03)% | 16% | $72,004 | ||
2014 | $32.46 | 0.01 | 4.81 | 4.82 | (0.02) | (1.32) | (1.34) | $35.94 | 15.35% | 1.25% | 1.26% | 0.04% | 0.03% | 16% | $71,650 | ||
2013 | $24.89 | 0.08 | 7.60 | 7.68 | (0.11) | — | (0.11) | $32.46 | 30.99% | 1.24% | 1.24% | 0.27% | 0.27% | 26% | $71,063 | ||
2012 | $22.75 | —(3) | 2.14 | 2.14 | — | — | — | $24.89 | 9.41% | 1.24% | 1.24% | 0.01% | 0.01% | 13% | $63,461 | ||
2011 | $20.62 | (0.02) | 2.15 | 2.13 | — | — | — | $22.75 | 10.33% | 1.24% | 1.24% | (0.09)% | (0.09)% | 13% | $62,304 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
C Class | |||||||||||||||||
2015 | $32.41 | (0.25) | 2.73 | 2.48 | — | (2.53) | (2.53) | $32.36 | 8.63% | 1.98% | 1.98% | (0.78)% | (0.78)% | 16% | $2,968 | ||
2014 | $29.60 | (0.22) | 4.35 | 4.13 | — | (1.32) | (1.32) | $32.41 | 14.51% | 2.00% | 2.01% | (0.71)% | (0.72)% | 16% | $2,482 | ||
2013 | $22.83 | (0.13) | 6.96 | 6.83 | (0.06) | — | (0.06) | $29.60 | 29.98% | 1.99% | 1.99% | (0.48)% | (0.48)% | 26% | $2,077 | ||
2012 | $21.02 | (0.17) | 1.98 | 1.81 | — | — | — | $22.83 | 8.61% | 1.99% | 1.99% | (0.74)% | (0.74)% | 13% | $1,464 | ||
2011 | $19.20 | (0.17) | 1.99 | 1.82 | — | — | — | $21.02 | 9.48% | 1.99% | 1.99% | (0.84)% | (0.84)% | 13% | $678 | ||
R Class | |||||||||||||||||
2015 | $35.46 | (0.10) | 3.02 | 2.92 | — | (2.53) | (2.53) | $35.85 | 9.19% | 1.48% | 1.48% | (0.28)% | (0.28)% | 16% | $9,637 | ||
2014 | $32.10 | (0.08) | 4.76 | 4.68 | — | (1.32) | (1.32) | $35.46 | 15.08% | 1.50% | 1.51% | (0.21)% | (0.22)% | 16% | $7,983 | ||
2013 | $24.66 | 0.01 | 7.53 | 7.54 | (0.10) | — | (0.10) | $32.10 | 30.66% | 1.49% | 1.49% | 0.02% | 0.02% | 26% | $6,556 | ||
2012 | $22.60 | (0.06) | 2.12 | 2.06 | — | — | — | $24.66 | 9.12% | 1.49% | 1.49% | (0.24)% | (0.24)% | 13% | $5,595 | ||
2011 | $20.54 | (0.08) | 2.14 | 2.06 | — | — | — | $22.60 | 10.03% | 1.49% | 1.49% | (0.34)% | (0.34)% | 13% | $4,173 | ||
R6 Class | |||||||||||||||||
2015 | $38.25 | 0.20 | 3.28 | 3.48 | (0.25) | (2.53) | (2.78) | $38.95 | 10.12% | 0.63% | 0.63% | 0.57% | 0.57% | 16% | $36,951 | ||
2014 | $34.46 | 0.05 | 5.28 | 5.33 | (0.22) | (1.32) | (1.54) | $38.25 | 16.06% | 0.65% | 0.66% | 0.64% | 0.63% | 16% | $23,684 | ||
2013(4) | $31.57 | 0.05 | 2.84 | 2.89 | — | — | — | $34.46 | 9.15% | 0.63%(5) | 0.64%(5) | 0.61%(5) | 0.60%(5) | 26%(6) | $27 |
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Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
25
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ultra Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
26
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
27
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
29
Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
30
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the three- and five-year periods and below its benchmark for the one- and ten-year periods reviewed by the Board. The Board discussed the Fund's performance with the Advisor and was satisfied with the efforts being undertaken by the Advisor. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain
31
effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was below the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $26,763,959, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
The fund hereby designates $157,585 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2015.
The fund hereby designates $561,175,881, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2015.
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Notes |
36
![]() | ||
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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87641 1512 |
ANNUAL REPORT | OCTOBER 31, 2015 |
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Veedot® Fund
Table of Contents |
President’s Letter | 2 | |
Performance | 3 | |
Portfolio Commentary | ||
Fund Characteristics | ||
Shareholder Fee Example | ||
Schedule of Investments | ||
Statement of Assets and Liabilities | ||
Statement of Operations | ||
Statement of Changes in Net Assets | ||
Notes to Financial Statements | ||
Financial Highlights | ||
Report of Independent Registered Public Accounting Firm | ||
Management | ||
Approval of Management Agreement | ||
Additional Information |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![]() | Dear Investor: Thank you for reviewing this annual report for the 12 months ended October 31, 2015. It provides investment performance and portfolio information for the reporting period, plus longer-term historical performance data. Annual reports remain useful vehicles for conveying information about fund performance, including market and economic factors that affected returns during the reporting period. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com. |
Jonathan Thomas |
Divergence in Economic Growth and Monetary Policies, Combined With China Turmoil, Triggered Market Volatility
Divergence between the U.S. and the rest of the world—along with China’s struggles, plunging commodity prices, capital market volatility, and risk-off trading—emerged as key themes during the reporting period. Global divergence described not only the relatively stronger economic growth enjoyed by the U.S. compared with most of the world, but also the related contrast between the U.S. Federal Reserve’s (the Fed’s) unwinding of monetary stimulus versus the continuation and expansion of stimulus by other major central banks. Central bank moves—including the Fed’s delayed normalization of its extremely low interest rate positioning—helped trigger large market swings.
In October 2014, the Fed ended its latest massive bond-buying program (quantitative easing, QE), leading to expectations that interest rates would rise. But while QE was halted in the U.S., other major central banks were starting or increasing QE as their economies faltered. This divergence helped fuel increased demand for the U.S. dollar and U.S. dollar-denominated assets, and put downward pressure on commodity prices, most notably crude oil, down over 40% for the reporting period. Low inflation also prevailed after oil prices plunged amid a supply glut and muted demand for commodities in general. In this environment, the U.S. dollar, U.S. growth stocks, and longer-maturity U.S. Treasuries generally benefited from “flight to quality” capital flows, while emerging market and commodity-related investments suffered significant declines.
We expect continued economic and monetary policy divergence between the U.S. and non-U.S. economies in the coming months, accompanied by further market volatility. This could present both challenges and opportunities for active investment managers. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios to meet financial goals. We appreciate your continued trust in us.
Sincerely,
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Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2015 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | AMVIX | 6.40% | 14.74% | 7.33% | 5.26% | 11/30/99 |
Russell 3000 Index | — | 4.49% | 14.13% | 7.94% | 4.99% | — |
Institutional Class | AVDIX | 6.58% | 14.97% | 7.53% | 4.31% | 8/1/00 |
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2005 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2015 | |
Investor Class — $20,297 | |
Russell 3000 Index — $21,470 | |
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
1.25% | 1.05% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. For additional information about the fund, please consult the prospectus.
3
Portfolio Commentary |
Portfolio Managers: John Small, Jr., and Stephen Pool
Performance Summary
Veedot returned 6.40%* for the 12 months ended October 31, 2015, outperforming the 4.49% return of the portfolio’s benchmark, the Russell 3000 Index.
U.S. stock indices posted solid returns during the reporting period amid considerable volatility and variation in sector performance. Within the Russell 3000 Index, the consumer discretionary sector delivered the best returns followed by information technology and consumer staples. Energy stocks fell sharply, losing nearly 22% as oil prices plunged. Materials, telecommunication services, and utilities registered smaller losses.
In this environment, Veedot’s highly systematic investment process delivered solid portfolio returns and outperformed its benchmark. The fund received the best absolute contributions from health care, financials, and consumer discretionary stocks, while energy and telecommunication services holdings generated negative contributions. Relative to the Russell benchmark, stock selection in the health care and financials sectors was the leading source of outperformance. Stock selection in information technology and consumer discretionary detracted.
Health Care Stocks Led Contributors
Stock choices in the health care sector, especially among pharmaceutical companies, were the largest sources of outperformance relative to the benchmark. The fund’s top overall contributor was pharmaceutical firm Hospira, which was acquired during the period by another fund holding, Pfizer.
In financials, stock selection among insurers, capital markets firms, and consumer finance companies aided relative results. Universal Insurance Holdings, which provides property and casualty insurance through its subsidiaries, was a key contributor in the sector, reporting revenue above the industry average and strong earnings growth. The holding was eliminated.
Among significant individual contributors, Orbitz Worldwide rose sharply on news that fund holding Expedia would acquire its travel booking competitor. As a result of the acquisition, Orbitz is no longer in the portfolio but Expedia remains a fund holding. IT services firm Luxoft Holding, which provides software development and IT solutions, rose on strong revenue and earnings reports. The position was eliminated. Casino operator Boyd Gaming performed well, taking advantage of positive trends in Nevada tourism and gaming growth. The company has been revising earnings estimates higher.
Information Technology Stocks Were Key Detractors
Stock selection in information technology detracted from relative performance, especially in the technology hardware, storage, and peripherals and internet software and services industries. Underweighting Apple and Alphabet (formerly Google) detracted significantly. Apple performed well on new product launches such as the iPhone 6. Alphabet’s new CFO signaled a greater focus on free cash flow and return on invested capital, leading to a significant increase in the stock price. Portfolio-only position Seagate Technology detracted as the data storage firm indicated revenue would be below expectations. The holding was eliminated. Holdings in the semiconductors and semiconductor equipment industry also weighed on results as the industry faltered in 2015 on global concerns, reduced PC demand, and other factors. Micron Technology was a major detractor in the industry. The holding was eliminated.
* | All fund returns referenced in this commentary are for Investor Class shares. Performance for other share classes will vary due to differences in fee structure; when Investor Class performance exceeds that of the fund’s benchmark, other share classes may not. See page 3 for returns for all share classes. |
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In consumer discretionary, stock selection weighed on performance. Underweighting Amazon.com was a major detractor as the online retailer reported strong revenue growth. Margins are improving through efficiency gains, and profitability from its cloud hosting services has been higher than expected. Amazon.com was not in the portfolio at the end of the period. An overweight in utility holding company Exelon detracted even though the company reported strong earnings. The company, which generates and delivers energy through subsidiaries, struggled to get regulatory approval for its planned acquisition of Washington, DC-based Pepco.
Outlook
Using a systematic and quantitatively driven process, Veedot examines macroeconomic and company specific information in a complex model to underpin its stock selection process. Looking ahead, we remain confident that this systematic process of fusing macroeconomic and stock-specific factors will continue to successfully identify risk-adjusted opportunities across investment styles and industry sectors.
5
Fund Characteristics |
OCTOBER 31, 2015 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 3.1% |
Microsoft Corp. | 1.9% |
Exxon Mobil Corp. | 1.5% |
General Electric Co. | 1.3% |
Intel Corp. | 1.2% |
Korn/Ferry International | 1.2% |
Visa, Inc., Class A | 1.2% |
AbbVie, Inc. | 1.2% |
Fiserv, Inc. | 1.1% |
Home Depot, Inc. (The) | 1.1% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 6.1% |
IT Services | 6.1% |
Banks | 4.1% |
Biotechnology | 4.1% |
Pharmaceuticals | 4.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.9% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | 0.2% |
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Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2015 to October 31, 2015.
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. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value 5/1/15 | Ending Account Value 10/31/15 | Expenses Paid During Period(1)5/1/15 - 10/31/15 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $981.70 | $6.34 | 1.27% |
Institutional Class | $1,000 | $982.10 | $5.35 | 1.07% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.80 | $6.46 | 1.27% |
Institutional Class | $1,000 | $1,019.81 | $5.45 | 1.07% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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Schedule of Investments |
OCTOBER 31, 2015
Shares | Value | |||
COMMON STOCKS — 98.9% | ||||
Aerospace and Defense — 2.8% | ||||
Curtiss-Wright Corp. | 14,204 | $ | 988,030 | |
General Dynamics Corp. | 7,333 | 1,089,537 | ||
HEICO Corp. | 14,511 | 731,935 | ||
2,809,502 | ||||
Air Freight and Logistics — 0.9% | ||||
CH Robinson Worldwide, Inc. | 13,597 | 943,360 | ||
Airlines — 0.6% | ||||
American Airlines Group, Inc. | 13,316 | 615,466 | ||
Automobiles — 2.1% | ||||
Ford Motor Co. | 69,667 | 1,031,768 | ||
General Motors Co. | 31,435 | 1,097,396 | ||
2,129,164 | ||||
Banks — 4.1% | ||||
First Commonwealth Financial Corp. | 91,492 | 840,811 | ||
PNC Financial Services Group, Inc. (The) | 7,019 | 633,535 | ||
U.S. Bancorp | 23,658 | 997,894 | ||
Wells Fargo & Co. | 14,611 | 791,040 | ||
Westamerica Bancorporation | 21,417 | 946,846 | ||
4,210,126 | ||||
Beverages — 1.0% | ||||
Brown-Forman Corp., Class B | 9,890 | 1,050,120 | ||
Biotechnology — 4.1% | ||||
AbbVie, Inc. | 19,724 | 1,174,564 | ||
Amgen, Inc. | 6,690 | 1,058,224 | ||
Celgene Corp.(1) | 6,771 | 830,870 | ||
Gilead Sciences, Inc. | 9,898 | 1,070,271 | ||
4,133,929 | ||||
Building Products — 0.4% | ||||
AAON, Inc. | 21,758 | 445,386 | ||
Capital Markets — 2.8% | ||||
AllianceBernstein Holding LP | 38,319 | 986,331 | ||
Janus Capital Group, Inc. | 69,308 | 1,076,353 | ||
KKR & Co. LP | 44,467 | 762,609 | ||
2,825,293 | ||||
Chemicals — 1.5% | ||||
Dow Chemical Co. (The) | 21,306 | 1,100,881 | ||
Mosaic Co. (The) | 12,305 | 415,786 | ||
1,516,667 | ||||
Communications Equipment — 1.3% | ||||
Calix, Inc.(1) | 48,831 | 341,329 | ||
Cisco Systems, Inc. | 33,076 | 954,242 | ||
1,295,571 |
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Shares | Value | |||
Construction and Engineering — 1.0% | ||||
Dycom Industries, Inc.(1) | 13,475 | $ | 1,025,313 | |
Consumer Finance — 0.9% | ||||
American Express Co. | 12,803 | 937,948 | ||
Diversified Financial Services — 1.0% | ||||
Berkshire Hathaway, Inc., Class A(1) | 5 | 1,022,980 | ||
Diversified Telecommunication Services — 2.0% | ||||
AT&T, Inc. | 29,924 | 1,002,753 | ||
Verizon Communications, Inc. | 21,117 | 989,965 | ||
1,992,718 | ||||
Electric Utilities — 1.5% | ||||
Edison International | 10,663 | 645,325 | ||
Exelon Corp. | 32,228 | 899,805 | ||
1,545,130 | ||||
Electrical Equipment — 0.3% | ||||
Acuity Brands, Inc. | 1,570 | 343,202 | ||
Electronic Equipment, Instruments and Components — 2.0% | ||||
Corning, Inc. | 55,236 | 1,027,390 | ||
Rofin-Sinar Technologies, Inc.(1) | 36,424 | 1,054,839 | ||
2,082,229 | ||||
Energy Equipment and Services — 0.7% | ||||
Halliburton Co. | 19,888 | 763,301 | ||
Food and Staples Retailing — 3.0% | ||||
CVS Health Corp. | 8,552 | 844,766 | ||
PriceSmart, Inc. | 11,970 | 1,029,181 | ||
Wal-Mart Stores, Inc. | 17,608 | 1,007,882 | ||
Walgreens Boots Alliance, Inc. | 1,710 | 144,803 | ||
3,026,632 | ||||
Food Products — 1.6% | ||||
Archer-Daniels-Midland Co. | 21,096 | 963,243 | ||
General Mills, Inc. | 11,378 | 661,176 | ||
1,624,419 | ||||
Gas Utilities — 0.3% | ||||
Questar Corp. | 17,059 | 352,268 | ||
Health Care Equipment and Supplies — 1.0% | ||||
Varian Medical Systems, Inc.(1) | 12,830 | 1,007,540 | ||
Health Care Providers and Services — 2.8% | ||||
Anthem, Inc. | 7,077 | 984,765 | ||
Cardinal Health, Inc. | 12,477 | 1,025,609 | ||
McKesson Corp. | 4,539 | 811,573 | ||
2,821,947 | ||||
Hotels, Restaurants and Leisure — 2.4% | ||||
Boyd Gaming Corp.(1) | 49,076 | 981,029 | ||
Buffalo Wild Wings, Inc.(1) | 6,675 | 1,029,752 | ||
Starbucks Corp. | 6,371 | 398,634 | ||
2,409,415 |
10
Shares | Value | |||
Independent Power and Renewable Electricity Producers — 1.0% | ||||
Ormat Technologies, Inc. | 27,414 | $ | 1,034,056 | |
Industrial Conglomerates — 2.2% | ||||
3M Co. | 5,675 | 892,167 | ||
General Electric Co. | 45,130 | 1,305,159 | ||
2,197,326 | ||||
Insurance — 2.8% | ||||
ACE Ltd. | 10,019 | 1,137,557 | ||
Federated National Holding Co. | 18,920 | 582,452 | ||
HCI Group, Inc. | 26,054 | 1,136,215 | ||
2,856,224 | ||||
Internet and Catalog Retail — 1.1% | ||||
Expedia, Inc. | 7,977 | 1,087,265 | ||
Internet Software and Services — 1.5% | ||||
Alphabet, Inc., Class A(1) | 1,398 | 1,030,871 | ||
Tucows, Inc., Class A(1) | 17,745 | 479,648 | ||
1,510,519 | ||||
IT Services — 6.1% | ||||
CoreLogic, Inc.(1) | 26,093 | 1,017,105 | ||
Fiserv, Inc.(1) | 11,901 | 1,148,566 | ||
International Business Machines Corp. | 6,723 | 941,758 | ||
NeuStar, Inc., Class A(1) | 36,274 | 986,290 | ||
Visa, Inc., Class A | 15,547 | 1,206,136 | ||
Xerox Corp. | 95,172 | 893,665 | ||
6,193,520 | ||||
Leisure Products — 0.9% | ||||
Polaris Industries, Inc. | 8,084 | 908,157 | ||
Life Sciences Tools and Services — 1.0% | ||||
Bio-Techne Corp. | 10,648 | 939,153 | ||
INC Research Holdings, Inc., Class A(1) | 2,608 | 108,780 | ||
1,047,933 | ||||
Machinery — 1.0% | ||||
Trinity Industries, Inc. | 36,140 | 978,310 | ||
Media — 3.6% | ||||
Charter Communications, Inc., Class A(1) | 2,057 | 392,763 | ||
Comcast Corp., Class A | 18,087 | 1,132,608 | ||
MSG Networks, Inc.(1) | 50,802 | 1,042,457 | ||
Walt Disney Co. (The) | 9,451 | 1,074,957 | ||
3,642,785 | ||||
Metals and Mining — 1.3% | ||||
Newmont Mining Corp. | 20,428 | 397,529 | ||
Steel Dynamics, Inc. | 50,747 | 937,297 | ||
1,334,826 | ||||
Multiline Retail — 0.9% | ||||
Macy's, Inc. | 12,529 | 638,728 | ||
Target Corp. | 4,260 | 328,787 | ||
967,515 |
11
Shares | Value | |||
Oil, Gas and Consumable Fuels — 6.1% | ||||
ConocoPhillips | 10,293 | $ | 549,132 | |
EOG Resources, Inc. | 12,283 | 1,054,496 | ||
Exxon Mobil Corp. | 18,471 | 1,528,290 | ||
Marathon Petroleum Corp. | 20,150 | 1,043,770 | ||
Occidental Petroleum Corp. | 14,178 | 1,056,828 | ||
TC Pipelines LP | 18,903 | 976,529 | ||
6,209,045 | ||||
Personal Products — 0.9% | ||||
Estee Lauder Cos., Inc. (The), Class A | 12,013 | 966,566 | ||
Pharmaceuticals — 4.0% | ||||
Eli Lilly & Co. | 12,347 | 1,007,145 | ||
Pfizer, Inc. | 30,283 | 1,024,171 | ||
Prestige Brands Holdings, Inc.(1) | 20,695 | 1,014,262 | ||
Sanofi ADR | 20,244 | 1,019,083 | ||
4,064,661 | ||||
Professional Services — 1.2% | ||||
Korn/Ferry International | 33,729 | 1,226,724 | ||
Real Estate Investment Trusts (REITs) — 3.7% | ||||
American Tower Corp. | 10,009 | 1,023,220 | ||
DuPont Fabros Technology, Inc. | 22,332 | 716,634 | ||
Equity Residential | 13,883 | 1,073,434 | ||
VEREIT, Inc. | 120,559 | 995,817 | ||
3,809,105 | ||||
Real Estate Management and Development — 1.6% | ||||
CBRE Group, Inc.(1) | 19,727 | 735,423 | ||
Realogy Holdings Corp.(1) | 23,293 | 910,756 | ||
1,646,179 | ||||
Semiconductors and Semiconductor Equipment — 2.0% | ||||
Intel Corp. | 37,131 | 1,257,256 | ||
STMicroelectronics NV | 116,258 | 801,017 | ||
2,058,273 | ||||
Software — 3.9% | ||||
Fortinet, Inc.(1) | 24,954 | 857,420 | ||
Microsoft Corp. | 35,957 | 1,892,777 | ||
Oracle Corp. | 9,954 | 386,613 | ||
Tyler Technologies, Inc.(1) | 4,837 | 824,031 | ||
3,960,841 | ||||
Specialty Retail — 3.2% | ||||
Home Depot, Inc. (The) | 9,287 | 1,148,245 | ||
Lowe's Cos., Inc. | 15,424 | 1,138,754 | ||
Staples, Inc. | 71,389 | 927,343 | ||
3,214,342 | ||||
Technology Hardware, Storage and Peripherals — 3.1% | ||||
Apple, Inc. | 26,087 | 3,117,396 |
12
Shares | Value | |||
Thrifts and Mortgage Finance — 0.9% | ||||
Northwest Bancshares, Inc. | 70,573 | $ | 949,913 | |
Tobacco — 2.2% | ||||
Altria Group, Inc. | 17,383 | 1,051,150 | ||
Philip Morris International, Inc. | 11,993 | 1,060,181 | ||
Vector Group Ltd. | 3,784 | 91,762 | ||
2,203,093 | ||||
Wireless Telecommunication Services — 0.6% | ||||
T-Mobile US, Inc.(1) | 15,838 | 600,102 | ||
TOTAL COMMON STOCKS (Cost $95,564,666) | 100,714,302 | |||
TEMPORARY CASH INVESTMENTS — 0.9% | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 1.50%, 5/31/19, valued at $343,440), in a joint trading account at 0.01%, dated 10/30/15, due 11/2/15 (Delivery value $336,758) | 336,758 | |||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 4.375%, 5/15/40, valued at $573,494), at 0.00%, dated 10/30/15, due 11/2/15 (Delivery value $561,000) | 561,000 | |||
State Street Institutional Liquid Reserves Fund, Premier Class | 441 | 441 | ||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $898,199) | 898,199 | |||
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $96,462,865) | 101,612,501 | |||
OTHER ASSETS AND LIABILITIES — 0.2% | 193,389 | |||
TOTAL NET ASSETS — 100.0% | $ | 101,805,890 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||
EUR | 74,071 | USD | 81,564 | UBS AG | 11/30/15 | $ | (85 | ) |
USD | 1,706,780 | EUR | 1,545,115 | UBS AG | 11/30/15 | 7,125 | ||
$ | 7,040 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2015 | |||
Assets | |||
Investment securities, at value (cost of $96,462,865) | $ | 101,612,501 | |
Cash | 8,949 | ||
Receivable for investments sold | 161,404 | ||
Receivable for capital shares sold | 28,676 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 7,125 | ||
Dividends and interest receivable | 113,100 | ||
101,931,755 | |||
Liabilities | |||
Payable for capital shares redeemed | 20,475 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 85 | ||
Accrued management fees | 105,305 | ||
125,865 | |||
Net Assets | $ | 101,805,890 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 86,788,806 | |
Undistributed net investment income | 793,228 | ||
Undistributed net realized gain | 9,067,180 | ||
Net unrealized appreciation | 5,156,676 | ||
$ | 101,805,890 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $99,140,915 | 9,231,870 | $10.74 | |
Institutional Class, $0.01 Par Value | $2,664,975 | 243,046 | $10.96 |
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2015 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $9,915) | $ | 1,775,148 | |
Interest | 357 | ||
1,775,505 | |||
Expenses: | |||
Management fees | 1,228,503 | ||
Directors' fees and expenses | 3,257 | ||
Other expenses | 6,030 | ||
1,237,790 | |||
Net investment income (loss) | 537,715 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 11,202,070 | ||
Foreign currency transactions | 154,728 | ||
11,356,798 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (6,109,434 | ) | |
Translation of assets and liabilities in foreign currencies | (27,018 | ) | |
(6,136,452 | ) | ||
Net realized and unrealized gain (loss) | 5,220,346 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 5,758,061 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2015 AND OCTOBER 31, 2014 | ||||||
Increase (Decrease) in Net Assets | October 31, 2015 | October 31, 2014 | ||||
Operations | ||||||
Net investment income (loss) | $ | 537,715 | $ | 545,978 | ||
Net realized gain (loss) | 11,356,798 | 11,501,263 | ||||
Change in net unrealized appreciation (depreciation) | (6,136,452) | (838,591 | ) | |||
Net increase (decrease) in net assets resulting from operations | 5,758,061 | 11,208,650 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (488,270) | (933,951) | ||||
Institutional Class | (18,491) | (1,513) | ||||
Decrease in net assets from distributions | (506,761) | (935,464) | ||||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 2,953,683 | (5,259,520) | ||||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 7,491 | 6,720 | ||||
Net increase (decrease) in net assets | 8,212,474 | 5,020,386 | ||||
Net Assets | ||||||
Beginning of period | 93,593,416 | 88,573,030 | ||||
End of period | $ | 101,805,890 | $ | 93,593,416 | ||
Undistributed net investment income | $ | 793,228 | $ | 296,859 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2015
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Veedot Fund (the fund) is one fund in a series issued by the corporation. The fund is nondiversified as defined under the 1940 Act. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The fund is an investment company and follows accounting and reporting guidance in accordance with accounting principles generally accepted in the United States of America. This may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. Management evaluated the impact of events or transactions occurring through the date the financial statements were issued that would merit recognition or disclosure.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share at the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open. The Board of Directors has adopted valuation policies and procedures to guide the investment advisor in the fund’s investment valuation process and to provide methodologies for the oversight of the fund’s pricing function.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are generally valued at the closing price of such securities on the exchange where primarily traded or at the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices may be used. Securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. Equity securities initially expressed in local currencies are translated into U.S. dollars at the mean of the appropriate currency exchange rate at the close of the NYSE as provided by an independent pricing service.
Open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost, which approximates fair value. Forward foreign currency exchange contracts are valued at the mean of the appropriate forward exchange rate at the close of the NYSE as provided by an independent pricing service.
If the fund determines that the market price for an investment is not readily available or the valuation methods mentioned above do not reflect an investment’s fair value, such investment is valued as determined in good faith by the Board of Directors or its delegate, in accordance with policies and procedures adopted by the Board of Directors. In its determination of fair value, the fund may review several factors including, but not limited to, market information regarding the specific investment or comparable investments and correlation with other investment types, futures indices or general market indicators. Circumstances that may cause the fund to use these procedures to value an investment include, but are not limited to: an investment has been declared in default or is distressed; trading in a security has been suspended during the trading day or a security is not actively trading on its principal exchange; prices received from a regular pricing source are deemed unreliable; or there is a foreign market holiday and no trading occurred.
The fund monitors for significant events occurring after the close of an investment’s primary exchange but before the fund’s net asset value per share is determined. Significant events may include, but are not limited to: corporate announcements and transactions; governmental action and political unrest that could impact a
17
specific investment or an investment sector; or armed conflicts, natural disasters and similar events that could affect investments in a specific country or region. The fund also monitors for significant fluctuations between domestic and foreign markets, as evidenced by the U.S. market or such other indicators that the Board of Directors, or its delegate, deems appropriate. If significant fluctuations in foreign markets are identified, the fund may apply a model-derived factor to the closing price of equity securities traded on foreign securities exchanges. The factor is based on observable market data as provided by an independent pricing service.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term 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 Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund's tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. 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.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption Fees — The fund may impose a 2.00% redemption fee on shares held less than 60 days. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions.
18
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 maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation's distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
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 managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The 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 ranges from 1.000% to 1.250% for the Investor Class. The annual management fee schedule ranges from 0.800% to 1.050% for the Institutional Class. The effective annual management fee for each class for the year ended October 31, 2015 was 1.25% and 1.05% for the Investor Class and Institutional Class, respectively.
Directors' Fees and Expenses — The Board of Directors is responsible for overseeing the investment advisor’s management and operations of the fund. The directors receive detailed information about the fund and its investment advisor regularly throughout the year, and meet at least quarterly with management of the investment advisor to review reports about fund operations. The fund’s officers do not receive compensation from the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2015 were $182,044,569 and $178,986,555, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2015 | Year ended October 31, 2014 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 1,198,055 | $ | 12,988,123 | 719,155 | $ | 6,834,412 | ||||
Issued in reinvestment of distributions | 47,838 | 475,961 | 99,908 | 912,160 | ||||||
Redeemed | (991,066 | ) | (10,528,396 | ) | (1,558,477 | ) | (15,012,894 | ) | ||
254,827 | 2,935,688 | (739,414 | ) | (7,266,322 | ) | |||||
Institutional Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||
Sold | 4,741 | 50,579 | 251,800 | 2,432,360 | ||||||
Issued in reinvestment of distributions | 1,824 | 18,491 | 163 | 1,513 | ||||||
Redeemed | (4,914 | ) | (51,075 | ) | (44,714 | ) | (427,071 | ) | ||
1,651 | 17,995 | 207,249 | 2,006,802 | |||||||
Net increase (decrease) | 256,478 | $ | 2,953,683 | (532,165 | ) | $ | (5,259,520 | ) |
19
6. Fair Value Measurements
The fund’s investments valuation process is based on several considerations and may use multiple inputs to determine the fair value of the investments held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels.
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical investments. |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for comparable investments, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.). These inputs also consist of quoted prices for identical investments initially expressed in local currencies that are adjusted through translation into U.S. dollars. |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments. There were no significant transfers between levels during the period.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | ||||||
Assets | ||||||||
Investment Securities | ||||||||
Common Stocks | $ | 100,714,302 | — | — | ||||
Temporary Cash Investments | 441 | $ | 897,758 | — | ||||
$ | 100,714,743 | $ | 897,758 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 7,125 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | (85 | ) | — |
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund's exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The fund's average U.S. dollar exposure to foreign currency risk derivative instruments held during the period was $1,412,937.
The value of foreign currency risk derivative instruments as of October 31, 2015, is disclosed on the Statement of Assets and Liabilities as an asset of $7,125 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $85 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2015, the effect of foreign currency risk derivative instruments on the Statement of Operations was $154,728 in net realized gain (loss) on foreign currency transactions and $(27,018) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
20
8. Risk Factors
The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:
2015 | 2014 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 506,761 | $ | 935,464 | ||
Long-term capital gains | — | — |
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, 2015, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 96,633,767 | |
Gross tax appreciation of investments | $ | 7,962,360 | |
Gross tax depreciation of investments | (2,983,626 | ) | |
Net tax appreciation (depreciation) of investments | $ | 4,978,734 | |
Undistributed ordinary income | $ | 3,616,506 | |
Accumulated long-term gains | $ | 6,421,844 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the timing and recognition of partnership income.
21
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||
Investor Class | |||||||||||||
2015 | $10.15 | 0.06 | 0.59 | 0.65 | (0.06) | $10.74 | 6.40% | 1.26% | 0.54% | 185% | $99,141 | ||
2014 | $9.08 | 0.06 | 1.11 | 1.17 | (0.10) | $10.15 | 12.96% | 1.25% | 0.59% | 184% | $91,093 | ||
2013 | $6.90 | 0.06 | 2.25 | 2.31 | (0.13) | $9.08 | 34.11% | 1.25% | 0.80% | 158% | $88,256 | ||
2012 | $6.25 | 0.09 | 0.65 | 0.74 | (0.09) | $6.90 | 12.03% | 1.26% | 1.35% | 257% | $72,311 | ||
2011 | $5.68 | 0.05 | 0.53 | 0.58 | (0.01) | $6.25 | 10.16% | 1.25% | 0.82% | 280% | $72,851 | ||
Institutional Class | |||||||||||||
2015 | $10.36 | 0.08 | 0.60 | 0.68 | (0.08) | $10.96 | 6.58% | 1.06% | 0.74% | 185% | $2,665 | ||
2014 | $9.27 | 0.09 | 1.11 | 1.20 | (0.11) | $10.36 | 13.13% | 1.05% | 0.79% | 184% | $2,501 | ||
2013 | $7.03 | 0.07 | 2.31 | 2.38 | (0.14) | $9.27 | 34.41% | 1.05% | 1.00% | 158% | $317 | ||
2012 | $6.37 | 0.10 | 0.66 | 0.76 | (0.10) | $7.03 | 12.18% | 1.06% | 1.55% | 257% | $158 | ||
2011 | $5.78 | 0.06 | 0.55 | 0.61 | (0.02) | $6.37 | 10.55% | 1.05% | 1.02% | 280% | $169 |
Notes to Financial Highlights |
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
22
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Veedot Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2015, 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 periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2015, by correspondence with the custodian and brokers; when 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 of American Century Mutual Funds, Inc. as of October 31, 2015, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 16, 2015
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and they do not have any other affiliations, positions or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company) | 80 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 80 | None |
Jan M. Lewis (1957) | Director | Since 2011 | Retired; President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to 2013) | 80 | None |
James A. Olson (1942) | Director and Chairman of the Board | Since 2007 (Chairman since 2014) | Member, Plaza Belmont LLC (private equity fund manager) | 80 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 80 | Euronet Worldwide Inc.; MGP Ingredients, Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) |
John R. Whitten (1946) | Director | Since 2008 | Retired | 80 | Rudolph Technologies, Inc. |
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Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
Independent Directors | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 80 | Applied Industrial Technologies, Inc. (2001 to 2010) |
Interested Directors | |||||
Barry Fink (1955) | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 80 | None |
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 125 | BioMed Valley Discoveries, Inc. |
The Statement of Additional Information has additional information about the fund's directors and is available without charge, upon request, by calling 1-800-345-2021.
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (March 2014 to present); Chief Compliance Officer, ACIM (February 2014 to present); Chief Compliance Officer, ACIS (October 2009 to present); Vice President, Client Interactions and Marketing, ACIS (February 2013 to January 2014); Director, Client Interactions and Marketing, ACIS (June 2007 to January 2013). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | 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, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS |
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) |
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 30, 2015, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the Directors requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the Fund’s investment performance compared to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; |
• | acquired fund fees and expenses; |
• | payments to intermediaries by the Fund and the Advisor; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
In keeping with their practice, the Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also had the benefit of the advice of their independent counsel throughout the process.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the
Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services (except the independent Directors’ counsel) |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution (except Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The Fund’s performance was above its benchmark for the three-, five-, and ten-year periods and below its benchmark for the one-year period reviewed by the Board. The Board found the investment management services provided by the Advisor to the Fund to be satisfactory and consistent with the management agreement.
Shareholder and Other Services. Under the management agreement, the Advisor provides the Fund with a comprehensive package of transfer agency, shareholder, and other services. The Board, directly and through various committees of the Board, regularly reviews reports and evaluations of such services at its regular meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to Fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. The Board particularly noted the Advisor’s continual efforts to maintain effective business continuity plans and to address cybersecurity threats. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading
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activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund (pre- and post-distribution), its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. This information is considered in evaluating 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 Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services. The Board also noted that economies of scale are shared with the Fund and its shareholders through management fee breakpoints that serve to reduce the effective management fee as the assets of the Fund grow.
Comparison to Other Funds’ Fees. The management agreement provides that 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) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges, and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider comparing the Fund’s unified fee to the total expense ratios of its peers. The unified fee charged to shareholders of the Fund was above the median of the total expense ratios of the Fund’s peer expense universe and was within the range of its peer expense group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
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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, costs and profitability of its advisory services to advisory clients other than the Fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the Fund. The Board analyzed this information and concluded that the fees charged and services provided to the Fund were reasonable by comparison.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor. These payments include various payments made by the Fund or the Advisor to different types of intermediaries and recordkeepers for distribution and service activities provided for the Fund. The Board reviewed such information and found the payments to be reasonable in scope and purpose.
Collateral or “Fall-Out” Benefits Derived by the Advisor. The Board considered the existence of collateral benefits the Advisor may receive as a result of its relationship with the Fund. They concluded that the Advisor’s primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Board noted that additional assets from other clients may offer the Advisor some benefit from increased leverage with service providers and counterparties. Additionally, the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions, which the Board concluded is likely to benefit other clients of the Advisor as well as Fund shareholders. The Board also determined that the Advisor is able to provide investment management services to certain clients other than the Fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Board concluded that appropriate allocation methodologies had been employed to assign resources and the cost of those resources to these other clients and, where expressly provided, these other client assets may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
Existing Relationship. The Board also considered whether there was any reason for not continuing the existing arrangement with the Advisor. In this regard, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties, and other effects that could occur as a result of a decision not to continue such relationship. In particular, the Board recognized that most shareholders have invested in the Fund on the strength of the Advisor’s industry standing and reputation and in the expectation that the Advisor will have a continuing role in providing advisory services to the Fund.
Conclusion of the Directors. As a result of this process, the Board, including all of the independent Directors, taking into account all of the factors discussed above and the information provided by the Advisor and others in connection with its review and throughout the year, determined that the management fee is fair and reasonable in light of the services provided and that the investment management agreement between the Fund and the Advisor should be renewed.
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Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs 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. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
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 (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund's investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the "About Us" page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its
website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
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, 2015.
For corporate taxpayers, the fund hereby designates $506,761, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2015 as qualified for the corporate dividends received deduction.
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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 Relay Service for the Deaf | 711 | |
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. | ||
©2015 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-87642 1512 |
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) | M. Jeannine Strandjord, Stephen E. Yates, Thomas A. Brown and John R. Whitten 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 2014: $299,650
FY 2015: $307,847
(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 2014: $0
FY 2015: $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 2014: $0
FY 2015: $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 2014: $0
FY 2015: $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 2014: $0
FY 2015: $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 2014: $0
FY 2015: $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 2014: $0
FY 2015: $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 2014: $91,808
FY 2015: $86,000
(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 EX-99.CERT. |
(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 EX-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: | January 5, 2016 |
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: | January 5, 2016 |
By: | /s/ C. Jean Wade | |
Name: | C. Jean Wade | |
Title: | Vice President, Treasurer, and | |
Chief Financial Officer | ||
(principal financial officer) | ||
Date: | January 5, 2016 |