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: | 10-31-2018 |
ITEM 1. REPORTS TO STOCKHOLDERS.
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
Adaptive Equity Fund | |
Investor Class (AMVIX) | |
I Class (AVDIX) | |
A Class (AVDAX) | |
R Class (AVDRX) | |
R6 Class (AVDMX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | AMVIX | 6.58% | 10.33% | 11.15% | — | 11/30/99 |
Russell 1000 Index | — | 6.98% | 11.05% | 13.42% | — | — |
I Class | AVDIX | 6.81% | 10.56% | 11.38% | — | 8/1/00 |
A Class | AVDAX | 12/1/16 | ||||
No sales charge | 6.34% | — | — | 13.33% | ||
With sales charge | 0.20% | — | — | 9.91% | ||
R Class | AVDRX | 5.99% | — | — | 13.02% | 12/1/16 |
R6 Class | AVDMX | 6.98% | — | — | 14.02% | 12/1/16 |
Average annual returns since inception are presented when ten years of performance history is not available.
Fund returns would have been lower if a portion of the fees had not been waived.
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.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2018 | |
Investor Class — $28,808 | |
Russell 1000 Index — $35,238 | |
Ending value of Investor Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | ||||
Investor Class | I Class | A Class | R Class | R6 Class |
1.16% | 0.96% | 1.41% | 1.66% | 0.81% |
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. Total returns for periods less than one year are not annualized. 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: Stephen Pool and Joe Reiland
Performance Summary
Adaptive Equity returned 6.58%* for the 12 months ended October 31, 2018, lagging the 6.98% return of the portfolio’s benchmark, the Russell 1000 Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp decline in the final month of the fund’s fiscal year. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum. Within the Russell 1000 Index, all sectors except materials and industrials posted gains. Information technology, consumer discretionary, and health care were the primary drivers of index performance.
In this environment, Adaptive Equity’s highly systematic investment process delivered positive portfolio returns but trailed its benchmark, the Russell 1000 Index. The fund received the best absolute contributions from information technology and consumer discretionary stocks, while only our materials and energy holdings generated modest negative contributions. Relative to the Russell benchmark, stock selection in the information technology, energy, and health care sectors detracted. Stock selection in industrials, consumer discretionary, and consumer staples benefited relative performance.
Information Technology Stocks Detracted
Stock decisions in the IT services industry were significant drivers of underperformance in the information technology sector. International Business Machines was a major detractor after posting disappointing quarterly results and declining revenue in its key technology services and cloud platforms business. Semiconductor firm Micron Technology declined along with demand for chips and concerns about weak capital spending in 2019.
Stock selection among oil, gas, and consumable fuels companies hurt performance in the energy sector. Exploration and production companies Cabot Oil & Gas and EP Energy missed earnings estimates. Both holdings were eliminated.
Other major detractors included our underweight allocation to Amazon.com. The online retailer continued to demonstrate growth in its Amazon Web Services cloud business as well as strong performance on the e-commerce side. Amazon.com was eliminated from the portfolio. Amusement park operator Six Flags Entertainment fell sharply after the company reported worse-than-expected revenue and earnings.
Industrials Holdings Benefited Performance
Positioning among industrial conglomerates aided performance in the industrials sector. Not owning benchmark component General Electric helped relative performance as the stock underperformed due to fundamental challenges in the company’s power and financial business segments and uncertainty over asset dispositions.
Specialty retailers and hotels, restaurants, and leisure companies led outperformance in the consumer discretionary sector. Burlington Stores was a top contributor as the off-price retailer
*All fund returns referenced in this commentary are for Investor Class shares. Fund returns would have been lower if a portion of the fees 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
reported strong comparable sales, and it’s also a beneficiary of tax reform, which lowered corporate rates for U.S. companies. Household goods retailer Williams-Sonoma outperformed as the company reported better-than-expected revenue and earnings.
Other top contributors included Fortinet. The cybersecurity firm reported strong revenues and earnings and offered improved forward guidance. Underweighting tobacco manufacturer Philip Morris International aided performance as the stock was pressured by slowing demand for the company’s IQOS product, an electronically heated smoking device designed to reduce health risks.
Outlook
Using a systematic and quantitatively driven process, Adaptive Equity combines market factors and company-specific information in a unique model to underpin its stock selection process. Looking ahead, we remain confident that this systematic process will continue to successfully identify risk-adjusted opportunities across investment styles and industry sectors.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Exxon Mobil Corp. | 3.8% |
Simon Property Group, Inc. | 3.5% |
Walmart, Inc. | 3.2% |
Lockheed Martin Corp. | 3.0% |
Apple, Inc. | 3.0% |
Umpqua Holdings Corp. | 3.0% |
Bristol-Myers Squibb Co. | 3.0% |
Two Harbors Investment Corp. | 2.9% |
Philip Morris International, Inc. | 2.9% |
Burlington Stores, Inc. | 2.8% |
Top Five Industries | % of net assets |
IT Services | 7.4% |
Specialty Retail | 6.6% |
Pharmaceuticals | 5.7% |
Oil, Gas and Consumable Fuels | 5.7% |
Equity Real Estate Investment Trusts (REITs) | 5.6% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.0% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | 0.1% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,029.90 | $5.88 | 1.15% |
I Class | $1,000 | $1,030.80 | $4.86 | 0.95% |
A Class | $1,000 | $1,028.80 | $7.16 | 1.40% |
R Class | $1,000 | $1,027.10 | $8.43 | 1.65% |
R6 Class | $1,000 | $1,031.30 | $4.10 | 0.80% |
Hypothetical | ||||
Investor Class | $1,000 | $1,019.41 | $5.85 | 1.15% |
I Class | $1,000 | $1,020.42 | $4.84 | 0.95% |
A Class | $1,000 | $1,018.15 | $7.12 | 1.40% |
R Class | $1,000 | $1,016.89 | $8.39 | 1.65% |
R6 Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
(1) | Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.0% | |||||
Aerospace and Defense — 4.1% | |||||
Boeing Co. (The) | 3,087 | $ | 1,095,453 | ||
Lockheed Martin Corp. | 10,855 | 3,189,742 | |||
4,285,195 | |||||
Banks — 4.0% | |||||
First Hawaiian, Inc. | 45,741 | 1,133,462 | |||
Umpqua Holdings Corp. | 162,824 | 3,126,221 | |||
4,259,683 | |||||
Biotechnology — 3.9% | |||||
AbbVie, Inc. | 26,653 | 2,074,936 | |||
Amgen, Inc. | 6,623 | 1,276,848 | |||
Gilead Sciences, Inc. | 11,199 | 763,548 | |||
4,115,332 | |||||
Capital Markets — 0.5% | |||||
Lazard Ltd., Class A | 1,228 | 48,801 | |||
Moelis & Co., Class A | 11,037 | 445,453 | |||
494,254 | |||||
Chemicals — 1.2% | |||||
Axalta Coating Systems Ltd.(1) | 18,149 | 447,917 | |||
LyondellBasell Industries NV, Class A | 8,243 | 735,853 | |||
WR Grace & Co. | 828 | 53,646 | |||
1,237,416 | |||||
Commercial Services and Supplies — 0.6% | |||||
KAR Auction Services, Inc. | 10,353 | 589,500 | |||
Communications Equipment — 2.9% | |||||
Cisco Systems, Inc. | 6,578 | 300,943 | |||
Palo Alto Networks, Inc.(1) | 14,989 | 2,743,587 | |||
3,044,530 | |||||
Consumer Finance — 0.1% | |||||
Synchrony Financial | 2,257 | 65,182 | |||
Containers and Packaging — 0.1% | |||||
AptarGroup, Inc. | 972 | 99,105 | |||
Diversified Telecommunication Services — 3.0% | |||||
AT&T, Inc. | 75,439 | 2,314,468 | |||
Verizon Communications, Inc. | 14,152 | 807,938 | |||
3,122,406 | |||||
Electric Utilities — 2.1% | |||||
Exelon Corp. | 50,992 | 2,233,960 | |||
Electronic Equipment, Instruments and Components — 0.1% | |||||
Jabil, Inc. | 5,461 | 135,051 | |||
Energy Equipment and Services — 0.2% | |||||
Halliburton Co. | 6,124 | 212,380 |
10
Shares | Value | ||||
Equity Real Estate Investment Trusts (REITs) — 5.6% | |||||
Hospitality Properties Trust | 51,433 | $ | 1,317,714 | ||
Lamar Advertising Co., Class A | 13,022 | 954,773 | |||
Simon Property Group, Inc. | 20,035 | 3,676,823 | |||
5,949,310 | |||||
Food and Staples Retailing — 3.9% | |||||
Sysco Corp. | 11,289 | 805,244 | |||
Walmart, Inc. | 33,211 | 3,330,399 | |||
4,135,643 | |||||
Food Products — 0.2% | |||||
General Mills, Inc. | 5,469 | 239,542 | |||
Health Care Providers and Services — 1.3% | |||||
CVS Health Corp. | 4,292 | 310,698 | |||
HCA Healthcare, Inc. | 3,114 | 415,813 | |||
Humana, Inc. | 1,947 | 623,838 | |||
1,350,349 | |||||
Health Care Technology — 3.6% | |||||
athenahealth, Inc.(1) | 9,598 | 1,224,129 | |||
Cerner Corp.(1) | 44,670 | 2,558,698 | |||
3,782,827 | |||||
Hotels, Restaurants and Leisure — 3.6% | |||||
Darden Restaurants, Inc. | 10,449 | 1,113,341 | |||
Extended Stay America, Inc. | 13,398 | 218,119 | |||
Six Flags Entertainment Corp. | 46,750 | 2,517,955 | |||
3,849,415 | |||||
Insurance — 2.1% | |||||
American National Insurance Co. | 17,080 | 2,104,939 | |||
Chubb Ltd. | 1,291 | 161,259 | |||
2,266,198 | |||||
Interactive Media and Services — 2.6% | |||||
Twitter, Inc.(1) | 77,672 | 2,699,102 | |||
Internet and Direct Marketing Retail — 2.0% | |||||
Booking Holdings, Inc.(1) | 754 | 1,413,433 | |||
Expedia Group, Inc. | 5,302 | 665,030 | |||
2,078,463 | |||||
IT Services — 7.4% | |||||
Black Knight, Inc.(1) | 29,278 | 1,427,888 | |||
Booz Allen Hamilton Holding Corp. | 24,837 | 1,230,425 | |||
CoreLogic, Inc.(1) | 20,344 | 826,373 | |||
International Business Machines Corp. | 18,939 | 2,186,129 | |||
VeriSign, Inc.(1) | 10,751 | 1,532,448 | |||
Visa, Inc., Class A | 4,078 | 562,152 | |||
7,765,415 | |||||
Machinery — 0.2% | |||||
IDEX Corp. | 1,337 | 169,558 | |||
Media — 0.5% | |||||
Omnicom Group, Inc. | 6,892 | 512,213 |
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Shares | Value | ||||
Metals and Mining — 0.4% | |||||
Southern Copper Corp. | 11,905 | $ | 456,438 | ||
Mortgage Real Estate Investment Trusts (REITs) — 2.9% | |||||
Two Harbors Investment Corp. | 211,526 | 3,107,317 | |||
Oil, Gas and Consumable Fuels — 5.7% | |||||
Chevron Corp. | 3,543 | 395,576 | |||
ConocoPhillips | 20,493 | 1,432,461 | |||
Exxon Mobil Corp. | 49,928 | 3,978,263 | |||
Phillips 66 | 1,553 | 159,679 | |||
Williams Cos., Inc. (The) | 3,028 | 73,671 | |||
6,039,650 | |||||
Personal Products — 1.3% | |||||
Herbalife Ltd.(1) | 25,609 | 1,363,935 | |||
Pharmaceuticals — 5.7% | |||||
Bristol-Myers Squibb Co. | 61,601 | 3,113,314 | |||
Pfizer, Inc. | 68,466 | 2,948,146 | |||
6,061,460 | |||||
Professional Services — 0.1% | |||||
Robert Half International, Inc. | 864 | 52,298 | |||
Road and Rail — 2.1% | |||||
Norfolk Southern Corp. | 13,146 | 2,206,293 | |||
Semiconductors and Semiconductor Equipment — 5.1% | |||||
Intel Corp. | 43,457 | 2,037,264 | |||
Micron Technology, Inc.(1) | 60,800 | 2,293,376 | |||
QUALCOMM, Inc. | 6,596 | 414,823 | |||
Texas Instruments, Inc. | 7,386 | 685,642 | |||
5,431,105 | |||||
Software — 4.2% | |||||
Fortinet, Inc.(1) | 24,250 | 1,992,865 | |||
Microsoft Corp. | 5,380 | 574,638 | |||
RealPage, Inc.(1) | 16,347 | 866,391 | |||
ServiceNow, Inc.(1) | 5,377 | 973,452 | |||
4,407,346 | |||||
Specialty Retail — 6.6% | |||||
Burlington Stores, Inc.(1) | 17,428 | 2,988,728 | |||
Home Depot, Inc. (The) | 6,771 | 1,190,883 | |||
Williams-Sonoma, Inc. | 47,076 | 2,795,373 | |||
6,974,984 | |||||
Technology Hardware, Storage and Peripherals — 3.0% | |||||
Apple, Inc. | 14,475 | 3,167,998 | |||
Thrifts and Mortgage Finance — 1.5% | |||||
Essent Group Ltd.(1) | 19,441 | 766,364 | |||
Northwest Bancshares, Inc. | 51,752 | 835,278 | |||
1,601,642 | |||||
Tobacco — 3.0% | |||||
Altria Group, Inc. | 1,393 | 90,601 |
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Shares | Value | ||||
Philip Morris International, Inc. | 34,842 | $ | 3,068,535 | ||
3,159,136 | |||||
Trading Companies and Distributors — 1.6% | |||||
Watsco, Inc. | 11,577 | 1,715,480 | |||
TOTAL COMMON STOCKS (Cost $99,190,524) | 104,437,111 | ||||
TEMPORARY CASH INVESTMENTS — 0.9% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $612,678), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $600,272) | 600,239 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $309,236), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $300,009) | 300,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 880 | 880 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $901,119) | 901,119 | ||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $100,091,643) | 105,338,230 | ||||
OTHER ASSETS AND LIABILITIES — 0.1% | 150,383 | ||||
TOTAL NET ASSETS — 100.0% | $ | 105,488,613 |
NOTES TO SCHEDULE OF INVESTMENTS |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $100,091,643) | $ | 105,338,230 | |
Receivable for capital shares sold | 96,236 | ||
Dividends and interest receivable | 183,172 | ||
105,617,638 | |||
Liabilities | |||
Payable for capital shares redeemed | 24,457 | ||
Accrued management fees | 104,490 | ||
Distribution and service fees payable | 78 | ||
129,025 | |||
Net Assets | $ | 105,488,613 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 79,698,060 | |
Distributable earnings | 25,790,553 | ||
$ | 105,488,613 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $98,221,344 | 8,136,213 | $12.07 | |
I Class, $0.01 Par Value | $6,840,961 | 552,656 | $12.38 | |
A Class, $0.01 Par Value | $31,772 | 2,613 | $12.16* | |
R Class, $0.01 Par Value | $166,721 | 13,764 | $12.11 | |
R6 Class, $0.01 Par Value | $227,815 | 18,180 | $12.53 |
*Maximum offering price $12.90 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends | $ | 2,284,155 | |
Interest | 5,863 | ||
2,290,018 | |||
Expenses: | |||
Management fees | 1,302,627 | ||
Distribution and service fees: | |||
A Class | 80 | ||
R Class | 541 | ||
Directors' fees and expenses | 2,427 | ||
Other expenses | 475 | ||
1,306,150 | |||
Fees waived(1) | (79,436 | ) | |
1,226,714 | |||
Net investment income (loss) | 1,063,304 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 20,758,677 | ||
Change in net unrealized appreciation (depreciation) on investments | (15,098,472 | ) | |
Net realized and unrealized gain (loss) | 5,660,205 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 6,723,509 |
(1) | Amount consists of $75,818, $3,351, $24, $68 and $175 for Investor Class, I Class, A Class, R Class and R6 Class, respectively. |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 1,063,304 | $ | 588,498 | ||
Net realized gain (loss) | 20,758,677 | 7,992,249 | ||||
Change in net unrealized appreciation (depreciation) | (15,098,472 | ) | 13,158,736 | |||
Net increase (decrease) in net assets resulting from operations | 6,723,509 | 21,739,483 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
Investor Class | (6,939,187 | ) | (897,365 | ) | ||
I Class | (320,889 | ) | (33,360 | ) | ||
A Class | (2,023 | ) | (15 | ) | ||
R Class | (4,512 | ) | (10 | ) | ||
R6 Class | (13,157 | ) | (28 | ) | ||
Decrease in net assets from distributions | (7,279,768 | ) | (930,778 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 2,600,591 | (7,982,654 | ) | |||
Redemption Fees | ||||||
Increase in net assets from redemption fees | — | 1,332 | ||||
Net increase (decrease) in net assets | 2,044,332 | 12,827,383 | ||||
Net Assets | ||||||
Beginning of period | 103,444,281 | 90,616,898 | ||||
End of period | $ | 105,488,613 | $ | 103,444,281 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2018
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. Adaptive Equity Fund (the fund) is one fund in a series issued by the corporation. The fund's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, A Class, R Class and R6 Class. The A Class may incur an initial sales charge and may be subject to a contingent deferred sales charge. Sale of the A Class, R Class and R6 Class commenced on December 1, 2016.
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 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.
17
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).
Redemption Fees — Prior to October 9, 2017, the fund may have imposed a 2.00% redemption fee on shares held less than 60 days. The fee was not applicable to all classes. The redemption fee was retained by the fund to help 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.
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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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets). From November 1, 2017 through July 31, 2018, the investment advisor agreed to waive 0.10% of the fund's management fee. Effective August 1,2018, the investment advisor terminated the waiver and decreased the annual management fee by 0.10%.
The management fee schedule range and the effective annual management fee before and after waiver for each class for the period ended October 31, 2018 are as follows:
Effective Annual Management Fee | |||
Management Fee Schedule Range* | Before Waiver | After Waiver | |
Investor Class | 1.000% to 1.150% | 1.22% | 1.15% |
I Class | 0.800% to 0.950% | 1.02% | 0.95% |
A Class | 1.000% to 1.150% | 1.22% | 1.15% |
R Class | 1.000% to 1.150% | 1.22% | 1.15% |
R6 Class | 0.650% to 0.800% | 0.87% | 0.80% |
* Prior to August 1, 2018, the management fee schedule range was 1.000% to 1.250% for Investor Class, A Class and R Class, 0.800% to 1.050% for I Class and 0.650% to 0.900% for 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 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 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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $1,886,815 and $395,995, respectively. The effect of interfund transactions on the Statement of Operations was $138,409 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $118,624,034 and $122,208,703, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 140,000,000 | 140,000,000 | ||||||||
Sold | 447,446 | $ | 5,521,944 | 423,033 | $ | 4,625,253 | ||||
Issued in reinvestment of distributions | 569,321 | 6,717,983 | 82,377 | 870,726 | ||||||
Redeemed | (993,886 | ) | (12,209,568 | ) | (1,345,235 | ) | (14,879,140 | ) | ||
22,881 | 30,359 | (839,825 | ) | (9,383,161 | ) | |||||
I Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 258,025 | 3,333,659 | 119,781 | 1,416,036 | ||||||
Issued in reinvestment of distributions | 5,458 | 65,937 | 3,089 | 33,360 | ||||||
Redeemed | (78,074 | ) | (970,395 | ) | (27,307 | ) | (304,458 | ) | ||
185,409 | 2,429,201 | 95,563 | 1,144,938 | |||||||
A Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | — | — | 2,442 | 25,000 | ||||||
Issued in reinvestment of distributions | 170 | 2,023 | 1 | 15 | ||||||
170 | 2,023 | 2,443 | 25,015 | |||||||
R Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 11,577 | 142,832 | 4,992 | 53,749 | ||||||
Issued in reinvestment of distributions | 379 | 4,512 | 1 | 10 | ||||||
Redeemed | (3,184 | ) | (38,921 | ) | (1 | ) | (15 | ) | ||
8,772 | 108,423 | 4,992 | 53,744 | |||||||
R6 Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 8,459 | 105,313 | 26,971 | 304,642 | ||||||
Issued in reinvestment of distributions | 1,078 | 13,157 | 3 | 28 | ||||||
Redeemed | (7,297 | ) | (87,885 | ) | (11,034 | ) | (127,860 | ) | ||
2,240 | 30,585 | 15,940 | 176,810 | |||||||
Net increase (decrease) | 219,472 | $ | 2,600,591 | (720,887 | ) | $ | (7,982,654 | ) |
(1) | December 1, 2016 (commencement of sale) through October 31, 2017 for the A Class, R Class and R6 Class. |
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.
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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 | $ | 104,437,111 | — | — | ||||
Temporary Cash Investments | 880 | $ | 900,239 | — | ||||
$ | 104,437,991 | $ | 900,239 | — |
7. 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.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 3,072,329 | $ | 930,778 | ||
Long-term capital gains | $ | 4,207,439 | — |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 100,143,236 | |
Gross tax appreciation of investments | $ | 10,975,679 | |
Gross tax depreciation of investments | (5,780,685 | ) | |
Net tax appreciation (depreciation) of investments | $ | 5,194,994 | |
Undistributed ordinary income | $ | 4,487,371 | |
Accumulated long-term gains | $ | 16,108,188 |
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 | |||||||||||||||||
2018 | $12.15 | 0.12 | 0.66 | 0.78 | (0.04) | (0.82) | (0.86) | $12.07 | 6.58% | 1.15% | 1.22% | 0.99% | 0.92% | 112% | $98,221 | ||
2017 | $9.82 | 0.07 | 2.36 | 2.43 | (0.10) | — | (0.10) | $12.15 | 24.92% | 1.16% | 1.26% | 0.58% | 0.48% | 85% | $98,585 | ||
2016 | $10.74 | 0.10 | 0.08 | 0.18 | (0.12) | (0.98) | (1.10) | $9.82 | 2.20% | 1.23% | 1.25% | 1.04% | 1.02% | 116% | $87,888 | ||
2015 | $10.15 | 0.06 | 0.59 | 0.65 | (0.06) | — | (0.06) | $10.74 | 6.40% | 1.26% | 1.26% | 0.54% | 0.54% | 185% | $99,141 | ||
2014 | $9.08 | 0.06 | 1.11 | 1.17 | (0.10) | — | (0.10) | $10.15 | 12.96% | 1.25% | 1.25% | 0.59% | 0.59% | 184% | $91,093 | ||
I Class | |||||||||||||||||
2018 | $12.44 | 0.15 | 0.68 | 0.83 | (0.07) | (0.82) | (0.89) | $12.38 | 6.81% | 0.95% | 1.02% | 1.19% | 1.12% | 112% | $6,841 | ||
2017 | $10.05 | 0.09 | 2.42 | 2.51 | (0.12) | — | (0.12) | $12.44 | 25.19% | 0.96% | 1.06% | 0.78% | 0.68% | 85% | $4,568 | ||
2016 | $10.96 | 0.12 | 0.09 | 0.21 | (0.14) | (0.98) | (1.12) | $10.05 | 2.47% | 1.03% | 1.05% | 1.24% | 1.22% | 116% | $2,729 | ||
2015 | $10.36 | 0.08 | 0.60 | 0.68 | (0.08) | — | (0.08) | $10.96 | 6.58% | 1.06% | 1.06% | 0.74% | 0.74% | 185% | $2,665 | ||
2014 | $9.27 | 0.09 | 1.11 | 1.20 | (0.11) | — | (0.11) | $10.36 | 13.13% | 1.05% | 1.05% | 0.79% | 0.79% | 184% | $2,501 |
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 | |||||||||||||||||
2018 | $12.23 | 0.09 | 0.67 | 0.76 | (0.01) | (0.82) | (0.83) | $12.16 | 6.34% | 1.40% | 1.47% | 0.74% | 0.67% | 112% | $32 | ||
2017(3) | $10.24 | 0.03 | 1.97 | 2.00 | (0.01) | — | (0.01) | $12.23 | 19.50% | 1.41%(4) | 1.51%(4) | 0.26%(4) | 0.16%(4) | 85%(5) | $30 | ||
R Class | |||||||||||||||||
2018 | $12.21 | 0.07 | 0.65 | 0.72 | — | (0.82) | (0.82) | $12.11 | 5.99% | 1.65% | 1.72% | 0.49% | 0.42% | 112% | $167 | ||
2017(3) | $10.24 | —(6) | 1.97 | 1.97 | —(6) | — | —(6) | $12.21 | 19.28% | 1.66%(4) | 1.76%(4) | (0.01)%(4) | (0.11)%(4) | 85%(5) | $61 | ||
R6 Class | |||||||||||||||||
2018 | $12.58 | 0.17 | 0.69 | 0.86 | (0.09) | (0.82) | (0.91) | $12.53 | 6.98% | 0.80% | 0.87% | 1.34% | 1.27% | 112% | $228 | ||
2017(3) | $10.48 | 0.09 | 2.02 | 2.11 | (0.01) | — | (0.01) | $12.58 | 20.17% | 0.81%(4) | 0.91%(4) | 0.82%(4) | 0.72%(4) | 85%(5) | $201 |
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) | December 1, 2016 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
(6) | Per share amount was less than $0.005. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Adaptive Equity Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Adaptive Equity Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, Inc. |
25
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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
27
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-, and five-year periods and below its benchmark for the ten-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.
29
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 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, expenses attributable to short sales, 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 permanent change to the fund's fee schedule that could have the effect of lowering the fund's management fee by
30
approximately 0.10% (e.g., the Investor Class unified fee will be reduced from 1.25% to 1.15%) beginning August 1, 2018. 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.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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, 2018.
For corporate taxpayers, the fund hereby designates $1,313,690, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $4,952,146, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $2,861,213 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $957,334 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
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Notes |
34
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90976 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
All Cap Growth Fund | |
Investor Class (TWGTX) | |
I Class (ACAJX) | |
A Class (ACAQX) | |
C Class (ACAHX) | |
R Class (ACAWX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWGTX | 8.83% | 10.25% | 12.90% | — | 11/25/83 |
Russell 3000 Growth Index | — | 10.20% | 13.06% | 15.32% | — | — |
I Class | ACAJX | 9.06% | 10.46% | — | 14.20% | 9/30/11 |
A Class | ACAQX | 9/30/11 | ||||
No sales charge | 8.56% | 9.97% | — | 13.69% | ||
With sales charge | 2.31% | 8.68% | — | 12.75% | ||
C Class | ACAHX | 7.76% | 9.15% | — | 12.84% | 9/30/11 |
R Class | ACAWX | 8.29% | 9.69% | — | 13.41% | 9/30/11 |
Average annual returns since inception are presented when ten years of performance history is not available.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-c051d1bb10015882a8e.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-c051d1bb10015882a8e.jpg)
Value on October 31, 2018 | |
Investor Class — $33,674 | |
Russell 3000 Growth Index — $41,644 | |
Total Annual Fund Operating Expenses | ||||
Investor Class | I Class | A Class | C Class | R Class |
1.01% | 0.81% | 1.26% | 2.01% | 1.51% |
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. Total returns for periods less than one year are not annualized. 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 Joe Reiland
Portfolio managers Michael Orndorff and Marc Scott left American Century in February 2018, and Gregory Woodhams and Joe Reiland were named portfolio managers for All Cap Growth.
Performance Summary
All Cap Growth returned 8.83%* for the 12 months ended October 31, 2018, lagging the 10.20% return of the portfolio’s benchmark, the Russell 3000 Growth Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp drop in the last month. Growth stocks outperformed value stocks by a wide margin across all capitalization ranges. Within the Russell 3000 Growth Index, all sectors posted gains except for materials and energy. Consumer discretionary and information technology were the leading performers in the index.
In the communication services sector, stock selection and an overweight allocation helped drive the fund’s underperformance relative to the Russell 3000 Growth Index. Stock choices and an underweight in the information technology sector also weighed on results, as did stock selection in consumer staples. Stock decisions in the health care sector led positive contributors, and stock selection and an overweight to financials were also beneficial.
Communication Services Stocks Were Key Detractors
Stock choices in the entertainment industry led underperformance in communication services, a sector introduced at the end of September 2018 comprising stocks previously in a range of other sectors. Detractors from relative performance in the sector included underweighting Netflix relative to the benchmark. Netflix saw its stock price climb for most of the period as a result of expectations for solid user growth, particularly overseas, powered by new streaming content. Electronic Arts underperformed as the video game maker lowered full-year guidance on revenue due to delays in game launches and the impact of foreign exchange.
Newell Brands, which owns several major brand names such as Rubbermaid, detracted. Lower-than-expected earnings were attributed to a slow 2017 back-to-school season and inventory reductions at key customers such as Office Depot and Walmart, along with Toys"R"Us, which declared bankruptcy. We eliminated our holding. Tobacco manufacturer Philip Morris International detracted as the stock was pressured by slowing demand for the company’s IQOS product, an electronically heated smoking device designed to reduce health risks. We eliminated the holding. Underweighting Apple relative to the benchmark detracted. The company reported strong quarterly revenues and earnings. Despite concerns, iPhones are still registering strong revenues. The market also anticipated strong sales of the new iPhones and products announced in September.
Health Care Stocks Aided Performance
Stock selection among health care providers and services led outperformance in the health care sector. Home health and hospice care company Amedisys rose on strong quarterly performance.
Profitability exceeded analysts' expectations due to productivity improvement. Livestock and pet
*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
medicine manufacturer Zoetis was a top contributor. It’s the world leader in animal health, and operating margins and cash-flow trends have improved. The company also benefited from strong global sales.
Other top contributors included Amazon.com. The online retailer continued to demonstrate growth in its Amazon Web Services cloud business as well as strong performance on the e-commerce side. Payment services company MasterCard saw its stock increase on widening profit margins and earnings that beat expectations. The off-price retailer Burlington Stores reported strong comparable sales, and it’s a beneficiary of tax reform, which lowered rates for U.S. companies.
Outlook
Our investment process focuses on companies of all capitalization sizes with improving business fundamentals. The fund’s positioning remains largely stock specific. As of October 31, 2018, the largest overweight allocations relative to the benchmark were in the communication services and consumer discretionary sectors. The portfolio was underweight industrials and financials.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Amazon.com, Inc. | 7.4% |
Alphabet, Inc., Class A | 7.4% |
Microsoft Corp. | 6.4% |
Apple, Inc. | 5.4% |
MasterCard, Inc., Class A | 4.0% |
Facebook, Inc., Class A | 3.7% |
Boeing Co. (The) | 2.7% |
Visa, Inc., Class A | 2.2% |
Broadcom, Inc. | 2.1% |
Home Depot, Inc. (The) | 2.1% |
Top Five Industries | % of net assets |
Interactive Media and Services | 11.5% |
Software | 9.9% |
Internet and Direct Marketing Retail | 8.3% |
IT Services | 7.5% |
Technology Hardware, Storage and Peripherals | 5.4% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.2% |
Temporary Cash Investments | 0.7% |
Other Assets and Liabilities | 0.1% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,030.60 | $5.12 | 1.00% |
I Class | $1,000 | $1,031.60 | $4.10 | 0.80% |
A Class | $1,000 | $1,029.20 | $6.39 | 1.25% |
C Class | $1,000 | $1,025.30 | $10.21 | 2.00% |
R Class | $1,000 | $1,028.00 | $7.67 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
I 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.2% | |||||
Aerospace and Defense — 4.6% | |||||
Boeing Co. (The) | 85,692 | $ | 30,408,663 | ||
L3 Technologies, Inc. | 25,757 | 4,880,179 | |||
Lockheed Martin Corp. | 56,254 | 16,530,238 | |||
51,819,080 | |||||
Air Freight and Logistics — 1.1% | |||||
XPO Logistics, Inc.(1) | 132,452 | 11,838,560 | |||
Airlines — 1.3% | |||||
American Airlines Group, Inc. | 62,902 | 2,206,602 | |||
Delta Air Lines, Inc. | 222,048 | 12,152,687 | |||
14,359,289 | |||||
Beverages — 0.5% | |||||
Constellation Brands, Inc., Class A | 29,376 | 5,852,580 | |||
Biotechnology — 2.5% | |||||
Acceleron Pharma, Inc.(1) | 35,391 | 1,796,801 | |||
Biogen, Inc.(1) | 19,619 | 5,969,473 | |||
BioMarin Pharmaceutical, Inc.(1) | 50,084 | 4,616,242 | |||
Exelixis, Inc.(1) | 225,846 | 3,132,484 | |||
Vertex Pharmaceuticals, Inc.(1) | 70,210 | 11,897,787 | |||
27,412,787 | |||||
Capital Markets — 2.2% | |||||
Cboe Global Markets, Inc. | 7,923 | 894,111 | |||
Charles Schwab Corp. (The) | 199,247 | 9,213,181 | |||
S&P Global, Inc. | 49,424 | 9,010,984 | |||
SEI Investments Co. | 95,120 | 5,084,164 | |||
24,202,440 | |||||
Chemicals — 0.2% | |||||
Valvoline, Inc. | 136,063 | 2,710,375 | |||
Communications Equipment — 1.2% | |||||
Palo Alto Networks, Inc.(1) | 72,469 | 13,264,726 | |||
Consumer Finance — 0.6% | |||||
American Express Co. | 60,969 | 6,263,345 | |||
Electrical Equipment — 0.4% | |||||
AMETEK, Inc. | 60,969 | 4,089,801 | |||
Electronic Equipment, Instruments and Components — 1.4% | |||||
CDW Corp. | 108,368 | 9,754,204 | |||
National Instruments Corp. | 114,269 | 5,595,753 | |||
15,349,957 | |||||
Energy Equipment and Services — 0.5% | |||||
Halliburton Co. | 156,043 | 5,411,571 | |||
Entertainment — 2.8% | |||||
Electronic Arts, Inc.(1) | 116,211 | 10,572,877 |
10
Shares | Value | ||||
Liberty Media Corp-Liberty Formula One, Class C(1) | 76,282 | $ | 2,523,409 | ||
Netflix, Inc.(1) | 43,644 | 13,170,886 | |||
Take-Two Interactive Software, Inc.(1) | 42,042 | 5,417,952 | |||
31,685,124 | |||||
Equity Real Estate Investment Trusts (REITs) — 1.7% | |||||
Crown Castle International Corp. | 63,454 | 6,899,988 | |||
Equity Residential | 29,074 | 1,888,647 | |||
SBA Communications Corp.(1) | 65,443 | 10,612,891 | |||
19,401,526 | |||||
Food and Staples Retailing — 0.8% | |||||
Walmart, Inc. | 86,415 | 8,665,696 | |||
Food Products — 1.3% | |||||
Mondelez International, Inc., Class A | 340,487 | 14,293,644 | |||
Health Care Equipment and Supplies — 3.8% | |||||
ABIOMED, Inc.(1) | 13,916 | 4,748,139 | |||
Align Technology, Inc.(1) | 22,850 | 5,054,420 | |||
Baxter International, Inc. | 80,266 | 5,017,428 | |||
Boston Scientific Corp.(1) | 130,654 | 4,721,835 | |||
Edwards Lifesciences Corp.(1) | 38,292 | 5,651,899 | |||
IDEXX Laboratories, Inc.(1) | 12,963 | 2,749,712 | |||
Intuitive Surgical, Inc.(1) | 20,495 | 10,681,584 | |||
Penumbra, Inc.(1) | 31,628 | 4,301,408 | |||
42,926,425 | |||||
Health Care Providers and Services — 4.1% | |||||
Amedisys, Inc.(1) | 27,017 | 2,971,870 | |||
Humana, Inc. | 44,019 | 14,104,128 | |||
Quest Diagnostics, Inc. | 136,299 | 12,827,099 | |||
Tivity Health, Inc.(1) | 81,058 | 2,789,206 | |||
WellCare Health Plans, Inc.(1) | 48,342 | 13,341,908 | |||
46,034,211 | |||||
Health Care Technology — 0.5% | |||||
Cerner Corp.(1) | 94,158 | 5,393,370 | |||
Hotels, Restaurants and Leisure — 2.4% | |||||
Chipotle Mexican Grill, Inc.(1) | 5,544 | 2,552,070 | |||
Darden Restaurants, Inc. | 28,237 | 3,008,652 | |||
Las Vegas Sands Corp. | 157,666 | 8,045,696 | |||
MGM Resorts International | 154,782 | 4,129,584 | |||
Royal Caribbean Cruises Ltd. | 88,647 | 9,284,000 | |||
27,020,002 | |||||
Household Products — 1.5% | |||||
Church & Dwight Co., Inc. | 68,155 | 4,046,362 | |||
Procter & Gamble Co. (The) | 148,344 | 13,155,146 | |||
17,201,508 | |||||
Interactive Media and Services — 11.5% | |||||
Alphabet, Inc., Class A(1) | 75,495 | 82,333,337 | |||
Facebook, Inc., Class A(1) | 270,057 | 40,991,952 |
11
Shares | Value | ||||
Twitter, Inc.(1) | 150,809 | $ | 5,240,613 | ||
128,565,902 | |||||
Internet and Direct Marketing Retail — 8.3% | |||||
Alibaba Group Holding Ltd. ADR(1) | 35,083 | 4,991,609 | |||
Amazon.com, Inc.(1) | 51,910 | 82,952,699 | |||
Booking Holdings, Inc.(1) | 2,234 | 4,187,812 | |||
92,132,120 | |||||
IT Services — 7.5% | |||||
Fiserv, Inc.(1) | 11,042 | 875,630 | |||
MasterCard, Inc., Class A | 223,164 | 44,112,828 | |||
PayPal Holdings, Inc.(1) | 151,604 | 12,763,541 | |||
VeriSign, Inc.(1) | 11,159 | 1,590,604 | |||
Visa, Inc., Class A | 174,801 | 24,096,318 | |||
83,438,921 | |||||
Life Sciences Tools and Services — 1.7% | |||||
Agilent Technologies, Inc. | 132,436 | 8,580,528 | |||
Bio-Techne Corp. | 25,748 | 4,318,455 | |||
Illumina, Inc.(1) | 20,944 | 6,516,726 | |||
19,415,709 | |||||
Machinery — 1.3% | |||||
Evoqua Water Technologies Corp.(1) | 320,362 | 3,075,475 | |||
Ingersoll-Rand plc | 40,039 | 3,841,342 | |||
WABCO Holdings, Inc.(1) | 73,347 | 7,881,135 | |||
14,797,952 | |||||
Multiline Retail — 0.5% | |||||
Target Corp. | 64,336 | 5,380,420 | |||
Oil, Gas and Consumable Fuels — 1.3% | |||||
Concho Resources, Inc.(1) | 105,239 | 14,637,693 | |||
Personal Products — 0.6% | |||||
Estee Lauder Cos., Inc. (The), Class A | 47,359 | 6,509,021 | |||
Pharmaceuticals — 1.8% | |||||
Novo Nordisk A/S, B Shares | 53,797 | 2,326,856 | |||
Zoetis, Inc. | 191,002 | 17,218,830 | |||
19,545,686 | |||||
Road and Rail — 1.4% | |||||
Canadian Pacific Railway Ltd. | 17,769 | 3,642,645 | |||
Norfolk Southern Corp. | 34,504 | 5,790,806 | |||
Union Pacific Corp. | 42,945 | 6,279,418 | |||
15,712,869 | |||||
Semiconductors and Semiconductor Equipment — 5.1% | |||||
Applied Materials, Inc. | 400,163 | 13,157,359 | |||
ASML Holding NV | 76,819 | 13,131,408 | |||
Broadcom, Inc. | 105,373 | 23,549,812 | |||
KLA-Tencor Corp. | 50,629 | 4,634,579 | |||
Maxim Integrated Products, Inc. | 43,589 | 2,180,322 | |||
56,653,480 |
12
Shares | Value | ||||
Software — 9.9% | |||||
Adobe, Inc.(1) | 65,441 | $ | 16,082,780 | ||
Microsoft Corp. | 672,374 | 71,816,267 | |||
salesforce.com, Inc.(1) | 126,600 | 17,374,584 | |||
Splunk, Inc.(1) | 47,848 | 4,777,144 | |||
110,050,775 | |||||
Specialty Retail — 4.3% | |||||
Burlington Stores, Inc.(1) | 47,192 | 8,092,956 | |||
Home Depot, Inc. (The) | 132,159 | 23,244,125 | |||
TJX Cos., Inc. (The) | 151,628 | 16,660,885 | |||
47,997,966 | |||||
Technology Hardware, Storage and Peripherals — 5.4% | |||||
Apple, Inc. | 276,378 | 60,488,089 | |||
Textiles, Apparel and Luxury Goods — 2.1% | |||||
NIKE, Inc., Class B | 170,058 | 12,761,153 | |||
Tapestry, Inc. | 244,288 | 10,335,825 | |||
23,096,978 | |||||
Tobacco — 1.1% | |||||
Altria Group, Inc. | 181,520 | 11,806,061 | |||
TOTAL COMMON STOCKS (Cost $732,581,462) | 1,105,425,659 | ||||
TEMPORARY CASH INVESTMENTS — 0.7% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $5,420,551), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $5,310,789) | 5,310,494 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $2,711,761), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $2,657,078) | 2,657,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 6,168 | 6,168 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,973,662) | 7,973,662 | ||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $740,555,124) | 1,113,399,321 | ||||
OTHER ASSETS AND LIABILITIES — 0.1% | 1,630,209 | ||||
TOTAL NET ASSETS — 100.0% | $ | 1,115,029,530 |
13
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 694,861 | USD | 542,989 | Morgan Stanley | 12/31/18 | $ | (14,466 | ) | ||
CAD | 440,425 | USD | 338,400 | Morgan Stanley | 12/31/18 | (3,406 | ) | |||
CAD | 647,481 | USD | 496,795 | Morgan Stanley | 12/31/18 | (4,310 | ) | |||
CAD | 188,881 | USD | 144,525 | Morgan Stanley | 12/31/18 | (859 | ) | |||
CAD | 737,295 | USD | 562,612 | Morgan Stanley | 12/31/18 | (1,813 | ) | |||
USD | 5,350,330 | CAD | 6,896,576 | Morgan Stanley | 12/31/18 | 104,682 | ||||
USD | 149,448 | CAD | 194,226 | Morgan Stanley | 12/31/18 | 1,717 | ||||
USD | 118,436 | CAD | 153,045 | Morgan Stanley | 12/31/18 | 2,027 | ||||
USD | 146,922 | CAD | 190,230 | Morgan Stanley | 12/31/18 | 2,230 | ||||
USD | 132,341 | CAD | 173,696 | Morgan Stanley | 12/31/18 | 225 | ||||
EUR | 264,647 | USD | 305,867 | Credit Suisse AG | 12/31/18 | (4,437 | ) | |||
EUR | 349,834 | USD | 404,983 | Credit Suisse AG | 12/31/18 | (6,526 | ) | |||
EUR | 515,763 | USD | 590,806 | Credit Suisse AG | 12/31/18 | (3,358 | ) | |||
EUR | 373,340 | USD | 426,261 | Credit Suisse AG | 12/31/18 | (1,030 | ) | |||
USD | 10,362,234 | EUR | 8,748,917 | Credit Suisse AG | 12/31/18 | 397,304 | ||||
USD | 1,188,922 | EUR | 1,003,318 | Credit Suisse AG | 12/31/18 | 46,152 | ||||
USD | 468,675 | EUR | 402,504 | Credit Suisse AG | 12/31/18 | 10,228 | ||||
USD | 430,765 | EUR | 372,087 | Credit Suisse AG | 12/31/18 | 6,962 | ||||
USD | 952,413 | EUR | 826,030 | Credit Suisse AG | 12/31/18 | 11,573 | ||||
USD | 400,588 | EUR | 349,834 | Credit Suisse AG | 12/31/18 | 2,130 | ||||
$ | 545,025 |
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.
14
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $740,555,124) | $ | 1,113,399,321 | |
Receivable for investments sold | 6,143,773 | ||
Receivable for capital shares sold | 97,799 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 585,230 | ||
Dividends and interest receivable | 217,560 | ||
1,120,443,683 | |||
Liabilities | |||
Payable for investments purchased | 4,042,699 | ||
Payable for capital shares redeemed | 329,723 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 40,205 | ||
Accrued management fees | 988,070 | ||
Distribution and service fees payable | 13,456 | ||
5,414,153 | |||
Net Assets | $ | 1,115,029,530 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 621,360,964 | |
Distributable earnings | 493,668,566 | ||
$ | 1,115,029,530 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $1,080,123,861 | 31,173,613 | $34.65 | |||
I Class, $0.01 Par Value | $2,540,072 | 72,012 | $35.27 | |||
A Class, $0.01 Par Value | $12,135,790 | 358,408 | $33.86* | |||
C Class, $0.01 Par Value | $4,751,798 | 150,534 | $31.57 | |||
R Class, $0.01 Par Value | $15,478,009 | 467,884 | $33.08 |
*Maximum offering price $35.93 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $13,420) | $ | 10,951,078 | |
Interest | 83,985 | ||
11,035,063 | |||
Expenses: | |||
Management fees | 11,709,980 | ||
Distribution and service fees: | |||
A Class | 29,199 | ||
C Class | 46,707 | ||
R Class | 78,719 | ||
Directors' fees and expenses | 26,482 | ||
11,891,087 | |||
Net investment income (loss) | (856,024 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 122,573,534 | ||
Forward foreign currency exchange contract transactions | 309,388 | ||
Foreign currency translation transactions | (3,964 | ) | |
122,878,958 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (23,274,764 | ) | |
Forward foreign currency exchange contracts | 107,729 | ||
(23,167,035 | ) | ||
Net realized and unrealized gain (loss) | 99,711,923 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 98,855,899 |
See Notes to Financial Statements.
16
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | (856,024 | ) | $ | (364,567 | ) |
Net realized gain (loss) | 122,878,958 | 87,438,049 | ||||
Change in net unrealized appreciation (depreciation) | (23,167,035 | ) | 126,570,224 | |||
Net increase (decrease) in net assets resulting from operations | 98,855,899 | 213,643,706 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
Investor Class | (86,141,596 | ) | (76,992,389 | ) | ||
I Class | (157,527 | ) | (24,235 | ) | ||
A Class | (841,233 | ) | (892,906 | ) | ||
C Class | (384,114 | ) | (367,332 | ) | ||
R Class | (1,261,456 | ) | (1,122,342 | ) | ||
Decrease in net assets from distributions | (88,785,926 | ) | (79,399,204 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (8,606,955 | ) | (21,459,622 | ) | ||
Net increase (decrease) in net assets | 1,463,018 | 112,784,880 | ||||
Net Assets | ||||||
Beginning of period | 1,113,566,512 | 1,000,781,632 | ||||
End of period | $ | 1,115,029,530 | $ | 1,113,566,512 |
See Notes to Financial Statements.
17
Notes to Financial Statements |
OCTOBER 31, 2018
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's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, A Class, C Class and 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.
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.
18
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.
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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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class.
The annual management fee for each class is as follows:
Investor Class | I Class | A Class | C Class | R Class |
1.000% | 0.800% | 1.000% | 1.000% | 1.000% |
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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $9,334,145 and $7,987,319, respectively. The effect of interfund transactions on the Statement of Operations was $1,547,609 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $564,545,039 and $666,988,589, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 275,000,000 | 275,000,000 | ||||||||
Sold | 928,819 | $ | 32,780,365 | 1,210,817 | $ | 38,104,988 | ||||
Issued in reinvestment of distributions | 2,543,226 | 84,155,360 | 2,577,725 | 75,140,689 | ||||||
Redeemed | (3,645,506 | ) | (128,563,749 | ) | (4,234,620 | ) | (133,767,212 | ) | ||
(173,461 | ) | (11,628,024 | ) | (446,078 | ) | (20,521,535 | ) | |||
I Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 34,439 | 1,233,710 | 50,801 | 1,694,156 | ||||||
Issued in reinvestment of distributions | 4,684 | 157,527 | 821 | 24,235 | ||||||
Redeemed | (23,193 | ) | (822,320 | ) | (5,816 | ) | (190,795 | ) | ||
15,930 | 568,917 | 45,806 | 1,527,596 | |||||||
A Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 88,125 | 3,055,362 | 119,170 | 3,718,038 | ||||||
Issued in reinvestment of distributions | 25,613 | 830,104 | 30,812 | 883,069 | ||||||
Redeemed | (56,116 | ) | (1,943,945 | ) | (206,118 | ) | (6,452,655 | ) | ||
57,622 | 1,941,521 | (56,136 | ) | (1,851,548 | ) | |||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 22,672 | 739,682 | 31,689 | 924,752 | ||||||
Issued in reinvestment of distributions | 12,631 | 384,114 | 13,485 | 367,332 | ||||||
Redeemed | (24,312 | ) | (780,905 | ) | (56,018 | ) | (1,659,903 | ) | ||
10,991 | 342,891 | (10,844 | ) | (367,819 | ) | |||||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 122,415 | 4,142,899 | 80,291 | 2,431,503 | ||||||
Issued in reinvestment of distributions | 39,756 | 1,261,456 | 39,828 | 1,122,342 | ||||||
Redeemed | (153,994 | ) | (5,236,615 | ) | (126,203 | ) | (3,800,161 | ) | ||
8,177 | 167,740 | (6,084 | ) | (246,316 | ) | |||||
Net increase (decrease) | (80,741 | ) | $ | (8,606,955 | ) | (473,336 | ) | $ | (21,459,622 | ) |
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.
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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 | $ | 1,089,967,395 | $ | 15,458,264 | — | |||
Temporary Cash Investments | 6,168 | 7,967,494 | — | |||||
$ | 1,089,973,563 | $ | 23,425,758 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 585,230 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 40,205 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $16,167,751.
The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $585,230 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $40,205 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $309,388 in net realized gain (loss) on forward foreign currency exchange contract transactions and $107,729 in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | — | — | ||||
Long-term capital gains | $ | 88,785,926 | $ | 79,399,204 |
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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As of period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 741,157,664 | |
Gross tax appreciation of investments | $ | 402,140,582 | |
Gross tax depreciation of investments | (29,898,925 | ) | |
Net tax appreciation (depreciation) | $ | 372,241,657 | |
Undistributed ordinary income | — | ||
Accumulated long-term gains | $ | 122,544,324 | |
Late-year ordinary loss deferral | $ | (1,117,415 | ) |
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.
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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 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 | |||||||||||||
2018 | $34.51 | (0.02) | 2.94 | 2.92 | (2.78) | $34.65 | 8.83% | 1.00% | (0.06)% | 49% | $1,080,124 | ||
2017 | $30.56 | (0.01) | 6.41 | 6.40 | (2.45) | $34.51 | 22.43% | 1.01% | (0.03)% | 44% | $1,081,686 | ||
2016 | $32.53 | (0.03) | 0.08 | 0.05 | (2.02) | $30.56 | 0.24% | 1.00% | (0.09)% | 49% | $971,588 | ||
2015 | $34.71 | (0.05) | 2.71 | 2.66 | (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) | $34.71 | 11.50% | 1.00% | (0.18)% | 56% | $1,079,950 | ||
I Class | |||||||||||||
2018 | $35.01 | 0.05 | 2.99 | 3.04 | (2.78) | $35.27 | 9.06% | 0.80% | 0.14% | 49% | $2,540 | ||
2017 | $30.92 | 0.02 | 6.52 | 6.54 | (2.45) | $35.01 | 22.64% | 0.81% | 0.17% | 44% | $1,964 | ||
2016 | $32.83 | 0.03 | 0.08 | 0.11 | (2.02) | $30.92 | 0.46% | 0.80% | 0.11% | 49% | $318 | ||
2015 | $34.92 | 0.01 | 2.74 | 2.75 | (4.84) | $32.83 | 9.60% | 0.80% | 0.05% | 43% | $280 | ||
2014 | $35.76 | —(3) | 3.66 | 3.66 | (4.50) | $34.92 | 11.71% | 0.80% | 0.02% | 56% | $191 | ||
A Class | |||||||||||||
2018 | $33.86 | (0.11) | 2.89 | 2.78 | (2.78) | $33.86 | 8.56% | 1.25% | (0.31)% | 49% | $12,136 | ||
2017 | $30.10 | (0.09) | 6.30 | 6.21 | (2.45) | $33.86 | 22.12% | 1.26% | (0.28)% | 44% | $10,185 | ||
2016 | $32.15 | (0.10) | 0.07 | (0.03) | (2.02) | $30.10 | (0.02)% | 1.25% | (0.34)% | 49% | $10,743 | ||
2015 | $34.44 | (0.13) | 2.68 | 2.55 | (4.84) | $32.15 | 9.12% | 1.25% | (0.40)% | 43% | $10,657 | ||
2014 | $35.47 | (0.14) | 3.61 | 3.47 | (4.50) | $34.44 | 11.22% | 1.25% | (0.43)% | 56% | $8,837 |
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 | |||||||||||||
2018 | $31.97 | (0.35) | 2.73 | 2.38 | (2.78) | $31.57 | 7.76% | 2.00% | (1.06)% | 49% | $4,752 | ||
2017 | $28.75 | (0.30) | 5.97 | 5.67 | (2.45) | $31.97 | 21.21% | 2.01% | (1.03)% | 44% | $4,461 | ||
2016 | $31.02 | (0.31) | 0.06 | (0.25) | (2.02) | $28.75 | (0.77)% | 2.00% | (1.09)% | 49% | $4,324 | ||
2015 | $33.62 | (0.35) | 2.59 | 2.24 | (4.84) | $31.02 | 8.32% | 2.00% | (1.15)% | 43% | $4,656 | ||
2014 | $34.96 | (0.38) | 3.54 | 3.16 | (4.50) | $33.62 | 10.40% | 2.00% | (1.18)% | 56% | $3,932 | ||
R Class | |||||||||||||
2018 | $33.22 | (0.19) | 2.83 | 2.64 | (2.78) | $33.08 | 8.29% | 1.50% | (0.56)% | 49% | $15,478 | ||
2017 | $29.65 | (0.16) | 6.18 | 6.02 | (2.45) | $33.22 | 21.79% | 1.51% | (0.53)% | 44% | $15,271 | ||
2016 | $31.77 | (0.18) | 0.08 | (0.10) | (2.02) | $29.65 | (0.25)% | 1.50% | (0.59)% | 49% | $13,809 | ||
2015 | $34.16 | (0.20) | 2.65 | 2.45 | (4.84) | $31.77 | 8.87% | 1.50% | (0.65)% | 43% | $13,544 | ||
2014 | $35.30 | (0.22) | 3.58 | 3.36 | (4.50) | $34.16 | 10.93% | 1.50% | (0.68)% | 56% | $9,743 |
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.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of All Cap Growth Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of All Cap Growth Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
29
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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.
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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 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, expenses attributable to short sales, 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. 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.
32
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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 $88,785,926, or up to the maximum amount allowable, as long-term
capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
35
Notes |
36
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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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90973 1812 |
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Annual Report | |
October 31, 2018 | |
Balanced Fund | |
Investor Class (TWBIX) | |
I Class (ABINX) | |
R5 Class (ABGNX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWBIX | 1.72% | 5.95% | 8.63% | — | 10/20/88 |
Blended Index | — | 3.66% | 7.58% | 9.69% | — | — |
S&P 500 Index | — | 7.35% | 11.33% | 13.23% | — | — |
Bloomberg Barclays U.S. Aggregate Bond Index | — | -2.05% | 1.83% | 3.94% | — | — |
I Class | ABINX | 1.92% | 6.16% | 8.85% | — | 5/1/00 |
R5 Class | ABGNX | 1.93% | — | — | 5.85% | 4/10/17 |
Average annual returns since inception are presented when ten years of performance history is not available.
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 Bloomberg Barclays U.S. Aggregate Bond Index.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-966c3670ca53598a8d0.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-966c3670ca53598a8d0.jpg)
Value on October 31, 2018 | |
Investor Class — $22,900 | |
Blended Index — $25,210 | |
S&P 500 Index — $34,668 | |
Bloomberg Barclays U.S. Aggregate Bond Index — $14,715 | |
Total Annual Fund Operating Expenses | ||
Investor Class | I Class | R5 Class |
0.91% | 0.71% | 0.71% |
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. Total returns for periods less than one year are not annualized. 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 |
Equity Portfolio Managers: Claudia Musat and Steven Rossi
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, Brian Howell, and Charles Tan.
As of October 31, 2018, Dave MacEwen stepped down from portfolio management duties due to retirement, and Charles Tan has joined the management team.
Performance Summary
Balanced returned 1.72%* for the 12 months ended October 31, 2018. By comparison, the fund’s benchmark (a blended index consisting of 60% S&P 500 Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index) returned 3.66%. Balanced seeks 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 purpose of the broad bond market exposure is to reduce the volatility of the equity portfolio, providing a more attractive overall risk/return profile for investors. The total fund’s drivers of both absolute and relative returns, however, are typically a function of the equity allocation. Therefore, the performance attribution discussion focuses primarily on the equity segment.
Information Technology and Communication Services Largest Equity Detractors
The largest detractors from relative performance were the information technology and communication services sectors. Real estate also detracted. In information technology, stock selection among semiconductors and semiconductor equipment companies was weak. Among these companies were Applied Materials and Lam Research, which were some of the top detracting individual positions during the period. They were both hurt when trade tensions escalated, as was the industry group in general. We have since exited our position in Applied Materials. Selection within IT services also hurt relative returns, as did an underweight to this industry. In particular, it hurt to have an overweight position in International Business Machines and to have no exposure to MasterCard.
In communication services, stock decisions weighed on returns, particularly in the entertainment industry. Lack of exposure to Netflix hurt results within the sector and was one of the top detracting positions during the year. Positioning in the interactive media and services industry also detracted, where an overweight position to Facebook weighed on returns. The social media company experienced multiple setbacks during the period, including scrutiny for their data sharing practices and a leadership loss from their Instagram brand.
Selection within real estate also hurt returns, particularly within equity real estate investment trusts (REITs). Exposure to PotlatchDeltic was a main detractor. REITs were disadvantaged during the period by the rising rate environment, which makes their risk/return profile look less competitive versus bonds, generally hurting demand.
Financials and Consumer Discretionary Led Equity Gains
Stock selection in the financials sector, particularly in the capital markets, insurance, and banks industries, contributed to performance. Successful stock choices within capital markets boosted returns, as overweight positions in Nasdaq and MSCI helped fund performance. In insurance, avoiding exposure to several index companies benefited relative results. An underweight to Citigroup in the banks industry was also helpful.
*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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Positioning in the internet and catalog retail industry within the consumer discretionary sector also boosted relative results. An overweight to Amazon.com was a top contributor. Stock choices in the specialty retail industry also helped returns, as did a position in textiles, apparel, and luxury goods company Deckers Outdoor. The outdoor goods company saw strong earnings for each quarter during the period and was a top contributor to relative performance.
Other top contributors for the 12-month period included an underweight to General Electric, a company that saw its stock price decline through much of the year due to continued investor concerns over its management and business strategy. We have since closed our position in General Electric. An overweight to energy company HollyFrontier also benefited results, as its stock price rose through much of the period due to increasing oil prices.
Bond Performance Subdued
Bond market performance was negative during the year. In late 2017, the U.S. Federal Reserve (the Fed) began to unwind its balance sheet by reducing their exposure to mortgage-backed securities. It also continued down a path of well-projected and predictable 25 basis point rate hikes. Longer-term rates also rose during this time. U.S. corporate and emerging markets debt outperformed. The globe was still in its period of synchronized, strong growth.
However, a shift occurred in February of 2018. U.S. inflationary pressures began to mount, and while the U.S. economy continued to strengthen, growth in other developed countries started to slow. Corporate and emerging markets debt gave up much of their earlier gains. Riskier corporate high-yield debt recovered and outperformed significantly the last half of the period, while investment-grade corporates, whose yields are lower and tend to be more sensitive to changes in interest rates than high-yield bonds, underperformed. At the end of the 12 months, investment-grade corporate debt lagged Treasuries, which in turn trailed Treasury Inflation-Protected Securities (TIPS). Emerging markets debt did not rebound after the February volatility, and continued to deteriorate throughout the period, weighed down by a strengthening U.S. dollar, concerns over trade disputes, and upheaval in Turkey and Argentina. In this environment, the fixed-income portion of Balanced Fund lost value and slightly trailed the -2.05% return of its benchmark.
Outlook
The U.S. continues to enjoy positive economic growth and a strong job market. Wage pressures have continued to mount, leading to increased inflation and the expectation of further rate increases by the Fed. Given the disjointed global growth, strong dollar, and financial and geopolitical issues pressuring the markets abroad, it is possible other developed countries may continue to raise rates more slowly than the U.S. If this is the case, it is possible that the long end of the U.S. Treasury yield curve may remain tethered to global rates, causing additional flattening as the Fed raises the short end of the curve. With the October convergence of such variables as trade disputes, Brexit uncertainty, Turkish and Argentinean contagion risk, and Italy concerns, it is hardly a surprise that volatility came on strong the final month of the fiscal year. However, volatility adjusts valuations and can provide buying opportunities. We will continue to monitor the situation and invest appropriately. We believe that with continued uncertainty on many fronts, a diversified approach, involving exposure to a wide range of noncorrelated asset classes, is a prudent approach.
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Fund Characteristics |
OCTOBER 31, 2018 | |
Key Fixed-Income Portfolio Statistics | |
Weighted Average Life to Maturity | 8.4 years |
Average Duration (effective) | 5.8 years |
Top Ten Common Stocks | % of net assets |
Microsoft Corp. | 2.5% |
Alphabet, Inc., Class A | 2.2% |
Apple, Inc. | 2.2% |
Amazon.com, Inc. | 2.1% |
JPMorgan Chase & Co. | 1.5% |
Facebook, Inc., Class A | 1.4% |
UnitedHealth Group, Inc. | 1.1% |
Pfizer, Inc. | 1.1% |
Cisco Systems, Inc. | 1.1% |
Bank of America Corp. | 1.1% |
Top Five Common Stocks Industries | % of net assets |
Software | 4.3% |
Banks | 4.2% |
Oil, Gas and Consumable Fuels | 4.1% |
Interactive Media and Services | 3.6% |
Semiconductors and Semiconductor Equipment | 2.9% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 57.9% |
Corporate Bonds | 12.5% |
U.S. Government Agency Mortgage-Backed Securities | 9.8% |
U.S. Treasury Securities | 8.6% |
Asset-Backed Securities | 3.3% |
Collateralized Mortgage Obligations | 3.2% |
Collateralized Loan Obligations | 2.0% |
Commercial Mortgage-Backed Securities | 2.0% |
Bank Loan Obligations | 0.8% |
Municipal Securities | 0.6% |
Sovereign Governments and Agencies | 0.4% |
U.S. Government Agency Securities | 0.2% |
Temporary Cash Investments | 3.0% |
Other Assets and Liabilities | (4.3)% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $995.70 | $4.53 | 0.90% |
I Class | $1,000 | $996.70 | $3.52 | 0.70% |
R5 Class | $1,000 | $996.70 | $3.52 | 0.70% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.67 | $4.58 | 0.90% |
I Class | $1,000 | $1,021.68 | $3.57 | 0.70% |
R5 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares/ Principal Amount | Value | ||||||
COMMON STOCKS — 57.9% | |||||||
Aerospace and Defense — 2.4% | |||||||
Boeing Co. (The) | 21,740 | $ | 7,714,656 | ||||
Curtiss-Wright Corp. | 10,117 | 1,107,407 | |||||
Lockheed Martin Corp. | 9,460 | 2,779,821 | |||||
Raytheon Co. | 26,952 | 4,717,678 | |||||
Teledyne Technologies, Inc.(1) | 1,971 | 436,143 | |||||
Textron, Inc. | 66,143 | 3,547,249 | |||||
20,302,954 | |||||||
Banks — 4.2% | |||||||
Bank of America Corp. | 339,129 | 9,326,047 | |||||
BB&T Corp. | 11,880 | 584,021 | |||||
Citigroup, Inc. | 1,399 | 91,579 | |||||
Fifth Third Bancorp | 47,462 | 1,280,999 | |||||
JPMorgan Chase & Co. | 121,117 | 13,204,175 | |||||
SunTrust Banks, Inc. | 68,595 | 4,298,163 | |||||
U.S. Bancorp | 69,818 | 3,649,387 | |||||
Wells Fargo & Co. | 69,708 | 3,710,557 | |||||
36,144,928 | |||||||
Beverages — 0.5% | |||||||
Constellation Brands, Inc., Class A | 23,467 | 4,675,330 | |||||
Biotechnology — 2.5% | |||||||
AbbVie, Inc. | 64,160 | 4,994,856 | |||||
Alexion Pharmaceuticals, Inc.(1) | 11,858 | 1,328,926 | |||||
Amgen, Inc. | 40,355 | 7,780,041 | |||||
Biogen, Inc.(1) | 18,964 | 5,770,176 | |||||
Celgene Corp.(1) | 28,029 | 2,006,876 | |||||
21,880,875 | |||||||
Building Products† | |||||||
Resideo Technologies, Inc.(1) | 4,219 | 88,807 | |||||
Capital Markets — 0.4% | |||||||
Evercore, Inc., Class A | 36,508 | 2,982,338 | |||||
Northern Trust Corp. | 4,879 | 458,968 | |||||
3,441,306 | |||||||
Chemicals — 0.3% | |||||||
CF Industries Holdings, Inc. | 55,441 | 2,662,831 | |||||
Trinseo SA | 4,668 | 251,512 | |||||
2,914,343 | |||||||
Commercial Services and Supplies — 1.3% | |||||||
Clean Harbors, Inc.(1) | 3,426 | 233,105 | |||||
MSA Safety, Inc. | 16,011 | 1,672,189 | |||||
Republic Services, Inc. | 61,311 | 4,456,083 |
10
Shares/ Principal Amount | Value | ||||||
Waste Management, Inc. | 54,017 | $ | 4,832,901 | ||||
11,194,278 | |||||||
Communications Equipment — 1.1% | |||||||
Cisco Systems, Inc. | 206,225 | 9,434,794 | |||||
Consumer Finance — 1.6% | |||||||
American Express Co. | 52,983 | 5,442,944 | |||||
Discover Financial Services | 60,685 | 4,227,924 | |||||
Synchrony Financial | 136,779 | 3,950,177 | |||||
13,621,045 | |||||||
Diversified Consumer Services — 0.6% | |||||||
Graham Holdings Co., Class B | 1,112 | 646,128 | |||||
H&R Block, Inc. | 172,300 | 4,572,842 | |||||
5,218,970 | |||||||
Diversified Financial Services — 0.5% | |||||||
Berkshire Hathaway, Inc., Class B(1) | 21,469 | 4,407,156 | |||||
Diversified Telecommunication Services — 0.5% | |||||||
AT&T, Inc. | 33,707 | 1,034,131 | |||||
Verizon Communications, Inc. | 53,596 | 3,059,795 | |||||
4,093,926 | |||||||
Electric Utilities — 0.2% | |||||||
OGE Energy Corp. | 43,217 | 1,562,295 | |||||
Electrical Equipment — 0.1% | |||||||
Generac Holdings, Inc.(1) | 8,977 | 455,403 | |||||
Electronic Equipment, Instruments and Components† | |||||||
National Instruments Corp. | 7,453 | 364,973 | |||||
Energy Equipment and Services — 0.5% | |||||||
Halliburton Co. | 126,247 | 4,378,246 | |||||
Entertainment — 0.5% | |||||||
Electronic Arts, Inc.(1) | 42,942 | 3,906,863 | |||||
Equity Real Estate Investment Trusts (REITs) — 1.6% | |||||||
Gaming and Leisure Properties, Inc. | 38,709 | 1,304,106 | |||||
Healthcare Trust of America, Inc., Class A | 32,058 | 841,843 | |||||
Highwoods Properties, Inc. | 13,174 | 561,739 | |||||
Host Hotels & Resorts, Inc. | 98,693 | 1,886,023 | |||||
Kimco Realty Corp. | 145,221 | 2,336,606 | |||||
Life Storage, Inc. | 3,529 | 332,291 | |||||
Park Hotels & Resorts, Inc. | 39,084 | 1,136,172 | |||||
PotlatchDeltic Corp. | 50,634 | 1,835,483 | |||||
PS Business Parks, Inc. | 6,742 | 880,505 | |||||
Rayonier, Inc. | 11,485 | 346,847 | |||||
Senior Housing Properties Trust | 19,216 | 308,801 | |||||
Weingarten Realty Investors | 38,690 | 1,087,963 | |||||
Weyerhaeuser Co. | 27,682 | 737,172 | |||||
13,595,551 | |||||||
Food and Staples Retailing — 0.5% | |||||||
US Foods Holding Corp.(1) | 134,445 | 3,921,761 |
11
Shares/ Principal Amount | Value | ||||||
Food Products — 0.3% | |||||||
General Mills, Inc. | 57,749 | $ | 2,529,406 | ||||
Mondelez International, Inc., Class A | 9,539 | 400,447 | |||||
2,929,853 | |||||||
Health Care Equipment and Supplies — 2.5% | |||||||
Abbott Laboratories | 32,048 | 2,209,389 | |||||
DexCom, Inc.(1) | 1,730 | 229,692 | |||||
Haemonetics Corp.(1) | 18,852 | 1,969,468 | |||||
Hill-Rom Holdings, Inc. | 22,562 | 1,897,013 | |||||
ICU Medical, Inc.(1) | 5,165 | 1,315,680 | |||||
Intuitive Surgical, Inc.(1) | 10,195 | 5,313,430 | |||||
Medtronic plc | 70,664 | 6,347,041 | |||||
STERIS plc | 16,237 | 1,774,867 | |||||
Varian Medical Systems, Inc.(1) | 1,884 | 224,893 | |||||
21,281,473 | |||||||
Health Care Providers and Services — 1.4% | |||||||
Amedisys, Inc.(1) | 6,120 | 673,200 | |||||
Express Scripts Holding Co.(1) | 12,935 | 1,254,307 | |||||
UnitedHealth Group, Inc. | 37,800 | 9,879,030 | |||||
11,806,537 | |||||||
Health Care Technology — 0.4% | |||||||
Cerner Corp.(1) | 61,291 | 3,510,749 | |||||
Hotels, Restaurants and Leisure — 0.3% | |||||||
Darden Restaurants, Inc. | 16,511 | 1,759,247 | |||||
Las Vegas Sands Corp. | 14,038 | 716,359 | |||||
2,475,606 | |||||||
Household Durables — 0.3% | |||||||
Garmin Ltd. | 8,156 | 539,601 | |||||
NVR, Inc.(1) | 912 | 2,041,995 | |||||
PulteGroup, Inc. | 16,105 | 395,700 | |||||
2,977,296 | |||||||
Household Products† | |||||||
Procter & Gamble Co. (The) | 1,227 | 108,810 | |||||
Independent Power and Renewable Electricity Producers† | |||||||
Clearway Energy, Inc., Class A | 4,429 | 86,011 | |||||
Industrial Conglomerates — 0.7% | |||||||
Honeywell International, Inc. | 25,313 | 3,665,828 | |||||
Roper Technologies, Inc. | 9,003 | 2,546,949 | |||||
6,212,777 | |||||||
Insurance — 1.2% | |||||||
Hartford Financial Services Group, Inc. (The) | 88,829 | 4,034,613 | |||||
Progressive Corp. (The) | 75,636 | 5,271,829 | |||||
Torchmark Corp. | 8,868 | 750,765 | |||||
10,057,207 | |||||||
Interactive Media and Services — 3.6% | |||||||
Alphabet, Inc., Class A(1) | 17,588 | 19,181,121 |
12
Shares/ Principal Amount | Value | ||||||
Facebook, Inc., Class A(1) | 77,987 | $ | 11,837,647 | ||||
31,018,768 | |||||||
Internet and Direct Marketing Retail — 2.2% | |||||||
Amazon.com, Inc.(1) | 11,190 | 17,881,732 | |||||
eBay, Inc.(1) | 50,753 | 1,473,360 | |||||
19,355,092 | |||||||
IT Services — 1.7% | |||||||
Akamai Technologies, Inc.(1) | 14,830 | 1,071,468 | |||||
Fidelity National Information Services, Inc. | 13,381 | 1,392,962 | |||||
International Business Machines Corp. | 23,187 | 2,676,475 | |||||
Jack Henry & Associates, Inc. | 4,321 | 647,416 | |||||
MAXIMUS, Inc. | 9,532 | 619,294 | |||||
PayPal Holdings, Inc.(1) | 9,189 | 773,622 | |||||
Visa, Inc., Class A | 55,824 | 7,695,338 | |||||
14,876,575 | |||||||
Leisure Products† | |||||||
Brunswick Corp. | 1,972 | 102,524 | |||||
Life Sciences Tools and Services — 0.3% | |||||||
Thermo Fisher Scientific, Inc. | 10,453 | 2,442,344 | |||||
Machinery — 1.0% | |||||||
Caterpillar, Inc. | 42,646 | 5,173,813 | |||||
Oshkosh Corp. | 16,674 | 936,078 | |||||
Parker-Hannifin Corp. | 16,023 | 2,429,568 | |||||
8,539,459 | |||||||
Mortgage Real Estate Investment Trusts (REITs)† | |||||||
Two Harbors Investment Corp. | 11,725 | 172,240 | |||||
Multi-Utilities† | |||||||
NorthWestern Corp. | 3,436 | 201,899 | |||||
Multiline Retail — 0.7% | |||||||
Kohl's Corp. | 66,770 | 5,056,492 | |||||
Macy's, Inc. | 23,364 | 801,152 | |||||
5,857,644 | |||||||
Oil, Gas and Consumable Fuels — 4.1% | |||||||
Chevron Corp. | 78,794 | 8,797,350 | |||||
ConocoPhillips | 79,547 | 5,560,335 | |||||
Continental Resources, Inc.(1) | 40,569 | 2,137,175 | |||||
CVR Energy, Inc. | 2,711 | 116,573 | |||||
EOG Resources, Inc. | 15,519 | 1,634,772 | |||||
Exxon Mobil Corp. | 40,808 | 3,251,581 | |||||
HollyFrontier Corp. | 58,163 | 3,922,513 | |||||
Marathon Petroleum Corp. | 71,013 | 5,002,866 | |||||
PBF Energy, Inc., Class A | 11,296 | 472,738 | |||||
Phillips 66 | 45,416 | 4,669,673 | |||||
35,565,576 | |||||||
Paper and Forest Products — 0.2% | |||||||
Domtar Corp. | 13,559 | 627,917 |
13
Shares/ Principal Amount | Value | ||||||
Louisiana-Pacific Corp. | 58,114 | $ | 1,265,142 | ||||
1,893,059 | |||||||
Personal Products — 0.4% | |||||||
Edgewell Personal Care Co.(1) | 64,603 | 3,099,652 | |||||
Pharmaceuticals — 2.6% | |||||||
Allergan plc | 27,671 | 4,372,295 | |||||
Bristol-Myers Squibb Co. | 57,301 | 2,895,992 | |||||
Johnson & Johnson | 30,963 | 4,334,510 | |||||
Merck & Co., Inc. | 2,798 | 205,961 | |||||
Pfizer, Inc. | 225,072 | 9,691,600 | |||||
Zoetis, Inc. | 8,004 | 721,561 | |||||
22,221,919 | |||||||
Professional Services — 0.7% | |||||||
CoStar Group, Inc.(1) | 6,847 | 2,474,643 | |||||
Robert Half International, Inc. | 65,798 | 3,982,753 | |||||
6,457,396 | |||||||
Real Estate Management and Development — 0.3% | |||||||
Jones Lang LaSalle, Inc. | 20,526 | 2,714,769 | |||||
Road and Rail — 0.6% | |||||||
Norfolk Southern Corp. | 28,487 | 4,780,973 | |||||
Semiconductors and Semiconductor Equipment — 2.9% | |||||||
Analog Devices, Inc. | 26,355 | 2,206,177 | |||||
Broadcom, Inc. | 19,539 | 4,366,771 | |||||
Intel Corp. | 188,007 | 8,813,768 | |||||
Lam Research Corp. | 18,759 | 2,658,713 | |||||
QUALCOMM, Inc. | 73,465 | 4,620,214 | |||||
Skyworks Solutions, Inc. | 23,763 | 2,061,678 | |||||
24,727,321 | |||||||
Software — 4.3% | |||||||
Adobe, Inc.(1) | 30,087 | 7,394,181 | |||||
CDK Global, Inc. | 4,618 | 264,334 | |||||
Intuit, Inc. | 1,895 | 399,845 | |||||
LogMeIn, Inc. | 12,968 | 1,116,804 | |||||
Microsoft Corp. | 205,718 | 21,972,740 | |||||
Ultimate Software Group, Inc. (The)(1) | 7,608 | 2,028,521 | |||||
VMware, Inc., Class A(1) | 27,417 | 3,876,490 | |||||
37,052,915 | |||||||
Specialty Retail — 1.5% | |||||||
AutoZone, Inc.(1) | 6,545 | 4,800,561 | |||||
O'Reilly Automotive, Inc.(1) | 7,607 | 2,439,945 | |||||
Ross Stores, Inc. | 55,226 | 5,467,374 | |||||
12,707,880 | |||||||
Technology Hardware, Storage and Peripherals — 2.3% | |||||||
Apple, Inc. | 86,363 | 18,901,406 | |||||
Seagate Technology plc | 32,638 | 1,313,027 | |||||
20,214,433 |
14
Shares/ Principal Amount | Value | ||||||
Textiles, Apparel and Luxury Goods — 1.4% | |||||||
Deckers Outdoor Corp.(1) | 33,063 | $ | 4,204,622 | ||||
Michael Kors Holdings Ltd.(1) | 66,209 | 3,668,640 | |||||
Tapestry, Inc. | 96,629 | 4,088,373 | |||||
11,961,635 | |||||||
Thrifts and Mortgage Finance† | |||||||
Essent Group Ltd.(1) | 8,771 | 345,753 | |||||
Tobacco — 0.7% | |||||||
Altria Group, Inc. | 99,412 | 6,465,757 | |||||
TOTAL COMMON STOCKS (Cost $398,239,883) | 499,825,706 | ||||||
CORPORATE BONDS — 12.5% | |||||||
Aerospace and Defense — 0.1% | |||||||
Lockheed Martin Corp., 3.55%, 1/15/26 | $ | 300,000 | 293,294 | ||||
Lockheed Martin Corp., 3.80%, 3/1/45 | 80,000 | 71,415 | |||||
Rockwell Collins, Inc., 4.35%, 4/15/47 | 80,000 | 74,364 | |||||
United Technologies Corp., 6.05%, 6/1/36 | 250,000 | 283,023 | |||||
722,096 | |||||||
Air Freight and Logistics† | |||||||
FedEx Corp., 4.05%, 2/15/48 | 80,000 | 67,817 | |||||
United Parcel Service, Inc., 2.80%, 11/15/24 | 300,000 | 286,599 | |||||
354,416 | |||||||
Auto Components† | |||||||
ZF North America Capital, Inc., 4.00%, 4/29/20(2) | 150,000 | 150,032 | |||||
Automobiles — 0.3% | |||||||
Ford Motor Co., 4.35%, 12/8/26 | 240,000 | 218,075 | |||||
Ford Motor Credit Co. LLC, 2.68%, 1/9/20 | 275,000 | 271,124 | |||||
Ford Motor Credit Co. LLC, 8.125%, 1/15/20 | 150,000 | 157,256 | |||||
Ford Motor Credit Co. LLC, 5.875%, 8/2/21 | 440,000 | 455,837 | |||||
Ford Motor Credit Co. LLC, 2.98%, 8/3/22 | 400,000 | 375,538 | |||||
General Motors Co., 4.20%, 10/1/27 | 100,000 | 91,572 | |||||
General Motors Co., 5.15%, 4/1/38 | 260,000 | 230,409 | |||||
General Motors Financial Co., Inc., 3.20%, 7/6/21 | 620,000 | 606,935 | |||||
General Motors Financial Co., Inc., 5.25%, 3/1/26 | 560,000 | 560,006 | |||||
2,966,752 | |||||||
Banks — 1.9% | |||||||
Bank of America Corp., 4.10%, 7/24/23 | 370,000 | 373,059 | |||||
Bank of America Corp., MTN, 4.20%, 8/26/24 | 610,000 | 606,245 | |||||
Bank of America Corp., MTN, 4.00%, 1/22/25 | 1,475,000 | 1,436,324 | |||||
Bank of America Corp., MTN, 5.00%, 1/21/44 | 110,000 | 112,725 | |||||
Bank of America Corp., MTN, VRN, 4.44%, 1/20/47(3) | 140,000 | 133,560 | |||||
Bank of America Corp., VRN, 3.00%, 12/20/22(3) | 911,000 | 877,633 | |||||
Barclays Bank plc, 5.14%, 10/14/20 | 200,000 | 204,562 | |||||
Barclays plc, 4.375%, 1/12/26 | 200,000 | 192,157 | |||||
BPCE SA, 3.00%, 5/22/22(2) | 250,000 | 241,038 | |||||
BPCE SA, 5.15%, 7/21/24(2) | 200,000 | 201,549 | |||||
Capital One Financial Corp., 3.75%, 7/28/26 | 445,000 | 410,031 |
15
Shares/ Principal Amount | Value | ||||||
Citigroup, Inc., 2.90%, 12/8/21 | $ | 650,000 | $ | 635,448 | |||
Citigroup, Inc., 2.75%, 4/25/22 | 325,000 | 314,220 | |||||
Citigroup, Inc., 4.05%, 7/30/22 | 70,000 | 70,366 | |||||
Citigroup, Inc., 3.20%, 10/21/26 | 1,005,000 | 921,925 | |||||
Citigroup, Inc., 4.45%, 9/29/27 | 650,000 | 633,382 | |||||
Citigroup, Inc., VRN, 3.52%, 10/27/27(3) | 390,000 | 362,113 | |||||
Commerzbank AG, 8.125%, 9/19/23(2) | 200,000 | 225,498 | |||||
Cooperatieve Rabobank UA, 3.95%, 11/9/22 | 450,000 | 446,223 | |||||
Discover Bank, 3.35%, 2/6/23 | 250,000 | 241,702 | |||||
Fifth Third BanCorp., 4.30%, 1/16/24 | 110,000 | 110,762 | |||||
Fifth Third Bank, 2.875%, 10/1/21 | 250,000 | 245,302 | |||||
HSBC Bank plc, 4.125%, 8/12/20(2) | 300,000 | 304,273 | |||||
Huntington Bancshares, Inc., 2.30%, 1/14/22 | 260,000 | 248,675 | |||||
Intesa Sanpaolo SpA, 3.125%, 7/14/22(2) | 220,000 | 200,029 | |||||
Intesa Sanpaolo SpA, 5.02%, 6/26/24(2) | 230,000 | 203,027 | |||||
JPMorgan Chase & Co., 2.55%, 3/1/21 | 420,000 | 411,763 | |||||
JPMorgan Chase & Co., 4.625%, 5/10/21 | 460,000 | 473,241 | |||||
JPMorgan Chase & Co., 3.25%, 9/23/22 | 220,000 | 217,097 | |||||
JPMorgan Chase & Co., 3.875%, 9/10/24 | 560,000 | 550,690 | |||||
JPMorgan Chase & Co., 3.125%, 1/23/25 | 1,070,000 | 1,015,487 | |||||
JPMorgan Chase & Co., VRN, 3.54%, 5/1/27(3) | 320,000 | 302,751 | |||||
JPMorgan Chase & Co., VRN, 3.88%, 7/24/37(3) | 200,000 | 180,645 | |||||
JPMorgan Chase & Co., VRN, 3.96%, 11/15/47(3) | 100,000 | 87,901 | |||||
JPMorgan Chase & Co., VRN, 3.90%, 1/23/48(3) | 100,000 | 87,235 | |||||
PNC Financial Services Group, Inc. (The), 4.375%, 8/11/20 | 200,000 | 203,319 | |||||
Regions Financial Corp., 2.75%, 8/14/22 | 280,000 | 269,474 | |||||
Royal Bank of Canada, 2.15%, 10/26/20 | 850,000 | 831,174 | |||||
SunTrust Bank, 3.30%, 5/15/26 | 200,000 | 187,452 | |||||
US Bancorp, MTN, 3.60%, 9/11/24 | 330,000 | 324,719 | |||||
Wells Fargo & Co., 3.07%, 1/24/23 | 210,000 | 203,530 | |||||
Wells Fargo & Co., 4.125%, 8/15/23 | 200,000 | 200,806 | |||||
Wells Fargo & Co., 3.00%, 4/22/26 | 350,000 | 322,914 | |||||
Wells Fargo & Co., MTN, 3.55%, 9/29/25 | 160,000 | 153,786 | |||||
Wells Fargo & Co., MTN, 4.10%, 6/3/26 | 210,000 | 204,795 | |||||
Wells Fargo & Co., MTN, 4.65%, 11/4/44 | 200,000 | 188,534 | |||||
Wells Fargo & Co., MTN, VRN, 3.58%, 5/22/27(3) | 250,000 | 238,167 | |||||
16,607,308 | |||||||
Beverages — 0.2% | |||||||
Anheuser-Busch InBev Finance, Inc., 3.65%, 2/1/26 | 1,420,000 | 1,348,961 | |||||
Anheuser-Busch InBev Finance, Inc., 4.90%, 2/1/46 | 500,000 | 473,870 | |||||
Constellation Brands, Inc., 4.75%, 12/1/25 | 210,000 | 214,327 | |||||
2,037,158 | |||||||
Biotechnology — 0.7% | |||||||
AbbVie, Inc., 2.50%, 5/14/20 | 450,000 | 444,284 | |||||
AbbVie, Inc., 2.90%, 11/6/22 | 620,000 | 600,785 | |||||
AbbVie, Inc., 3.60%, 5/14/25 | 120,000 | 114,665 | |||||
AbbVie, Inc., 4.40%, 11/6/42 | 240,000 | 211,492 |
16
Shares/ Principal Amount | Value | ||||||
AbbVie, Inc., 4.70%, 5/14/45 | $ | 60,000 | $ | 54,440 | |||
Amgen, Inc., 2.20%, 5/22/19 | 750,000 | 747,129 | |||||
Amgen, Inc., 2.65%, 5/11/22 | 390,000 | 377,125 | |||||
Amgen, Inc., 4.66%, 6/15/51 | 289,000 | 267,708 | |||||
Biogen, Inc., 3.625%, 9/15/22 | 520,000 | 519,391 | |||||
Celgene Corp., 3.25%, 8/15/22 | 190,000 | 186,012 | |||||
Celgene Corp., 3.625%, 5/15/24 | 300,000 | 291,740 | |||||
Celgene Corp., 3.875%, 8/15/25 | 500,000 | 483,135 | |||||
Celgene Corp., 3.45%, 11/15/27 | 70,000 | 63,920 | |||||
Celgene Corp., 5.00%, 8/15/45 | 90,000 | 84,450 | |||||
Gilead Sciences, Inc., 4.40%, 12/1/21 | 310,000 | 317,809 | |||||
Gilead Sciences, Inc., 3.65%, 3/1/26 | 840,000 | 814,369 | |||||
5,578,454 | |||||||
Building Products† | |||||||
Masco Corp., 4.45%, 4/1/25 | 170,000 | 169,562 | |||||
Capital Markets† | |||||||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc., 4.15%, 1/23/30 | 270,000 | 236,115 | |||||
Chemicals — 0.1% | |||||||
Ashland LLC, 4.75%, 8/15/22 | 160,000 | 159,200 | |||||
Dow Chemical Co. (The), 4.375%, 11/15/42 | 170,000 | 150,890 | |||||
Eastman Chemical Co., 3.60%, 8/15/22 | 95,000 | 94,463 | |||||
LyondellBasell Industries NV, 5.00%, 4/15/19 | 200,000 | 200,763 | |||||
Westlake Chemical Corp., 4.375%, 11/15/47 | 210,000 | 178,468 | |||||
783,784 | |||||||
Commercial Services and Supplies† | |||||||
Republic Services, Inc., 3.55%, 6/1/22 | 220,000 | 219,464 | |||||
Communications Equipment — 0.1% | |||||||
Cisco Systems, Inc., 5.90%, 2/15/39 | 130,000 | 157,475 | |||||
CommScope Technologies LLC, 5.00%, 3/15/27(2) | 460,000 | 414,000 | |||||
571,475 | |||||||
Construction Materials† | |||||||
Owens Corning, 4.20%, 12/15/22 | 160,000 | 159,686 | |||||
Consumer Finance — 0.4% | |||||||
American Express Co., 3.00%, 10/30/24 | 140,000 | 132,527 | |||||
American Express Credit Corp., MTN, 2.20%, 3/3/20 | 450,000 | 444,132 | |||||
American Express Credit Corp., MTN, 2.25%, 5/5/21 | 450,000 | 437,772 | |||||
Capital One Bank USA N.A., 2.30%, 6/5/19 | 250,000 | 249,050 | |||||
Capital One Bank USA N.A., 3.375%, 2/15/23 | 250,000 | 241,901 | |||||
CIT Group, Inc., 5.00%, 8/15/22 | 420,000 | 424,200 | |||||
Discover Bank, 3.45%, 7/27/26 | 500,000 | 461,037 | |||||
IHS Markit Ltd., 4.75%, 2/15/25(2) | 220,000 | 218,346 | |||||
PNC Bank N.A., 3.80%, 7/25/23 | 750,000 | 746,064 | |||||
Synchrony Financial, 2.60%, 1/15/19 | 160,000 | 159,792 | |||||
Synchrony Financial, 3.00%, 8/15/19 | 90,000 | 89,649 | |||||
3,604,470 |
17
Shares/ Principal Amount | Value | ||||||
Containers and Packaging — 0.1% | |||||||
Ardagh Packaging Finance plc / Ardagh Holdings USA, Inc., 4.25%, 9/15/22(2) | $ | 540,000 | $ | 525,150 | |||
Ball Corp., 4.00%, 11/15/23 | 180,000 | 175,050 | |||||
Crown Americas LLC / Crown Americas Capital Corp. IV, 4.50%, 1/15/23 | 400,000 | 393,000 | |||||
1,093,200 | |||||||
Diversified Consumer Services† | |||||||
Catholic Health Initiatives, 2.95%, 11/1/22 | 110,000 | 105,877 | |||||
George Washington University (The), 3.55%, 9/15/46 | 115,000 | 100,472 | |||||
206,349 | |||||||
Diversified Financial Services — 1.3% | |||||||
Ally Financial, Inc., 3.50%, 1/27/19 | 100,000 | 100,000 | |||||
Ally Financial, Inc., 4.625%, 3/30/25 | 300,000 | 294,750 | |||||
Banco Santander SA, 3.50%, 4/11/22 | 400,000 | 390,770 | |||||
BNP Paribas SA, 4.375%, 9/28/25(2) | 200,000 | 193,615 | |||||
Credit Suisse Group Funding Guernsey Ltd., 3.125%, 12/10/20 | 600,000 | 593,453 | |||||
Credit Suisse Group Funding Guernsey Ltd., 3.45%, 4/16/21 | 280,000 | 278,323 | |||||
GE Capital International Funding Co. Unlimited Co., 2.34%, 11/15/20 | 694,000 | 673,025 | |||||
Goldman Sachs Group, Inc. (The), 2.30%, 12/13/19 | 860,000 | 851,252 | |||||
Goldman Sachs Group, Inc. (The), 5.75%, 1/24/22 | 460,000 | 486,336 | |||||
Goldman Sachs Group, Inc. (The), 3.50%, 1/23/25 | 460,000 | 440,739 | |||||
Goldman Sachs Group, Inc. (The), 3.50%, 11/16/26 | 930,000 | 869,948 | |||||
Goldman Sachs Group, Inc. (The), 5.15%, 5/22/45 | 100,000 | 98,116 | |||||
Goldman Sachs Group, Inc. (The), MTN, 5.375%, 3/15/20 | 610,000 | 626,472 | |||||
Goldman Sachs Group, Inc. (The), MTN, 4.80%, 7/8/44 | 240,000 | 234,768 | |||||
Goldman Sachs Group, Inc. (The), VRN, 3.81%, 4/23/28(3) | 170,000 | 159,876 | |||||
HSBC Holdings plc, 2.95%, 5/25/21 | 800,000 | 786,822 | |||||
HSBC Holdings plc, 4.30%, 3/8/26 | 400,000 | 394,946 | |||||
HSBC Holdings plc, 4.375%, 11/23/26 | 220,000 | 213,719 | |||||
HSBC Holdings plc, VRN, 3.26%, 3/13/22(3) | 220,000 | 214,950 | |||||
Morgan Stanley, 2.75%, 5/19/22 | 200,000 | 193,441 | |||||
Morgan Stanley, 5.00%, 11/24/25 | 210,000 | 215,340 | |||||
Morgan Stanley, 4.375%, 1/22/47 | 90,000 | 84,092 | |||||
Morgan Stanley, MTN, 5.625%, 9/23/19 | 870,000 | 888,620 | |||||
Morgan Stanley, MTN, 3.70%, 10/23/24 | 760,000 | 742,559 | |||||
Morgan Stanley, MTN, 4.00%, 7/23/25 | 600,000 | 589,793 | |||||
Morgan Stanley, MTN, VRN, 3.77%, 1/24/28(3) | 250,000 | 237,213 | |||||
UBS Group Funding Switzerland AG, 3.49%, 5/23/23(2) | 300,000 | 293,238 | |||||
UBS Group Funding Switzerland AG, 4.125%, 9/24/25(2) | 200,000 | 196,958 | |||||
11,343,134 | |||||||
Diversified Telecommunication Services — 0.6% | |||||||
AT&T, Inc., 5.00%, 3/1/21 | 250,000 | 257,539 | |||||
AT&T, Inc., 3.875%, 8/15/21 | 500,000 | 502,176 | |||||
AT&T, Inc., 3.40%, 5/15/25 | 890,000 | 836,856 | |||||
AT&T, Inc., 4.10%, 2/15/28(2) | 150,000 | 143,029 | |||||
AT&T, Inc., 5.25%, 3/1/37 | 110,000 | 105,523 |
18
Shares/ Principal Amount | Value | ||||||
AT&T, Inc., 4.75%, 5/15/46 | $ | 130,000 | $ | 113,253 | |||
AT&T, Inc., 5.15%, 11/15/46(2) | 288,000 | 262,976 | |||||
AT&T, Inc., 5.45%, 3/1/47 | 80,000 | 76,154 | |||||
CenturyLink, Inc., 6.15%, 9/15/19 | 140,000 | 142,100 | |||||
Deutsche Telekom International Finance BV, 2.23%, 1/17/20(2) | 600,000 | 592,309 | |||||
Deutsche Telekom International Finance BV, 3.60%, 1/19/27(2) | 140,000 | 130,874 | |||||
Orange SA, 4.125%, 9/14/21 | 210,000 | 214,101 | |||||
Orange SA, 5.50%, 2/6/44 | 80,000 | 87,285 | |||||
Telefonica Emisiones SAU, 5.46%, 2/16/21 | 100,000 | 103,957 | |||||
Telefonica Emisiones SAU, 4.10%, 3/8/27 | 275,000 | 262,100 | |||||
Telefonica Emisiones SAU, 5.21%, 3/8/47 | 180,000 | 168,254 | |||||
Verizon Communications, Inc., 3.50%, 11/1/24 | 200,000 | 195,878 | |||||
Verizon Communications, Inc., 2.625%, 8/15/26 | 610,000 | 548,188 | |||||
Verizon Communications, Inc., 4.75%, 11/1/41 | 150,000 | 141,014 | |||||
Verizon Communications, Inc., 5.01%, 8/21/54 | 250,000 | 236,951 | |||||
5,120,517 | |||||||
Electric Utilities — 0.1% | |||||||
AEP Transmission Co. LLC, 3.75%, 12/1/47 | 100,000 | 88,727 | |||||
GLP Capital LP / GLP Financing II, Inc., 5.75%, 6/1/28 | 130,000 | 132,275 | |||||
NextEra Energy Operating Partners LP, 4.25%, 9/15/24(2) | 250,000 | 238,437 | |||||
NextEra Energy Operating Partners LP, 4.50%, 9/15/27(2) | 120,000 | 111,150 | |||||
570,589 | |||||||
Energy Equipment and Services — 0.1% | |||||||
Halliburton Co., 3.80%, 11/15/25 | 220,000 | 214,355 | |||||
Halliburton Co., 4.85%, 11/15/35 | 220,000 | 221,150 | |||||
435,505 | |||||||
Entertainment — 0.3% | |||||||
21st Century Fox America, Inc., 6.90%, 8/15/39 | 150,000 | 192,535 | |||||
21st Century Fox America, Inc., 4.75%, 9/15/44 | 80,000 | 82,770 | |||||
CCO Holdings LLC / CCO Holdings Capital Corp., 5.00%, 2/1/28(2) | 170,000 | 159,163 | |||||
Charter Communications Operating LLC / Charter Communications Operating Capital, 4.91%, 7/23/25 | 1,140,000 | 1,149,653 | |||||
Charter Communications Operating LLC / Charter Communications Operating Capital, 4.20%, 3/15/28 | 70,000 | 65,709 | |||||
Charter Communications Operating LLC / Charter Communications Operating Capital, 6.48%, 10/23/45 | 270,000 | 276,836 | |||||
Viacom, Inc., 3.125%, 6/15/22 | 190,000 | 182,654 | |||||
Viacom, Inc., 4.25%, 9/1/23 | 160,000 | 159,940 | |||||
Viacom, Inc., 4.375%, 3/15/43 | 240,000 | 197,108 | |||||
2,466,368 | |||||||
Equity Real Estate Investment Trusts (REITs) — 0.3% | |||||||
American Tower Corp., 5.05%, 9/1/20 | 130,000 | 133,332 | |||||
American Tower Corp., 3.375%, 10/15/26 | 200,000 | 184,059 | |||||
AvalonBay Communities, Inc., MTN, 3.20%, 1/15/28 | 120,000 | 112,601 | |||||
Boston Properties LP, 3.65%, 2/1/26 | 280,000 | 269,462 | |||||
Crown Castle International Corp., 5.25%, 1/15/23 | 180,000 | 187,904 | |||||
Crown Castle International Corp., 4.45%, 2/15/26 | 40,000 | 39,590 |
19
Shares/ Principal Amount | Value | ||||||
CyrusOne LP / CyrusOne Finance Corp., 5.00%, 3/15/24 | $ | 150,000 | $ | 150,375 | |||
Essex Portfolio LP, 3.625%, 8/15/22 | 150,000 | 148,411 | |||||
Essex Portfolio LP, 3.25%, 5/1/23 | 50,000 | 48,495 | |||||
Hospitality Properties Trust, 4.65%, 3/15/24 | 290,000 | 287,335 | |||||
Hudson Pacific Properties LP, 3.95%, 11/1/27 | 180,000 | 166,439 | |||||
Kilroy Realty LP, 3.80%, 1/15/23 | 130,000 | 128,461 | |||||
Kimco Realty Corp., 2.80%, 10/1/26 | 240,000 | 212,823 | |||||
Ventas Realty LP, 4.125%, 1/15/26 | 100,000 | 97,552 | |||||
VEREIT Operating Partnership LP, 4.125%, 6/1/21 | 230,000 | 231,665 | |||||
Welltower, Inc., 3.75%, 3/15/23 | 130,000 | 128,684 | |||||
2,527,188 | |||||||
Food and Staples Retailing — 0.2% | |||||||
CVS Health Corp., 3.50%, 7/20/22 | 420,000 | 415,705 | |||||
CVS Health Corp., 2.75%, 12/1/22 | 170,000 | 162,648 | |||||
Kroger Co. (The), 3.30%, 1/15/21 | 330,000 | 328,662 | |||||
Kroger Co. (The), 3.875%, 10/15/46 | 150,000 | 119,587 | |||||
Mondelez International Holdings Netherlands BV, 1.625%, 10/28/19(2) | 350,000 | 344,250 | |||||
Target Corp., 3.90%, 11/15/47 | 80,000 | 72,128 | |||||
Walmart, Inc., 4.05%, 6/29/48 | 210,000 | 199,980 | |||||
1,642,960 | |||||||
Food Products — 0.1% | |||||||
Kraft Heinz Foods Co., 5.20%, 7/15/45 | 140,000 | 131,915 | |||||
Kraft Heinz Foods Co., 4.375%, 6/1/46 | 70,000 | 58,572 | |||||
Lamb Weston Holdings, Inc., 4.625%, 11/1/24(2) | 360,000 | 353,959 | |||||
544,446 | |||||||
Gas Utilities — 0.8% | |||||||
Andeavor Logistics LP / Tesoro Logistics Finance Corp., 5.25%, 1/15/25 | 200,000 | 204,250 | |||||
Enbridge Energy Partners LP, 5.20%, 3/15/20 | 100,000 | 102,154 | |||||
Enbridge, Inc., 4.00%, 10/1/23 | 140,000 | 139,949 | |||||
Enbridge, Inc., 4.50%, 6/10/44 | 120,000 | 108,861 | |||||
Energy Transfer LP, 7.50%, 10/15/20 | 150,000 | 159,188 | |||||
Energy Transfer LP, 4.25%, 3/15/23 | 370,000 | 367,225 | |||||
Energy Transfer Operating LP, 4.15%, 10/1/20 | 200,000 | 201,775 | |||||
Energy Transfer Operating LP, 3.60%, 2/1/23 | 160,000 | 155,960 | |||||
Energy Transfer Operating LP, 4.90%, 3/15/35 | 70,000 | 63,149 | |||||
Energy Transfer Operating LP, 6.50%, 2/1/42 | 180,000 | 186,788 | |||||
Energy Transfer Operating LP, 6.00%, 6/15/48 | 120,000 | 118,633 | |||||
Enterprise Products Operating LLC, 5.20%, 9/1/20 | 450,000 | 463,634 | |||||
Enterprise Products Operating LLC, 4.85%, 3/15/44 | 460,000 | 443,835 | |||||
Kinder Morgan Energy Partners LP, 6.50%, 4/1/20 | 210,000 | 218,816 | |||||
Kinder Morgan Energy Partners LP, 5.30%, 9/15/20 | 170,000 | 175,066 | |||||
Kinder Morgan Energy Partners LP, 6.50%, 9/1/39 | 210,000 | 229,614 | |||||
Kinder Morgan, Inc., 5.55%, 6/1/45 | 250,000 | 253,437 | |||||
Magellan Midstream Partners LP, 6.55%, 7/15/19 | 100,000 | 102,357 | |||||
MPLX LP, 4.875%, 6/1/25 | 410,000 | 418,588 |
20
Shares/ Principal Amount | Value | ||||||
MPLX LP, 4.50%, 4/15/38 | $ | 120,000 | $ | 107,243 | |||
MPLX LP, 5.20%, 3/1/47 | 90,000 | 85,401 | |||||
ONEOK, Inc., 4.00%, 7/13/27 | 220,000 | 211,315 | |||||
Plains All American Pipeline LP / PAA Finance Corp., 3.65%, 6/1/22 | 310,000 | 304,100 | |||||
Sabine Pass Liquefaction LLC, 5.625%, 3/1/25 | 590,000 | 616,790 | |||||
Sunoco Logistics Partners Operations LP, 3.45%, 1/15/23 | 330,000 | 318,975 | |||||
Sunoco Logistics Partners Operations LP, 4.00%, 10/1/27 | 200,000 | 185,175 | |||||
Targa Resources Partners LP / Targa Resources Partners Finance Corp., 5.00%, 1/15/28 | 160,000 | 152,200 | |||||
Williams Cos., Inc. (The), 4.125%, 11/15/20 | 300,000 | 302,865 | |||||
Williams Cos., Inc. (The), 4.55%, 6/24/24 | 270,000 | 272,110 | |||||
Williams Cos., Inc. (The), 5.10%, 9/15/45 | 200,000 | 189,626 | |||||
6,859,079 | |||||||
Health Care Equipment and Supplies — 0.3% | |||||||
Abbott Laboratories, 3.75%, 11/30/26 | 326,000 | 321,548 | |||||
Becton Dickinson and Co., 3.73%, 12/15/24 | 440,000 | 427,116 | |||||
Becton Dickinson and Co., 3.70%, 6/6/27 | 120,000 | 112,911 | |||||
Medtronic, Inc., 3.50%, 3/15/25 | 430,000 | 421,361 | |||||
Medtronic, Inc., 4.375%, 3/15/35 | 200,000 | 199,345 | |||||
Thermo Fisher Scientific, Inc., 3.60%, 8/15/21 | 150,000 | 150,054 | |||||
Thermo Fisher Scientific, Inc., 3.30%, 2/15/22 | 148,000 | 146,666 | |||||
Thermo Fisher Scientific, Inc., 2.95%, 9/19/26 | 130,000 | 118,933 | |||||
Thermo Fisher Scientific, Inc., 5.30%, 2/1/44 | 110,000 | 117,203 | |||||
Zimmer Biomet Holdings, Inc., 2.70%, 4/1/20 | 120,000 | 118,703 | |||||
2,133,840 | |||||||
Health Care Providers and Services — 0.5% | |||||||
Aetna, Inc., 2.75%, 11/15/22 | 130,000 | 124,775 | |||||
Anthem, Inc., 3.65%, 12/1/27 | 140,000 | 131,135 | |||||
Anthem, Inc., 4.65%, 1/15/43 | 210,000 | 199,010 | |||||
Cardinal Health, Inc., 1.95%, 6/14/19 | 500,000 | 496,871 | |||||
CVS Health Corp., 4.30%, 3/25/28 | 620,000 | 605,926 | |||||
CVS Health Corp., 4.78%, 3/25/38 | 160,000 | 153,748 | |||||
CVS Health Corp., 5.05%, 3/25/48 | 150,000 | 146,778 | |||||
Duke University Health System, Inc., 3.92%, 6/1/47 | 160,000 | 150,206 | |||||
Express Scripts Holding Co., 3.40%, 3/1/27 | 80,000 | 73,626 | |||||
Halfmoon Parent, Inc., 4.90%, 12/15/48(2) | 150,000 | 142,541 | |||||
Johns Hopkins Health System Corp. (The), 3.84%, 5/15/46 | 100,000 | 92,728 | |||||
Kaiser Foundation Hospitals, 4.15%, 5/1/47 | 80,000 | 76,505 | |||||
Northwell Healthcare, Inc., 4.26%, 11/1/47 | 120,000 | 109,314 | |||||
Stanford Health Care, 3.80%, 11/15/48 | 95,000 | 86,542 | |||||
Tenet Healthcare Corp., 4.625%, 7/15/24 | 258,000 | 249,318 | |||||
UnitedHealth Group, Inc., 2.875%, 12/15/21 | 230,000 | 226,901 | |||||
UnitedHealth Group, Inc., 2.875%, 3/15/22 | 310,000 | 304,289 | |||||
UnitedHealth Group, Inc., 3.75%, 7/15/25 | 210,000 | 208,176 | |||||
UnitedHealth Group, Inc., 4.75%, 7/15/45 | 140,000 | 143,196 |
21
Shares/ Principal Amount | Value | ||||||
Universal Health Services, Inc., 4.75%, 8/1/22(2) | $ | 130,000 | $ | 130,325 | |||
3,851,910 | |||||||
Hotels, Restaurants and Leisure — 0.2% | |||||||
Aramark Services, Inc., 5.00%, 4/1/25(2) | 460,000 | 456,263 | |||||
Hilton Domestic Operating Co., Inc., 4.25%, 9/1/24 | 370,000 | 356,236 | |||||
McDonald's Corp., MTN, 3.25%, 6/10/24 | 100,000 | 97,390 | |||||
McDonald's Corp., MTN, 3.375%, 5/26/25 | 80,000 | 77,193 | |||||
McDonald's Corp., MTN, 4.45%, 3/1/47 | 330,000 | 309,805 | |||||
Royal Caribbean Cruises Ltd., 5.25%, 11/15/22 | 130,000 | 135,848 | |||||
1,432,735 | |||||||
Household Durables — 0.1% | |||||||
D.R. Horton, Inc., 5.75%, 8/15/23 | 110,000 | 116,239 | |||||
Lennar Corp., 4.75%, 4/1/21 | 352,000 | 355,080 | |||||
Lennar Corp., 4.75%, 11/29/27 | 150,000 | 140,437 | |||||
Toll Brothers Finance Corp., 6.75%, 11/1/19 | 100,000 | 102,625 | |||||
Toll Brothers Finance Corp., 4.35%, 2/15/28 | 350,000 | 310,625 | |||||
TRI Pointe Group, Inc. / TRI Pointe Homes, Inc., 4.375%, 6/15/19 | 100,000 | 100,375 | |||||
1,125,381 | |||||||
Industrial Conglomerates† | |||||||
FedEx Corp., 4.40%, 1/15/47 | 170,000 | 152,697 | |||||
Insurance — 0.6% | |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust, 3.75%, 5/15/19 | 150,000 | 150,312 | |||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust, 5.00%, 10/1/21 | 300,000 | 308,257 | |||||
American International Group, Inc., 4.125%, 2/15/24 | 925,000 | 920,513 | |||||
American International Group, Inc., 4.50%, 7/16/44 | 120,000 | 106,874 | |||||
Berkshire Hathaway Finance Corp., 3.00%, 5/15/22 | 230,000 | 227,593 | |||||
Berkshire Hathaway Finance Corp., 4.20%, 8/15/48 | 190,000 | 182,306 | |||||
Berkshire Hathaway, Inc., 2.75%, 3/15/23 | 270,000 | 262,238 | |||||
Berkshire Hathaway, Inc., 4.50%, 2/11/43 | 220,000 | 221,151 | |||||
Chubb INA Holdings, Inc., 3.15%, 3/15/25 | 280,000 | 268,528 | |||||
Chubb INA Holdings, Inc., 3.35%, 5/3/26 | 110,000 | 105,917 | |||||
CNP Assurances, VRN, 4.00%, 11/18/24(3) | EUR | 300,000 | 354,263 | ||||
Hartford Financial Services Group, Inc. (The), 5.95%, 10/15/36 | $ | 220,000 | 246,267 | ||||
International Lease Finance Corp., 5.875%, 8/15/22 | 100,000 | 105,410 | |||||
Markel Corp., 4.90%, 7/1/22 | 190,000 | 195,383 | |||||
MetLife, Inc., 4.125%, 8/13/42 | 110,000 | 99,780 | |||||
MetLife, Inc., 4.875%, 11/13/43 | 110,000 | 111,032 | |||||
Metropolitan Life Global Funding I, 3.00%, 1/10/23(2) | 200,000 | 194,971 | |||||
Principal Financial Group, Inc., 3.30%, 9/15/22 | 70,000 | 69,031 | |||||
Prudential Financial, Inc., 3.94%, 12/7/49 | 477,000 | 414,143 | |||||
Prudential Financial, Inc., MTN, 5.375%, 6/21/20 | 70,000 | 72,232 | |||||
Voya Financial, Inc., 5.70%, 7/15/43 | 160,000 | 171,680 | |||||
WR Berkley Corp., 4.625%, 3/15/22 | 130,000 | 133,114 | |||||
WR Berkley Corp., 4.75%, 8/1/44 | 90,000 | 86,258 | |||||
5,007,253 |
22
Shares/ Principal Amount | Value | ||||||
Internet and Direct Marketing Retail† | |||||||
eBay, Inc., 2.15%, 6/5/20 | $ | 170,000 | $ | 167,049 | |||
IT Services — 0.1% | |||||||
Fidelity National Information Services, Inc., 3.00%, 8/15/26 | 450,000 | 409,827 | |||||
Life Sciences Tools and Services† | |||||||
IQVIA, Inc., 5.00%, 10/15/26(2) | 300,000 | 289,779 | |||||
Media — 0.3% | |||||||
CBS Corp., 4.00%, 1/15/26 | 160,000 | 155,099 | |||||
CBS Corp., 4.85%, 7/1/42 | 60,000 | 55,861 | |||||
Comcast Corp., 6.40%, 5/15/38 | 310,000 | 365,500 | |||||
Comcast Corp., 4.75%, 3/1/44 | 260,000 | 254,663 | |||||
Comcast Corp., 4.70%, 10/15/48 | 190,000 | 184,629 | |||||
Discovery Communications LLC, 5.625%, 8/15/19 | 56,000 | 57,107 | |||||
Discovery Communications LLC, 3.95%, 3/20/28 | 410,000 | 382,559 | |||||
Interpublic Group of Cos., Inc. (The), 4.00%, 3/15/22 | 130,000 | 129,880 | |||||
TEGNA, Inc., 5.125%, 7/15/20 | 330,000 | 330,412 | |||||
Time Warner Cable LLC, 5.50%, 9/1/41 | 70,000 | 64,201 | |||||
Time Warner Cable LLC, 4.50%, 9/15/42 | 100,000 | 81,156 | |||||
Warner Media LLC, 4.70%, 1/15/21 | 140,000 | 143,365 | |||||
Warner Media LLC, 2.95%, 7/15/26 | 370,000 | 328,001 | |||||
Warner Media LLC, 3.80%, 2/15/27 | 150,000 | 140,683 | |||||
Warner Media LLC, 5.35%, 12/15/43 | 120,000 | 113,443 | |||||
2,786,559 | |||||||
Metals and Mining — 0.1% | |||||||
Barrick North America Finance LLC, 5.75%, 5/1/43 | 70,000 | 75,324 | |||||
Southern Copper Corp., 5.25%, 11/8/42 | 100,000 | 97,731 | |||||
Steel Dynamics, Inc., 4.125%, 9/15/25 | 300,000 | 282,000 | |||||
Steel Dynamics, Inc., 5.00%, 12/15/26 | 200,000 | 196,000 | |||||
651,055 | |||||||
Multi-Utilities — 0.6% | |||||||
American Electric Power Co., Inc., 3.20%, 11/13/27 | 110,000 | 102,273 | |||||
AmeriGas Partners LP / AmeriGas Finance Corp., 5.625%, 5/20/24 | 230,000 | 221,950 | |||||
Berkshire Hathaway Energy Co., 3.50%, 2/1/25 | 160,000 | 157,091 | |||||
Berkshire Hathaway Energy Co., 3.80%, 7/15/48 | 150,000 | 130,234 | |||||
CenterPoint Energy, Inc., 4.25%, 11/1/28 | 190,000 | 188,545 | |||||
Consolidated Edison Co. of New York, Inc., 3.95%, 3/1/43 | 150,000 | 137,959 | |||||
Dominion Energy, Inc., 2.75%, 9/15/22 | 210,000 | 202,744 | |||||
Dominion Energy, Inc., 3.625%, 12/1/24 | 300,000 | 294,397 | |||||
Dominion Energy, Inc., 4.90%, 8/1/41 | 120,000 | 119,964 | |||||
Duke Energy Corp., 3.55%, 9/15/21 | 90,000 | 90,006 | |||||
Duke Energy Florida LLC, 6.35%, 9/15/37 | 110,000 | 136,003 | |||||
Duke Energy Florida LLC, 3.85%, 11/15/42 | 220,000 | 200,659 | |||||
Duke Energy Progress LLC, 4.15%, 12/1/44 | 130,000 | 124,073 | |||||
Exelon Corp., 5.15%, 12/1/20 | 220,000 | 225,721 | |||||
Exelon Corp., 4.45%, 4/15/46 | 140,000 | 132,186 | |||||
Exelon Generation Co. LLC, 4.25%, 6/15/22 | 120,000 | 121,466 |
23
Shares/ Principal Amount | Value | ||||||
Exelon Generation Co. LLC, 5.60%, 6/15/42 | $ | 70,000 | $ | 69,838 | |||
FirstEnergy Corp., 4.25%, 3/15/23 | 180,000 | 181,847 | |||||
FirstEnergy Corp., 4.85%, 7/15/47 | 90,000 | 88,106 | |||||
Florida Power & Light Co., 4.125%, 2/1/42 | 140,000 | 136,674 | |||||
Florida Power & Light Co., 3.95%, 3/1/48 | 130,000 | 120,819 | |||||
Georgia Power Co., 4.30%, 3/15/42 | 70,000 | 64,326 | |||||
MidAmerican Energy Co., 4.40%, 10/15/44 | 250,000 | 249,659 | |||||
NextEra Energy Capital Holdings, Inc., 3.55%, 5/1/27 | 290,000 | 276,269 | |||||
NiSource, Inc., 5.65%, 2/1/45 | 140,000 | 151,732 | |||||
Pacific Gas & Electric Co., 4.00%, 12/1/46 | 60,000 | 49,027 | |||||
Potomac Electric Power Co., 3.60%, 3/15/24 | 120,000 | 119,750 | |||||
Progress Energy, Inc., 3.15%, 4/1/22 | 90,000 | 88,193 | |||||
Sempra Energy, 2.875%, 10/1/22 | 200,000 | 193,063 | |||||
Sempra Energy, 3.25%, 6/15/27 | 180,000 | 166,059 | |||||
Sempra Energy, 3.80%, 2/1/38 | 90,000 | 78,641 | |||||
Sempra Energy, 4.00%, 2/1/48 | 100,000 | 86,759 | |||||
Southern Co. Gas Capital Corp., 3.95%, 10/1/46 | 90,000 | 77,193 | |||||
Southern Power Co., 5.15%, 9/15/41 | 40,000 | 39,470 | |||||
Southwestern Public Service Co., 3.70%, 8/15/47 | 100,000 | 89,899 | |||||
Virginia Electric & Power Co., 3.45%, 2/15/24 | 160,000 | 158,183 | |||||
Xcel Energy, Inc., 3.35%, 12/1/26 | 100,000 | 95,505 | |||||
5,166,283 | |||||||
Multiline Retail† | |||||||
Macy's Retail Holdings, Inc., 2.875%, 2/15/23 | 150,000 | 140,236 | |||||
Oil, Gas and Consumable Fuels — 0.7% | |||||||
Anadarko Petroleum Corp., 5.55%, 3/15/26 | 220,000 | 229,244 | |||||
Anadarko Petroleum Corp., 6.45%, 9/15/36 | 110,000 | 119,706 | |||||
Antero Resources Corp., 5.00%, 3/1/25 | 230,000 | 224,250 | |||||
Apache Corp., 4.75%, 4/15/43 | 120,000 | 107,331 | |||||
BP Capital Markets plc, 4.50%, 10/1/20 | 100,000 | 102,209 | |||||
Cenovus Energy, Inc., 4.25%, 4/15/27 | 210,000 | 198,357 | |||||
Cimarex Energy Co., 4.375%, 6/1/24 | 220,000 | 219,319 | |||||
CNOOC Nexen Finance 2014 ULC, 4.25%, 4/30/24 | 140,000 | 140,623 | |||||
Concho Resources, Inc., 4.375%, 1/15/25 | 270,000 | 269,534 | |||||
Concho Resources, Inc., 4.875%, 10/1/47 | 260,000 | 246,662 | |||||
Continental Resources, Inc., 4.375%, 1/15/28 | 640,000 | 619,981 | |||||
Ecopetrol SA, 5.875%, 5/28/45 | 90,000 | 86,018 | |||||
Encana Corp., 6.50%, 2/1/38 | 210,000 | 239,843 | |||||
EOG Resources, Inc., 5.625%, 6/1/19 | 150,000 | 152,122 | |||||
EOG Resources, Inc., 4.10%, 2/1/21 | 130,000 | 131,767 | |||||
Equinor ASA, 2.45%, 1/17/23 | 190,000 | 182,629 | |||||
Exxon Mobil Corp., 3.04%, 3/1/26 | 100,000 | 95,604 | |||||
Hess Corp., 4.30%, 4/1/27 | 140,000 | 131,897 | |||||
Hess Corp., 6.00%, 1/15/40 | 410,000 | 405,030 | |||||
Marathon Oil Corp., 3.85%, 6/1/25 | 280,000 | 269,315 | |||||
Newfield Exploration Co., 5.75%, 1/30/22 | 370,000 | 383,413 | |||||
Newfield Exploration Co., 5.375%, 1/1/26 | 140,000 | 142,013 |
24
Shares/ Principal Amount | Value | ||||||
Noble Energy, Inc., 4.15%, 12/15/21 | $ | 290,000 | $ | 292,292 | |||
Petroleos Mexicanos, 6.00%, 3/5/20 | 77,000 | 78,154 | |||||
Petroleos Mexicanos, 4.875%, 1/24/22 | 240,000 | 238,111 | |||||
Petroleos Mexicanos, 3.50%, 1/30/23 | 60,000 | 55,410 | |||||
Petroleos Mexicanos, 6.625%, 6/15/35 | 50,000 | 46,000 | |||||
Petroleos Mexicanos, 5.50%, 6/27/44 | 230,000 | 178,457 | |||||
Phillips 66, 4.30%, 4/1/22 | 250,000 | 255,352 | |||||
Shell International Finance BV, 2.375%, 8/21/22 | 130,000 | 125,400 | |||||
Shell International Finance BV, 3.25%, 5/11/25 | 200,000 | 192,963 | |||||
Shell International Finance BV, 3.625%, 8/21/42 | 140,000 | 123,130 | |||||
Total Capital Canada Ltd., 2.75%, 7/15/23 | 120,000 | 115,804 | |||||
6,397,940 | |||||||
Paper and Forest Products — 0.1% | |||||||
Georgia-Pacific LLC, 5.40%, 11/1/20(2) | 350,000 | 362,779 | |||||
International Paper Co., 4.40%, 8/15/47 | 190,000 | 164,668 | |||||
527,447 | |||||||
Pharmaceuticals — 0.2% | |||||||
Allergan Finance LLC, 3.25%, 10/1/22 | 400,000 | 388,663 | |||||
Allergan Funding SCS, 3.85%, 6/15/24 | 440,000 | 432,533 | |||||
Allergan Funding SCS, 4.55%, 3/15/35 | 150,000 | 141,929 | |||||
Shire Acquisitions Investments Ireland DAC, 2.40%, 9/23/21 | 660,000 | 634,742 | |||||
1,597,867 | |||||||
Road and Rail — 0.2% | |||||||
Burlington Northern Santa Fe LLC, 3.60%, 9/1/20 | 176,000 | 176,898 | |||||
Burlington Northern Santa Fe LLC, 4.95%, 9/15/41 | 50,000 | 52,636 | |||||
Burlington Northern Santa Fe LLC, 4.45%, 3/15/43 | 220,000 | 216,670 | |||||
Burlington Northern Santa Fe LLC, 4.15%, 4/1/45 | 180,000 | 170,345 | |||||
CSX Corp., 3.40%, 8/1/24 | 180,000 | 176,139 | |||||
CSX Corp., 3.25%, 6/1/27 | 500,000 | 466,086 | |||||
Union Pacific Corp., 3.60%, 9/15/37 | 200,000 | 176,046 | |||||
Union Pacific Corp., 4.75%, 9/15/41 | 150,000 | 150,194 | |||||
Union Pacific Corp., 4.05%, 11/15/45 | 80,000 | 72,346 | |||||
1,657,360 | |||||||
Semiconductors and Semiconductor Equipment — 0.1% | |||||||
Broadcom Corp. / Broadcom Cayman Finance Ltd., 3.125%, 1/15/25 | 210,000 | 192,374 | |||||
NXP BV / NXP Funding LLC, 4.125%, 6/15/20(2) | 200,000 | 200,000 | |||||
NXP BV / NXP Funding LLC, 3.875%, 9/1/22(2) | 200,000 | 193,500 | |||||
Sensata Technologies UK Financing Co. plc, 6.25%, 2/15/26(2) | 200,000 | 204,500 | |||||
790,374 | |||||||
Software — 0.2% | |||||||
Microsoft Corp., 2.70%, 2/12/25 | 570,000 | 541,211 | |||||
Microsoft Corp., 3.125%, 11/3/25 | 110,000 | 106,687 | |||||
Microsoft Corp., 3.45%, 8/8/36 | 220,000 | 202,892 | |||||
Microsoft Corp., 4.25%, 2/6/47 | 340,000 | 342,737 | |||||
Oracle Corp., 2.50%, 10/15/22 | 260,000 | 250,343 | |||||
Oracle Corp., 3.625%, 7/15/23 | 280,000 | 281,041 |
25
Shares/ Principal Amount | Value | ||||||
Oracle Corp., 2.65%, 7/15/26 | $ | 100,000 | $ | 91,561 | |||
Oracle Corp., 4.30%, 7/8/34 | 160,000 | 157,026 | |||||
1,973,498 | |||||||
Specialty Retail — 0.1% | |||||||
Ashtead Capital, Inc., 4.125%, 8/15/25(2) | 200,000 | 186,500 | |||||
Home Depot, Inc. (The), 3.75%, 2/15/24 | 150,000 | 151,894 | |||||
Home Depot, Inc. (The), 5.95%, 4/1/41 | 360,000 | 431,019 | |||||
Home Depot, Inc. (The), 3.90%, 6/15/47 | 50,000 | 45,605 | |||||
United Rentals North America, Inc., 4.625%, 7/15/23 | 320,000 | 318,400 | |||||
1,133,418 | |||||||
Technology Hardware, Storage and Peripherals — 0.3% | |||||||
Apple, Inc., 2.75%, 1/13/25 | 130,000 | 123,355 | |||||
Apple, Inc., 2.50%, 2/9/25 | 540,000 | 504,324 | |||||
Apple, Inc., 2.45%, 8/4/26 | 210,000 | 191,478 | |||||
Apple, Inc., 3.20%, 5/11/27 | 250,000 | 237,973 | |||||
Apple, Inc., 2.90%, 9/12/27 | 320,000 | 296,798 | |||||
Dell International LLC / EMC Corp., 6.02%, 6/15/26(2) | 820,000 | 851,547 | |||||
Hewlett Packard Enterprise Co., 3.60%, 10/15/20 | 280,000 | 280,565 | |||||
Seagate HDD Cayman, 4.75%, 6/1/23 | 210,000 | 200,060 | |||||
Seagate HDD Cayman, 4.75%, 1/1/25 | 100,000 | 91,635 | |||||
2,777,735 | |||||||
Wireless Telecommunication Services — 0.1% | |||||||
America Movil SAB de CV, 3.125%, 7/16/22 | 310,000 | 301,986 | |||||
Sprint Communications, Inc., 9.00%, 11/15/18(2) | 74,000 | 74,240 | |||||
Vodafone Group plc, 4.375%, 5/30/28 | 150,000 | 145,013 | |||||
521,239 | |||||||
TOTAL CORPORATE BONDS (Cost $111,054,442) | 107,661,589 | ||||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES(4) — 9.8% | |||||||
Adjustable-Rate U.S. Government Agency Mortgage-Backed Securities(5) — 1.0% | |||||||
FHLMC, VRN, 2.32%, 11/15/18 | 479,622 | 469,353 | |||||
FHLMC, VRN, 2.36%, 11/15/18 | 525,879 | 520,979 | |||||
FHLMC, VRN, 2.44%, 11/15/18 | 412,903 | 416,480 | |||||
FHLMC, VRN, 2.58%, 11/15/18 | 201,408 | 199,523 | |||||
FHLMC, VRN, 2.86%, 11/15/18 | 270,915 | 267,604 | |||||
FHLMC, VRN, 3.07%, 11/15/18 | 860,658 | 854,978 | |||||
FHLMC, VRN, 3.47%, 11/15/18 | 51,469 | 53,427 | |||||
FHLMC, VRN, 3.68%, 11/15/18 | 80,960 | 82,341 | |||||
FHLMC, VRN, 3.85%, 11/15/18 | 69,468 | 72,685 | |||||
FHLMC, VRN, 3.89%, 11/15/18 | 46,503 | 48,759 | |||||
FHLMC, VRN, 4.01%, 11/15/18 | 383,179 | 402,817 | |||||
FHLMC, VRN, 4.06%, 11/15/18 | 166,781 | 175,914 | |||||
FHLMC, VRN, 4.07%, 11/15/18 | 176,231 | 180,980 | |||||
FHLMC, VRN, 4.12%, 11/15/18 | 67,008 | 68,466 | |||||
FHLMC, VRN, 4.23%, 11/15/18 | 16,579 | 17,394 | |||||
FHLMC, VRN, 4.25%, 11/15/18 | 20,573 | 21,222 | |||||
FHLMC, VRN, 4.25%, 11/15/18 | 45,767 | 48,077 |
26
Shares/ Principal Amount | Value | ||||||
FHLMC, VRN, 4.28%, 11/15/18 | $ | 31,155 | $ | 32,198 | |||
FHLMC, VRN, 4.34%, 11/15/18 | 180,859 | 190,469 | |||||
FNMA, VRN, 2.61%, 11/25/18 | 341,975 | 338,118 | |||||
FNMA, VRN, 2.95%, 11/25/18 | 293,481 | 292,909 | |||||
FNMA, VRN, 3.18%, 11/25/18 | 427,032 | 422,350 | |||||
FNMA, VRN, 3.19%, 11/25/18 | 675,492 | 667,265 | |||||
FNMA, VRN, 3.21%, 11/25/18 | 269,778 | 266,651 | |||||
FNMA, VRN, 3.26%, 11/25/18 | 603,750 | 604,955 | |||||
FNMA, VRN, 3.33%, 11/25/18 | 84,394 | 85,145 | |||||
FNMA, VRN, 3.56%, 11/25/18 | 22,007 | 23,031 | |||||
FNMA, VRN, 3.61%, 11/25/18 | 136,240 | 138,905 | |||||
FNMA, VRN, 3.66%, 11/25/18 | 36,879 | 38,673 | |||||
FNMA, VRN, 3.72%, 11/25/18 | 270,115 | 279,748 | |||||
FNMA, VRN, 3.94%, 11/25/18 | 98,199 | 100,220 | |||||
FNMA, VRN, 4.05%, 11/25/18 | 251,971 | 260,681 | |||||
FNMA, VRN, 4.05%, 11/25/18 | 143,963 | 149,129 | |||||
FNMA, VRN, 4.06%, 11/25/18 | 242,103 | 250,790 | |||||
FNMA, VRN, 4.06%, 11/25/18 | 126,380 | 130,564 | |||||
FNMA, VRN, 4.15%, 11/25/18 | 136,872 | 144,207 | |||||
8,317,007 | |||||||
Fixed-Rate U.S. Government Agency Mortgage-Backed Securities — 8.8% | |||||||
FHLMC, 4.50%, 1/1/19 | 641 | 651 | |||||
FHLMC, 6.50%, 1/1/28 | 11,729 | 12,926 | |||||
FHLMC, 5.50%, 12/1/33 | 99,374 | 107,695 | |||||
FHLMC, 5.00%, 7/1/35 | 811,848 | 859,889 | |||||
FHLMC, 5.50%, 1/1/38 | 79,627 | 85,067 | |||||
FHLMC, 6.00%, 8/1/38 | 49,657 | 54,048 | |||||
FHLMC, 3.00%, 2/1/43 | 815,436 | 778,555 | |||||
FNMA, 3.00%, 11/13/18(6) | 5,250,000 | 4,966,787 | |||||
FNMA, 3.50%, 11/13/18(6) | 13,900,000 | 13,532,411 | |||||
FNMA, 4.00%, 11/13/18(6) | 7,450,000 | 7,450,551 | |||||
FNMA, 4.50%, 11/13/18(6) | 1,705,000 | 1,745,927 | |||||
FNMA, 4.50%, 5/1/19 | 3,107 | 3,153 | |||||
FNMA, 4.50%, 5/1/19 | 5,454 | 5,534 | |||||
FNMA, 5.00%, 9/1/20 | 50,593 | 52,149 | |||||
FNMA, 6.50%, 1/1/29 | 18,269 | 20,031 | |||||
FNMA, 7.50%, 7/1/29 | 51,287 | 55,388 | |||||
FNMA, 7.50%, 9/1/30 | 9,743 | 10,994 | |||||
FNMA, 5.00%, 7/1/31 | 475,700 | 497,031 | |||||
FNMA, 6.50%, 9/1/31 | 14,015 | 15,274 | |||||
FNMA, 7.00%, 9/1/31 | 5,173 | 5,501 | |||||
FNMA, 6.50%, 1/1/32 | 13,914 | 15,165 | |||||
FNMA, 6.50%, 8/1/32 | 17,853 | 19,787 | |||||
FNMA, 5.50%, 6/1/33 | 54,349 | 58,402 | |||||
FNMA, 5.50%, 7/1/33 | 88,408 | 94,769 | |||||
FNMA, 5.50%, 8/1/33 | 162,605 | 174,361 | |||||
FNMA, 5.50%, 9/1/33 | 109,582 | 118,338 |
27
Shares/ Principal Amount | Value | ||||||
FNMA, 5.00%, 11/1/33 | $ | 303,917 | $ | 322,639 | |||
FNMA, 5.00%, 4/1/35 | 396,048 | 419,016 | |||||
FNMA, 4.50%, 9/1/35 | 179,799 | 185,152 | |||||
FNMA, 5.00%, 2/1/36 | 254,194 | 269,046 | |||||
FNMA, 5.50%, 4/1/36 | 94,253 | 101,144 | |||||
FNMA, 5.50%, 5/1/36 | 181,443 | 194,572 | |||||
FNMA, 5.00%, 11/1/36 | 676,087 | 715,329 | |||||
FNMA, 5.50%, 2/1/37 | 46,287 | 49,606 | |||||
FNMA, 6.00%, 7/1/37 | 392,988 | 428,729 | |||||
FNMA, 6.50%, 8/1/37 | 68,383 | 72,757 | |||||
FNMA, 5.50%, 7/1/39 | 310,566 | 333,056 | |||||
FNMA, 5.00%, 4/1/40 | 750,734 | 794,512 | |||||
FNMA, 5.00%, 6/1/40 | 608,729 | 644,058 | |||||
FNMA, 4.50%, 8/1/40 | 938,566 | 972,746 | |||||
FNMA, 4.50%, 9/1/40 | 1,846,839 | 1,914,037 | |||||
FNMA, 3.50%, 1/1/41 | 1,118,971 | 1,099,672 | |||||
FNMA, 4.00%, 1/1/41 | 925,919 | 934,732 | |||||
FNMA, 4.00%, 5/1/41 | 995,970 | 1,004,016 | |||||
FNMA, 4.50%, 7/1/41 | 349,509 | 362,270 | |||||
FNMA, 4.50%, 9/1/41 | 364,673 | 377,312 | |||||
FNMA, 4.50%, 9/1/41 | 1,457,335 | 1,508,833 | |||||
FNMA, 4.00%, 12/1/41 | 915,140 | 922,555 | |||||
FNMA, 4.00%, 1/1/42 | 548,424 | 552,852 | |||||
FNMA, 4.00%, 1/1/42 | 737,732 | 743,689 | |||||
FNMA, 3.50%, 5/1/42 | 1,481,466 | 1,455,894 | |||||
FNMA, 3.50%, 6/1/42 | 513,042 | 504,187 | |||||
FNMA, 3.00%, 11/1/42 | 1,253,538 | 1,197,433 | |||||
FNMA, 3.50%, 5/1/45 | 1,348,112 | 1,318,595 | |||||
FNMA, 6.50%, 8/1/47 | 12,595 | 13,339 | |||||
FNMA, 6.50%, 9/1/47 | 16,009 | 16,878 | |||||
FNMA, 6.50%, 9/1/47 | 769 | 813 | |||||
FNMA, 6.50%, 9/1/47 | 8,418 | 8,877 | |||||
FNMA, 3.50%, 10/1/47 | 6,673,426 | 6,503,307 | |||||
FNMA, 3.50%, 3/1/48 | 1,944,049 | 1,894,186 | |||||
FNMA, 4.00%, 8/1/48 | 4,954,992 | 4,962,934 | |||||
GNMA, 3.00%, 11/19/18(6) | 3,150,000 | 3,011,449 | |||||
GNMA, 3.50%, 11/19/18(6) | 3,300,000 | 3,241,541 | |||||
GNMA, 4.00%, 11/19/18(6) | 2,000,000 | 2,012,852 | |||||
GNMA, 7.00%, 4/20/26 | 31,523 | 34,603 | |||||
GNMA, 7.50%, 8/15/26 | 17,797 | 19,377 | |||||
GNMA, 7.00%, 2/15/28 | 7,224 | 7,232 | |||||
GNMA, 7.50%, 2/15/28 | 8,371 | 8,383 | |||||
GNMA, 7.00%, 12/15/28 | 8,244 | 8,254 | |||||
GNMA, 7.00%, 5/15/31 | 38,767 | 43,352 | |||||
GNMA, 5.50%, 11/15/32 | 117,669 | 126,687 | |||||
GNMA, 4.50%, 5/20/41 | 371,666 | 386,867 | |||||
GNMA, 4.50%, 6/15/41 | 419,218 | 436,730 |
28
Shares/ Principal Amount | Value | ||||||
GNMA, 4.00%, 12/15/41 | $ | 663,989 | $ | 673,005 | |||
GNMA, 3.50%, 6/20/42 | 800,483 | 791,824 | |||||
GNMA, 3.50%, 7/20/42 | 389,866 | 385,291 | |||||
GNMA, 4.50%, 11/20/43 | 498,116 | 518,173 | |||||
GNMA, 2.50%, 7/20/46 | 1,243,207 | 1,153,787 | |||||
76,398,564 | |||||||
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $86,362,658) | 84,715,571 | ||||||
U.S. TREASURY SECURITIES — 8.6% | |||||||
U.S. Treasury Bonds, 3.50%, 2/15/39 | 1,050,000 | 1,080,762 | |||||
U.S. Treasury Bonds, 4.375%, 11/15/39 | 2,900,000 | 3,359,809 | |||||
U.S. Treasury Bonds, 4.375%, 5/15/41 | 1,600,000 | 1,857,063 | |||||
U.S. Treasury Bonds, 3.125%, 11/15/41 | 2,500,000 | 2,404,492 | |||||
U.S. Treasury Bonds, 3.00%, 5/15/42 | 2,700,000 | 2,536,734 | |||||
U.S. Treasury Bonds, 2.75%, 11/15/42 | 2,180,000 | 1,952,463 | |||||
U.S. Treasury Bonds, 2.875%, 5/15/43 | 1,300,000 | 1,189,068 | |||||
U.S. Treasury Bonds, 3.125%, 8/15/44 | 1,830,000 | 1,747,721 | |||||
U.S. Treasury Bonds, 3.00%, 11/15/44 | 1,580,000 | 1,474,584 | |||||
U.S. Treasury Bonds, 2.50%, 2/15/45 | 5,870,000 | 4,961,526 | |||||
U.S. Treasury Bonds, 3.00%, 5/15/45 | 900,000 | 839,074 | |||||
U.S. Treasury Bonds, 3.00%, 11/15/45 | 700,000 | 651,984 | |||||
U.S. Treasury Notes, 1.50%, 2/28/19 | 1,000,000 | 997,064 | |||||
U.S. Treasury Notes, 1.50%, 10/31/19 | 5,650,000 | 5,582,686 | |||||
U.S. Treasury Notes, 2.50%, 5/31/20 | 5,000,000 | 4,974,023 | |||||
U.S. Treasury Notes, 2.00%, 10/31/21 | 7,400,000 | 7,203,293 | |||||
U.S. Treasury Notes, 1.875%, 1/31/22(7) | 1,500,000 | 1,450,664 | |||||
U.S. Treasury Notes, 1.875%, 4/30/22 | 1,800,000 | 1,736,016 | |||||
U.S. Treasury Notes, 2.00%, 11/30/22 | 15,200,000 | 14,638,906 | |||||
U.S. Treasury Notes, 2.75%, 5/31/23 | 7,700,000 | 7,629,166 | |||||
U.S. Treasury Notes, 2.75%, 2/15/28 | 4,700,000 | 4,552,391 | |||||
U.S. Treasury Notes, 2.875%, 8/15/28 | 1,300,000 | 1,270,242 | |||||
TOTAL U.S. TREASURY SECURITIES (Cost $76,347,083) | 74,089,731 | ||||||
ASSET-BACKED SECURITIES(4) — 3.3% | |||||||
Avis Budget Rental Car Funding AESOP LLC, Series 2014-1A, Class A SEQ, 2.46%, 7/20/20(2) | 1,500,000 | 1,495,816 | |||||
BRE Grand Islander Timeshare Issuer LLC, Series 2017-1A, Class A SEQ, 2.94%, 5/25/29(2) | 823,304 | 803,681 | |||||
Colony Starwood Homes, Series 2016-2A, Class A, VRN, 3.53%, 11/17/18, resets monthly off the 1-month LIBOR plus 1.25%(2) | 1,363,863 | 1,364,910 | |||||
Enterprise Fleet Financing LLC, Series 2016-1, Class A2 SEQ, 1.83%, 9/20/21(2) | 60,314 | 60,272 | |||||
Enterprise Fleet Financing LLC, Series 2016-2, Class A2 SEQ, 1.74%, 2/22/22(2) | 626,164 | 623,779 | |||||
Goodgreen, Series 2018-1A, Class A, VRN, 3.93%, 11/15/18(2)(5) | 780,700 | 775,673 | |||||
Hilton Grand Vacations Trust, Series 2013-A, Class A SEQ, 2.28%, 1/25/26(2) | 54,524 | 54,234 | |||||
Hilton Grand Vacations Trust, Series 2014-AA, Class A SEQ, 1.77%, 11/25/26(2) | 321,728 | 316,026 |
29
Shares/ Principal Amount | Value | ||||||
Hilton Grand Vacations Trust, Series 2017-AA, Class A SEQ, 2.66%, 12/26/28(2) | $ | 360,830 | $ | 353,650 | |||
Hilton Grand Vacations Trust, Series 2018-AA, Class B, VRN, 3.70%, 11/25/18(2)(5) | 1,693,686 | 1,692,685 | |||||
Invitation Homes Trust, Series 2018-SFR1, Class A, VRN, 2.99%, 11/17/18, resets monthly off the 1-month LIBOR plus 0.70%(2) | 1,910,930 | 1,910,954 | |||||
Invitation Homes Trust, Series 2018-SFR2, Class B, VRN, 3.36%, 11/17/18, resets monthly off the 1-month LIBOR plus 1.08%(2) | 1,225,000 | 1,231,611 | |||||
Invitation Homes Trust, Series 2018-SFR3, Class A, VRN, 3.29%, 11/17/18, resets monthly off the 1-month LIBOR plus 1.00%(2) | 1,897,249 | 1,898,491 | |||||
Mosaic Solar Loan Trust, Series 2018-2GS, Class A SEQ, 4.20%, 2/22/44(2) | 423,855 | 422,189 | |||||
MVW Owner Trust, Series 2014-1A, Class A SEQ, 2.25%, 9/22/31(2) | 202,350 | 197,951 | |||||
MVW Owner Trust, Series 2015-1A, Class A SEQ, 2.52%, 12/20/32(2) | 208,078 | 203,653 | |||||
MVW Owner Trust, Series 2016-1A, Class A SEQ, 2.25%, 12/20/33(2) | 321,237 | 310,701 | |||||
MVW Owner Trust, Series 2017-1A, Class A SEQ, 2.42%, 12/20/34(2) | 821,229 | 793,906 | |||||
MVW Owner Trust, Series 2018-1A, Class A SEQ, 3.45%, 1/21/36(2) | 1,268,705 | 1,262,271 | |||||
Progress Residential Trust, Series 2016-SFR2, Class A SEQ, VRN, 3.69%, 11/17/18, resets monthly off the 1-month LIBOR plus 1.40%(2) | 549,458 | 550,732 | |||||
Progress Residential Trust, Series 2018-SFR1, Class A SEQ, 3.26%, 3/17/35(2) | 1,000,000 | 973,743 | |||||
Progress Residential Trust, Series 2018-SFR3, Class A SEQ, 3.88%, 10/17/35(2) | 1,500,000 | 1,499,792 | |||||
Progress Residential Trust, Series 2018-SFR3, Class B, 4.08%, 10/17/35(2) | 2,550,000 | 2,535,076 | |||||
Sierra Receivables Funding Co. LLC, Series 2017-1A, Class A SEQ, 2.91%, 3/20/34(2) | 199,614 | 197,101 | |||||
Sierra Timeshare Receivables Funding LLC, Series 2015-1A, Class A SEQ, 2.40%, 3/22/32(2) | 118,819 | 117,974 | |||||
Sierra Timeshare Receivables Funding LLC, Series 2018-2A, Class A SEQ, 3.50%, 6/20/35(2) | 1,104,081 | 1,098,889 | |||||
Towd Point Mortgage Trust, Series 2016-1, Class A1, VRN, 3.50%, 11/1/18(2)(5) | 251,584 | 250,881 | |||||
Towd Point Mortgage Trust, Series 2017-2, Class A1, VRN, 2.75%, 11/1/18(2)(5) | 417,296 | 408,734 | |||||
Towd Point Mortgage Trust, Series 2017-4, Class A1, VRN, 2.75%, 11/1/18(2)(5) | 238,703 | 232,415 | |||||
Towd Point Mortgage Trust, Series 2017-6, Class A1, VRN, 2.75%, 11/1/18(2)(5) | 946,623 | 920,799 | |||||
Towd Point Mortgage Trust, Series 2018-1, Class A1 SEQ, VRN, 3.00%, 11/1/18(2)(5) | 1,285,647 | 1,260,299 | |||||
Towd Point Mortgage Trust, Series 2018-4, Class A1, VRN, 3.00%, 11/1/18(2)(5) | 1,224,499 | 1,189,984 | |||||
US Airways Pass-Through Trust, Series 2013-1, Class A, 3.95%, 11/15/25 | 126,425 | 125,637 | |||||
VSE VOI Mortgage LLC, Series 2016-A, Class A SEQ, 2.54%, 7/20/33(2) | 471,303 | 459,748 |
30
Shares/ Principal Amount | Value | ||||||
VSE VOI Mortgage LLC, Series 2018-A, Class B, 3.72%, 2/20/36(2) | $ | 897,928 | $ | 894,102 | |||
TOTAL ASSET-BACKED SECURITIES (Cost $28,706,307) | 28,488,359 | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS(4) — 3.2% | |||||||
Private Sponsor Collateralized Mortgage Obligations — 2.3% | |||||||
ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33 | 12,709 | 12,723 | |||||
Adjustable Rate Mortgage Trust, Series 2004-4, Class 4A1, VRN, 4.22%, 11/1/18(5) | 200,876 | 203,861 | |||||
Agate Bay Mortgage Loan Trust, Series 2016-3, Class A3, VRN, 3.50%, 11/1/18(2)(5) | 361,558 | 350,418 | |||||
Banc of America Mortgage Trust, Series 2004-E, Class 2A6 SEQ, VRN, 4.39%, 11/1/18(5) | 164,171 | 164,218 | |||||
Citigroup Mortgage Loan Trust, Inc., Series 2004-UST1, Class A4, VRN, 4.07%, 11/1/18(5) | 251,952 | 246,773 | |||||
Citigroup Mortgage Loan Trust, Inc., Series 2004-UST1, Class A5, VRN, 4.05%, 11/1/18(5) | 452,128 | 449,293 | |||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 4.48%, 11/1/18(5) | 66,270 | 67,238 | |||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-6, Class A2, VRN, 4.24%, 4/1/19, resets annually off the 1-year H15T1Y plus 2.15% | 133,763 | 135,937 | |||||
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35 | 4,415 | 4,327 | |||||
Credit Suisse Mortgage Trust, Series 2017-HL1, Class A3 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 1,045,706 | 1,028,411 | |||||
Credit Suisse Mortgage Trust, Series 2017-HL2, Class A3 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 661,663 | 651,241 | |||||
First Horizon Alternative Mortgage Securities Trust, Series 2004-AA4, Class A1, VRN, 4.23%, 11/1/18(5) | 254,157 | 253,210 | |||||
First Horizon Mortgage Pass-Through Trust, Series 2005-AR3, Class 4A1, VRN, 4.39%, 11/1/18(5) | 51,168 | 51,518 | |||||
Flagstar Mortgage Trust, Series 2017-2, Class A5 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 826,037 | 813,748 | |||||
GSR Mortgage Loan Trust, Series 2004-7, Class 3A1, VRN, 3.86%, 11/1/18(5) | 80,423 | 79,630 | |||||
GSR Mortgage Loan Trust, Series 2004-AR5, Class 3A3, VRN, 3.97%, 11/1/18(5) | 120,875 | 123,746 | |||||
GSR Mortgage Loan Trust, Series 2005-AR1, Class 3A1, VRN, 3.92%, 11/1/18(5) | 191,094 | 190,695 | |||||
GSR Mortgage Loan Trust, Series 2005-AR6, Class 2A1, VRN, 4.01%, 11/1/18(5) | 175,293 | 179,381 | |||||
GSR Mortgage Loan Trust, Series 2005-AR6, Class 4A5, VRN, 4.44%, 11/1/18(5) | 204,996 | 208,012 | |||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 1A1, VRN, 4.23%, 11/1/18(5) | 60,551 | 61,045 | |||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 2A1, VRN, 4.18%, 11/1/18(5) | 32,304 | 32,379 | |||||
JPMorgan Mortgage Trust, Series 2006-A3, Class 7A1, VRN, 3.88%, 11/1/18(5) | 162,153 | 165,205 | |||||
JPMorgan Mortgage Trust, Series 2013-1, Class 2A2 SEQ, VRN, 2.50%, 11/1/18(2)(5) | 69,880 | 66,842 | |||||
JPMorgan Mortgage Trust, Series 2017-1, Class A2, VRN, 3.50%, 11/1/18(2)(5) | 738,199 | 713,436 | |||||
JPMorgan Mortgage Trust, Series 2018-6, Class 1A4 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 1,144,943 | 1,136,465 |
31
Shares/ Principal Amount | Value | ||||||
MASTR Adjustable Rate Mortgages Trust, Series 2004-13, Class 3A7, VRN, 4.45%, 11/1/18(5) | $ | 221,241 | $ | 227,357 | |||
Merrill Lynch Mortgage Investors Trust, Series 2005-3, Class 2A, VRN, 4.18%, 11/25/18(5) | 125,038 | 124,435 | |||||
Merrill Lynch Mortgage Investors Trust, Series 2005-A2, Class A1, VRN, 3.54%, 11/1/18(5) | 179,574 | 182,582 | |||||
New Residential Mortgage Loan Trust, Series 2017-1A, Class A1, VRN, 4.00%, 11/1/18(2)(5) | 1,328,018 | 1,334,326 | |||||
New Residential Mortgage Loan Trust, Series 2017-2A, Class A3, VRN, 4.00%, 11/1/18(2)(5) | 803,790 | 808,989 | |||||
New Residential Mortgage Loan Trust, Series 2017-5A, Class A1, VRN, 3.78%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.50%(2) | 511,774 | 525,473 | |||||
PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 5.83%, 11/1/18(5) | 72 | 72 | |||||
Sequoia Mortgage Trust, Series 2012-1, Class 1A1, VRN, 2.87%, 11/1/18(5) | 14,775 | 14,886 | |||||
Sequoia Mortgage Trust, Series 2013-12, Class A1, 4.00%, 12/25/43(2) | 112,975 | 112,247 | |||||
Sequoia Mortgage Trust, Series 2017-1, Class A1, VRN, 3.50%, 11/1/18(2)(5) | 549,569 | 532,336 | |||||
Sequoia Mortgage Trust, Series 2017-7, Class A4 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 670,458 | 661,331 | |||||
Sequoia Mortgage Trust, Series 2017-CH2, Class A10 SEQ, VRN, 4.00%, 11/1/18(2)(5) | 845,547 | 849,449 | |||||
Sequoia Mortgage Trust, Series 2018-2, Class A4 SEQ, VRN, 3.50%, 11/1/18(2)(5) | 1,176,291 | 1,159,821 | |||||
Sequoia Mortgage Trust, Series 2018-7, Class A4, VRN, 4.00%, 11/1/18(2)(5) | 1,713,394 | 1,717,733 | |||||
Sequoia Mortgage Trust, Series 2018-CH2, Class A12 SEQ, VRN, 4.00%, 11/1/18(2)(5) | 1,343,917 | 1,351,903 | |||||
Sofi Mortgage Trust, Series 2016-1A, Class 1A4 SEQ, VRN, 3.00%, 11/1/18(2)(5) | 278,728 | 263,773 | |||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2004-8, Class 2A1, VRN, 4.31%, 11/1/18(5) | 94,797 | 95,489 | |||||
Thornburg Mortgage Securities Trust, Series 2004-3, Class A, VRN, 3.02%, 11/25/18, resets monthly off the 1-month LIBOR plus 0.74% | 555,739 | 549,146 | |||||
WaMu Mortgage Pass-Through Certificates, Series 2005-AR3, Class A1, VRN, 3.66%, 11/1/18(5) | 353,000 | 348,568 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-4, Class A9, 5.50%, 5/25/34 | 39,773 | 40,392 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-S, Class A1, VRN, 4.54%, 11/1/18(5) | 80,378 | 82,772 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-Z, Class 2A2, VRN, 3.89%, 11/1/18(5) | 69,875 | 71,554 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 47,287 | 46,540 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-9, Class 2A6, 5.25%, 10/25/35 | 137,484 | 140,678 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 1A1, VRN, 4.36%, 11/1/18(5) | 315,585 | 333,721 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 2A15, VRN, 4.31%, 11/1/18(5) | 30,200 | 31,309 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR10, Class 2A17, VRN, 4.31%, 11/1/18(5) | 201,330 | 208,232 |
32
Shares/ Principal Amount | Value | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 3A2, VRN, 4.37%, 11/1/18(5) | $ | 167,331 | $ | 170,424 | |||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR7, Class 1A1, VRN, 4.35%, 11/1/18(5) | 134,202 | 136,084 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 72,647 | 72,522 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-13, Class A5, 6.00%, 10/25/36 | 85,931 | 85,061 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37 | 42,806 | 42,799 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-14, Class 2A2, 5.50%, 10/25/22 | 24,906 | 25,398 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-16, Class 1A1, 6.00%, 12/28/37 | 22,983 | 22,997 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 4.05%, 11/1/18(5) | 57,229 | 55,127 | |||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2008-1, Class 4A1, 5.75%, 2/25/38 | 108,268 | 113,695 | |||||
19,928,973 | |||||||
U.S. Government Agency Collateralized Mortgage Obligations — 0.9% | |||||||
FHLMC, Series 2016-DNA4, Class M2, VRN, 3.58%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.30% | 40,000 | 40,303 | |||||
FHLMC, Series 2017-DNA2, Class M1, VRN, 3.48%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.20% | 63,789 | 64,443 | |||||
FHLMC, Series 2018-DNA1, Class M1, VRN, 2.73%, 11/25/18, resets monthly off the 1-month LIBOR plus 0.45% | 565,558 | 563,998 | |||||
FHLMC, Series 77, Class H, 8.50%, 9/15/20 | 96 | 96 | |||||
FHLMC, Series KF31, Class A, VRN, 2.63%, 11/25/18, resets monthly off the 1-month LIBOR plus 0.37% | 1,381,364 | 1,380,861 | |||||
FNMA, Series 2014-C02, Class 1M2, VRN, 4.88%, 11/25/18, resets monthly off the 1-month LIBOR plus 2.60% | 125,000 | 132,960 | |||||
FNMA, Series 2014-C02, Class 2M2, VRN, 4.88%, 11/25/18, resets monthly off the 1-month LIBOR plus 2.60% | 550,609 | 582,963 | |||||
FNMA, Series 2016-C04, Class 1M1, VRN, 3.73%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.45% | 246,673 | 248,282 | |||||
FNMA, Series 2016-C05, Class 2M1, VRN, 3.63%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.35% | 126,637 | 126,954 | |||||
FNMA, Series 2017-C01, Class 1M1, VRN, 3.58%, 11/25/18, resets monthly off the 1-month LIBOR plus 1.30% | 419,831 | 422,573 | |||||
FNMA, Series 2018-C01, Class 1M1, VRN, 2.88%, 11/25/18, resets monthly off the 1-month LIBOR plus 0.60% | 1,898,102 | 1,899,447 | |||||
FNMA, Series 2018-C02, Class 2M1, VRN, 2.93%, 11/25/18, resets monthly off the 1-month LIBOR plus 0.65% | 1,834,245 | 1,836,595 | |||||
7,299,475 | |||||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $27,360,856) | 27,228,448 | ||||||
COLLATERALIZED LOAN OBLIGATIONS(4) — 2.0% | |||||||
Bean Creek CLO Ltd., Series 2015-1A, Class AR, VRN, 3.49%, 1/20/19, resets quarterly off the 3-month LIBOR plus 1.02%(2) | 750,000 | 747,049 | |||||
Carlyle Global Market Strategies CLO, Series 2014-5A, Class A1RR, VRN, 3.47%, 1/15/19, resets quarterly off the 3-month LIBOR plus 1.14%(2) | 950,000 | 950,564 | |||||
Carlyle Global Market Strategies CLO, Series 2014-1A, Class A1R2, VRN, 3.42%, 1/17/19, resets quarterly off the 3-month LIBOR plus 0.97%(2) | 500,000 | 500,741 |
33
Shares/ Principal Amount | Value | ||||||
CBAM Ltd., Series 2018-5A, Class A, VRN, 3.47%, 1/17/19, resets quarterly off the 3-month LIBOR plus 1.02%(2) | $ | 750,000 | $ | 746,149 | |||
CIFC Funding Ltd., Series 2013-3RA, Class A1, VRN, 3.33%, 1/24/19, resets quarterly off the 3-month LIBOR plus 0.98%(2) | 1,600,000 | 1,589,494 | |||||
CIFC Funding Ltd., Series 2015-1A, Class ARR, VRN, 3.58%, 1/22/19, resets quarterly off the 3-month LIBOR plus 1.11%(2) | 500,000 | 499,324 | |||||
Dryden 41 Senior Loan Fund, Series 2015-41A, Class AR, VRN, 3.41%, 1/15/19, resets quarterly off the 3-month LIBOR plus 0.97%(2) | 500,000 | 497,413 | |||||
Dryden 64 CLO Ltd., Series 2018-64A, Class A, VRN, 3.41%, 1/18/19, resets quarterly off the 3-month LIBOR plus 0.97%(2) | 1,250,000 | 1,243,647 | |||||
Goldentree Loan Opportunities X Ltd., Series 2015-10A, Class AR, VRN, 3.59%, 1/22/19, resets quarterly off the 3-month LIBOR plus 1.12%(2) | 750,000 | 749,445 | |||||
Goldentree Loan Opportunities XI Ltd., Series 2015-11A, Class AR2, VRN, 3.51%, 1/18/19, resets quarterly off the 3-month LIBOR plus 1.07%(2) | 600,000 | 599,220 | |||||
KKR CLO Ltd., Series 11, Class AR, VRN, 3.62%, 1/15/19, resets quarterly off the 3-month LIBOR plus 1.18%(2) | 500,000 | 500,291 | |||||
KKR CLO Ltd., Series 22A, Class A, VRN, 3.52%, 1/22/19, resets quarterly off the 3-month LIBOR plus 1.15%(2) | 1,000,000 | 998,438 | |||||
LCM XIV LP, Series 14A, Class AR, VRN, 3.51%, 1/22/19, resets quarterly off the 3-month LIBOR plus 1.04%(2) | 750,000 | 749,161 | |||||
LoanCore Issuer Ltd., Series 2018-CRE1, Class AS, VRN, 3.78%, 11/15/18, resets monthly off the 1-month LIBOR plus 1.50%(2) | 848,000 | 851,560 | |||||
Madison Park Funding XIII Ltd., Series 2014-13A, Class AR2, VRN, 3.40%, 1/22/19, resets quarterly off the 3-month LIBOR plus 0.95%(2) | 800,000 | 798,714 | |||||
Magnetite VIII Ltd., Series 2014-8A, Class AR2, VRN, 3.42%, 1/15/19, resets quarterly off the 3-month LIBOR plus 0.98%(2) | 1,250,000 | 1,247,902 | |||||
Sounds Point CLO IV-R Ltd., Series 2013-3RA, Class A, VRN, 3.59%, 1/18/19, resets quarterly off the 3-month LIBOR plus 1.15%(2) | 885,000 | 885,973 | |||||
Symphony CLO XIX Ltd., Series 2018-19A, Class A, VRN, 3.40%, 1/16/19, resets quarterly off the 3-month LIBOR plus 0.96%(2) | 1,100,000 | 1,093,214 | |||||
Treman Park CLO Ltd., Series 2015-1A, Class ARR, VRN, 3.53%, 1/22/19, resets quarterly off the 3-month LIBOR plus 1.07%(2)(8) | 1,000,000 | 1,000,000 | |||||
Voya CLO Ltd., Series 2013-3A, Class A1RR, VRN, 3.59%, 1/18/19, resets quarterly off the 3-month LIBOR plus 1.15%(2) | 700,000 | 700,000 | |||||
Voya CLO Ltd., Series 2013-2A, Class A1R, VRN, 3.46%, 1/25/19, resets quarterly off the 3-month LIBOR plus 0.97%(2) | 750,000 | 746,214 | |||||
TOTAL COLLATERALIZED LOAN OBLIGATIONS (Cost $17,730,763) | 17,694,513 | ||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES(4) — 2.0% | |||||||
Bank of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2015-200P, Class B, 3.49%, 4/14/33(2) | 625,000 | 606,465 | |||||
BB-UBS Trust, Series 2012-SHOW, Class A SEQ, 3.43%, 11/5/36(2) | 1,000,000 | 978,442 | |||||
Benchmark Mortgage Trust, Series 2018-B6, Class AS, 4.44%, 10/10/51 | 1,650,000 | 1,689,861 | |||||
BX Trust, Series 2018-MCSF, Class A, VRN, 2.86%, 11/15/18, resets monthly off the 1-month LIBOR plus 0.58%(2) | 700,000 | 698,036 | |||||
Commercial Mortgage Pass-Through Certificates, Series 2014-CR15, Class AM, VRN, 4.43%, 11/1/18(5) | 675,000 | 693,566 |
34
Shares/ Principal Amount | Value | ||||||
Commercial Mortgage Pass-Through Certificates, Series 2014-LC17, Class AM, VRN, 4.19%, 11/1/18(5) | $ | 775,000 | $ | 782,947 | |||
Commercial Mortgage Pass-Through Certificates, Series 2014-UBS5, Class AM, VRN, 4.19%, 11/1/18(5) | 900,000 | 905,749 | |||||
Commercial Mortgage Trust, Series 2016-CD1, Class AM, 2.93%, 8/10/49 | 400,000 | 368,157 | |||||
Commercial Mortgage Trust, Series 2017-PANW, Class A SEQ, 3.24%, 10/10/29(2) | 1,775,000 | 1,720,685 | |||||
Core Industrial Trust, Series 2015-WEST, Class A SEQ, 3.29%, 2/10/37(2) | 1,079,568 | 1,049,851 | |||||
DBCG Mortgage Trust, Series 2017-BBG, Class A, VRN, 2.98%, 11/15/18, resets monthly off the 1-month LIBOR plus 0.70%(2) | 1,250,000 | 1,250,629 | |||||
GS Mortgage Securities Trust, Series 2016-GS2, Class B, VRN, 3.76%, 11/1/18(5) | 1,000,000 | 968,178 | |||||
Hudson Yards Mortgage Trust, Series 2016-10HY, Class B, VRN, 2.98%, 11/1/18(2)(5) | 1,275,000 | 1,183,758 | |||||
JPMBB Commercial Mortgage Securities Trust, Series 2014-C21, Class B, VRN, 4.34%, 11/1/18(5) | 475,000 | 476,041 | |||||
JPMDB Commercial Mortgage Securities Trust, Series 2017-C5, Class A4 SEQ, 3.41%, 3/15/50 | 920,000 | 887,831 | |||||
JPMorgan Chase Commercial Mortgage Securities Trust, Series 2013-C16, Class A4 SEQ, 4.17%, 12/15/46 | 275,000 | 281,597 | |||||
JPMorgan Chase Commercial Mortgage Securities Trust, Series 2016-JP2, Class A4 SEQ, 2.82%, 8/15/49 | 600,000 | 557,605 | |||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2017-C34, Class A3 SEQ, 3.28%, 11/15/52 | 675,000 | 641,029 | |||||
Morgan Stanley Capital I Trust, Series 2014-CPT, Class C, VRN, 3.45%, 11/1/18(2)(5) | 725,000 | 713,041 | |||||
UBS Commercial Mortgage Trust, Series 2017-C1, Class A3 SEQ, 3.20%, 6/15/50 | 700,000 | 663,105 | |||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $17,759,398) | 17,116,573 | ||||||
BANK LOAN OBLIGATIONS(9) — 0.8% | |||||||
Diversified Telecommunication Services — 0.1% | |||||||
Level 3 Financing Inc., 2017 Term Loan B, 4.53%, 2/22/24, resets monthly off the 1-month LIBOR plus 2.25% | 790,000 | 791,544 | |||||
Zayo Group, LLC, 2017 Incremental Term Loan, 4.55%, 1/19/24, resets monthly off the 1-month LIBOR plus 2.25% | 300,000 | 300,750 | |||||
Zayo Group, LLC, 2017 Incremental Term Loan, 1/19/24(10) | 170,000 | 170,425 | |||||
1,262,719 | |||||||
Food Products† | |||||||
Post Holdings Inc., 2017 Series A Incremental Term Loan, 5/24/24(10) | 200,000 | 200,018 | |||||
Post Holdings Inc., 2017 Series A Incremental Term Loan, 4.29%, 5/24/24, resets monthly off the 1-month LIBOR plus 2.00% | 45,473 | 45,477 | |||||
Post Holdings Inc., 2017 Series A Incremental Term Loan, 4.29%, 5/24/24, resets monthly off the 1-month LIBOR plus 2.00% | 146,924 | 146,937 | |||||
392,432 | |||||||
Health Care Providers and Services — 0.1% | |||||||
HCA Inc., 2018 Term Loan B10, 4.30%, 3/13/25, resets monthly off the 1-month LIBOR plus 2.00% | 731,325 | 735,439 |
35
Shares/ Principal Amount | Value | ||||||
Hotels, Restaurants and Leisure — 0.2% | |||||||
Hilton Worldwide Finance, LLC, Term Loan B2, 4.03%, 10/25/23, resets monthly off the 1-month LIBOR plus 1.75% | $ | 850,000 | $ | 851,861 | |||
MGM Growth Properties Operating Partnership LP, 2016 Term Loan B, 4.30%, 3/21/25, resets monthly off the 1-month LIBOR plus 2.00% | 796,555 | 795,133 | |||||
1,646,994 | |||||||
Independent Power and Renewable Electricity Producers — 0.1% | |||||||
NRG Energy, Inc., 2016 Term Loan B, 4.14%, 6/30/23, resets quarterly off the 3-month LIBOR plus 1.75% | 463,814 | 462,680 | |||||
NRG Energy, Inc., 2016 Term Loan B, 6/30/23(10) | 115,000 | 114,719 | |||||
577,399 | |||||||
IT Services — 0.1% | |||||||
First Data Corporation, 2024 USD Term Loan, 4.29%, 4/26/24, resets monthly off the 1-month LIBOR plus 2.00% | 695,000 | 692,032 | |||||
Media† | |||||||
Charter Communications Operating, LLC, 2017 Term Loan B, 4/30/25(10) | 400,000 | 400,476 | |||||
Software — 0.1% | |||||||
Dell International LLC, 2017 Term Loan B, 4.31%, 9/7/23, resets monthly off the 1-month LIBOR plus 2.00% | 646,734 | 646,789 | |||||
Technology Hardware, Storage and Peripherals — 0.1% | |||||||
Western Digital Corporation, 2018 Term Loan B4, 4.04%, 4/29/23, resets monthly off the 1-month LIBOR plus 1.75% | 746,250 | 742,985 | |||||
TOTAL BANK LOAN OBLIGATIONS (Cost $7,121,882) | 7,097,265 | ||||||
MUNICIPAL SECURITIES — 0.6% | |||||||
Bay Area Toll Authority Rev., 6.92%, 4/1/40 | 195,000 | 254,649 | |||||
Houston GO, 3.96%, 3/1/47 | 120,000 | 114,836 | |||||
Los Angeles Community College District GO, 6.68%, 8/1/36 | 100,000 | 129,687 | |||||
Metropolitan Transportation Authority Rev., 6.69%, 11/15/40 | 105,000 | 134,943 | |||||
Metropolitan Transportation Authority Rev., 6.81%, 11/15/40 | 60,000 | 77,237 | |||||
Metropolitan Water Reclamation District of Greater Chicago GO, 5.72%, 12/1/38 | 650,000 | 770,549 | |||||
Missouri Highway & Transportation Commission Rev., 5.45%, 5/1/33 | 130,000 | 146,401 | |||||
New Jersey Turnpike Authority Rev., 7.41%, 1/1/40 | 200,000 | 279,456 | |||||
New Jersey Turnpike Authority Rev., 7.10%, 1/1/41 | 95,000 | 128,718 | |||||
New York City GO, 6.27%, 12/1/37 | 95,000 | 118,175 | |||||
Ohio Water Development Authority Water Pollution Control Loan Fund Rev., 4.88%, 12/1/34 | 110,000 | 117,190 | |||||
Port Authority of New York & New Jersey Rev., 4.93%, 10/1/51 | 50,000 | 54,594 | |||||
Port Authority of New York & New Jersey Rev., 4.46%, 10/1/62 | 245,000 | 242,633 | |||||
Rutgers The State University of New Jersey Rev., 5.67%, 5/1/40 | 205,000 | 237,183 | |||||
Sacramento Municipal Utility District Rev., 6.16%, 5/15/36 | 210,000 | 252,857 | |||||
Salt River Project Agricultural Improvement & Power District Rev., 4.84%, 1/1/41 | 95,000 | 103,945 | |||||
San Francisco Public Utilities Commission Water Rev., 6.00%, 11/1/40 | 105,000 | 125,178 | |||||
San Francisco Public Utilities Commission Water Rev., 6.95%, 11/1/50 | 65,000 | 89,760 | |||||
Santa Clara Valley Transportation Authority Rev., 5.88%, 4/1/32 | 120,000 | 137,147 |
36
Shares/ Principal Amount | Value | ||||||
State of California GO, 4.60%, 4/1/38 | $ | 355,000 | $ | 361,312 | |||
State of California GO, 7.55%, 4/1/39 | 100,000 | 142,344 | |||||
State of California GO, 7.30%, 10/1/39 | 160,000 | 217,904 | |||||
State of California GO, 7.60%, 11/1/40 | 80,000 | 115,780 | |||||
State of Illinois GO, 5.10%, 6/1/33 | 345,000 | 326,111 | |||||
State of Oregon Department of Transportation Rev., 5.83%, 11/15/34 | 70,000 | 83,408 | |||||
State of Texas GO, 5.52%, 4/1/39 | 50,000 | 60,096 | |||||
State of Washington GO, 5.14%, 8/1/40 | 20,000 | 22,571 | |||||
TOTAL MUNICIPAL SECURITIES (Cost $4,453,797) | 4,844,664 | ||||||
SOVEREIGN GOVERNMENTS AND AGENCIES — 0.4% | |||||||
Chile† | |||||||
Chile Government International Bond, 3.25%, 9/14/21 | 100,000 | 99,630 | |||||
Chile Government International Bond, 3.625%, 10/30/42 | 100,000 | 89,881 | |||||
189,511 | |||||||
Colombia — 0.1% | |||||||
Colombia Government International Bond, 4.375%, 7/12/21 | 310,000 | 314,573 | |||||
Colombia Government International Bond, 7.375%, 9/18/37 | 300,000 | 363,375 | |||||
Colombia Government International Bond, 6.125%, 1/18/41 | 100,000 | 108,101 | |||||
786,049 | |||||||
Italy† | |||||||
Republic of Italy Government International Bond, 6.875%, 9/27/23 | 220,000 | 236,330 | |||||
Mexico — 0.1% | |||||||
Mexico Government International Bond, 4.15%, 3/28/27 | 600,000 | 572,025 | |||||
Mexico Government International Bond, MTN, 4.75%, 3/8/44 | 400,000 | 355,604 | |||||
927,629 | |||||||
Peru† | |||||||
Peruvian Government International Bond, 6.55%, 3/14/37 | 70,000 | 85,575 | |||||
Peruvian Government International Bond, 5.625%, 11/18/50 | 170,000 | 190,400 | |||||
275,975 | |||||||
Philippines — 0.1% | |||||||
Philippine Government International Bond, 4.00%, 1/15/21 | 300,000 | 303,411 | |||||
Philippine Government International Bond, 6.375%, 10/23/34 | 150,000 | 182,650 | |||||
486,061 | |||||||
Poland — 0.1% | |||||||
Republic of Poland Government International Bond, 3.00%, 3/17/23 | 140,000 | 136,529 | |||||
Republic of Poland Government International Bond, 5.125%, 4/21/21 | 140,000 | 145,708 | |||||
282,237 | |||||||
South Africa† | |||||||
Republic of South Africa Government International Bond, 4.67%, 1/17/24 | 110,000 | 105,387 | |||||
Uruguay† | |||||||
Uruguay Government International Bond, 4.125%, 11/20/45 | 120,000 | 104,700 | |||||
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $3,502,783) | 3,393,879 |
37
Shares/ Principal Amount | Value | ||||||
U.S. GOVERNMENT AGENCY SECURITIES — 0.2% | |||||||
FNMA, 2.125%, 4/24/26 | $ | 270,000 | $ | 250,258 | |||
FNMA, 6.625%, 11/15/30 | 900,000 | 1,175,737 | |||||
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (Cost $1,394,711) | 1,425,995 | ||||||
TEMPORARY CASH INVESTMENTS — 3.0% | |||||||
State Street Institutional U.S. Government Money Market Fund, Premier Class (Cost $26,317,151) | 26,317,151 | 26,317,151 | |||||
TOTAL INVESTMENT SECURITIES — 104.3% (Cost $806,351,714) | 899,899,444 | ||||||
OTHER ASSETS AND LIABILITIES — (4.3)% | (37,128,819 | ) | |||||
TOTAL NET ASSETS — 100.0% | $ | 862,770,625 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 6,456 | USD | 7,503 | JPMorgan Chase Bank N.A. | 12/19/18 | $ | (159 | ) | ||
USD | 377,611 | EUR | 322,205 | JPMorgan Chase Bank N.A. | 12/19/18 | 11,125 | ||||
$ | 10,966 |
FUTURES CONTRACTS PURCHASED | |||||||||||
Reference Entity | Contracts | Expiration Date | Notional Amount | Underlying Contract Value | Unrealized Appreciation (Depreciation) | ||||||
U.S. Treasury 2-Year Notes | 37 | December 2018 | $ | 7,400,000 | $ | 7,794,281 | $ | (5,286 | ) | ||
U.S. Treasury 5-Year Notes | 1 | December 2018 | $ | 100,000 | 112,383 | (780 | ) | ||||
U.S. Treasury 10-Year Notes | 4 | December 2018 | $ | 400,000 | 473,750 | (6,290 | ) | ||||
U.S. Treasury 10-Year Ultra Notes | 25 | December 2018 | $ | 2,500,000 | 3,127,734 | (61,385 | ) | ||||
U.S. Treasury Long Bonds | 17 | December 2018 | $ | 1,700,000 | 2,348,125 | (94,202 | ) | ||||
$ | 13,856,273 | $ | (167,943 | ) |
38
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
FHLMC | - | Federal Home Loan Mortgage Corporation |
FNMA | - | Federal National Mortgage Association |
GNMA | - | Government National Mortgage Association |
GO | - | General Obligation |
H15T1Y | - | Constant Maturity U.S. Treasury Note Yield Curve Rate Index |
LIBOR | - | London Interbank Offered Rate |
MTN | - | Medium Term Note |
resets | - | The frequency with which a security's coupon changes, based on current market conditions or an underlying index. |
SEQ | - | Sequential Payer |
USD | - | United States Dollar |
VRN | - | Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end. |
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
(2) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration, normally to qualified institutional investors. The aggregate value of these securities at the period end was $77,325,929, which represented 9.0% of total net assets. |
(3) | Coupon rate adjusts periodically based upon a predetermined schedule. Interest reset date is indicated. Rate shown is effective at the period end. |
(4) | Final maturity date indicated, unless otherwise noted. |
(5) | The interest rate resets periodically based on the weighted average coupons of the underlying mortgage-related or asset-backed obligations. |
(6) | Forward commitment. Settlement date is indicated. |
(7) | Security, or a portion thereof, has been pledged at the custodian bank or with a broker for collateral requirements on forward commitments, forward foreign currency exchange contracts, and futures contracts. At the period end, the aggregate value of securities pledged was $412,208. |
(8) | 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. |
(9) | The interest rate on a bank loan obligation adjusts periodically based on a predetermined schedule. Rate shown is effective at period end. The maturity date on a bank loan obligation may be less than indicated as a result of contractual or optional prepayments. These prepayments cannot be predicted with certainty. Final maturity date is indicated. |
(10) | The interest rate will be determined upon settlement of the bank loan obligation after period end. |
See Notes to Financial Statements.
39
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $806,351,714) | $ | 899,899,444 | |
Cash | 4,143 | ||
Receivable for investments sold | 18,408,592 | ||
Receivable for capital shares sold | 120,688 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 11,125 | ||
Interest and dividends receivable | 2,833,943 | ||
921,277,935 | |||
Liabilities | |||
Payable for investments purchased | 57,651,080 | ||
Payable for capital shares redeemed | 160,163 | ||
Payable for variation margin on futures contracts | 31,219 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 159 | ||
Accrued management fees | 664,689 | ||
58,507,310 | |||
Net Assets | $ | 862,770,625 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 722,654,451 | |
Distributable earnings | 140,116,174 | ||
$ | 862,770,625 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $798,119,589 | 43,030,542 | $18.55 | |
I Class, $0.01 Par Value | $62,077,040 | 3,344,588 | $18.56 | |
R5 Class, $0.01 Par Value | $2,573,996 | 138,707 | $18.56 |
See Notes to Financial Statements.
40
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Interest | $ | 10,661,781 | |
Dividends | 9,329,830 | ||
19,991,611 | |||
Expenses: | |||
Management fees | 7,972,545 | ||
Directors' fees and expenses | 20,371 | ||
Other expenses | 3,855 | ||
7,996,771 | |||
Net investment income (loss) | 11,994,840 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 48,467,579 | ||
Forward foreign currency exchange contract transactions | 21,529 | ||
Futures contract transactions | (418,349 | ) | |
Swap agreement transactions | 99,660 | ||
Foreign currency translation transactions | 931 | ||
48,171,350 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (44,448,129 | ) | |
Forward foreign currency exchange contracts | (1,706 | ) | |
Futures contracts | 10,203 | ||
Swap agreements | 152,840 | ||
Translation of assets and liabilities in foreign currencies | (1,255 | ) | |
(44,288,047 | ) | ||
Net realized and unrealized gain (loss) | 3,883,303 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 15,878,143 |
See Notes to Financial Statements.
41
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 11,994,840 | $ | 12,490,104 | ||
Net realized gain (loss) | 48,171,350 | 40,041,492 | ||||
Change in net unrealized appreciation (depreciation) | (44,288,047 | ) | 57,783,797 | |||
Net increase (decrease) in net assets resulting from operations | 15,878,143 | 110,315,393 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
Investor Class | (46,718,422 | ) | (19,099,576 | ) | ||
I Class | (4,323,186 | ) | (1,663,812 | ) | ||
R5 Class | (21,216 | ) | (46 | ) | ||
Decrease in net assets from distributions | (51,062,824 | ) | (20,763,434 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 9,996,470 | (15,464,903 | ) | |||
Net increase (decrease) in net assets | (25,188,211 | ) | 74,087,056 | |||
Net Assets | ||||||
Beginning of period | 887,958,836 | 813,871,780 | ||||
End of period | $ | 862,770,625 | $ | 887,958,836 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(12,032,665), $(1,102,956), and $(46) for Investor Class, I Class, and R5 Class, respectively. Distributions from net realized gains were $(7,066,911) and $(560,856) for Investor Class and I Class, respectively. |
See Notes to Financial Statements.
42
Notes to Financial Statements |
OCTOBER 31, 2018
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’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, I Class and R5 Class. Sale of R5 Class commenced on April 10, 2017.
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.
Fixed income securities 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. Corporate bonds, U.S. Treasury and Government Agency securities, convertible bonds, bank loan obligations, municipal securities, and sovereign governments and agencies are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information. Mortgage-related and asset-backed securities are valued based on models that consider trade data, prepayment and default projections, benchmark yield and spread data and estimated cash flows of each tranche of the issuer. Collateralized loan obligations are valued based on discounted cash flow models that consider trade and economic data, prepayment assumptions and default projections. Commercial paper is valued using a curve-based approach that considers money market rates for specific instruments, programs, currencies and maturity points from a variety of active market makers. Fixed income 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. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate exchange. Swap agreements are valued at an evaluated mean as provided by independent pricing services or independent brokers. 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.
43
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 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.
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.
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 investment securities and other financial instruments. 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 collateral requirements.
44
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.
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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets).
The management fee schedule range and the effective annual management fee for each class for the period ended October 31, 2018 are as follows:
Management Fee Schedule Range | Effective Annual Management Fee | |
Investor Class | 0.800% to 0.900% | 0.90% |
I Class | 0.600% to 0.700% | 0.70% |
R5 Class | 0.600% to 0.700% | 0.70% |
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.
45
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $5,514,432 and $5,854,042, respectively. The effect of interfund transactions on the Statement of Operations was $788,269 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the period ended October 31, 2018 totaled $1,054,982,578, of which $520,873,248 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 totaled $1,088,599,446, of which $547,114,926 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, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 360,000,000 | 360,000,000 | ||||||||
Sold | 3,868,835 | $ | 74,382,638 | 3,792,164 | $ | 68,827,438 | ||||
Issued in reinvestment of distributions | 2,405,295 | 45,635,273 | 1,033,181 | 18,655,112 | ||||||
Redeemed | (5,429,365 | ) | (104,029,188 | ) | (6,045,243 | ) | (110,644,072 | ) | ||
844,765 | 15,988,723 | (1,219,898 | ) | (23,161,522 | ) | |||||
I Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 692,390 | 13,353,992 | 1,099,075 | 20,321,149 | ||||||
Issued in reinvestment of distributions | 226,647 | 4,304,435 | 91,815 | 1,661,482 | ||||||
Redeemed | (1,372,689 | ) | (26,321,224 | ) | (777,932 | ) | (14,291,058 | ) | ||
(453,652 | ) | (8,662,797 | ) | 412,958 | 7,691,573 | |||||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 137,666 | 2,655,767 | 275 | 5,000 | ||||||
Issued in reinvestment of distributions | 1,095 | 21,216 | 2 | 46 | ||||||
Redeemed | (331 | ) | (6,439 | ) | — | — | ||||
138,430 | 2,670,544 | 277 | 5,046 | |||||||
Net increase (decrease) | 529,543 | $ | 9,996,470 | (806,663 | ) | $ | (15,464,903 | ) |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the R5 Class |
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.
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 | $ | 499,825,706 | — | — | ||||
Corporate Bonds | — | $ | 107,661,589 | — | ||||
U.S. Government Agency Mortgage-Backed Securities | — | 84,715,571 | — | |||||
U.S. Treasury Securities | — | 74,089,731 | — | |||||
Asset-Backed Securities | — | 28,488,359 | — | |||||
Collateralized Mortgage Obligations | — | 27,228,448 | — | |||||
Collateralized Loan Obligations | — | 17,694,513 | — | |||||
Commercial Mortgage-Backed Securities | — | 17,116,573 | — | |||||
Bank Loan Obligations | — | 7,097,265 | — | |||||
Municipal Securities | — | 4,844,664 | — | |||||
Sovereign Governments and Agencies | — | 3,393,879 | — | |||||
U.S. Government Agency Securities | — | 1,425,995 | — | |||||
Temporary Cash Investments | 26,317,151 | — | — | |||||
$ | 526,142,857 | $ | 373,756,587 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 11,125 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Futures Contracts | $ | 167,943 | — | — | ||||
Forward Foreign Currency Exchange Contracts | — | $ | 159 | — | ||||
$ | 167,943 | $ | 159 | — |
7. Derivative Instruments
Credit Risk — The fund is subject to credit risk in the normal course of pursuing its investment objectives. The value of a bond generally declines as the credit quality of its issuer declines. Credit default swap agreements enable a fund to buy/sell protection against a credit event of a specific issuer or index. A fund may attempt to enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The buyer/seller of credit protection against a security or basket of securities may pay/receive an up-front or periodic payment to compensate for/against potential default events. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Upon entering into a centrally cleared swap, a fund is required to deposit cash or securities (initial margin) with a financial intermediary in an amount equal to a certain percentage of the notional amount. 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 value and is a component of unrealized gains and losses. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. The fund's average notional amount held during the period was $2,000,000.
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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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $406,767.
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. The fund's average notional exposure to these interest rate risk derivative instruments held during the period was $4,533,333 futures contracts purchased.
Other Contracts — A fund may enter into total return swap agreements in order to attempt to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets or gain exposure to certain markets in the most economical way possible. A fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Changes in value, including the periodic amounts of interest to be paid or received on swap agreements, are recorded as unrealized appreciation (depreciation) on swap agreements. Upon entering into a centrally cleared swap, a fund is required to deposit cash or securities (initial margin) with a financial intermediary in an amount equal to a certain percentage of the notional amount. 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 value and is a component of unrealized gains and losses. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. Net realized and unrealized gains or losses occurring during the holding period of swap agreements are a component of net realized gain (loss) on swap agreement transactions and change in net unrealized appreciation (depreciation) on swap agreements, respectively. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments, including inflationary risk. The fund's average notional amount held during the period was $11,000,000.
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Value of Derivative Instruments as of October 31, 2018
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 | $ | 11,125 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 159 | ||
Interest Rate Risk | Receivable for variation margin on futures contracts* | — | Payable for variation margin on futures contracts* | 31,219 | ||||
$ | 11,125 | $ | 31,378 |
* Included in the unrealized appreciation (depreciation) on futures contracts, as reported in the Schedule of Investments.
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2018
Net Realized Gain (Loss) | Change in Net Unrealized Appreciation (Depreciation) | |||||||
Type of Risk Exposure | Location on Statement of Operations | Value | Location on Statement of Operations | Value | ||||
Credit Risk | Net realized gain (loss) on swap agreement transactions | $ | 13,102 | Change in net unrealized appreciation (depreciation) on swap agreements | $ | (9,031 | ) | |
Foreign Currency Risk | Net realized gain (loss) on forward foreign currency exchange contract transactions | 21,529 | Change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts | (1,706 | ) | |||
Interest Rate Risk | Net realized gain (loss) on futures contract transactions | (418,349 | ) | Change in net unrealized appreciation (depreciation) on futures contracts | 10,203 | |||
Other Contracts | Net realized gain (loss) on swap agreement transactions | 86,558 | Change in net unrealized appreciation (depreciation) on swap agreements | 161,871 | ||||
$ | (297,160 | ) | $ | 161,337 |
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, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 24,785,618 | $ | 13,135,667 | ||
Long-term capital gains | $ | 26,277,206 | $ | 7,627,767 |
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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As of period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 808,400,218 | |
Gross tax appreciation of investments | $ | 121,365,589 | |
Gross tax depreciation of investments | (29,866,363 | ) | |
Net tax appreciation (depreciation) of investments | 91,499,226 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (645 | ) | |
Net tax appreciation (depreciation) | $ | 91,498,581 | |
Other book-to-tax adjustments | $ | (25,698 | ) |
Undistributed ordinary income | $ | 10,973,441 | |
Accumulated long-term gains | $ | 37,669,850 |
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.
10. Recently Issued Accounting Standards
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities” (ASU 2017-08). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management is currently evaluating the impact that adopting ASU 2017-08 will have on the financial statements.
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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 | |||||||||||||||
2018 | $19.31 | 0.25 | 0.09 | 0.34 | (0.25) | (0.85) | (1.10) | $18.55 | 1.72% | 0.90% | 1.32% | 115% | $798,120 | ||
2017 | $17.39 | 0.26 | 2.10 | 2.36 | (0.28) | (0.16) | (0.44) | $19.31 | 13.78% | 0.91% | 1.44% | 112% | $814,569 | ||
2016 | $17.91 | 0.25 | 0.26 | 0.51 | (0.26) | (0.77) | (1.03) | $17.39 | 3.14% | 0.90% | 1.44% | 104% | $754,957 | ||
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 | ||
I Class | |||||||||||||||
2018 | $19.32 | 0.29 | 0.09 | 0.38 | (0.29) | (0.85) | (1.14) | $18.56 | 1.92% | 0.70% | 1.52% | 115% | $62,077 | ||
2017 | $17.40 | 0.30 | 2.09 | 2.39 | (0.31) | (0.16) | (0.47) | $19.32 | 13.99% | 0.71% | 1.64% | 112% | $73,385 | ||
2016 | $17.92 | 0.28 | 0.27 | 0.55 | (0.30) | (0.77) | (1.07) | $17.40 | 3.35% | 0.70% | 1.64% | 104% | $58,915 | ||
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 | ||
R5 Class | |||||||||||||||
2018 | $19.32 | 0.30 | 0.08 | 0.38 | (0.29) | (0.85) | (1.14) | $18.56 | 1.93% | 0.70% | 1.52% | 115% | $2,574 | ||
2017(3) | $18.18 | 0.17 | 1.14 | 1.31 | (0.17) | — | (0.17) | $19.32 | 7.21% | 0.71%(4) | 1.66%(4) | 112%(5) | $5 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Balanced Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Balanced Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
53
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, Inc. |
54
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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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.
55
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
56
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
57
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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 ten-year periods and below its benchmark for the 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.
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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 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, expenses attributable to short sales, 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. 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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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, 2018.
For corporate taxpayers, the fund hereby designates $8,631,542, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $26,277,206, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $12,701,793 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
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Notes |
63
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90968 1812 |
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Annual Report | |
October 31, 2018 | |
Capital Value Fund | |
Investor Class (ACTIX) | |
I Class (ACPIX) | |
A Class (ACCVX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | 10 years | Inception Date | |
Investor Class | ACTIX | 2.01% | 7.75% | 10.29% | 3/31/99 |
Russell 1000 Value Index | — | 3.03% | 8.60% | 11.29% | — |
I Class | ACPIX | 2.11% | 7.95% | 10.52% | 3/1/02 |
A Class | ACCVX | 5/14/03 | |||
No sales charge | 1.63% | 7.47% | 10.03% | ||
With sales charge | -4.20% | 6.20% | 9.39% |
Fund returns would have been lower if a portion of the fees had not been waived. 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.
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.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-7aebeb33de1e5a21ab9.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-7aebeb33de1e5a21ab9.jpg)
Value on October 31, 2018 | |
Investor Class — $26,632 | |
Russell 1000 Value Index — $29,170 | |
Ending value of Investor Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | ||
Investor Class | I Class | A Class |
1.11% | 0.91% | 1.36% |
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. Total returns for periods less than one year are not annualized. 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: Brian Woglom and Phil Sundell
Portfolio manager Brendan Healy retired from American Century Investments in April 2018. In May 2018, Phil Sundell joined Capital Value's management team.
Performance Summary
Capital Value returned 2.01%* for the 12 months ended October 31, 2018. The fund’s benchmark, the Russell 1000 Value Index, returned 3.03% for the same time period. The fund’s return reflects operating expenses, while the index’s return does not.
The portfolio’s holdings in the financials sector, particularly in the capital markets and insurance industries, were key drivers of the portfolio’s underperformance. Our underweight to communication services and individual positions in the industrials, energy, and utilities sectors also detracted from relative results. Conversely, our overweight and security selection in the health care sector positively impacted performance. Holdings in the consumer discretionary and information technology sectors were also beneficial.
Financials Sector Pressured Relative Returns
A number of holdings in the financials sector pressured the fund’s 12-month results, including Chubb and Invesco. Chubb, an insurance company, underperformed on concerns over an increase in loss costs in certain segments of the commercial insurance space. The company is globally diversified, however, minimizing its exposure to any one segment. Furthermore, Chubb has been pulling back from businesses that it believes are not offering adequate returns. Asset manager Invesco declined due to disappointing net flows and a reduction in earnings estimates caused by lower fee rates. Its stock was also pressured by rumors that Invesco would acquire OppenheimerFunds.
Our underweight to communication services also weighed on performance. As bottom-up investors, our analysis leads us to believe that many securities in the sector have relatively volatile business models and leveraged balance sheets due to an increase in acquisitions within the sector. We have therefore identified a limited number of communication services stocks that meet our investment criteria.
Within the industrials sector, Johnson Controls International and General Electric (GE) were key detractors. Toward the beginning of the reporting period, Johnson Controls, a building products company, declined after providing disappointing 2018 guidance. Management detailed profitability and growth challenges as well as an unexpected tax headwind that would pressure free cash flow. Industrial conglomerate GE fell due to weak earnings, worse-than-expected cash flow generation results, a 50% dividend cut, and on concerns over deteriorating operating performance at GE Power. As the company’s long-term prospects became more uncertain and financial pressures mounted, we trimmed our position in GE.
Energy and utilities were other areas of weakness. While our overweight to energy was beneficial to performance, Schlumberger was a top individual detractor. The global oilfield services company underperformed as investors became concerned that the company’s oil production business could raise the overall risk profile of the company. Additionally, the stock was pressured by concerns that
*All fund returns referenced in this commentary are for Investor Class shares. Fund returns would have been lower if a portion of the fees 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.
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the company’s profitability could be pressured by softening in the North American hydraulic fracturing market and by a delayed recovery in margins in the company’s non-U.S. operations. Utilities stocks PG&E and Edison International also declined. Both stocks were pressured by media reports linking their equipment to wildfires in California, creating liability concerns. PG&E’s stock was hurt further after the company proactively suspended its dividend to build its cash reserve until liabilities could be determined. We subsequently eliminated our position in PG&E.
While stock selection within the information technology sector was beneficial overall, Applied Materials was a key individual detractor from performance. The stock of this semiconductor company declined due to a slowdown in foundry and memory equipment orders. However, we believe Applied Materials continues to provide technology leadership, high market share, and broad product offerings.
Health Care, Consumer Discretionary, and Information Technology Holdings Contributed
The portfolio’s overweight and holdings in the health care sector aided the fund’s relative return. Hospital company HCA Healthcare was a top individual contributor. Its stock rose significantly after HCA reported strong quarterly results, due in part to better-than-expected admissions and price. The stock was also buoyed by news that competitor LifePoint Health would be acquired at a significant premium. Pfizer’s stock also rose considerably. The pharmaceutical company reported solid data on Tafamidis, its cardiomyopathy drug, and benefited from investors’ rotation into biopharmaceuticals.
Advance Auto Parts was another key contributor. This consumer discretionary holding reported strong quarterly results and raised its full-year guidance due to margin improvement and stronger-than-expected same-store sales trends. This indicated to investors that the company’s turnaround plan is starting to show signs of effectiveness.
Within the information technology sector, Cisco Systems outperformed after reporting strong quarterly earnings results. Revenues for Cisco’s campus and data center switches exceeded expectations due to a new product cycle and higher information technology infrastructure spending. Also, tax reform gives Cisco access to its cash outside of the U.S.
Portfolio Positioning
We continue to be bottom-up investment managers, evaluating each company individually and building our portfolio one stock at a time. We use our fundamental analysis, risk/reward framework, and proprietary valuation model to invest primarily in the stocks of large companies that we believe to be undervalued.
As of October 31, 2018, the portfolio’s largest sector overweights are in health care and energy. In the health care sector, notable industry overweights are in the pharmaceuticals and health care equipment and supplies industries, where we have identified higher-quality companies with strong fundamentals and compelling risk/reward profiles. In energy, we believe we hold well-managed, higher-quality companies with strong balance sheets and attractive valuations. Our sector underweights include real estate and utilities; our valuation work continues to show that many stocks in those sectors are overvalued. Additionally, we believe rising interest rates present a headwind to those sectors. We are also underweight in the communication services sector because we have identified a limited number of stocks in the sector that meet our investment criteria.
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Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Pfizer, Inc. | 3.7% |
JPMorgan Chase & Co. | 3.5% |
Johnson & Johnson | 3.2% |
Wells Fargo & Co. | 3.2% |
Cisco Systems, Inc. | 3.0% |
Chevron Corp. | 3.0% |
Merck & Co., Inc. | 2.7% |
Bank of America Corp. | 2.6% |
Oracle Corp. (New York) | 2.5% |
TOTAL SA | 2.5% |
Top Five Industries | % of net assets |
Banks | 14.9% |
Pharmaceuticals | 11.9% |
Oil, Gas and Consumable Fuels | 11.6% |
Health Care Equipment and Supplies | 5.8% |
Health Care Providers and Services | 4.8% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 92.7% |
Foreign Common Stocks* | 6.3% |
Total Common Stocks | 99.0% |
Temporary Cash Investments | 1.0% |
Other Assets and Liabilities | —** |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
**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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,008.20 | $5.06 | 1.00% |
I Class | $1,000 | $1,008.20 | $4.05 | 0.80% |
A Class | $1,000 | $1,005.90 | $6.32 | 1.25% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
I Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
(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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
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Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.0% | |||||
Aerospace and Defense — 1.4% | |||||
Textron, Inc. | 9,250 | $ | 496,078 | ||
United Technologies Corp. | 11,740 | 1,458,225 | |||
1,954,303 | |||||
Air Freight and Logistics — 0.3% | |||||
United Parcel Service, Inc., Class B | 4,070 | 433,618 | |||
Airlines — 0.7% | |||||
Alaska Air Group, Inc. | 7,120 | 437,310 | |||
Southwest Airlines Co. | 9,480 | 465,468 | |||
902,778 | |||||
Auto Components — 0.9% | |||||
Aptiv plc | 4,170 | 320,256 | |||
BorgWarner, Inc. | 14,700 | 579,327 | |||
Delphi Technologies plc | 17,130 | 367,267 | |||
1,266,850 | |||||
Banks — 14.9% | |||||
Bank of America Corp. | 130,600 | 3,591,500 | |||
BB&T Corp. | 23,090 | 1,135,104 | |||
Citigroup, Inc. | 29,015 | 1,899,322 | |||
JPMorgan Chase & Co. | 44,260 | 4,825,225 | |||
KeyCorp | 20,520 | 372,643 | |||
PNC Financial Services Group, Inc. (The) | 11,535 | 1,482,132 | |||
U.S. Bancorp | 52,980 | 2,769,265 | |||
Wells Fargo & Co. | 82,190 | 4,374,974 | |||
20,450,165 | |||||
Beverages — 0.8% | |||||
PepsiCo, Inc. | 9,540 | 1,072,105 | |||
Biotechnology — 1.2% | |||||
Amgen, Inc. | 8,475 | 1,633,895 | |||
Building Products — 1.1% | |||||
Johnson Controls International plc | 47,745 | 1,526,408 | |||
Capital Markets — 3.5% | |||||
Ameriprise Financial, Inc. | 4,820 | 613,297 | |||
BlackRock, Inc. | 2,920 | 1,201,346 | |||
Goldman Sachs Group, Inc. (The) | 3,100 | 698,647 | |||
Invesco Ltd. | 28,265 | 613,633 | |||
Morgan Stanley | 18,535 | 846,308 | |||
State Street Corp. | 13,310 | 915,063 | |||
4,888,294 | |||||
Chemicals — 1.2% | |||||
DowDuPont, Inc. | 25,300 | 1,364,176 |
10
Shares | Value | ||||
LyondellBasell Industries NV, Class A | 3,680 | $ | 328,514 | ||
1,692,690 | |||||
Communications Equipment — 3.0% | |||||
Cisco Systems, Inc. | 89,815 | 4,109,036 | |||
Containers and Packaging — 0.5% | |||||
WestRock Co. | 15,445 | 663,672 | |||
Diversified Financial Services — 0.8% | |||||
Berkshire Hathaway, Inc., Class B(1) | 5,655 | 1,160,858 | |||
Diversified Telecommunication Services — 3.4% | |||||
AT&T, Inc. | 54,555 | 1,673,748 | |||
Verizon Communications, Inc. | 51,715 | 2,952,409 | |||
4,626,157 | |||||
Electric Utilities — 2.9% | |||||
Edison International | 12,765 | 885,763 | |||
Eversource Energy | 16,365 | 1,035,250 | |||
Pinnacle West Capital Corp. | 6,625 | 544,906 | |||
Xcel Energy, Inc. | 31,385 | 1,538,179 | |||
4,004,098 | |||||
Electrical Equipment — 1.2% | |||||
Eaton Corp. plc | 16,530 | 1,184,705 | |||
Hubbell, Inc. | 4,725 | 480,533 | |||
1,665,238 | |||||
Energy Equipment and Services — 2.6% | |||||
Baker Hughes a GE Co. | 36,555 | 975,653 | |||
Schlumberger Ltd. | 50,240 | 2,577,814 | |||
3,553,467 | |||||
Equity Real Estate Investment Trusts (REITs) — 0.5% | |||||
American Tower Corp. | 3,110 | 484,569 | |||
Weyerhaeuser Co. | 7,845 | 208,912 | |||
693,481 | |||||
Food and Staples Retailing — 1.8% | |||||
Walmart, Inc. | 24,250 | 2,431,790 | |||
Food Products — 2.4% | |||||
Kellogg Co. | 17,575 | 1,150,811 | |||
Mondelez International, Inc., Class A | 50,590 | 2,123,768 | |||
3,274,579 | |||||
Health Care Equipment and Supplies — 5.8% | |||||
Abbott Laboratories | 25,975 | 1,790,717 | |||
Medtronic plc | 37,240 | 3,344,897 | |||
Siemens Healthineers AG(1) | 20,150 | 835,090 | |||
Zimmer Biomet Holdings, Inc. | 17,570 | 1,995,776 | |||
7,966,480 | |||||
Health Care Providers and Services — 4.8% | |||||
Aetna, Inc. | 4,080 | 809,472 | |||
Anthem, Inc. | 3,990 | 1,099,524 | |||
Cardinal Health, Inc. | 11,455 | 579,623 | |||
CVS Health Corp. | 22,410 | 1,622,260 |
11
Shares | Value | ||||
HCA Healthcare, Inc. | 13,310 | $ | 1,777,285 | ||
McKesson Corp. | 6,220 | 776,007 | |||
6,664,171 | |||||
Household Products — 2.6% | |||||
Kimberly-Clark Corp. | 6,710 | 699,853 | |||
Procter & Gamble Co. (The) | 32,070 | 2,843,968 | |||
3,543,821 | |||||
Industrial Conglomerates — 1.2% | |||||
General Electric Co. | 80,300 | 811,030 | |||
Siemens AG | 6,865 | 790,939 | |||
1,601,969 | |||||
Insurance — 4.3% | |||||
Allstate Corp. (The) | 7,070 | 676,740 | |||
American International Group, Inc. | 13,590 | 561,131 | |||
Chubb Ltd. | 21,370 | 2,669,327 | |||
MetLife, Inc. | 23,980 | 987,736 | |||
Principal Financial Group, Inc. | 5,640 | 265,475 | |||
Prudential Financial, Inc. | 8,370 | 784,939 | |||
5,945,348 | |||||
Machinery — 1.3% | |||||
IMI plc | 41,965 | 533,447 | |||
Ingersoll-Rand plc | 8,820 | 846,191 | |||
Stanley Black & Decker, Inc. | 3,620 | 421,802 | |||
1,801,440 | |||||
Multi-Utilities — 0.4% | |||||
WEC Energy Group, Inc. | 7,880 | 538,992 | |||
Multiline Retail — 0.6% | |||||
Target Corp. | 10,615 | 887,732 | |||
Oil, Gas and Consumable Fuels — 11.6% | |||||
Anadarko Petroleum Corp. | 17,240 | 917,168 | |||
Chevron Corp. | 36,400 | 4,064,060 | |||
ConocoPhillips | 15,005 | 1,048,849 | |||
Exxon Mobil Corp. | 21,485 | 1,711,925 | |||
Noble Energy, Inc. | 34,690 | 862,047 | |||
Occidental Petroleum Corp. | 31,575 | 2,117,735 | |||
Royal Dutch Shell plc, Class B ADR | 28,930 | 1,900,990 | |||
TOTAL SA | 57,730 | 3,397,556 | |||
16,020,330 | |||||
Pharmaceuticals — 11.9% | |||||
Allergan plc | 6,125 | 967,811 | |||
Bristol-Myers Squibb Co. | 23,155 | 1,170,254 | |||
Johnson & Johnson | 31,515 | 4,411,785 | |||
Merck & Co., Inc. | 50,850 | 3,743,068 | |||
Pfizer, Inc. | 116,880 | 5,032,853 | |||
Roche Holding AG | 4,475 | 1,089,036 | |||
16,414,807 |
12
Shares | Value | ||||
Road and Rail — 0.5% | |||||
Union Pacific Corp. | 4,650 | $ | 679,923 | ||
Semiconductors and Semiconductor Equipment — 3.0% | |||||
Applied Materials, Inc. | 26,155 | 859,977 | |||
Intel Corp. | 39,765 | 1,864,183 | |||
Microchip Technology, Inc. | 4,530 | 297,983 | |||
QUALCOMM, Inc. | 16,790 | 1,055,923 | |||
4,078,066 | |||||
Software — 2.5% | |||||
Oracle Corp. (New York) | 70,320 | 3,434,429 | |||
Specialty Retail — 1.8% | |||||
Advance Auto Parts, Inc. | 7,500 | 1,198,200 | |||
AutoZone, Inc.(1) | 720 | 528,098 | |||
L Brands, Inc. | 12,600 | 408,492 | |||
Lowe's Cos., Inc. | 4,055 | 386,117 | |||
2,520,907 | |||||
Technology Hardware, Storage and Peripherals — 0.7% | |||||
Apple, Inc. | 4,650 | 1,017,699 | |||
Textiles, Apparel and Luxury Goods — 0.6% | |||||
Ralph Lauren Corp. | 3,475 | 450,395 | |||
Tapestry, Inc. | 7,960 | 336,787 | |||
787,182 | |||||
Tobacco — 0.3% | |||||
Altria Group, Inc. | 5,775 | 375,606 | |||
TOTAL COMMON STOCKS (Cost $92,607,752) | 136,282,384 | ||||
TEMPORARY CASH INVESTMENTS — 1.0% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $958,031), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $938,631) | 938,579 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $480,505), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $469,014) | 469,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 1,483 | 1,483 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,409,062) | 1,409,062 | ||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $94,016,814) | 137,691,446 | ||||
OTHER ASSETS AND LIABILITIES† | (49,774 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 137,641,672 |
13
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CHF | 31,504 | USD | 32,010 | UBS AG | 12/31/18 | $ | (534 | ) | ||
CHF | 38,664 | USD | 38,992 | UBS AG | 12/31/18 | (363 | ) | |||
USD | 36,870 | CHF | 36,516 | UBS AG | 12/31/18 | 387 | ||||
USD | 21,609 | CHF | 21,659 | UBS AG | 12/31/18 | (31 | ) | |||
USD | 888,864 | CHF | 846,670 | UBS AG | 12/31/18 | 42,954 | ||||
USD | 25,640 | CHF | 25,239 | UBS AG | 12/31/18 | 424 | ||||
EUR | 111,842 | USD | 129,233 | Credit Suisse AG | 12/31/18 | (1,846 | ) | |||
EUR | 152,579 | USD | 177,522 | Credit Suisse AG | 12/31/18 | (3,735 | ) | |||
EUR | 97,863 | USD | 112,102 | Credit Suisse AG | 12/31/18 | (637 | ) | |||
USD | 4,384,122 | EUR | 3,701,549 | Credit Suisse AG | 12/31/18 | 168,094 | ||||
USD | 131,150 | EUR | 112,209 | Credit Suisse AG | 12/31/18 | 3,345 | ||||
GBP | 70,474 | USD | 93,022 | Morgan Stanley | 12/31/18 | (2,653 | ) | |||
GBP | 69,293 | USD | 89,527 | Morgan Stanley | 12/31/18 | (672 | ) | |||
USD | 1,950,447 | GBP | 1,466,744 | Morgan Stanley | 12/31/18 | 69,629 | ||||
USD | 67,096 | GBP | 50,653 | Morgan Stanley | 12/31/18 | 2,144 | ||||
USD | 126,299 | GBP | 95,906 | Morgan Stanley | 12/31/18 | 3,319 | ||||
$ | 279,825 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CHF | - | Swiss Franc |
EUR | - | Euro |
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.
14
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $94,016,814) | $ | 137,691,446 | |
Receivable for capital shares sold | 3,219 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 290,296 | ||
Dividends and interest receivable | 148,882 | ||
138,133,843 | |||
Liabilities | |||
Payable for investments purchased | 274,934 | ||
Payable for capital shares redeemed | 85,635 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 10,471 | ||
Accrued management fees | 120,480 | ||
Distribution and service fees payable | 651 | ||
492,171 | |||
Net Assets | $ | 137,641,672 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 90,219,542 | |
Distributable earnings | 47,422,130 | ||
$ | 137,641,672 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $132,588,316 | 15,384,654 | $8.62 | |||
I Class, $0.01 Par Value | $2,096,000 | 242,276 | $8.65 | |||
A Class, $0.01 Par Value | $2,957,356 | 344,578 | $8.58* |
*Maximum offering price $9.10 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $36,072) | $ | 3,867,071 | |
Interest | 20,494 | ||
3,887,565 | |||
Expenses: | |||
Management fees | 1,620,402 | ||
Distribution and service fees - A Class | 9,413 | ||
Directors' fees and expenses | 3,288 | ||
1,633,103 | |||
Fees waived(1) | (147,743 | ) | |
1,485,360 | |||
Net investment income (loss) | 2,402,205 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 2,482,104 | ||
Forward foreign currency exchange contract transactions | 282,515 | ||
Foreign currency translation transactions | (1,182 | ) | |
2,763,437 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (2,049,980 | ) | |
Forward foreign currency exchange contracts | 145,049 | ||
Translation of assets and liabilities in foreign currencies | (485 | ) | |
(1,905,416 | ) | ||
Net realized and unrealized gain (loss) | 858,021 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 3,260,226 |
(1) | Amount consists of $141,592, $2,386 and $3,765 for Investor Class, I Class and A Class, respectively. |
See Notes to Financial Statements.
16
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 2,402,205 | $ | 2,701,441 | ||
Net realized gain (loss) | 2,763,437 | 14,344,889 | ||||
Change in net unrealized appreciation (depreciation) | (1,905,416 | ) | 6,707,469 | |||
Net increase (decrease) in net assets resulting from operations | 3,260,226 | 23,753,799 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
Investor Class | (15,003,404 | ) | (11,736,641 | ) | ||
I Class | (282,306 | ) | (173,641 | ) | ||
A Class | (379,836 | ) | (370,652 | ) | ||
Decrease in net assets from distributions | (15,665,546 | ) | (12,280,934 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (2,336,826 | ) | 943,959 | |||
Net increase (decrease) in net assets | (14,742,146 | ) | 12,416,824 | |||
Net Assets | ||||||
Beginning of period | 152,383,818 | 139,966,994 | ||||
End of period | $ | 137,641,672 | $ | 152,383,818 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(2,191,476), $(35,875), and $(59,449) for Investor Class, I Class and A Class, respectively. Distributions from net realized gains were $(9,545,165), $(137,766), $(311,203) for Investor Class, I Class and A Class, respectively. |
See Notes to Financial Statements.
17
Notes to Financial Statements |
OCTOBER 31, 2018
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’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class and A Class. The A Class may incur an initial sales charge and may be subject to a contingent deferred sales charge.
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 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
18
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. 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.
19
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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets). During the period ended October 31, 2018, the investment advisor agreed to waive 0.10% of the fund's management fee. The investment advisor expects this waiver to continue until July 31, 2019 and cannot terminate it prior to such date without the approval of the Board of Directors.
The management fee schedule range and the effective annual management fee before and after waiver for each class for the period ended October 31, 2018, are as follows:
Effective Annual Management Fee | |||
Management Fee Schedule Range | Before Waiver | After Waiver | |
Investor Class | 0.900% to 1.100% | 1.10% | 1.00% |
I Class | 0.700% to 0.900% | 0.90% | 0.80% |
A Class | 0.900% to 1.100% | 1.10% | 1.00% |
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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $250,306 and $195,362, respectively. The effect of interfund transactions on the Statement of Operations was $(65,646) in net realized gain (loss) on investment transactions.
20
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $25,114,746 and $39,063,984, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017 | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 180,000,000 | 180,000,000 | ||||||||
Sold | 680,332 | $ | 6,099,662 | 1,153,110 | $ | 10,522,431 | ||||
Issued in reinvestment of distributions | 1,625,614 | 14,207,863 | 1,257,615 | 11,104,738 | ||||||
Redeemed | (2,402,247 | ) | (21,407,797 | ) | (2,277,001 | ) | (20,744,578 | ) | ||
(96,301 | ) | (1,100,272 | ) | 133,724 | 882,591 | |||||
I Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 63,598 | 555,668 | 151,082 | 1,380,796 | ||||||
Issued in reinvestment of distributions | 17,238 | 151,008 | 12,824 | 113,359 | ||||||
Redeemed | (168,691 | ) | (1,517,600 | ) | (53,781 | ) | (491,331 | ) | ||
(87,855 | ) | (810,924 | ) | 110,125 | 1,002,824 | |||||
A Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 120,799 | 1,076,313 | 156,156 | 1,420,499 | ||||||
Issued in reinvestment of distributions | 43,164 | 376,394 | 41,700 | 367,377 | ||||||
Redeemed | (212,835 | ) | (1,878,337 | ) | (301,198 | ) | (2,729,332 | ) | ||
(48,872 | ) | (425,630 | ) | (103,342 | ) | (941,456 | ) | |||
Net increase (decrease) | (233,028 | ) | $ | (2,336,826 | ) | 140,507 | $ | 943,959 |
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.
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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 | $ | 129,636,316 | $ | 6,646,068 | — | |||
Temporary Cash Investments | 1,483 | 1,407,579 | — | |||||
$ | 129,637,799 | $ | 8,053,647 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 290,296 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 10,471 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $7,699,996.
The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $290,296 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $10,471 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $282,515 in net realized gain (loss) on forward foreign currency exchange contract transactions and $145,049 in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
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.
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9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 2,258,549 | $ | 2,286,800 | ||
Long-term capital gains | $ | 13,406,997 | $ | 9,994,134 |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 94,602,575 | |
Gross tax appreciation of investments | $ | 45,916,156 | |
Gross tax depreciation of investments | (2,827,285 | ) | |
Net tax appreciation (depreciation) of investments | 43,088,871 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (485 | ) | |
Net tax appreciation (depreciation) | $ | 43,088,386 | |
Undistributed ordinary income | $ | 2,094,098 | |
Accumulated long-term gains | $ | 2,239,646 |
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 | |||||||||||||||||
2018 | $9.40 | 0.14 | 0.06 | 0.20 | (0.14) | (0.84) | (0.98) | $8.62 | 2.01% | 1.00% | 1.10% | 1.63% | 1.53% | 17% | $132,588 | ||
2017 | $8.71 | 0.16 | 1.29 | 1.45 | (0.14) | (0.62) | (0.76) | $9.40 | 17.24% | 1.01% | 1.11% | 1.76% | 1.66% | 26% | $145,583 | ||
2016 | $9.05 | 0.14 | 0.21 | 0.35 | (0.14) | (0.55) | (0.69) | $8.71 | 4.36% | 1.00% | 1.10% | 1.72% | 1.62% | 45% | $133,732 | ||
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 | ||
I Class | |||||||||||||||||
2018 | $9.44 | 0.16 | 0.05 | 0.21 | (0.16) | (0.84) | (1.00) | $8.65 | 2.11% | 0.80% | 0.90% | 1.83% | 1.73% | 17% | $2,096 | ||
2017 | $8.74 | 0.18 | 1.30 | 1.48 | (0.16) | (0.62) | (0.78) | $9.44 | 17.55% | 0.81% | 0.91% | 1.96% | 1.86% | 26% | $3,116 | ||
2016 | $9.08 | 0.16 | 0.21 | 0.37 | (0.16) | (0.55) | (0.71) | $8.74 | 4.67% | 0.80% | 0.90% | 1.92% | 1.82% | 45% | $1,924 | ||
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 |
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 | |||||||||||||||||
2018 | $9.37 | 0.12 | 0.05 | 0.17 | (0.12) | (0.84) | (0.96) | $8.58 | 1.63% | 1.25% | 1.35% | 1.38% | 1.28% | 17% | $2,957 | ||
2017 | $8.68 | 0.13 | 1.30 | 1.43 | (0.12) | (0.62) | (0.74) | $9.37 | 16.99% | 1.26% | 1.36% | 1.51% | 1.41% | 26% | $3,685 | ||
2016 | $9.01 | 0.12 | 0.22 | 0.34 | (0.12) | (0.55) | (0.67) | $8.68 | 4.21% | 1.25% | 1.35% | 1.47% | 1.37% | 45% | $4,312 | ||
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 |
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.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capital Value Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Capital Value Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
29
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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 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.
31
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 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, expenses attributable to short sales, 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 temporary reduction of
32
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, 2018. 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.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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, 2018.
For corporate taxpayers, the fund hereby designates $2,258,549, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $13,600,805, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $416,192 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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90972 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
Growth Fund | |
Investor Class (TWCGX) | |
I Class (TWGIX) | |
Y Class (AGYWX) | |
A Class (TCRAX) | |
C Class (TWRCX) | |
R Class (AGWRX) | |
R5 Class (AGWUX) | |
R6 Class (AGRDX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCGX | 10.22% | 11.99% | 13.72% | — | 6/30/71 |
Russell 1000 Growth Index | — | 10.71% | 13.43% | 15.45% | — | — |
I Class | TWGIX | 10.46% | 12.22% | 13.94% | — | 6/16/97 |
Y Class | AGYWX | 10.61% | — | — | 16.63% | 4/10/17 |
A Class | TCRAX | 6/4/97 | ||||
No sales charge | 9.94% | 11.71% | 13.44% | — | ||
With sales charge | 3.62% | 10.40% | 12.77% | — | ||
C Class | TWRCX | 9.12% | 10.88% | — | 11.82% | 3/1/10 |
R Class | AGWRX | 9.66% | 11.43% | 13.15% | — | 8/29/03 |
R5 Class | AGWUX | 10.45% | — | — | 16.45% | 4/10/17 |
R6 Class | AGRDX | 10.60% | 12.38% | — | 13.23% | 7/26/13 |
Average annual returns since inception are presented when ten years of performance history is not available. Although the fund’s actual inception date was October 31, 1958, the Investor Class inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. 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.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-0719dba9ce255eb59b7.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-0719dba9ce255eb59b7.jpg)
Value on October 31, 2018 | |
Investor Class — $36,189 | |
Russell 1000 Growth Index — $42,082 | |
Total Annual Fund Operating Expenses | |||||||
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
0.98% | 0.78% | 0.63% | 1.23% | 1.98% | 1.48% | 0.78% | 0.63% |
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. Total returns for periods less than one year are not annualized. 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 Justin Brown
Performance Summary
Growth returned 10.22%* for the 12 months ended October 31, 2018, lagging the 10.71% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp drop in the final month of the fund’s fiscal year. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum, providing a tailwind for the fund. Within the Russell 1000 Growth Index, all sectors but materials, energy, and communication services posted gains. The small utilities segment—a sector that rarely offers the kind of growth characteristics we seek—reported the top total return, but index gains were largely driven by the strong performance of information technology and consumer discretionary stocks.
Stock selection in the information technology sector was a significant source of underperformance relative to the benchmark. Stock choices among communication services companies and an overweight to the sector also detracted. Health care, consumer discretionary, and industrials were the fund’s top-contributing sectors, primarily due to stock selection.
Information Technology Stocks Led Detractors
Software and semiconductors and semiconductor equipment stocks were significant detractors in the information technology sector. Applied Materials was a major detractor. The semiconductor equipment maker reported a solid quarter, but memory pricing is worsening, and there’s a concern that reduced 2019 capital spending will impact the industry. We believe the company’s business model offers less cyclicality and more secular growth than in previous cycles and therefore see upside potential. Underweighting Apple detracted. At the end of July, the company reported strong quarterly revenues and earnings. iPhones continued to generate strong revenues. The market also expects strong sales of the new iPhones and other products that were announced in September.
Stock choices in the entertainment industry led underperformance in communication services, a sector introduced at the end of September 2018 comprising stocks previously in a range of other sectors. Detractors in the sector included underweighting Netflix relative to the benchmark. Netflix saw its stock price climb for most of the period as a result of expectations for solid user growth, particularly overseas, powered by new streaming content. The social media giant Facebook reported disappointing revenue and user growth. Investors also worried about regulatory risk and privacy concerns in the wake of a security breach that compromised some user accounts. We believe the stock offers strong free cash flow and has significant ongoing growth potential.
Other significant detractors included Royal Caribbean Cruises. Increased fuel prices coupled with adverse currency moves led to reductions in earnings estimates, hurting the stock price. In addition, investors continued to be concerned about capacity additions.
Health Care Holdings Aided Performance
Health care equipment and supplies companies led performance in the health care sector. Medical device maker Edwards Lifesciences soared on rumors that it might be a takeover target. The
*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
company has been a solid performer based on strong sales of its heart valve replacement device, and the market for the device has broadened beyond major medical centers.
Stock choices among internet and direct marketing retailers benefited performance in the consumer discretionary sector. Online retailer Amazon.com was a significant contributor. The company continued to demonstrate growth in its Amazon Web Services cloud business as well as strong performance on the e-commerce side. Among multiline retailers, Target was a top contributor, aided by strong 2017 holiday sales. Target also benefited from strong economic growth and improved consumer confidence.
Palo Alto Networks was another key contributor. Quarterly results for the enterprise security company highlighted improved sales execution and traction with its refreshed product line. Coupled with margin expansion, we think Palo Alto should deliver attractive cash-flow growth. The Boeing Co. outperformed as the aerospace and defense company logged new orders. Boeing also stands to benefit from the renegotiated North American Free Trade Agreement.
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 we believe to be superior individual securities.
As we noted earlier, at the end of September index provider FTSE Russell introduced the communication services sector. At the same time, Russell eliminated telecommunication services, a sector where the portfolio had no holdings. Communication services includes stocks of companies that had previously been in a range of other sectors. For example, portfolio holdings Facebook and Google parent Alphabet, which had been included in the information technology sector, are now part of communication services. As a result of Russell’s sector shifts, communication services represented the portfolio’s largest overweight relative to the benchmark, and information technology ended the period as our largest underweight sector.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc., Class A | 8.1% |
Microsoft Corp. | 8.0% |
Amazon.com, Inc. | 6.9% |
Apple, Inc. | 5.4% |
Visa, Inc., Class A | 4.8% |
Facebook, Inc., Class A | 3.9% |
Boeing Co. (The) | 3.3% |
Lockheed Martin Corp. | 2.4% |
PayPal Holdings, Inc. | 2.1% |
Broadcom, Inc. | 2.1% |
Top Five Industries | % of net assets |
Interactive Media and Services | 12.5% |
Software | 9.9% |
IT Services | 7.8% |
Internet and Direct Marketing Retail | 6.9% |
Aerospace and Defense | 5.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.1% |
Temporary Cash Investments | 0.8% |
Other Assets and Liabilities | 0.1% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,036.80 | $4.98 | 0.97% |
I Class | $1,000 | $1,037.90 | $3.96 | 0.77% |
Y Class | $1,000 | $1,038.80 | $3.19 | 0.62% |
A Class | $1,000 | $1,035.50 | $6.26 | 1.22% |
C Class | $1,000 | $1,031.40 | $10.09 | 1.97% |
R Class | $1,000 | $1,034.10 | $7.54 | 1.47% |
R5 Class | $1,000 | $1,037.90 | $3.96 | 0.77% |
R6 Class | $1,000 | $1,038.50 | $3.19 | 0.62% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.32 | $4.94 | 0.97% |
I Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
Y Class | $1,000 | $1,022.08 | $3.16 | 0.62% |
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% |
R5 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.1% | |||||
Aerospace and Defense — 5.7% | |||||
Boeing Co. (The) | 733,851 | $ | 260,414,366 | ||
Lockheed Martin Corp. | 668,071 | 196,312,663 | |||
456,727,029 | |||||
Air Freight and Logistics — 1.1% | |||||
XPO Logistics, Inc.(1) | 961,630 | 85,950,489 | |||
Airlines — 1.7% | |||||
Delta Air Lines, Inc. | 2,470,514 | 135,211,231 | |||
Biotechnology — 2.8% | |||||
Biogen, Inc.(1) | 400,169 | 121,759,422 | |||
Exelixis, Inc.(1) | 1,607,807 | 22,300,283 | |||
Vertex Pharmaceuticals, Inc.(1) | 471,337 | 79,872,768 | |||
223,932,473 | |||||
Capital Markets — 1.7% | |||||
Charles Schwab Corp. (The) | 1,545,301 | 71,454,718 | |||
S&P Global, Inc. | 350,708 | 63,941,083 | |||
135,395,801 | |||||
Communications Equipment — 1.2% | |||||
Palo Alto Networks, Inc.(1) | 541,192 | 99,059,784 | |||
Consumer Finance — 1.6% | |||||
American Express Co. | 1,235,743 | 126,947,878 | |||
Electronic Equipment, Instruments and Components — 0.9% | |||||
CDW Corp. | 818,537 | 73,676,515 | |||
Energy Equipment and Services — 0.5% | |||||
Halliburton Co. | 1,224,937 | 42,480,815 | |||
Entertainment — 2.9% | |||||
Electronic Arts, Inc.(1) | 586,640 | 53,372,507 | |||
Liberty Media Corp-Liberty Formula One, Class C(1) | 629,512 | 20,824,257 | |||
Netflix, Inc.(1) | 363,108 | 109,578,732 | |||
Take-Two Interactive Software, Inc.(1) | 333,098 | 42,926,340 | |||
226,701,836 | |||||
Equity Real Estate Investment Trusts (REITs) — 2.4% | |||||
Equity Residential | 1,007,337 | 65,436,612 | |||
SBA Communications Corp.(1) | 760,976 | 123,407,478 | |||
188,844,090 | |||||
Food and Staples Retailing — 1.1% | |||||
Walmart, Inc. | 908,754 | 91,129,851 | |||
Food Products — 1.3% | |||||
Mondelez International, Inc., Class A | 2,428,951 | 101,967,363 | |||
Health Care Equipment and Supplies — 4.2% | |||||
ABIOMED, Inc.(1) | 102,280 | 34,897,936 | |||
Boston Scientific Corp.(1) | 2,931,056 | 105,928,364 |
10
Shares | Value | ||||
Edwards Lifesciences Corp.(1) | 261,139 | $ | 38,544,117 | ||
IDEXX Laboratories, Inc.(1) | 89,294 | 18,941,043 | |||
Intuitive Surgical, Inc.(1) | 209,768 | 109,326,886 | |||
Penumbra, Inc.(1) | 207,441 | 28,211,976 | |||
335,850,322 | |||||
Health Care Providers and Services — 2.9% | |||||
Quest Diagnostics, Inc. | 1,104,401 | 103,935,178 | |||
Tivity Health, Inc.(1) | 673,539 | 23,176,477 | |||
WellCare Health Plans, Inc.(1) | 383,984 | 105,975,744 | |||
233,087,399 | |||||
Health Care Technology — 0.6% | |||||
Cerner Corp.(1) | 759,948 | 43,529,821 | |||
Hotels, Restaurants and Leisure — 3.7% | |||||
Chipotle Mexican Grill, Inc.(1) | 93,910 | 43,229,590 | |||
Darden Restaurants, Inc. | 199,584 | 21,265,675 | |||
Las Vegas Sands Corp. | 1,267,020 | 64,656,031 | |||
Royal Caribbean Cruises Ltd. | 1,545,796 | 161,891,215 | |||
291,042,511 | |||||
Household Products — 1.6% | |||||
Church & Dwight Co., Inc. | 421,751 | 25,039,357 | |||
Procter & Gamble Co. (The) | 1,117,428 | 99,093,515 | |||
124,132,872 | |||||
Interactive Media and Services — 12.5% | |||||
Alphabet, Inc., Class A(1) | 590,716 | 644,223,055 | |||
Facebook, Inc., Class A(1) | 2,040,942 | 309,794,586 | |||
Twitter, Inc.(1) | 1,205,513 | 41,891,577 | |||
995,909,218 | |||||
Internet and Direct Marketing Retail — 6.9% | |||||
Amazon.com, Inc.(1) | 341,471 | 545,674,073 | |||
IT Services — 7.8% | |||||
Fiserv, Inc.(1) | 530,597 | 42,076,342 | |||
PayPal Holdings, Inc.(1) | 1,978,870 | 166,601,065 | |||
VeriSign, Inc.(1) | 207,644 | 29,597,576 | |||
Visa, Inc., Class A | 2,747,100 | 378,687,735 | |||
616,962,718 | |||||
Life Sciences Tools and Services — 1.4% | |||||
Agilent Technologies, Inc. | 940,511 | 60,935,708 | |||
Illumina, Inc.(1) | 157,447 | 48,989,634 | |||
109,925,342 | |||||
Machinery — 0.8% | |||||
WABCO Holdings, Inc.(1) | 584,615 | 62,816,882 | |||
Multiline Retail — 0.8% | |||||
Target Corp. | 739,390 | 61,835,186 | |||
Oil, Gas and Consumable Fuels — 1.3% | |||||
Concho Resources, Inc.(1) | 762,016 | 105,988,805 | |||
Personal Products — 0.7% | |||||
Estee Lauder Cos., Inc. (The), Class A | 382,101 | 52,515,961 |
11
Shares | Value | ||||
Pharmaceuticals — 0.9% | |||||
Novo Nordisk A/S, B Shares | 472,794 | $ | 20,449,530 | ||
Zoetis, Inc. | 603,014 | 54,361,712 | |||
74,811,242 | |||||
Road and Rail — 1.7% | |||||
Union Pacific Corp. | 919,640 | 134,469,761 | |||
Semiconductors and Semiconductor Equipment — 5.2% | |||||
Applied Materials, Inc. | 3,472,702 | 114,182,442 | |||
ASML Holding NV | 593,944 | 101,528,544 | |||
Broadcom, Inc. | 736,670 | 164,638,378 | |||
Maxim Integrated Products, Inc. | 705,786 | 35,303,416 | |||
415,652,780 | |||||
Software — 9.9% | |||||
Microsoft Corp. | 5,927,868 | 633,155,581 | |||
salesforce.com, Inc.(1) | 862,334 | 118,346,718 | |||
Splunk, Inc.(1) | 337,059 | 33,651,971 | |||
785,154,270 | |||||
Specialty Retail — 2.0% | |||||
TJX Cos., Inc. (The) | 1,422,057 | 156,255,623 | |||
Technology Hardware, Storage and Peripherals — 5.4% | |||||
Apple, Inc. | 1,980,227 | 433,392,481 | |||
Textiles, Apparel and Luxury Goods — 2.2% | |||||
NIKE, Inc., Class B | 1,301,082 | 97,633,194 | |||
Tapestry, Inc. | 1,904,417 | 80,575,883 | |||
178,209,077 | |||||
Tobacco — 1.7% | |||||
Altria Group, Inc. | 2,136,291 | 138,944,367 | |||
TOTAL COMMON STOCKS (Cost $5,414,820,385) | 7,884,185,866 | ||||
TEMPORARY CASH INVESTMENTS — 0.8% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $45,849,681), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $44,921,256) | 44,918,761 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 11/15/44, valued at $22,934,519), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $22,482,656) | 22,482,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 34,464 | 34,464 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $67,435,225) | 67,435,225 | ||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $5,482,255,610) | 7,951,621,091 | ||||
OTHER ASSETS AND LIABILITIES — 0.1% | 6,524,091 | ||||
TOTAL NET ASSETS — 100.0% | $ | 7,958,145,182 |
12
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 2,169,660 | USD | 2,507,595 | Credit Suisse AG | 12/31/18 | $ | (36,374 | ) | ||
EUR | 3,639,112 | USD | 4,240,948 | Credit Suisse AG | 12/31/18 | (96,035 | ) | |||
EUR | 1,952,758 | USD | 2,253,112 | Credit Suisse AG | 12/31/18 | (28,939 | ) | |||
EUR | 2,483,874 | USD | 2,845,277 | Credit Suisse AG | 12/31/18 | (16,170 | ) | |||
EUR | 2,726,203 | USD | 3,112,640 | Credit Suisse AG | 12/31/18 | (7,521 | ) | |||
USD | 86,647,585 | EUR | 73,157,243 | Credit Suisse AG | 12/31/18 | 3,322,203 | ||||
USD | 8,051,685 | EUR | 6,794,729 | Credit Suisse AG | 12/31/18 | 312,556 | ||||
USD | 2,648,824 | EUR | 2,288,005 | Credit Suisse AG | 12/31/18 | 42,808 | ||||
USD | 3,058,797 | EUR | 2,652,902 | Credit Suisse AG | 12/31/18 | 37,167 | ||||
USD | 2,925,168 | EUR | 2,554,553 | Credit Suisse AG | 12/31/18 | 15,557 | ||||
$ | 3,545,252 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $5,482,255,610) | $ | 7,951,621,091 | |
Receivable for investments sold | 30,293,465 | ||
Receivable for capital shares sold | 2,055,438 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 3,730,291 | ||
Dividends and interest receivable | 1,486,451 | ||
7,989,186,736 | |||
Liabilities | |||
Payable for investments purchased | 21,662,109 | ||
Payable for capital shares redeemed | 2,774,352 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 185,039 | ||
Accrued management fees | 6,343,543 | ||
Distribution and service fees payable | 76,511 | ||
31,041,554 | |||
Net Assets | $ | 7,958,145,182 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 4,659,841,630 | |
Distributable earnings | 3,298,303,552 | ||
$ | 7,958,145,182 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $5,627,170,713 | 161,058,755 | $34.94 | |||
I Class, $0.01 Par Value | $1,230,065,178 | 34,563,289 | $35.59 | |||
Y Class, $0.01 Par Value | $52,600,864 | 1,476,022 | $35.64 | |||
A Class, $0.01 Par Value | $103,115,144 | 3,049,090 | $33.82* | |||
C Class, $0.01 Par Value | $9,871,164 | 306,721 | $32.18 | |||
R Class, $0.01 Par Value | $100,914,549 | 3,056,085 | $33.02 | |||
R5 Class, $0.01 Par Value | $404,186 | 11,348 | $35.62 | |||
R6 Class, $0.01 Par Value | $834,003,384 | 23,432,001 | $35.59 |
*Maximum offering price $35.88 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $167,090) | $ | 92,467,026 | |
Interest | 699,235 | ||
93,166,261 | |||
Expenses: | |||
Management fees | 76,249,055 | ||
Distribution and service fees: | |||
A Class | 284,996 | ||
C Class | 103,489 | ||
R Class | 548,284 | ||
Directors' fees and expenses | 192,087 | ||
Other expenses | 1,561 | ||
77,379,472 | |||
Net investment income (loss) | 15,786,789 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 884,946,428 | ||
Forward foreign currency exchange contract transactions | 3,339,239 | ||
Futures contract transactions | (1,939,831 | ) | |
Foreign currency translation transactions | (44,940 | ) | |
886,300,896 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (66,262,894 | ) | |
Forward foreign currency exchange contracts | 1,913,675 | ||
Translation of assets and liabilities in foreign currencies | (34 | ) | |
(64,349,253 | ) | ||
Net realized and unrealized gain (loss) | 821,951,643 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 837,738,432 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 15,786,789 | $ | 24,105,022 | ||
Net realized gain (loss) | 886,300,896 | 816,727,662 | ||||
Change in net unrealized appreciation (depreciation) | (64,349,253 | ) | 1,061,164,106 | |||
Net increase (decrease) in net assets resulting from operations | 837,738,432 | 1,901,996,790 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
Investor Class | (539,577,340 | ) | (257,434,350 | ) | ||
I Class | (111,540,568 | ) | (66,777,389 | ) | ||
Y Class | (5,319,857 | ) | — | |||
A Class | (10,572,457 | ) | (7,075,503 | ) | ||
C Class | (989,243 | ) | (441,655 | ) | ||
R Class | (10,340,531 | ) | (4,475,224 | ) | ||
R5 Class | (554 | ) | — | |||
R6 Class | (95,667,597 | ) | (21,709,244 | ) | ||
Decrease in net assets from distributions | (774,008,147 | ) | (357,913,365 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (273,310,818 | ) | (439,720,200 | ) | ||
Net increase (decrease) in net assets | (209,580,533 | ) | 1,104,363,225 | |||
Net Assets | ||||||
Beginning of period | 8,167,725,715 | 7,063,362,490 | ||||
End of period | $ | 7,958,145,182 | $ | 8,167,725,715 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(30,098,944), $(10,110,336), $(493,592), $(77,006) and $(3,809,345) for Investor Class, I Class, A Class, R Class and R6 Class, respectively. Distributions from net realized gains were $(227,335,406), $(56,667,053), $(6,581,911), $(441,655), $(4,398,218) and $(17,899,899) for Investor Class, I Class, A Class, C Class, R Class and R6 Class, respectively. |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2018
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's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class, R5 Class and 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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.
Fixed income securities 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. U.S. Treasury and Government Agency securities are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, 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. 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 exchange. 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.
17
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 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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investment securities and other financial instruments. 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 collateral requirements.
18
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.
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. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 5% of the shares of the fund.
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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and 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.
19
The management fee schedule range and the effective annual management fee for each class for the period ended October 31, 2018 are as follows:
Management Fee Schedule Range | Effective Annual Management Fee | |
Investor Class | 0.800% to 0.990% | 0.97% |
I Class | 0.600% to 0.790% | 0.77% |
Y Class | 0.450% to 0.640% | 0.62% |
A Class | 0.800% to 0.990% | 0.97% |
C Class | 0.800% to 0.990% | 0.97% |
R Class | 0.800% to 0.990% | 0.97% |
R5 Class | 0.600% to 0.790% | 0.77% |
R6 Class | 0.450% to 0.640% | 0.62% |
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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $12,441,328 and $67,552,473, respectively. The effect of interfund transactions on the Statement of Operations was $13,667,617 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $3,196,230,204 and $4,277,106,657, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,500,000,000 | 1,500,000,000 | ||||||||
Sold | 7,149,005 | $ | 251,093,984 | 11,403,461 | $ | 358,006,508 | ||||
Issued in reinvestment of distributions | 15,758,217 | 521,754,577 | 8,815,428 | 249,564,765 | ||||||
Redeemed | (23,572,021 | ) | (840,580,951 | ) | (37,349,836 | ) | (1,171,385,793 | ) | ||
(664,799 | ) | (67,732,390 | ) | (17,130,947 | ) | (563,814,520 | ) | |||
I Class/Shares Authorized | 400,000,000 | 400,000,000 | ||||||||
Sold | 8,689,683 | 319,033,553 | 8,934,676 | 287,954,459 | ||||||
Issued in reinvestment of distributions | 3,275,221 | 110,276,696 | 2,309,948 | 66,411,012 | ||||||
Redeemed | (13,203,233 | ) | (475,301,714 | ) | (20,028,587 | ) | (613,188,444 | ) | ||
(1,238,329 | ) | (45,991,465 | ) | (8,783,963 | ) | (258,822,973 | ) | |||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 175,148 | 6,384,121 | 1,689,777 | 56,076,451 | ||||||
Issued in reinvestment of distributions | 158,000 | 5,319,857 | — | — | ||||||
Redeemed | (439,040 | ) | (15,970,415 | ) | (107,863 | ) | (3,653,822 | ) | ||
(105,892 | ) | (4,266,437 | ) | 1,581,914 | 52,422,629 | |||||
A Class/Shares Authorized | 120,000,000 | 120,000,000 | ||||||||
Sold | 774,352 | 26,596,791 | 708,516 | 21,112,032 | ||||||
Issued in reinvestment of distributions | 265,742 | 8,535,632 | 225,286 | 6,211,139 | ||||||
Redeemed | (1,331,043 | ) | (45,936,465 | ) | (2,874,696 | ) | (87,213,286 | ) | ||
(290,949 | ) | (10,804,042 | ) | (1,940,894 | ) | (59,890,115 | ) | |||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 53,487 | 1,746,172 | 56,427 | 1,636,645 | ||||||
Issued in reinvestment of distributions | 27,606 | 849,166 | 12,938 | 345,575 | ||||||
Redeemed | (79,275 | ) | (2,613,979 | ) | (112,183 | ) | (3,314,908 | ) | ||
1,818 | (18,641 | ) | (42,818 | ) | (1,332,688 | ) | ||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||
Sold | 362,281 | 12,163,236 | 359,182 | 10,783,702 | ||||||
Issued in reinvestment of distributions | 324,563 | 10,201,029 | 162,884 | 4,414,145 | ||||||
Redeemed | (766,150 | ) | (25,880,852 | ) | (912,178 | ) | (26,648,938 | ) | ||
(79,306 | ) | (3,516,587 | ) | (390,112 | ) | (11,451,091 | ) | |||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 14,877 | 524,263 | 162 | 5,000 | ||||||
Issued in reinvestment of distributions | 16 | 554 | — | — | ||||||
Redeemed | (3,707 | ) | (136,747 | ) | — | — | ||||
11,186 | 388,070 | 162 | 5,000 | |||||||
R6 Class/Shares Authorized | 300,000,000 | 300,000,000 | ||||||||
Sold | 3,111,009 | 111,232,000 | 17,057,639 | 512,455,239 | ||||||
Issued in reinvestment of distributions | 2,844,710 | 95,667,597 | 756,156 | 21,709,244 | ||||||
Redeemed | (9,628,316 | ) | (348,268,923 | ) | (4,113,055 | ) | (131,000,925 | ) | ||
(3,672,597 | ) | (141,369,326 | ) | 13,700,740 | 403,163,558 | |||||
Net increase (decrease) | (6,038,868 | ) | $ | (273,310,818 | ) | (13,005,918 | ) | $ | (439,720,200 | ) |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
21
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.
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 | $ | 7,762,207,792 | $ | 121,978,074 | — | |||
Temporary Cash Investments | 34,464 | 67,400,761 | — | |||||
$ | 7,762,242,256 | $ | 189,378,835 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 3,730,291 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 185,039 | — |
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.
22
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $137,191,887.
Value of Derivative Instruments as of October 31, 2018
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 | $ | 3,730,291 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 185,039 |
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2018
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 | $ | (1,939,831 | ) | Change in net unrealized appreciation (depreciation) on futures contracts | — | ||
Foreign Currency Risk | Net realized gain (loss) on forward foreign currency exchange contract transactions | 3,339,239 | Change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts | $ | 1,913,675 | |||
$ | 1,399,408 | $ | 1,913,675 |
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 166,784,392 | $ | 44,589,223 | ||
Long-term capital gains | $ | 607,223,755 | $ | 313,324,142 |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 5,488,491,444 | |
Gross tax appreciation of investments | $ | 2,585,325,447 | |
Gross tax depreciation of investments | (122,195,800 | ) | |
Net tax appreciation (depreciation) of investments | 2,463,129,647 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (158 | ) | |
Net tax appreciation (depreciation) | $ | 2,463,129,489 | |
Undistributed ordinary income | $ | 83,914,499 | |
Accumulated long-term gains | $ | 751,259,564 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
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: | 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 | |||||||||||||||
2018 | $34.93 | 0.04 | 3.35 | 3.39 | (0.06) | (3.32) | (3.38) | $34.94 | 10.22% | 0.97% | 0.13% | 38% | $5,627,171 | ||
2017 | $28.64 | 0.08 | 7.67 | 7.75 | (0.17) | (1.29) | (1.46) | $34.93 | 28.26% | 0.98% | 0.26% | 48% | $5,648,965 | ||
2016 | $30.57 | 0.16 | (0.08) | 0.08 | (0.10) | (1.91) | (2.01) | $28.64 | 0.40% | 0.98% | 0.57% | 36% | $5,122,550 | ||
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 | ||
I Class | |||||||||||||||
2018 | $35.52 | 0.12 | 3.40 | 3.52 | (0.13) | (3.32) | (3.45) | $35.59 | 10.46% | 0.77% | 0.33% | 38% | $1,230,065 | ||
2017 | $29.11 | 0.15 | 7.78 | 7.93 | (0.23) | (1.29) | (1.52) | $35.52 | 28.48% | 0.78% | 0.46% | 48% | $1,271,821 | ||
2016 | $31.03 | 0.23 | (0.08) | 0.15 | (0.16) | (1.91) | (2.07) | $29.11 | 0.64% | 0.78% | 0.77% | 36% | $1,297,685 | ||
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 | ||
Y Class | |||||||||||||||
2018 | $35.54 | 0.17 | 3.40 | 3.57 | (0.15) | (3.32) | (3.47) | $35.64 | 10.61% | 0.62% | 0.48% | 38% | $52,601 | ||
2017(3) | $30.93 | 0.08 | 4.53 | 4.61 | — | — | — | $35.54 | 14.90% | 0.63%(4) | 0.43%(4) | 48%(5) | $56,218 |
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) | |||
A Class | |||||||||||||||
2018 | $33.94 | (0.04) | 3.24 | 3.20 | — | (3.32) | (3.32) | $33.82 | 9.94% | 1.22% | (0.12)% | 38% | $103,115 | ||
2017 | $27.86 | 0.01 | 7.46 | 7.47 | (0.10) | (1.29) | (1.39) | $33.94 | 27.95% | 1.23% | 0.01% | 48% | $113,348 | ||
2016 | $29.78 | 0.10 | (0.08) | 0.02 | (0.03) | (1.91) | (1.94) | $27.86 | 0.18% | 1.23% | 0.32% | 36% | $147,133 | ||
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 | ||
C Class | |||||||||||||||
2018 | $32.67 | (0.29) | 3.12 | 2.83 | — | (3.32) | (3.32) | $32.18 | 9.12% | 1.97% | (0.87)% | 38% | $9,871 | ||
2017 | $26.97 | (0.21) | 7.20 | 6.99 | — | (1.29) | (1.29) | $32.67 | 26.99% | 1.98% | (0.74)% | 48% | $9,962 | ||
2016 | $29.08 | (0.11) | (0.09) | (0.20) | — | (1.91) | (1.91) | $26.97 | (0.58)% | 1.98% | (0.43)% | 36% | $9,379 | ||
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 | ||
R Class | |||||||||||||||
2018 | $33.29 | (0.13) | 3.18 | 3.05 | — | (3.32) | (3.32) | $33.02 | 9.66% | 1.47% | (0.37)% | 38% | $100,915 | ||
2017 | $27.35 | (0.07) | 7.32 | 7.25 | (0.02) | (1.29) | (1.31) | $33.29 | 27.62% | 1.48% | (0.24)% | 48% | $104,368 | ||
2016 | $29.31 | 0.02 | (0.07) | (0.05) | — | (1.91) | (1.91) | $27.35 | (0.06)% | 1.48% | 0.07% | 36% | $96,415 | ||
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 |
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) | |||
R5 Class | |||||||||||||||
2018 | $35.53 | 0.12 | 3.40 | 3.52 | (0.11) | (3.32) | (3.43) | $35.62 | 10.45% | 0.77% | 0.33% | 38% | $404 | ||
2017(3) | $30.95 | 0.05 | 4.53 | 4.58 | — | — | — | $35.53 | 14.80% | 0.78%(4) | 0.27%(4) | 48%(5) | $6 | ||
R6 Class | |||||||||||||||
2018 | $35.53 | 0.17 | 3.40 | 3.57 | (0.19) | (3.32) | (3.51) | $35.59 | 10.60% | 0.62% | 0.48% | 38% | $834,003 | ||
2017 | $29.11 | 0.18 | 7.80 | 7.98 | (0.27) | (1.29) | (1.56) | $35.53 | 28.71% | 0.63% | 0.61% | 48% | $963,039 | ||
2016 | $31.04 | 0.26 | (0.07) | 0.19 | (0.21) | (1.91) | (2.12) | $29.11 | 0.76% | 0.63% | 0.92% | 36% | $390,201 | ||
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 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Growth Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
31
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
32
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-year period and below its benchmark for the 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.
33
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 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, expenses attributable to short sales, 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. 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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2018.
For corporate taxpayers, the fund hereby designates $86,086,522, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $672,330,253, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $153,637,750 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $72,379,956 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
37
Notes |
38
Notes |
39
Notes |
40
![]() | ||
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90970 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
Heritage Fund | |
Investor Class (TWHIX) | |
I Class (ATHIX) | |
Y Class (ATHYX) | |
A Class (ATHAX) | |
C Class (AHGCX) | |
R Class (ATHWX) | |
R5 Class (ATHGX) | |
R6 Class (ATHDX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWHIX | 7.16% | 7.97% | 12.60% | — | 11/10/87 |
Russell Midcap Growth Index | — | 6.14% | 10.09% | 15.09% | — | — |
I Class | ATHIX | 7.35% | 8.18% | 12.82% | — | 6/16/97 |
Y Class | ATHYX | 7.51% | — | — | 11.55% | 4/10/17 |
A Class | ATHAX | 7/11/97 | ||||
No sales charge | 6.89% | 7.70% | 12.32% | — | ||
With sales charge | 0.73% | 6.43% | 11.66% | — | ||
C Class | AHGCX | 6.13% | 6.90% | 11.49% | — | 6/26/01 |
R Class | ATHWX | 6.62% | 7.44% | 12.04% | — | 9/28/07 |
R5 Class | ATHGX | 7.35% | — | — | 11.37% | 4/10/17 |
R6 Class | ATHDX | 7.51% | 8.35% | — | 9.40% | 7/26/13 |
Average annual returns since inception are presented when ten years of performance history is not available.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-3e8db17dc492581c88b.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-3e8db17dc492581c88b.jpg)
Value on October 31, 2018 | |
Investor Class — $32,795 | |
Russell Midcap Growth Index — $40,801 | |
Total Annual Fund Operating Expenses | |||||||
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
1.01% | 0.81% | 0.66% | 1.26% | 2.01% | 1.51% | 0.81% | 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. Total returns for periods less than one year are not annualized. 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: Rob Brookby and Nalin Yogasundram
In February 2018, portfolio manager Greg Walsh left American Century Investments, and Rob Brookby joined Heritage’s management team.
Performance Summary
Heritage returned 7.16%* for the 12 months ended October 31, 2018, outperforming the 6.14% return of the portfolio’s benchmark, the Russell Midcap Growth Index.
U.S. stock indices delivered solid returns during the reporting period despite a sharp pullback in the final month. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum. Within the Russell Midcap Growth Index, the utilities sector—which represents a very small segment of the benchmark—had the best performance on a total-return basis. Index returns were largely driven by strong performance of information technology and consumer discretionary stocks. Materials stocks were significantly lower, and real estate stocks declined marginally.
Stock selection in the health care sector led the fund’s outperformance relative to the benchmark. Stock choices in materials and an underweight to the sector also benefited performance. Stock selection in the consumer staples and information technology sectors detracted.
Health Care Stocks Led Contributors
In the health care sector, stock decisions among health care providers and services companies were top contributors. WellCare Health Plans was a major contributor in the industry. The managed care company reported strong quarterly results and renewed its Florida Medicaid contract, picking up additional market share as a result of the deal. It also acquired Meridian Health Plans. The acquisition expands the company’s footprint in both the Medicaid and Medicare Advantage markets. Home health and hospice care company Amedisys rose on strong quarterly performance. Profitability exceeded analysts’ expectations due to productivity improvement. Amedisys was eliminated from the portfolio.
Other significant contributors included Burlington Stores. The off-price retailer reported strong comparable sales, and it’s also a beneficiary of tax reform, which lowered corporate rates for U.S. companies. O’Reilly Automotive outperformed as the aftermarket automobile parts dealer reported improved same-store sales and benefited from economic growth. Better weather also encouraged greater activity by do-it-yourselfers. Additionally, investors are realizing that Amazon.com’s online sales are less of a threat to the automotive parts business than some had feared.
Software company Red Hat was a major contributor. The company is the largest provider of Linux, an open-source operating system that Red Hat makes enterprise-ready. Red Hat saw an improving revenue profile aided by new products that help enterprises move to the cloud. Red Hat is in the process of being acquired by International Business Machines.
Consumers Staples Detracted
Stock selection among beverage companies weighed on performance in the consumer staples sector, although an overweight allocation to the industry mitigated some of the relative underperformance. Avoiding household products and personal products stocks also detracted.
*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 the information technology sector, stock choices in the IT services and semiconductors and semiconductor equipment industries hurt relative performance. Underweighting semiconductor maker Advanced Micro Devices detracted. The company appears to be a beneficiary of missteps by Intel, the chief competitor in the space. Advanced Micro Devices is positioned to take market share in the wake of Intel’s stumbles. Our holding of Microchip Technology detracted. The semiconductor maker issued a solid quarterly earnings report but guided lower due to problems inherited from its Microsemi acquisition. Management also noted that tariffs associated with the escalating trade war with China could hurt the bottom line.
Elsewhere, Electronic Arts underperformed as the video game maker lowered full-year guidance on revenue due to delays in game launches and the impact of foreign exchange. Flooring manufacturer Mohawk Industries detracted. The company reported strong quarterly earnings but guided below expectations for 2018 due to start-up costs associated with several global products. Additionally, rising mortgage rates are likely to affect housing-related companies such as Mohawk. Newell Brands, which owns several major brand names such as Rubbermaid, detracted. Lower-than-expected earnings were attributed to a slow 2017 back-to-school season and inventory reductions at key customers such as Office Depot and Walmart, along with Toys"R"Us, which declared bankruptcy. Both Mohawk and Newell Brands were eliminated.
Outlook
Our process uses fundamental analysis to identify mid-cap companies producing attractive, sustainable earnings growth. We seek to reduce unintended, nonfundamental risks and align the portfolio with fundamental, company-specific risks that we believe will be rewarded over time. As a result of this approach, our sector and industry allocations reflect where we are finding opportunities at a given time.
At the end of the period, the portfolio’s largest overweight relative to the benchmark was in the health care sector. We believe there is growth potential in mid-cap biopharmaceutical companies. We have moved our health care allocation away from more cyclical sectors to more growth-oriented sectors. Our industrials exposure remained overweight. We believe certain companies within the industrials sector are positioned to benefit from continued U.S. growth and thrive in a late-cycle economic environment.
Information technology ended the period as the portfolio’s largest underweight. However, we believe strongly that mid-cap technology companies are poised to benefit from secular themes such as 5G data technology, artificial intelligence, and the internet of things. We trimmed technology stocks we saw as having less upside and emphasized investments in companies whose business models we believe can sustainably capitalize on these themes. Financials ended the period underweight, reflecting what we see as a lack of opportunity in the sector as the yield curve flattens and affects the profitability of several lines of business for financial institutions.
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Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
WellCare Health Plans, Inc. | 2.7% |
Booz Allen Hamilton Holding Corp. | 2.5% |
Burlington Stores, Inc. | 2.4% |
SBA Communications Corp. | 2.3% |
FleetCor Technologies, Inc. | 2.2% |
Xilinx, Inc. | 2.1% |
Verisk Analytics, Inc. | 2.0% |
Take-Two Interactive Software, Inc. | 2.0% |
O'Reilly Automotive, Inc. | 1.9% |
NetApp, Inc. | 1.9% |
Top Five Industries | % of net assets |
Software | 9.8% |
IT Services | 8.3% |
Specialty Retail | 6.3% |
Health Care Providers and Services | 5.6% |
Health Care Equipment and Supplies | 5.5% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.7% |
Temporary Cash Investments | 1.5% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,014.90 | $5.08 | 1.00% |
I Class | $1,000 | $1,015.70 | $4.06 | 0.80% |
Y Class | $1,000 | $1,016.30 | $3.30 | 0.65% |
A Class | $1,000 | $1,013.70 | $6.34 | 1.25% |
C Class | $1,000 | $1,010.00 | $10.13 | 2.00% |
R Class | $1,000 | $1,012.30 | $7.61 | 1.50% |
R5 Class | $1,000 | $1,016.10 | $4.07 | 0.80% |
R6 Class | $1,000 | $1,016.30 | $3.30 | 0.65% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
I Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
Y Class | $1,000 | $1,021.93 | $3.31 | 0.65% |
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% |
R5 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 98.7% | |||||
Aerospace and Defense — 1.7% | |||||
L3 Technologies, Inc. | 418,834 | $ | 79,356,478 | ||
Auto Components — 0.8% | |||||
Aptiv plc | 476,163 | 36,569,318 | |||
Banks — 0.5% | |||||
SVB Financial Group(1) | 95,391 | 22,629,607 | |||
Beverages — 2.7% | |||||
Brown-Forman Corp., Class B | 525,417 | 24,347,824 | |||
Constellation Brands, Inc., Class A | 261,040 | 52,006,999 | |||
Monster Beverage Corp.(1) | 897,969 | 47,457,662 | |||
123,812,485 | |||||
Biotechnology — 3.4% | |||||
Alexion Pharmaceuticals, Inc.(1) | 417,004 | 46,733,638 | |||
Array BioPharma, Inc.(1) | 2,053,508 | 33,266,830 | |||
Immunomedics, Inc.(1) | 1,457,191 | 32,830,513 | |||
Sarepta Therapeutics, Inc.(1) | 302,778 | 40,499,585 | |||
153,330,566 | |||||
Building Products — 1.2% | |||||
Allegion plc | 632,105 | 54,190,362 | |||
Capital Markets — 5.0% | |||||
Cboe Global Markets, Inc. | 717,428 | 80,961,750 | |||
LPL Financial Holdings, Inc. | 555,155 | 34,197,548 | |||
S&P Global, Inc. | 274,338 | 50,017,304 | |||
SEI Investments Co. | 1,148,946 | 61,411,164 | |||
226,587,766 | |||||
Chemicals — 0.2% | |||||
FMC Corp. | 121,502 | 9,486,876 | |||
Communications Equipment — 1.5% | |||||
Palo Alto Networks, Inc.(1) | 371,260 | 67,955,430 | |||
Construction and Engineering — 1.6% | |||||
Jacobs Engineering Group, Inc. | 984,189 | 73,902,752 | |||
Construction Materials — 0.9% | |||||
Vulcan Materials Co. | 424,563 | 42,940,302 | |||
Containers and Packaging — 1.6% | |||||
Ball Corp. | 1,637,972 | 73,381,146 | |||
Electrical Equipment — 1.5% | |||||
AMETEK, Inc. | 998,070 | 66,950,536 | |||
Electronic Equipment, Instruments and Components — 1.6% | |||||
CDW Corp. | 795,018 | 71,559,570 | |||
Entertainment — 2.8% | |||||
Electronic Arts, Inc.(1) | 413,317 | 37,603,581 |
10
Shares | Value | ||||
Take-Two Interactive Software, Inc.(1) | 703,251 | $ | 90,627,956 | ||
128,231,537 | |||||
Equity Real Estate Investment Trusts (REITs) — 2.3% | |||||
SBA Communications Corp.(1) | 643,655 | 104,381,531 | |||
Food and Staples Retailing — 0.7% | |||||
Costco Wholesale Corp. | 137,039 | 31,331,227 | |||
Health Care Equipment and Supplies — 5.5% | |||||
Align Technology, Inc.(1) | 237,602 | 52,557,563 | |||
Edwards Lifesciences Corp.(1) | 337,087 | 49,754,041 | |||
Haemonetics Corp.(1) | 446,536 | 46,649,616 | |||
Insulet Corp.(1) | 523,068 | 46,139,828 | |||
Masimo Corp.(1) | 481,582 | 55,670,879 | |||
250,771,927 | |||||
Health Care Providers and Services — 5.6% | |||||
Henry Schein, Inc.(1) | 416,940 | 34,606,020 | |||
LHC Group, Inc.(1) | 313,337 | 28,648,402 | |||
Quest Diagnostics, Inc. | 743,270 | 69,949,140 | |||
WellCare Health Plans, Inc.(1) | 444,358 | 122,638,364 | |||
255,841,926 | |||||
Hotels, Restaurants and Leisure — 4.8% | |||||
Domino's Pizza, Inc. | 188,355 | 50,627,940 | |||
Haidilao International Holding Ltd.(1) | 895,000 | 1,880,859 | |||
Hilton Worldwide Holdings, Inc. | 452,427 | 32,199,229 | |||
Planet Fitness, Inc., Class A(1) | 1,253,357 | 61,527,295 | |||
Red Rock Resorts, Inc., Class A | 1,429,056 | 33,068,356 | |||
Yum! Brands, Inc. | 444,131 | 40,153,884 | |||
219,457,563 | |||||
Industrial Conglomerates — 0.9% | |||||
Roper Technologies, Inc. | 148,641 | 42,050,539 | |||
Interactive Media and Services — 1.6% | |||||
Twitter, Inc.(1) | 2,025,069 | 70,371,148 | |||
Internet and Direct Marketing Retail — 1.0% | |||||
Expedia Group, Inc. | 362,310 | 45,444,543 | |||
IT Services — 8.3% | |||||
Akamai Technologies, Inc.(1) | 651,002 | 47,034,895 | |||
Booz Allen Hamilton Holding Corp. | 2,314,839 | 114,677,124 | |||
FleetCor Technologies, Inc.(1) | 501,972 | 100,409,459 | |||
Square, Inc., Class A(1) | 547,867 | 40,240,831 | |||
Worldpay, Inc., Class A(1) | 810,701 | 74,454,780 | |||
376,817,089 | |||||
Life Sciences Tools and Services — 0.9% | |||||
Illumina, Inc.(1) | 125,019 | 38,899,662 | |||
Machinery — 2.2% | |||||
Ingersoll-Rand plc | 785,174 | 75,329,593 | |||
WABCO Holdings, Inc.(1) | 213,324 | 22,921,664 | |||
98,251,257 |
11
Shares | Value | ||||
Marine — 0.6% | |||||
Kirby Corp.(1) | 396,142 | $ | 28,498,455 | ||
Metals and Mining — 0.3% | |||||
Largo Resources Ltd.(1) | 4,922,136 | 14,918,396 | |||
Multiline Retail — 0.6% | |||||
Dollar Tree, Inc.(1) | 327,725 | 27,627,218 | |||
Oil, Gas and Consumable Fuels — 1.2% | |||||
Concho Resources, Inc.(1) | 381,428 | 53,052,821 | |||
Pharmaceuticals — 1.8% | |||||
Elanco Animal Health, Inc.(1) | 720,686 | 21,966,509 | |||
Jazz Pharmaceuticals plc(1) | 382,838 | 60,802,331 | |||
82,768,840 | |||||
Professional Services — 4.2% | |||||
IHS Markit Ltd.(1) | 1,204,632 | 63,279,319 | |||
TransUnion | 499,373 | 32,833,775 | |||
Verisk Analytics, Inc.(1) | 774,645 | 92,833,457 | |||
188,946,551 | |||||
Road and Rail — 1.0% | |||||
Canadian Pacific Railway Ltd. | 220,551 | 45,212,955 | |||
Semiconductors and Semiconductor Equipment — 5.3% | |||||
Advanced Micro Devices, Inc.(1) | 1,548,829 | 28,204,176 | |||
Marvell Technology Group Ltd. | 2,939,556 | 48,238,114 | |||
Microchip Technology, Inc. | 1,008,159 | 66,316,699 | |||
Xilinx, Inc. | 1,139,281 | 97,260,419 | |||
240,019,408 | |||||
Software — 9.8% | |||||
Autodesk, Inc.(1) | 661,992 | 85,562,466 | |||
PTC, Inc.(1) | 707,858 | 58,334,578 | |||
RealPage, Inc.(1) | 869,846 | 46,101,838 | |||
Red Hat, Inc.(1) | 283,049 | 48,582,530 | |||
ServiceNow, Inc.(1) | 414,429 | 75,028,226 | |||
Splunk, Inc.(1) | 398,826 | 39,818,788 | |||
Tyler Technologies, Inc.(1) | 274,307 | 58,059,820 | |||
Workday, Inc., Class A(1) | 264,265 | 35,152,530 | |||
446,640,776 | |||||
Specialty Retail — 6.3% | |||||
Burlington Stores, Inc.(1) | 641,954 | 110,088,692 | |||
Five Below, Inc.(1) | 372,681 | 42,418,551 | |||
O'Reilly Automotive, Inc.(1) | 271,471 | 87,074,323 | |||
Ross Stores, Inc. | 488,742 | 48,385,458 | |||
287,967,024 | |||||
Technology Hardware, Storage and Peripherals — 1.9% | |||||
NetApp, Inc. | 1,090,326 | 85,579,688 | |||
Textiles, Apparel and Luxury Goods — 2.8% | |||||
Lululemon Athletica, Inc.(1) | 486,642 | 68,485,128 | |||
VF Corp. | 698,177 | 57,864,910 | |||
126,350,038 |
12
Shares | Value | ||||
Trading Companies and Distributors — 2.1% | |||||
United Rentals, Inc.(1) | 546,882 | $ | 65,664,122 | ||
Univar, Inc.(1) | 1,228,038 | 30,234,295 | |||
95,898,417 | |||||
TOTAL COMMON STOCKS (Cost $3,859,788,935) | 4,487,983,730 | ||||
TEMPORARY CASH INVESTMENTS — 1.5% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $45,588,639), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $44,665,501) | 44,663,020 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 11/15/44, valued at $22,801,151), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $22,354,652) | 22,354,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 34,254 | 34,254 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $67,051,274) | 67,051,274 | ||||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $3,926,840,209) | 4,555,035,004 | ||||
OTHER ASSETS AND LIABILITIES — (0.2)% | (8,339,133 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 4,546,695,871 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 1,680,354 | USD | 1,298,362 | Morgan Stanley | 12/31/18 | $ | (20,258 | ) | ||
CAD | 4,382,428 | USD | 3,367,236 | Morgan Stanley | 12/31/18 | (33,890 | ) | |||
CAD | 2,169,552 | USD | 1,656,665 | Morgan Stanley | 12/31/18 | (6,468 | ) | |||
USD | 45,739,370 | CAD | 58,958,048 | Morgan Stanley | 12/31/18 | 894,918 | ||||
USD | 1,235,840 | CAD | 1,598,136 | Morgan Stanley | 12/31/18 | 20,271 | ||||
USD | 1,119,976 | CAD | 1,455,545 | Morgan Stanley | 12/31/18 | 12,865 | ||||
USD | 1,710,739 | CAD | 2,208,371 | Morgan Stanley | 12/31/18 | 31,017 | ||||
USD | 1,180,160 | CAD | 1,525,026 | Morgan Stanley | 12/31/18 | 20,200 | ||||
USD | 1,424,591 | CAD | 1,849,771 | Morgan Stanley | 12/31/18 | 17,625 | ||||
USD | 2,115,947 | CAD | 2,736,044 | Morgan Stanley | 12/31/18 | 34,867 | ||||
USD | 5,646,663 | CAD | 7,317,276 | Morgan Stanley | 12/31/18 | 81,023 | ||||
$ | 1,052,170 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $3,926,840,209) | $ | 4,555,035,004 | |
Foreign currency holdings, at value (cost of $207,598) | 204,935 | ||
Receivable for investments sold | 16,971,977 | ||
Receivable for capital shares sold | 670,800 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 1,112,786 | ||
Dividends and interest receivable | 3,454 | ||
4,573,998,956 | |||
Liabilities | |||
Payable for investments purchased | 19,179,238 | ||
Payable for capital shares redeemed | 4,074,120 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 60,616 | ||
Accrued management fees | 3,863,950 | ||
Distribution and service fees payable | 125,161 | ||
27,303,085 | |||
Net Assets | $ | 4,546,695,871 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 3,100,876,527 | |
Distributable earnings | 1,445,819,344 | ||
$ | 4,546,695,871 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $3,787,202,113 | 163,331,984 | $23.19 | |||
I Class, $0.01 Par Value | $247,266,568 | 10,026,674 | $24.66 | |||
Y Class, $0.01 Par Value | $9,694,216 | 389,283 | $24.90 | |||
A Class, $0.01 Par Value | $276,812,828 | 12,925,647 | $21.42* | |||
C Class, $0.01 Par Value | $57,552,268 | 3,350,781 | $17.18 | |||
R Class, $0.01 Par Value | $32,464,020 | 1,514,950 | $21.43 | |||
R5 Class, $0.01 Par Value | $3,052,872 | 123,799 | $24.66 | |||
R6 Class, $0.01 Par Value | $132,650,986 | 5,327,145 | $24.90 |
*Maximum offering price $22.73 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $43,563) | $ | 34,655,794 | |
Interest | 436,886 | ||
35,092,680 | |||
Expenses: | |||
Management fees | 48,814,877 | ||
Distribution and service fees: | |||
A Class | 814,777 | ||
C Class | 787,309 | ||
R Class | 185,047 | ||
Directors' fees and expenses | 111,965 | ||
Other expenses | 5,553 | ||
50,719,528 | |||
Net investment income (loss) | (15,626,848 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 909,561,162 | ||
Forward foreign currency exchange contract transactions | 2,671,425 | ||
Foreign currency translation transactions | 25,476 | ||
912,258,063 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (529,960,159 | ) | |
Forward foreign currency exchange contracts | 70,720 | ||
Translation of assets and liabilities in foreign currencies | (28,454 | ) | |
(529,917,893 | ) | ||
Net realized and unrealized gain (loss) | 382,340,170 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 366,713,322 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | (15,626,848 | ) | $ | (8,713,789 | ) |
Net realized gain (loss) | 912,258,063 | 487,323,776 | ||||
Change in net unrealized appreciation (depreciation) | (529,917,893 | ) | 449,726,871 | |||
Net increase (decrease) in net assets resulting from operations | 366,713,322 | 928,336,858 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
Investor Class | (357,413,528 | ) | (309,914,664 | ) | ||
I Class | (21,818,452 | ) | (11,179,521 | ) | ||
Y Class | (462 | ) | — | |||
A Class | (32,633,569 | ) | (47,529,397 | ) | ||
C Class | (9,874,176 | ) | (10,202,472 | ) | ||
R Class | (3,686,185 | ) | (3,730,908 | ) | ||
R5 Class | (10,800 | ) | — | |||
R6 Class | (15,306,317 | ) | (9,792,656 | ) | ||
Decrease in net assets from distributions | (440,743,489 | ) | (392,349,618 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (392,193,297 | ) | (343,021,445 | ) | ||
Net increase (decrease) in net assets | (466,223,464 | ) | 192,965,795 | |||
Net Assets | ||||||
Beginning of period | 5,012,919,335 | 4,819,953,540 | ||||
End of period | $ | 4,546,695,871 | $ | 5,012,919,335 |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2018
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's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class, R5 Class and 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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 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
17
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. 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).
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. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 6% of the shares of the fund.
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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class.
The annual management fee for each class is as follows:
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
1.000% | 0.800% | 0.650% | 1.000% | 1.000% | 1.000% | 0.800% | 0.650% |
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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $28,126,099 and $17,847,346, respectively. The effect of interfund transactions on the Statement of Operations was $3,163,179 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $4,173,231,725 and $5,051,537,447, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 1,500,000,000 | 1,500,000,000 | ||||||||
Sold | 6,961,929 | $ | 165,062,440 | 17,887,611 | $ | 393,494,050 | ||||
Issued in reinvestment of distributions | 15,480,388 | 347,999,118 | 14,633,383 | 299,984,349 | ||||||
Redeemed | (31,632,101 | ) | (752,714,711 | ) | (39,665,791 | ) | (874,177,394 | ) | ||
(9,189,784 | ) | (239,653,153 | ) | (7,144,797 | ) | (180,698,995 | ) | |||
I Class/Shares Authorized | 130,000,000 | 130,000,000 | ||||||||
Sold | 3,664,494 | 93,875,668 | 6,982,989 | 166,592,943 | ||||||
Issued in reinvestment of distributions | 825,707 | 19,709,623 | 505,042 | 10,913,955 | ||||||
Redeemed | (4,947,833 | ) | (123,445,888 | ) | (3,973,484 | ) | (92,038,952 | ) | ||
(457,632 | ) | (9,860,597 | ) | 3,514,547 | 85,467,946 | |||||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 394,524 | 10,250,853 | 219 | 5,000 | ||||||
Issued in reinvestment of distributions | 19 | 462 | — | — | ||||||
Redeemed | (5,479 | ) | (141,123 | ) | — | — | ||||
389,064 | 10,110,192 | 219 | 5,000 | |||||||
A Class/Shares Authorized | 340,000,000 | 340,000,000 | ||||||||
Sold | 2,337,036 | 51,615,538 | 2,742,715 | 55,641,787 | ||||||
Issued in reinvestment of distributions | 1,504,888 | 31,316,728 | 2,399,006 | 45,940,961 | ||||||
Redeemed | (6,914,306 | ) | (151,442,065 | ) | (17,660,672 | ) | (362,961,627 | ) | ||
(3,072,382 | ) | (68,509,799 | ) | (12,518,951 | ) | (261,378,879 | ) | |||
C Class/Shares Authorized | 80,000,000 | 80,000,000 | ||||||||
Sold | 199,537 | 3,490,376 | 413,354 | 6,982,452 | ||||||
Issued in reinvestment of distributions | 551,229 | 9,260,642 | 582,590 | 9,274,836 | ||||||
Redeemed | (2,263,296 | ) | (40,380,116 | ) | (2,236,275 | ) | (38,049,760 | ) | ||
(1,512,530 | ) | (27,629,098 | ) | (1,240,331 | ) | (21,792,472 | ) | |||
R Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 208,117 | 4,579,989 | 366,643 | 7,525,722 | ||||||
Issued in reinvestment of distributions | 174,182 | 3,635,173 | 191,545 | 3,687,238 | ||||||
Redeemed | (631,067 | ) | (13,783,530 | ) | (977,608 | ) | (19,952,451 | ) | ||
(248,768 | ) | (5,568,368 | ) | (419,420 | ) | (8,739,491 | ) | |||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 125,913 | 3,201,352 | 4,654 | 111,637 | ||||||
Issued in reinvestment of distributions | 452 | 10,800 | — | — | ||||||
Redeemed | (7,126 | ) | (184,264 | ) | (94 | ) | (2,241 | ) | ||
119,239 | 3,027,888 | 4,560 | 109,396 | |||||||
R6 Class/Shares Authorized | 60,000,000 | 60,000,000 | ||||||||
Sold | 1,554,670 | 39,101,892 | 3,999,527 | 94,253,347 | ||||||
Issued in reinvestment of distributions | 635,908 | 15,306,317 | 450,237 | 9,792,656 | ||||||
Redeemed | (4,261,297 | ) | (108,518,571 | ) | (2,558,341 | ) | (60,039,953 | ) | ||
(2,070,719 | ) | (54,110,362 | ) | 1,891,423 | 44,006,050 | |||||
Net increase (decrease) | (16,043,512 | ) | $ | (392,193,297 | ) | (15,912,750 | ) | $ | (343,021,445 | ) |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
20
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.
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 | $ | 4,471,184,475 | $ | 16,799,255 | — | |||
Temporary Cash Investments | 34,254 | 67,017,020 | — | |||||
$ | 4,471,218,729 | $ | 83,816,275 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 1,112,786 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 60,616 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $61,513,599.
The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $1,112,786 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $60,616 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $2,671,425 in net realized gain (loss) on forward foreign
21
currency exchange contract transactions and $70,720 in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
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, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | — | — | ||||
Long-term capital gains | $ | 440,743,489 | $ | 392,349,618 |
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 $67,466,796 and distributable earnings $(67,466,796).
As of period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 3,929,498,716 | |
Gross tax appreciation of investments | $ | 807,543,418 | |
Gross tax depreciation of investments | (182,007,130 | ) | |
Net tax appreciation (depreciation) of investments | 625,536,288 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (2,669 | ) | |
Net tax appreciation (depreciation) | $ | 625,533,619 | |
Undistributed ordinary income | $ | 83,304,333 | |
Accumulated long-term gains | $ | 736,981,392 |
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: | 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 | |||||||||||||
2018 | $23.67 | (0.07) | 1.70 | 1.63 | (2.11) | $23.19 | 7.16% | 1.00% | (0.30)% | 85% | $3,787,202 | ||
2017 | $21.28 | (0.03) | 4.18 | 4.15 | (1.76) | $23.67 | 20.77% | 1.01% | (0.15)% | 56% | $4,083,669 | ||
2016 | $24.59 | (0.05) | (0.53) | (0.58) | (2.73) | $21.28 | (2.26)% | 1.00% | (0.21)% | 62% | $3,823,112 | ||
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 | ||
I Class | |||||||||||||
2018 | $25.00 | (0.03) | 1.80 | 1.77 | (2.11) | $24.66 | 7.35% | 0.80% | (0.10)% | 85% | $247,267 | ||
2017 | $22.34 | —(3) | 4.42 | 4.42 | (1.76) | $25.00 | 21.01% | 0.81% | 0.05% | 56% | $262,095 | ||
2016 | $25.62 | —(3) | (0.55) | (0.55) | (2.73) | $22.34 | (2.07)% | 0.80% | (0.01)% | 62% | $155,695 | ||
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 | ||
Y Class | |||||||||||||
2018 | $25.19 | —(3) | 1.82 | 1.82 | (2.11) | $24.90 | 7.51% | 0.65% | 0.05% | 85% | $9,694 | ||
2017(4) | $22.84 | 0.02 | 2.33 | 2.35 | — | $25.19 | 10.29% | 0.66%(5) | 0.12%(5) | 56%(6) | $6 |
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) | |||
A Class | |||||||||||||
2018 | $22.07 | (0.12) | 1.58 | 1.46 | (2.11) | $21.42 | 6.89% | 1.25% | (0.55)% | 85% | $276,813 | ||
2017 | $20.00 | (0.08) | 3.91 | 3.83 | (1.76) | $22.07 | 20.48% | 1.26% | (0.40)% | 56% | $353,039 | ||
2016 | $23.33 | (0.09) | (0.51) | (0.60) | (2.73) | $20.00 | (2.53)% | 1.25% | (0.46)% | 62% | $570,298 | ||
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 | ||
C Class | |||||||||||||
2018 | $18.22 | (0.23) | 1.30 | 1.07 | (2.11) | $17.18 | 6.13% | 2.00% | (1.30)% | 85% | $57,552 | ||
2017 | $16.92 | (0.19) | 3.25 | 3.06 | (1.76) | $18.22 | 19.58% | 2.01% | (1.15)% | 56% | $88,629 | ||
2016 | $20.31 | (0.21) | (0.45) | (0.66) | (2.73) | $16.92 | (3.29)% | 2.00% | (1.21)% | 62% | $103,292 | ||
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 | ||
R Class | |||||||||||||
2018 | $22.13 | (0.18) | 1.59 | 1.41 | (2.11) | $21.43 | 6.62% | 1.50% | (0.80)% | 85% | $32,464 | ||
2017 | $20.10 | (0.13) | 3.92 | 3.79 | (1.76) | $22.13 | 20.16% | 1.51% | (0.65)% | 56% | $39,033 | ||
2016 | $23.48 | (0.15) | (0.50) | (0.65) | (2.73) | $20.10 | (2.75)% | 1.50% | (0.71)% | 62% | $43,875 | ||
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 |
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) | |||
R5 Class | |||||||||||||
2018 | $25.00 | (0.04) | 1.81 | 1.77 | (2.11) | $24.66 | 7.35% | 0.80% | (0.10)% | 85% | $3,053 | ||
2017(4) | $22.69 | —(3) | 2.31 | 2.31 | — | $25.00 | 10.18% | 0.81%(5) | (0.03)%(5) | 56%(6) | $114 | ||
R6 Class | |||||||||||||
2018 | $25.19 | 0.02 | 1.80 | 1.82 | (2.11) | $24.90 | 7.51% | 0.65% | 0.05% | 85% | $132,651 | ||
2017 | $22.46 | 0.04 | 4.45 | 4.49 | (1.76) | $25.19 | 21.22% | 0.66% | 0.20% | 56% | $186,335 | ||
2016 | $25.72 | 0.03 | (0.56) | (0.53) | (2.73) | $22.46 | (1.93)% | 0.65% | 0.14% | 62% | $123,681 | ||
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 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Heritage Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Heritage Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
29
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
30
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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.
31
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 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, expenses attributable to short sales, 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. 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.
32
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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 $501,358,883, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $6,851,402 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $67,466,796 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
35
Notes |
36
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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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90977 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
NT Growth Fund | |
G Class (ACLTX) |
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, 2018 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | 10 years | Inception Date | |
G Class | ACLTX | 11.50% | 12.38% | 14.06% | 5/12/06 |
Russell 1000 Growth Index | — | 10.71% | 13.43% | 15.45% | — |
Fund returns would have been lower if a portion of the fees had not been waived.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2008 |
![chart-edca25d3e4d954fc894.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-edca25d3e4d954fc894.jpg)
Value on October 31, 2018 | |
G Class — $37,284 | |
Russell 1000 Growth Index — $42,082 | |
Ending value of G Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | |
G Class | 0.63% |
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. Total returns for periods less than one year are not annualized. 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 Justin Brown
Performance Summary
NT Growth returned 11.50%* for the 12 months ended October 31, 2018, outpacing the 10.71% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp drop in the final month of the fund’s fiscal year. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum, providing a tailwind for the fund. Within the Russell 1000 Growth Index, all sectors but materials, energy, and communication services posted gains. The small utilities segment—a sector that rarely offers the kind of growth characteristics we seek—reported the top total return, but index gains were largely driven by the strong performance of information technology and consumer discretionary stocks.
Health care, consumer discretionary, and industrials were the fund’s top-contributing sectors, primarily due to stock selection. Stock selection in the information technology sector was a significant source of underperformance relative to the benchmark. Stock choices among communication services companies and an overweight to the sector also detracted.
Health Care Holdings Aided Performance
Health care equipment and supplies companies led performance in the health care sector. Medical device maker Edwards Lifesciences soared on rumors that it might be a takeover target. The company has been a solid performer based on strong sales of its heart valve replacement device, and the market for the device has broadened beyond major medical centers.
Stock choices among internet and direct marketing retailers benefited performance in the consumer discretionary sector. Online retailer Amazon.com was a significant contributor. The company continued to demonstrate growth in its Amazon Web Services cloud business as well as strong performance on the e-commerce side. Among multiline retailers, Target was a top contributor, aided by strong 2017 holiday sales. Target also benefited from strong economic growth and improved consumer confidence.
Palo Alto Networks was another key contributor. Quarterly results for the enterprise security company highlighted improved sales execution and traction with its refreshed product line. Coupled with margin expansion, we think Palo Alto should deliver attractive cash-flow growth. The Boeing Co. outperformed as the aerospace and defense company logged new orders. Boeing also stands to benefit from the renegotiated North American Free Trade Agreement.
Information Technology Stocks Led Detractors
Software and semiconductors and semiconductor equipment stocks were significant detractors in the information technology sector. Applied Materials was a major detractor. The semiconductor equipment maker reported a solid quarter, but memory pricing is worsening, and there’s a concern that reduced 2019 capital spending will impact the industry. We believe the company’s business model offers less cyclicality and more secular growth than in previous cycles and therefore see upside potential. Underweighting Apple detracted. At the end of July, the company reported strong
quarterly revenues and earnings. iPhones continued to generate strong revenues. The market also expects strong sales of the new iPhones and other products that were announced in September.
* Fund returns would have been lower if a portion of the fees had not been waived.
3
Stock choices in the entertainment industry led underperformance in communication services, a sector introduced at the end of September 2018 comprising stocks previously in a range of other sectors. Detractors in the sector included underweighting Netflix relative to the benchmark. Netflix saw its stock price climb for most of the period as a result of expectations for solid user growth, particularly overseas, powered by new streaming content. The social media giant Facebook reported disappointing revenue and user growth. Investors also worried about regulatory risk and privacy concerns in the wake of a security breach that compromised some user accounts. We believe the stock offers strong free cash flow and has significant ongoing growth potential.
Other significant detractors included Royal Caribbean Cruises. Increased fuel prices coupled with adverse currency moves led to reductions in earnings estimates, hurting the stock price. In addition, investors continued to be concerned about capacity additions.
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 we believe to be superior individual securities.
As we noted earlier, at the end of September index provider FTSE Russell introduced the communication services sector. At the same time, Russell eliminated telecommunication services, a sector where the portfolio had no holdings. Communication services includes stocks of companies that had previously been in a range of other sectors. For example, portfolio holdings Facebook and Google parent Alphabet, which had been included in the information technology sector, are now part of communication services. As a result of Russell’s sector shifts, communication services represented the portfolio’s largest overweight relative to the benchmark, and information technology ended the period as our largest underweight sector.
4
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Alphabet, Inc., Class A | 8.0% |
Microsoft Corp. | 7.9% |
Amazon.com, Inc. | 6.8% |
Apple, Inc. | 5.4% |
Visa, Inc., Class A | 4.7% |
Facebook, Inc., Class A | 3.9% |
Boeing Co. (The) | 3.3% |
Procter & Gamble Co. (The) | 2.9% |
Lockheed Martin Corp. | 2.4% |
PayPal Holdings, Inc. | 2.1% |
Top Five Industries | % of net assets |
Interactive Media and Services | 12.4% |
Software | 9.7% |
IT Services | 7.7% |
Internet and Direct Marketing Retail | 6.8% |
Aerospace and Defense | 5.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.1% |
Exchange-Traded Funds | 0.8% |
Total Equity Exposure | 98.9% |
Temporary Cash Investments | 0.9% |
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, 2018 to October 31, 2018.
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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1)(2) | |
Actual | ||||
G Class | $1,000 | $1,042.60 | $0.00 | 0.00% |
Hypothetical | ||||
G Class | $1,000 | $1,025.21 | $0.00 | 0.00% |
(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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
(2) | Other expenses, which include directors' fees and expenses, did not exceed 0.005%. |
6
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 98.1% | |||||
Aerospace and Defense — 5.7% | |||||
Boeing Co. (The) | 106,064 | $ | 37,637,871 | ||
Lockheed Martin Corp. | 96,140 | 28,250,739 | |||
65,888,610 | |||||
Air Freight and Logistics — 1.1% | |||||
XPO Logistics, Inc.(1) | 139,923 | 12,506,318 | |||
Airlines — 1.7% | |||||
Delta Air Lines, Inc. | 356,096 | 19,489,134 | |||
Biotechnology — 2.8% | |||||
Biogen, Inc.(1) | 58,220 | 17,714,599 | |||
Exelixis, Inc.(1) | 233,833 | 3,243,264 | |||
Vertex Pharmaceuticals, Inc.(1) | 68,222 | 11,560,900 | |||
32,518,763 | |||||
Capital Markets — 1.7% | |||||
Charles Schwab Corp. (The) | 221,624 | 10,247,894 | |||
S&P Global, Inc. | 51,034 | 9,304,519 | |||
19,552,413 | |||||
Communications Equipment — 1.2% | |||||
Palo Alto Networks, Inc.(1) | 77,586 | 14,201,342 | |||
Consumer Finance — 1.6% | |||||
American Express Co. | 177,665 | 18,251,526 | |||
Electronic Equipment, Instruments and Components — 0.9% | |||||
CDW Corp. | 119,222 | 10,731,172 | |||
Energy Equipment and Services — 0.5% | |||||
Halliburton Co. | 175,649 | 6,091,507 | |||
Entertainment — 2.8% | |||||
Electronic Arts, Inc.(1) | 84,402 | 7,678,894 | |||
Liberty Media Corp-Liberty Formula One, Class C(1) | 89,602 | 2,964,034 | |||
Netflix, Inc.(1) | 52,295 | 15,781,585 | |||
Take-Two Interactive Software, Inc.(1) | 47,468 | 6,117,201 | |||
32,541,714 | |||||
Equity Real Estate Investment Trusts (REITs) — 2.3% | |||||
Equity Residential | 145,600 | 9,458,176 | |||
SBA Communications Corp.(1) | 109,560 | 17,767,345 | |||
27,225,521 | |||||
Food and Staples Retailing — 1.1% | |||||
Walmart, Inc. | 130,180 | 13,054,450 | |||
Food Products — 1.3% | |||||
Mondelez International, Inc., Class A | 353,432 | 14,837,075 | |||
Health Care Equipment and Supplies — 4.2% | |||||
ABIOMED, Inc.(1) | 14,863 | 5,071,256 | |||
Boston Scientific Corp.(1) | 421,581 | 15,235,937 |
7
Shares | Value | ||||
Edwards Lifesciences Corp.(1) | 37,737 | $ | 5,569,981 | ||
IDEXX Laboratories, Inc.(1) | 13,941 | 2,957,165 | |||
Intuitive Surgical, Inc.(1) | 30,376 | 15,831,364 | |||
Penumbra, Inc.(1) | 30,212 | 4,108,832 | |||
48,774,535 | |||||
Health Care Providers and Services — 2.9% | |||||
Quest Diagnostics, Inc. | 160,483 | 15,103,055 | |||
Tivity Health, Inc.(1) | 96,903 | 3,334,432 | |||
WellCare Health Plans, Inc.(1) | 55,928 | 15,435,569 | |||
33,873,056 | |||||
Health Care Technology — 0.5% | |||||
Cerner Corp.(1) | 109,438 | 6,268,609 | |||
Hotels, Restaurants and Leisure — 3.6% | |||||
Chipotle Mexican Grill, Inc.(1) | 13,399 | 6,167,962 | |||
Darden Restaurants, Inc. | 28,851 | 3,074,074 | |||
Las Vegas Sands Corp. | 182,394 | 9,307,566 | |||
Royal Caribbean Cruises Ltd. | 224,904 | 23,554,196 | |||
42,103,798 | |||||
Household Products — 3.2% | |||||
Church & Dwight Co., Inc. | 60,733 | 3,605,718 | |||
Procter & Gamble Co. (The) | 381,502 | 33,831,598 | |||
37,437,316 | |||||
Interactive Media and Services — 12.4% | |||||
Alphabet, Inc., Class A(1) | 84,940 | 92,633,865 | |||
Facebook, Inc., Class A(1) | 294,891 | 44,761,505 | |||
Twitter, Inc.(1) | 175,340 | 6,093,065 | |||
143,488,435 | |||||
Internet and Direct Marketing Retail — 6.8% | |||||
Amazon.com, Inc.(1) | 49,085 | 78,438,321 | |||
IT Services — 7.7% | |||||
Fiserv, Inc.(1) | 77,199 | 6,121,880 | |||
PayPal Holdings, Inc.(1) | 285,004 | 23,994,487 | |||
VeriSign, Inc.(1) | 30,050 | 4,283,327 | |||
Visa, Inc., Class A | 397,834 | 54,841,417 | |||
89,241,111 | |||||
Life Sciences Tools and Services — 1.4% | |||||
Agilent Technologies, Inc. | 136,988 | 8,875,452 | |||
Illumina, Inc.(1) | 22,886 | 7,120,979 | |||
15,996,431 | |||||
Machinery — 0.8% | |||||
WABCO Holdings, Inc.(1) | 84,084 | 9,034,826 | |||
Multiline Retail — 0.8% | |||||
Target Corp. | 106,143 | 8,876,739 | |||
Oil, Gas and Consumable Fuels — 1.3% | |||||
Concho Resources, Inc.(1) | 109,327 | 15,206,292 | |||
Personal Products — 0.7% | |||||
Estee Lauder Cos., Inc. (The), Class A | 55,612 | 7,643,313 |
8
Shares | Value | ||||
Pharmaceuticals — 0.9% | |||||
Novo Nordisk A/S, B Shares | 68,760 | $ | 2,974,043 | ||
Zoetis, Inc. | 87,132 | 7,854,950 | |||
10,828,993 | |||||
Road and Rail — 1.7% | |||||
Union Pacific Corp. | 132,138 | 19,321,218 | |||
Semiconductors and Semiconductor Equipment — 5.2% | |||||
Applied Materials, Inc. | 500,654 | 16,461,504 | |||
ASML Holding NV | 85,955 | 14,693,113 | |||
Broadcom, Inc. | 106,611 | 23,826,492 | |||
Maxim Integrated Products, Inc. | 102,156 | 5,109,843 | |||
60,090,952 | |||||
Software — 9.7% | |||||
Microsoft Corp. | 852,212 | 91,024,764 | |||
salesforce.com, Inc.(1) | 123,806 | 16,991,136 | |||
Splunk, Inc.(1) | 47,891 | 4,781,437 | |||
112,797,337 | |||||
Specialty Retail — 2.0% | |||||
TJX Cos., Inc. (The) | 206,642 | 22,705,823 | |||
Technology Hardware, Storage and Peripherals — 5.4% | |||||
Apple, Inc. | 284,951 | 62,364,376 | |||
Textiles, Apparel and Luxury Goods — 2.2% | |||||
NIKE, Inc., Class B | 188,190 | 14,121,777 | |||
Tapestry, Inc. | 272,999 | 11,550,588 | |||
25,672,365 | |||||
TOTAL COMMON STOCKS (Cost $761,850,025) | 1,137,053,391 | ||||
EXCHANGE-TRADED FUNDS — 0.8% | |||||
iShares Russell 1000 Growth ETF (Cost $9,641,409) | 66,088 | 9,389,783 | |||
TEMPORARY CASH INVESTMENTS — 0.9% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $7,512,980), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $7,360,847) | 7,360,438 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $3,758,405), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $3,683,107) | 3,683,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 6,552 | 6,552 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $11,049,990) | 11,049,990 | ||||
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $782,541,424) | 1,157,493,164 | ||||
OTHER ASSETS AND LIABILITIES — 0.2% | 1,893,496 | ||||
TOTAL NET ASSETS — 100.0% | $ | 1,159,386,660 |
9
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 404,863 | USD | 467,922 | Credit Suisse AG | 12/31/18 | $ | (6,787 | ) | ||
EUR | 525,113 | USD | 611,956 | Credit Suisse AG | 12/31/18 | (13,858 | ) | |||
EUR | 369,692 | USD | 427,973 | Credit Suisse AG | 12/31/18 | (6,897 | ) | |||
EUR | 545,041 | USD | 624,344 | Credit Suisse AG | 12/31/18 | (3,548 | ) | |||
EUR | 394,533 | USD | 450,458 | Credit Suisse AG | 12/31/18 | (1,088 | ) | |||
USD | 12,460,656 | EUR | 10,520,630 | Credit Suisse AG | 12/31/18 | 477,761 | ||||
USD | 1,312,952 | EUR | 1,107,985 | Credit Suisse AG | 12/31/18 | 50,967 | ||||
USD | 382,217 | EUR | 330,152 | Credit Suisse AG | 12/31/18 | 6,177 | ||||
USD | 794,245 | EUR | 688,851 | Credit Suisse AG | 12/31/18 | 9,651 | ||||
USD | 423,327 | EUR | 369,692 | Credit Suisse AG | 12/31/18 | 2,251 | ||||
$ | 514,629 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $782,541,424) | $ | 1,157,493,164 | |
Receivable for investments sold | 4,096,295 | ||
Receivable for capital shares sold | 82,833 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 546,807 | ||
Dividends and interest receivable | 365,424 | ||
1,162,584,523 | |||
Liabilities | |||
Payable for investments purchased | 3,165,685 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 32,178 | ||
3,197,863 | |||
Net Assets | $ | 1,159,386,660 | |
G Class Capital Shares, $0.01 Par Value | |||
Shares authorized | 660,000,000 | ||
Shares outstanding | 62,372,282 | ||
Net Asset Value Per Share | $ | 18.59 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 607,532,026 | |
Distributable earnings | 551,854,634 | ||
$ | 1,159,386,660 |
See Notes to Financial Statements.
11
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $25,846) | $ | 14,136,425 | |
Interest | 81,052 | ||
14,217,477 | |||
Expenses: | |||
Management fees | 8,113,259 | ||
Directors' fees and expenses | 29,213 | ||
Other expenses | 26,156 | ||
8,168,628 | |||
Fees waived | (8,113,259 | ) | |
55,369 | |||
Net investment income (loss) | 14,162,108 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 191,074,474 | ||
Forward foreign currency exchange contract transactions | 493,031 | ||
Futures contract transactions | (572,922 | ) | |
Foreign currency translation transactions | (8,308 | ) | |
190,986,275 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (48,980,311 | ) | |
Forward foreign currency exchange contracts | 243,234 | ||
Translation of assets and liabilities in foreign currencies | (54 | ) | |
(48,737,131 | ) | ||
Net realized and unrealized gain (loss) | 142,249,144 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 156,411,252 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 14,162,108 | $ | 8,732,432 | ||
Net realized gain (loss) | 190,986,275 | 117,989,683 | ||||
Change in net unrealized appreciation (depreciation) | (48,737,131 | ) | 204,361,257 | |||
Net increase (decrease) in net assets resulting from operations | 156,411,252 | 331,083,372 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
G Class | (126,468,050 | ) | (25,539,499 | ) | ||
R6 Class | — | (2,942,841 | ) | |||
Decrease in net assets from distributions | (126,468,050 | ) | (28,482,340 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (235,297,170 | ) | (149,696,725 | ) | ||
Net increase (decrease) in net assets | (205,353,968 | ) | 152,904,307 | |||
Net Assets | ||||||
Beginning of period | 1,364,740,628 | 1,211,836,321 | ||||
End of period | $ | 1,159,386,660 | $ | 1,364,740,628 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(8,520,575) and $(1,102,965) for G Class and R6 Class, respectively. Distributions from net realized gains were $(17,018,924) and $(1,839,876) for G Class and R6 Class, respectively. |
See Notes to Financial Statements.
13
Notes to Financial Statements |
OCTOBER 31, 2018
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'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 or the Bloomberg Industry Classification Standard for the tobacco industry. The fund offers the G Class. On July 31, 2017, all outstanding R6 Class shares were converted to G Class shares and the fund discontinued offering the R6 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 exchange. 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.
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.
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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investment securities and other financial instruments. 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 collateral requirements.
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.
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).
15
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). The agreement provides that all expenses of managing and operating the fund, except 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 the daily net assets of the fund 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 use very similar investment teams and 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 management fee schedule ranges from 0.450% to 0.640%. The investment advisor agreed to waive the fund's management fee in its entirety. The investment advisor expects this waiver to remain in effect permanently and cannot terminate it without the approval of the Board of Directors. The effective annual management fee for the period ended October 31, 2018 was 0.62% before waiver and 0.00% after waiver.
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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $8,158,756 and $17,726,362, respectively. The effect of interfund transactions on the Statement of Operations was $1,667,984 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $683,954,823 and $1,049,493,858, respectively.
16
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017 | |||||||||
Shares | Amount | Shares | Amount | |||||||
G Class/Shares Authorized | 660,000,000 | 660,000,000 | ||||||||
Sold | 3,180,674 | $ | 58,272,536 | 13,727,570 | $ | 228,420,327 | ||||
Issued in reinvestment of distributions | 7,255,769 | 126,468,050 | 1,719,832 | 25,539,499 | ||||||
Redeemed | (22,314,863 | ) | (420,037,756 | ) | (16,787,555 | ) | (274,474,628 | ) | ||
(11,878,420 | ) | (235,297,170 | ) | (1,340,153 | ) | (20,514,802 | ) | |||
R6 Class/Shares Authorized | N/A | N/A | ||||||||
Sold | 2,372,292 | 36,926,033 | ||||||||
Issued in reinvestment of distributions | 198,438 | 2,942,841 | ||||||||
Redeemed | (9,893,780 | ) | (169,050,797 | ) | ||||||
(7,323,050 | ) | (129,181,923 | ) | |||||||
Net increase (decrease) | (11,878,420 | ) | $ | (235,297,170 | ) | (8,663,203 | ) | $ | (149,696,725 | ) |
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.
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 | $ | 1,119,386,235 | $ | 17,667,156 | — | |||
Exchange-Traded Funds | 9,389,783 | — | — | |||||
Temporary Cash Investments | 6,552 | 11,043,438 | — | |||||
$ | 1,128,782,570 | $ | 28,710,594 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 546,807 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 32,178 | — |
17
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 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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $21,490,572.
Value of Derivative Instruments as of October 31, 2018
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 | $ | 546,807 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 32,178 |
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2018
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 | $ | (572,922 | ) | Change in net unrealized appreciation (depreciation) on futures contracts | — | ||
Foreign Currency Risk | Net realized gain (loss) on forward foreign currency exchange contract transactions | 493,031 | Change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts | $ | 243,234 | |||
$ | (79,891 | ) | $ | 243,234 |
18
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 37,951,040 | $ | 9,623,540 | ||
Long-term capital gains | $ | 88,517,010 | $ | 18,858,800 |
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 $20,155,015 and distributable earnings $(20,155,015).
As of period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 786,575,558 | |
Gross tax appreciation of investments | $ | 385,865,410 | |
Gross tax depreciation of investments | (14,947,804 | ) | |
Net tax appreciation (depreciation) | $ | 370,917,606 | |
Undistributed ordinary income | $ | 27,381,066 | |
Accumulated long-term gains | $ | 153,555,962 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
19
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) | |||
G Class | |||||||||||||||||
2018 | $18.38 | 0.20 | 1.80 | 2.00 | (0.13) | (1.66) | (1.79) | $18.59 | 11.50% | 0.00%(3) | 0.62% | 1.09% | 0.47% | 53% | $1,159,387 | ||
2017 | $14.62 | 0.11 | 4.00 | 4.11 | (0.12) | (0.23) | (0.35) | $18.38 | 28.64% | 0.56% | 0.74% | 0.67% | 0.49% | 64% | $1,364,741 | ||
2016 | $15.57 | 0.11 | (0.06) | 0.05 | (0.07) | (0.93) | (1.00) | $14.62 | 0.49% | 0.78% | 0.78% | 0.74% | 0.74% | 60% | $1,104,817 | ||
2015 | $16.82 | 0.08 | 1.17 | 1.25 | (0.08) | (2.42) | (2.50) | $15.57 | 8.97% | 0.77% | 0.77% | 0.52% | 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% | 0.77% | 0.50% | 0.50% | 119% | $1,234,784 |
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) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Growth Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of NT Growth Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
21
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, Inc. |
22
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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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.
23
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
25
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-year period and below its benchmark for the 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.
26
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 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, expenses attributable to short sales, 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. 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.
27
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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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.
28
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
29
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, 2018.
For corporate taxpayers, the fund hereby designates $15,461,147, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $105,324,417, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $30,858,257 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $20,155,015 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90986 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
NT Heritage Fund | |
G Class (ACLWX) |
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, 2018 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | 10 years | Inception Date | |
G Class | ACLWX | 8.19% | 8.38% | 10.69% | 5/12/06 |
Russell Midcap Growth Index | — | 6.14% | 10.09% | 15.09% | — |
Fund returns would have been lower if a portion of the fees had not been waived.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2008 |
![chart-e2072c3e43ec529da80.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-e2072c3e43ec529da80.jpg)
Value on October 31, 2018 | |
G Class — $27,622 | |
Russell Midcap Growth Index — $40,801 | |
Ending value of G Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | |
G Class | 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. Total returns for periods less than one year are not annualized. 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: Rob Brookby and Nalin Yogasundram
In February 2018, portfolio manager Greg Walsh left American Century Investments, and Rob Brookby joined NT Heritage’s management team.
Performance Summary
NT Heritage returned 8.19%* for the 12 months ended October 31, 2018, outperforming the 6.14% return of the portfolio’s benchmark, the Russell Midcap Growth Index.
U.S. stock indices delivered solid returns during the reporting period despite a sharp pullback in the final month. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum. Within the Russell Midcap Growth Index, the utilities sector—which represents a very small segment of the benchmark—had the best performance on a total-return basis. Index returns were largely driven by strong performance of information technology and consumer discretionary stocks. Materials stocks were significantly lower, and real estate stocks declined marginally.
Stock selection in the health care sector led the fund’s outperformance relative to the benchmark. Stock choices in materials and an underweight to the sector also benefited performance. Stock selection in the consumer staples and information technology sectors detracted.
Health Care Stocks Led Contributors
In the health care sector, stock decisions among health care providers and services companies were top contributors. WellCare Health Plans was a major contributor in the industry. The managed care company reported strong quarterly results and renewed its Florida Medicaid contract, picking up additional market share as a result of the deal. It also acquired Meridian Health Plans. The acquisition expands the company’s footprint in both the Medicaid and Medicare Advantage markets. Home health and hospice care company Amedisys rose on strong quarterly performance. Profitability exceeded analysts' expectations due to productivity improvement. Amedisys was eliminated from the portfolio.
Other significant contributors included Burlington Stores. The off-price retailer reported strong comparable sales, and it’s also a beneficiary of tax reform, which lowered corporate rates for U.S. companies. O’Reilly Automotive outperformed as the aftermarket automobile parts dealer reported improved same-store sales and benefited from economic growth. Better weather also encouraged greater activity by do-it-yourselfers. Additionally, investors are realizing that Amazon.com’s online sales are less of a threat to the automotive business than some had feared.
Software company Red Hat was a major contributor. The company is the largest provider of Linux, an open-source operating system that Red Hat makes enterprise-ready. Red Hat saw an improving revenue profile aided by new products that help enterprises move to the cloud. Red Hat is in the process of being acquired by International Business Machines.
Consumers Staples Detracted
Stock selection among beverage companies weighed on performance in the consumer staples sector, although an overweight allocation to the industry mitigated some of the underperformance relative to the benchmark. Avoiding household products and personal products stocks also detracted.
3
* Fund returns would have been lower if a portion of the fees had not been waived.
In the information technology sector, stock choices in the IT services and semiconductors and semiconductor equipment industries hurt relative performance. Underweighting semiconductor
maker Advanced Micro Devices detracted. The company appears to be a beneficiary of missteps by Intel, the chief competitor in the space. Advanced Micro Devices is positioned to take market share in the wake of Intel’s stumbles. Our holding of Microchip Technology detracted. The semiconductor maker issued a solid quarterly earnings report but guided lower due to problems inherited from its Microsemi acquisition. Management also noted that tariffs associated with the escalating trade war with China could hurt the bottom line.
Elsewhere, Electronic Arts underperformed as the video game maker lowered full-year guidance on revenue due to delays in game launches and the impact of foreign exchange. Flooring manufacturer Mohawk Industries detracted. The company reported strong quarterly earnings but guided below expectations for 2018 due to start-up costs associated with several global products. Additionally, rising mortgage rates are likely to affect housing-related companies such as Mohawk. Newell Brands, which owns several major brand names such as Rubbermaid, detracted. Lower-than-expected earnings were attributed to a slow 2017 back-to-school season and inventory reductions at key customers such as Office Depot and Walmart, along with Toys"R"Us, which declared bankruptcy. Both Mohawk and Newell Brands were eliminated.
Outlook
Our process uses fundamental analysis to identify mid-cap companies producing attractive, sustainable earnings growth. We seek to reduce unintended, nonfundamental risks and align the portfolio with fundamental, company-specific risks that we believe will be rewarded over time. As a result of this approach, our sector and industry allocations reflect where we are finding opportunities at a given time.
At the end of the period, the portfolio’s largest overweight relative to the benchmark was in the health care sector. We believe there is growth potential in mid-cap biopharmaceutical companies. We have moved our health care allocation away from more cyclical sectors to more growth-oriented sectors. Our industrials exposure remained overweight. We believe certain companies within the industrials sector are positioned to benefit from continued U.S. growth and thrive in a late-cycle economic environment.
Information technology ended the period as the portfolio’s largest underweight. However, we believe strongly that mid-cap technology companies are poised to benefit from secular themes such as 5G data technology, artificial intelligence, and the internet of things. We trimmed technology stocks we saw as having less upside and emphasized investments in companies whose business models we believe can sustainably capitalize on these themes. Financials ended the period underweight, reflecting what we see as a lack of opportunity in the sector as the yield curve flattens and affects the profitability of several lines of business for financial institutions.
4
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
WellCare Health Plans, Inc. | 2.7% |
Booz Allen Hamilton Holding Corp. | 2.5% |
Burlington Stores, Inc. | 2.4% |
SBA Communications Corp. | 2.3% |
FleetCor Technologies, Inc. | 2.2% |
Xilinx, Inc. | 2.1% |
Verisk Analytics, Inc. | 2.0% |
Take-Two Interactive Software, Inc. | 2.0% |
O'Reilly Automotive, Inc. | 1.9% |
NetApp, Inc. | 1.9% |
Top Five Industries | % of net assets |
Software | 9.7% |
IT Services | 8.2% |
Specialty Retail | 6.3% |
Health Care Providers and Services | 5.6% |
Health Care Equipment and Supplies | 5.5% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.6% |
Temporary Cash Investments | 2.4% |
Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets.
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, 2018 to October 31, 2018.
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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1)(2) | |
Actual | ||||
G Class | $1,000 | $1,019.60 | $0.00 | 0.00% |
Hypothetical | ||||
G Class | $1,000 | $1,025.21 | $0.00 | 0.00% |
(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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
(2) | Other expenses, which include directors' fees and expenses, did not exceed 0.005%. |
6
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 97.6% | |||||
Aerospace and Defense — 1.7% | |||||
L3 Technologies, Inc. | 63,057 | $ | 11,947,410 | ||
Auto Components — 0.8% | |||||
Aptiv plc | 72,111 | 5,538,125 | |||
Banks — 0.5% | |||||
SVB Financial Group(1) | 14,180 | 3,363,921 | |||
Beverages — 2.7% | |||||
Brown-Forman Corp., Class B | 79,088 | 3,664,938 | |||
Constellation Brands, Inc., Class A | 39,110 | 7,791,885 | |||
Monster Beverage Corp.(1) | 134,854 | 7,127,034 | |||
18,583,857 | |||||
Biotechnology — 3.3% | |||||
Alexion Pharmaceuticals, Inc.(1) | 62,337 | 6,986,108 | |||
Array BioPharma, Inc.(1) | 306,973 | 4,972,963 | |||
Immunomedics, Inc.(1) | 217,831 | 4,907,732 | |||
Sarepta Therapeutics, Inc.(1) | 45,261 | 6,054,111 | |||
22,920,914 | |||||
Building Products — 1.2% | |||||
Allegion plc | 93,995 | 8,058,191 | |||
Capital Markets — 4.9% | |||||
Cboe Global Markets, Inc. | 107,246 | 12,102,711 | |||
LPL Financial Holdings, Inc. | 83,363 | 5,135,161 | |||
S&P Global, Inc. | 41,038 | 7,482,048 | |||
SEI Investments Co. | 174,397 | 9,321,520 | |||
34,041,440 | |||||
Chemicals — 0.2% | |||||
FMC Corp. | 18,646 | 1,455,880 | |||
Communications Equipment — 1.5% | |||||
Palo Alto Networks, Inc.(1) | 55,943 | 10,239,807 | |||
Construction and Engineering — 1.6% | |||||
Jacobs Engineering Group, Inc. | 146,996 | 11,037,930 | |||
Construction Materials — 0.9% | |||||
Vulcan Materials Co. | 64,293 | 6,502,594 | |||
Containers and Packaging — 1.6% | |||||
Ball Corp. | 245,502 | 10,998,490 | |||
Electrical Equipment — 1.4% | |||||
AMETEK, Inc. | 149,198 | 10,008,202 | |||
Electronic Equipment, Instruments and Components — 1.6% | |||||
CDW Corp. | 119,797 | 10,782,928 | |||
Entertainment — 2.8% | |||||
Electronic Arts, Inc.(1) | 61,468 | 5,592,359 |
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Shares | Value | ||||
Take-Two Interactive Software, Inc.(1) | 105,405 | $ | 13,583,542 | ||
19,175,901 | |||||
Equity Real Estate Investment Trusts (REITs) — 2.3% | |||||
SBA Communications Corp.(1) | 97,929 | 15,881,146 | |||
Food and Staples Retailing — 0.7% | |||||
Costco Wholesale Corp. | 20,588 | 4,707,034 | |||
Health Care Equipment and Supplies — 5.5% | |||||
Align Technology, Inc.(1) | 36,004 | 7,964,085 | |||
Edwards Lifesciences Corp.(1) | 50,459 | 7,447,748 | |||
Haemonetics Corp.(1) | 66,751 | 6,973,477 | |||
Insulet Corp.(1) | 79,261 | 6,991,613 | |||
Masimo Corp.(1) | 72,221 | 8,348,748 | |||
37,725,671 | |||||
Health Care Providers and Services — 5.6% | |||||
Henry Schein, Inc.(1) | 61,853 | 5,133,799 | |||
LHC Group, Inc.(1) | 47,449 | 4,338,262 | |||
Quest Diagnostics, Inc. | 112,629 | 10,599,515 | |||
WellCare Health Plans, Inc.(1) | 67,334 | 18,583,511 | |||
38,655,087 | |||||
Hotels, Restaurants and Leisure — 4.8% | |||||
Domino's Pizza, Inc. | 28,404 | 7,634,711 | |||
Haidilao International Holding Ltd.(1) | 134,000 | 281,604 | |||
Hilton Worldwide Holdings, Inc. | 68,225 | 4,855,573 | |||
Planet Fitness, Inc., Class A(1) | 186,621 | 9,161,225 | |||
Red Rock Resorts, Inc., Class A | 214,338 | 4,959,781 | |||
Yum! Brands, Inc. | 67,590 | 6,110,812 | |||
33,003,706 | |||||
Industrial Conglomerates — 0.9% | |||||
Roper Technologies, Inc. | 22,379 | 6,331,019 | |||
Interactive Media and Services — 1.5% | |||||
Twitter, Inc.(1) | 306,862 | 10,663,454 | |||
Internet and Direct Marketing Retail — 1.0% | |||||
Expedia Group, Inc. | 54,901 | 6,886,232 | |||
IT Services — 8.2% | |||||
Akamai Technologies, Inc.(1) | 99,275 | 7,172,619 | |||
Booz Allen Hamilton Holding Corp. | 348,832 | 17,281,137 | |||
FleetCor Technologies, Inc.(1) | 75,161 | 15,034,455 | |||
Square, Inc., Class A(1) | 82,115 | 6,031,347 | |||
Worldpay, Inc., Class A(1) | 122,849 | 11,282,452 | |||
56,802,010 | |||||
Life Sciences Tools and Services — 0.8% | |||||
Illumina, Inc.(1) | 18,715 | 5,823,172 | |||
Machinery — 2.1% | |||||
Ingersoll-Rand plc | 117,373 | 11,260,766 | |||
WABCO Holdings, Inc.(1) | 31,741 | 3,410,570 | |||
14,671,336 |
8
Shares | Value | ||||
Marine — 0.6% | |||||
Kirby Corp.(1) | 59,629 | $ | 4,289,710 | ||
Metals and Mining — 0.3% | |||||
Largo Resources Ltd.(1) | 741,583 | 2,247,648 | |||
Multiline Retail — 0.6% | |||||
Dollar Tree, Inc.(1) | 49,154 | 4,143,682 | |||
Oil, Gas and Consumable Fuels — 1.2% | |||||
Concho Resources, Inc.(1) | 57,967 | 8,062,630 | |||
Pharmaceuticals — 1.8% | |||||
Elanco Animal Health, Inc.(1) | 108,225 | 3,298,698 | |||
Jazz Pharmaceuticals plc(1) | 57,491 | 9,130,721 | |||
12,429,419 | |||||
Professional Services — 4.1% | |||||
IHS Markit Ltd.(1) | 181,952 | 9,557,938 | |||
TransUnion | 75,599 | 4,970,634 | |||
Verisk Analytics, Inc.(1) | 116,321 | 13,939,909 | |||
28,468,481 | |||||
Road and Rail — 1.0% | |||||
Canadian Pacific Railway Ltd. | 33,198 | 6,805,590 | |||
Semiconductors and Semiconductor Equipment — 5.2% | |||||
Advanced Micro Devices, Inc.(1) | 232,142 | 4,227,306 | |||
Marvell Technology Group Ltd. | 440,005 | 7,220,482 | |||
Microchip Technology, Inc. | 150,905 | 9,926,531 | |||
Xilinx, Inc. | 170,532 | 14,558,317 | |||
35,932,636 | |||||
Software — 9.7% | |||||
Autodesk, Inc.(1) | 98,831 | 12,773,907 | |||
PTC, Inc.(1) | 107,161 | 8,831,138 | |||
RealPage, Inc.(1) | 131,809 | 6,985,877 | |||
Red Hat, Inc.(1) | 42,891 | 7,361,811 | |||
ServiceNow, Inc.(1) | 62,598 | 11,332,742 | |||
Splunk, Inc.(1) | 59,340 | 5,924,506 | |||
Tyler Technologies, Inc.(1) | 41,190 | 8,718,275 | |||
Workday, Inc., Class A(1) | 39,821 | 5,296,989 | |||
67,225,245 | |||||
Specialty Retail — 6.3% | |||||
Burlington Stores, Inc.(1) | 97,276 | 16,681,861 | |||
Five Below, Inc.(1) | 55,897 | 6,362,197 | |||
O'Reilly Automotive, Inc.(1) | 40,887 | 13,114,505 | |||
Ross Stores, Inc. | 73,389 | 7,265,511 | |||
43,424,074 | |||||
Technology Hardware, Storage and Peripherals — 1.9% | |||||
NetApp, Inc. | 164,870 | 12,940,646 | |||
Textiles, Apparel and Luxury Goods — 2.7% | |||||
Lululemon Athletica, Inc.(1) | 72,989 | 10,271,742 | |||
VF Corp. | 105,204 | 8,719,307 | |||
18,991,049 |
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Shares | Value | ||||
Trading Companies and Distributors — 2.1% | |||||
United Rentals, Inc.(1) | 82,635 | $ | 9,921,985 | ||
Univar, Inc.(1) | 183,189 | 4,510,113 | |||
14,432,098 | |||||
TOTAL COMMON STOCKS (Cost $580,705,824) | 675,198,365 | ||||
TEMPORARY CASH INVESTMENTS — 2.4% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $11,430,517), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $11,199,057) | 11,198,435 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $5,718,485), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $5,604,163) | 5,604,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 9,417 | 9,417 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $16,811,852) | 16,811,852 | ||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $597,517,676) | 692,010,217 | ||||
OTHER ASSETS AND LIABILITIES† | (205,148 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 691,805,069 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 303,426 | USD | 234,449 | Morgan Stanley | 12/31/18 | $ | (3,658 | ) | ||
CAD | 656,048 | USD | 504,074 | Morgan Stanley | 12/31/18 | (5,073 | ) | |||
CAD | 327,396 | USD | 249,999 | Morgan Stanley | 12/31/18 | (976 | ) | |||
USD | 6,852,696 | CAD | 8,833,125 | Morgan Stanley | 12/31/18 | 134,077 | ||||
USD | 186,127 | CAD | 240,692 | Morgan Stanley | 12/31/18 | 3,053 | ||||
USD | 170,422 | CAD | 221,484 | Morgan Stanley | 12/31/18 | 1,958 | ||||
USD | 259,958 | CAD | 335,577 | Morgan Stanley | 12/31/18 | 4,713 | ||||
USD | 178,621 | CAD | 230,818 | Morgan Stanley | 12/31/18 | 3,057 | ||||
USD | 215,118 | CAD | 279,321 | Morgan Stanley | 12/31/18 | 2,661 | ||||
USD | 337,020 | CAD | 435,787 | Morgan Stanley | 12/31/18 | 5,554 | ||||
USD | 896,726 | CAD | 1,162,030 | Morgan Stanley | 12/31/18 | 12,867 | ||||
$ | 158,233 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
CAD | - | Canadian Dollar |
USD | - | United States Dollar |
† Category is less than 0.05% of total net assets.
(1) | Non-income producing. |
See Notes to Financial Statements.
10
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $597,517,676) | $ | 692,010,217 | |
Receivable for investments sold | 2,603,982 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 167,940 | ||
Dividends and interest receivable | 826 | ||
694,782,965 | |||
Liabilities | |||
Payable for investments purchased | 2,968,189 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 9,707 | ||
2,977,896 | |||
Net Assets | $ | 691,805,069 | |
G Class Capital Shares, $0.01 Par Value | |||
Shares authorized | 500,000,000 | ||
Shares outstanding | 47,603,675 | ||
Net Asset Value Per Share | $ | 14.53 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 457,767,308 | |
Distributable earnings | 234,037,761 | ||
$ | 691,805,069 |
See Notes to Financial Statements.
11
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $6,738) | $ | 5,441,971 | |
Interest | 76,874 | ||
5,518,845 | |||
Expenses: | |||
Management fees | 5,057,373 | ||
Directors' fees and expenses | 17,443 | ||
Other expenses | 13,221 | ||
5,088,037 | |||
Fees waived | (5,057,373 | ) | |
30,664 | |||
Net investment income (loss) | 5,488,181 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 150,399,647 | ||
Forward foreign currency exchange contract transactions | 420,804 | ||
Foreign currency translation transactions | (148 | ) | |
150,820,303 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (86,705,992 | ) | |
Forward foreign currency exchange contracts | (4,968 | ) | |
(86,710,960 | ) | ||
Net realized and unrealized gain (loss) | 64,109,343 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 69,597,524 |
See Notes to Financial Statements.
12
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 5,488,181 | $ | 2,111,214 | ||
Net realized gain (loss) | 150,820,303 | 56,742,260 | ||||
Change in net unrealized appreciation (depreciation) | (86,710,960 | ) | 91,090,749 | |||
Net increase (decrease) in net assets resulting from operations | 69,597,524 | 149,944,223 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
G Class | (55,729,292 | ) | (22,613,046 | ) | ||
R6 Class | — | (2,450,807 | ) | |||
Decrease in net assets from distributions | (55,729,292 | ) | (25,063,853 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | (144,973,455 | ) | (15,408,566 | ) | ||
Net increase (decrease) in net assets | (131,105,223 | ) | 109,471,804 | |||
Net Assets | ||||||
Beginning of period | 822,910,292 | 713,438,488 | ||||
End of period | $ | 691,805,069 | $ | 822,910,292 |
See Notes to Financial Statements.
13
Notes to Financial Statements |
OCTOBER 31, 2018
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'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 or the Bloomberg Industry Classification Standard for the tobacco industry. The fund offers the G Class. On July 31, 2017, all outstanding R6 Class shares were converted to G Class shares and the fund discontinued offering the R6 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.
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
14
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.
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., and the corporation’s transfer agent, American Century Services, LLC, are
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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). The agreement provides that all expenses of managing and operating the fund, except 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 the daily net assets of the fund and paid monthly in arrears. The annual management fee is 0.65%. The investment advisor agreed to waive the management fee in its entirety. The investment advisor expects this waiver to remain in effect permanently and cannot terminate it without the approval of the Board of Directors. The effective annual management fee for the period ended October 31, 2018 was 0.65% before waiver and 0.00% after waiver.
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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $4,755,661 and $4,931,801, respectively. The effect of interfund transactions on the Statement of Operations was $777,740 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $691,376,189 and $896,641,259, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017 | |||||||||
Shares | Amount | Shares | Amount | |||||||
G Class/Shares Authorized | 500,000,000 | 500,000,000 | ||||||||
Sold | 1,434,857 | $ | 20,837,098 | 10,789,180 | $ | 145,023,909 | ||||
Issued in reinvestment of distributions | 3,989,212 | 55,729,292 | 1,817,769 | 22,613,046 | ||||||
Redeemed | (14,907,717 | ) | (221,539,845 | ) | (8,335,745 | ) | (110,364,109 | ) | ||
(9,483,648 | ) | (144,973,455 | ) | 4,271,204 | 57,272,846 | |||||
R6 Class/Shares Authorized | N/A | N/A | ||||||||
Sold | 1,796,142 | 23,492,081 | ||||||||
Issued in reinvestment of distributions | 195,908 | 2,450,807 | ||||||||
Redeemed | (7,123,592 | ) | (98,624,300 | ) | ||||||
(5,131,542 | ) | (72,681,412 | ) | |||||||
Net increase (decrease) | (9,483,648 | ) | $ | (144,973,455 | ) | (860,338 | ) | $ | (15,408,566 | ) |
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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.
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 | $ | 672,669,113 | $ | 2,529,252 | — | |||
Temporary Cash Investments | 9,417 | 16,802,435 | — | |||||
$ | 672,678,530 | $ | 19,331,687 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 167,940 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 9,707 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $9,613,641.
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The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $167,940 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $9,707 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $420,804 in net realized gain (loss) on forward foreign currency exchange contract transactions and $(4,968) in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
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, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 4,294,367 | — | |||
Long-term capital gains | $ | 51,434,925 | $ | 25,063,853 |
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 $11,873,407 and distributable earnings $(11,873,407).
As of period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 599,706,638 | |
Gross tax appreciation of investments | $ | 119,238,955 | |
Gross tax depreciation of investments | (26,935,376 | ) | |
Net tax appreciation (depreciation) of investments | $ | 92,303,579 | |
Undistributed ordinary income | $ | 23,062,247 | |
Accumulated long-term gains | $ | 118,671,935 |
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) | |||
G Class | |||||||||||||||||
2018 | $14.41 | 0.10 | 1.05 | 1.15 | (0.05) | (0.98) | (1.03) | $14.53 | 8.19% | 0.00%(3) | 0.65% | 0.71% | 0.06% | 90% | $691,805 | ||
2017 | $12.31 | 0.04 | 2.50 | 2.54 | — | (0.44) | (0.44) | $14.41 | 21.29% | 0.58% | 0.76% | 0.27% | 0.09% | 67% | $822,910 | ||
2016 | $13.65 | —(4) | (0.28) | (0.28) | — | (1.06) | (1.06) | $12.31 | (2.01)% | 0.80% | 0.80% | (0.02)% | (0.02)% | 73% | $649,951 | ||
2015 | $13.37 | (0.03) | 0.93 | 0.90 | — | (0.62) | (0.62) | $13.65 | 7.20% | 0.80% | 0.80% | (0.22)% | (0.22)% | 83% | $609,841 | ||
2014 | $13.81 | (0.04) | 1.08 | 1.04 | — | (1.48) | (1.48) | $13.37 | 8.53% | 0.80% | 0.80% | (0.31)% | (0.31)% | 76% | $572,085 |
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) | Ratio was less than 0.005%. |
(4) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Heritage Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of NT Heritage Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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.
25
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 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, expenses attributable to short sales, 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. 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.
26
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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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.
For corporate taxpayers, the fund hereby designates $4,294,367, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2018.
The fund hereby designates $3,035,430 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund hereby designates $61,292,222, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $11,873,407 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
29
Notes |
30
Notes |
31
Notes |
32
![]() | ||
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90987 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
Select Fund | |
Investor Class (TWCIX) | |
I Class (TWSIX) | |
Y Class (ASLWX) | |
A Class (TWCAX) | |
C Class (ACSLX) | |
R Class (ASERX) | |
R5 Class (ASLGX) | |
R6 Class (ASDEX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCIX | 8.94% | 12.70% | 14.23% | — | 6/30/71 |
Russell 1000 Growth Index | — | 10.71% | 13.43% | 15.45% | — | — |
I Class | TWSIX | 9.15% | 12.93% | 14.46% | — | 3/13/97 |
Y Class | ASLWX | 9.34% | — | — | 15.58% | 4/10/17 |
A Class | TWCAX | 8/8/97 | ||||
No sales charge | 8.67% | 12.43% | 13.94% | — | ||
With sales charge | 2.42% | 11.10% | 13.27% | — | ||
C Class | ACSLX | 7.86% | 11.58% | 13.09% | — | 1/31/03 |
R Class | ASERX | 8.41% | 12.15% | 13.66% | — | 7/29/05 |
R5 Class | ASLGX | 9.13% | — | — | 15.38% | 4/10/17 |
R6 Class | ASDEX | 9.33% | 13.10% | — | 14.00% | 7/26/13 |
Average annual returns since inception are presented when ten years of performance history is not available. Although the fund’s actual inception date was October 31, 1958, the Investor Class inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. Fund returns would have been lower if a portion of the fees had not been waived.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-8db50cba050e57c6acf.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-8db50cba050e57c6acf.jpg)
Value on October 31, 2018 | |
Investor Class — $37,847 | |
Russell 1000 Growth Index — $42,082 | |
Ending value of Investor Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | |||||||
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
1.00% | 0.80% | 0.65% | 1.25% | 2.00% | 1.50% | 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. Total returns for periods less than one year are not annualized. 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 8.94%* for the 12 months ended October 31, 2018, lagging the 10.71% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp drop during the final month of the fund’s fiscal year. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum, providing a tailwind for the fund. Within the Russell 1000 Growth Index, all sectors but materials, energy, and communication services posted gains. The small utilities segment—a sector that rarely offers the kind of growth characteristics we seek—reported the top total return, but index gains were largely driven by the strong performance of information technology and consumer discretionary stocks.
Stock selection in health care and positioning among communication services companies were the major sources of underperformance versus the benchmark. Industrials was the top contributing sector due to stock selection. Stock choices were also strongly positive in information technology, although an underweight relative to the benchmark negated some of those gains.
Health Care Stocks Led Detractors
Biotechnology stocks weighed on performance in the health care sector. Celgene fell sharply after announcing that it was discontinuing late-stage clinical trials of its drug to treat Crohn’s disease, putting pressure on its product pipeline. The company also had to lower guidance due to disappointing sales for its arthritic psoriasis drug Otezla due to pricing competition. Regeneron Pharmaceuticals declined as investors were concerned about competition for its Eylea drug used to treat macular degeneration, a key market for the company.
At the end of September, index provider FTSE Russell eliminated the telecommunication services sector—where the portfolio had no holdings—and introduced the communication services sector. Communication services includes stocks of companies that had previously been in a range of other sectors. Within the sector, Electronic Arts underperformed as the video game maker lowered full-year guidance on revenue due to delays in game launches and the impact of foreign exchange. Despite the missteps, we believe Electronic Arts is a high-quality company in a space with continued long-term potential. The China-based web search engine Baidu—which is reported to control about 80% of the search market in China—detracted on speculation that Google might reenter the Chinese market.
Elsewhere, FANUC, a Japan-based manufacturer of factory automation machinery, detracted significantly from the portfolio’s relative results. Investors bid the stock lower on concerns of a global trade war and slowdown in manufacturing, which would negatively impact industrial automation. FANUC said it expected annual operating profit to decline.
*All fund returns referenced in this commentary are for Investor Class shares. Fund returns would have been lower if a portion of the fees 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
Industrials Stocks Aided Performance
Professional services stocks led contributors in the industrials sector. Verisk Analytics, a data analytics and risk assessment company, outperformed as the company continued to grow revenue through adding to its subscriber base and offering new solutions to clients.
Stock choices in the IT services industry aided performance. Payment services company MasterCard saw its stock increase on widening profit margins and earnings that beat expectations. Also in the information technology sector, Apple benefited from higher-than-expected sales of new, premium-priced phones and strong services business. Apple continues to produce massive free cash flow and to deploy capital in shareholder-friendly ways.
Other top contributors included The TJX Cos. The off-price retailer is benefiting from economic growth and an improved employment picture, which are supporting greater consumer confidence. Managed care firm UnitedHealth Group reported a positive earnings surprise, which bolstered the health care company’s stock.
Outlook
We remain confident in our belief that high-quality companies with a capability for sustained long-term growth 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 we noted earlier, at the end of September, Russell eliminated the telecommunication services sector and introduced the communication services sector. Communication services includes stocks of companies that had previously been in a range of other sectors. For example, portfolio holdings Facebook and Google parent Alphabet, which had been included in the information technology sector, are now part of communication services. As a result of Russell’s sector shifts, communication services ended the period as our largest overweight and our information technology allocation ended the period underweight relative to the benchmark.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 10.1% |
Alphabet, Inc.* | 8.4% |
Amazon.com, Inc. | 5.7% |
MasterCard, Inc., Class A | 5.5% |
UnitedHealth Group, Inc. | 5.0% |
Facebook, Inc., Class A | 3.4% |
Microsoft Corp. | 3.3% |
PayPal Holdings, Inc. | 3.1% |
Home Depot, Inc. (The) | 2.7% |
TJX Cos., Inc. (The) | 2.6% |
*Includes all classes of the issuer held by the fund. | |
Top Five Industries | % of net assets |
Interactive Media and Services | 12.4% |
Technology Hardware, Storage and Peripherals | 11.5% |
IT Services | 10.1% |
Biotechnology | 7.1% |
Specialty Retail | 5.8% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.6% |
Temporary Cash Investments | 0.3% |
Other Assets and Liabilities | 0.1% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,038.20 | $4.98 | 0.97% |
I Class | $1,000 | $1,039.20 | $3.96 | 0.77% |
Y Class | $1,000 | $1,040.00 | $3.19 | 0.62% |
A Class | $1,000 | $1,036.90 | $6.26 | 1.22% |
C Class | $1,000 | $1,033.00 | $10.09 | 1.97% |
R Class | $1,000 | $1,035.60 | $7.54 | 1.47% |
R5 Class | $1,000 | $1,039.00 | $3.96 | 0.77% |
R6 Class | $1,000 | $1,040.00 | $3.19 | 0.62% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.32 | $4.94 | 0.97% |
I Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
Y Class | $1,000 | $1,022.08 | $3.16 | 0.62% |
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% |
R5 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.6% | |||||
Aerospace and Defense — 2.6% | |||||
Boeing Co. (The) | 190,000 | $ | 67,423,400 | ||
United Technologies Corp. | 68,500 | 8,508,385 | |||
75,931,785 | |||||
Auto Components — 1.1% | |||||
Aptiv plc | 423,400 | 32,517,120 | |||
Banks — 1.6% | |||||
JPMorgan Chase & Co. | 428,200 | 46,682,364 | |||
Beverages — 2.9% | |||||
Constellation Brands, Inc., Class A | 293,800 | 58,533,774 | |||
Diageo plc | 832,000 | 28,803,886 | |||
87,337,660 | |||||
Biotechnology — 7.1% | |||||
Alexion Pharmaceuticals, Inc.(1) | 195,000 | 21,853,650 | |||
Biogen, Inc.(1) | 224,300 | 68,247,761 | |||
Celgene Corp.(1) | 527,200 | 37,747,520 | |||
Regeneron Pharmaceuticals, Inc.(1) | 162,000 | 54,956,880 | |||
Vertex Pharmaceuticals, Inc.(1) | 173,600 | 29,418,256 | |||
212,224,067 | |||||
Building Products — 0.6% | |||||
Allegion plc | 221,600 | 18,997,768 | |||
Capital Markets — 2.7% | |||||
Bank of New York Mellon Corp. (The) | 461,900 | 21,861,727 | |||
Cboe Global Markets, Inc. | 317,600 | 35,841,160 | |||
MSCI, Inc. | 145,200 | 21,835,176 | |||
79,538,063 | |||||
Chemicals — 1.2% | |||||
Sherwin-Williams Co. (The) | 74,900 | 29,470,903 | |||
Valvoline, Inc. | 329,600 | 6,565,632 | |||
36,036,535 | |||||
Electronic Equipment, Instruments and Components — 0.4% | |||||
Keyence Corp. | 22,000 | 10,782,115 | |||
Entertainment — 4.0% | |||||
Electronic Arts, Inc.(1) | 550,300 | 50,066,294 | |||
Walt Disney Co. (The) | 598,900 | 68,771,687 | |||
118,837,981 | |||||
Equity Real Estate Investment Trusts (REITs) — 1.6% | |||||
American Tower Corp. | 193,100 | 30,086,911 | |||
Equinix, Inc. | 45,100 | 17,081,174 | |||
47,168,085 | |||||
Food and Staples Retailing — 1.5% | |||||
Costco Wholesale Corp. | 192,600 | 44,034,138 |
10
Shares | Value | ||||
Health Care Providers and Services — 5.0% | |||||
UnitedHealth Group, Inc. | 570,700 | $ | 149,152,445 | ||
Hotels, Restaurants and Leisure — 0.8% | |||||
Starbucks Corp. | 422,400 | 24,613,248 | |||
Industrial Conglomerates — 1.2% | |||||
Roper Technologies, Inc. | 125,900 | 35,617,110 | |||
Interactive Media and Services — 12.4% | |||||
Alphabet, Inc., Class A(1) | 90,600 | 98,806,548 | |||
Alphabet, Inc., Class C(1) | 138,600 | 149,240,322 | |||
Baidu, Inc. ADR(1) | 105,200 | 19,994,312 | |||
Facebook, Inc., Class A(1) | 657,000 | 99,726,030 | |||
367,767,212 | |||||
Internet and Direct Marketing Retail — 5.7% | |||||
Amazon.com, Inc.(1) | 106,300 | 169,868,463 | |||
IT Services — 10.1% | |||||
MasterCard, Inc., Class A | 827,000 | 163,473,090 | |||
PayPal Holdings, Inc.(1) | 1,109,400 | 93,400,386 | |||
Visa, Inc., Class A | 309,500 | 42,664,575 | |||
299,538,051 | |||||
Machinery — 3.4% | |||||
FANUC Corp. | 169,500 | 29,645,788 | |||
Graco, Inc. | 941,200 | 38,240,956 | |||
Middleby Corp. (The)(1) | 292,000 | 32,791,600 | |||
100,678,344 | |||||
Oil, Gas and Consumable Fuels — 1.4% | |||||
EOG Resources, Inc. | 402,600 | 42,409,884 | |||
Personal Products — 1.5% | |||||
Estee Lauder Cos., Inc. (The), Class A | 329,300 | 45,258,992 | |||
Professional Services — 3.5% | |||||
IHS Markit Ltd.(1) | 895,400 | 47,035,362 | |||
Verisk Analytics, Inc.(1) | 467,200 | 55,989,248 | |||
103,024,610 | |||||
Road and Rail — 1.0% | |||||
Canadian Pacific Railway Ltd. | 151,400 | 31,048,242 | |||
Semiconductors and Semiconductor Equipment — 3.3% | |||||
Analog Devices, Inc. | 572,100 | 47,890,491 | |||
Maxim Integrated Products, Inc. | 1,024,500 | 51,245,490 | |||
99,135,981 | |||||
Software — 3.8% | |||||
DocuSign, Inc.(1) | 353,200 | 14,813,208 | |||
Microsoft Corp. | 907,300 | 96,908,713 | |||
111,721,921 | |||||
Specialty Retail — 5.8% | |||||
Home Depot, Inc. (The) | 452,100 | 79,515,348 | |||
Tiffany & Co. | 121,200 | 13,489,560 | |||
TJX Cos., Inc. (The) | 709,400 | 77,948,872 | |||
170,953,780 |
11
Shares | Value | ||||
Technology Hardware, Storage and Peripherals — 11.5% | |||||
Apple, Inc. | 1,366,500 | $ | 299,072,190 | ||
NetApp, Inc. | 545,200 | 42,792,748 | |||
341,864,938 | |||||
Textiles, Apparel and Luxury Goods — 1.9% | |||||
NIKE, Inc., Class B | 738,000 | 55,379,520 | |||
TOTAL COMMON STOCKS (Cost $1,383,279,586) | 2,958,120,422 | ||||
TEMPORARY CASH INVESTMENTS — 0.3% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $6,610,534), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $6,476,676) | 6,476,316 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $3,306,445), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $3,241,095) | 3,241,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 5,400 | 5,400 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $9,722,716) | 9,722,716 | ||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $1,393,002,302) | 2,967,843,138 | ||||
OTHER ASSETS AND LIABILITIES — 0.1% | 2,773,163 | ||||
TOTAL NET ASSETS — 100.0% | $ | 2,970,616,301 |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 1,355,435 | USD | 1,048,920 | Morgan Stanley | 12/31/18 | $ | (17,954 | ) | ||
CAD | 1,996,534 | USD | 1,534,036 | Morgan Stanley | 12/31/18 | (15,439 | ) | |||
CAD | 951,080 | USD | 727,730 | Morgan Stanley | 12/31/18 | (4,323 | ) | |||
USD | 23,102,998 | CAD | 29,779,764 | Morgan Stanley | 12/31/18 | 452,024 | ||||
USD | 731,946 | CAD | 944,860 | Morgan Stanley | 12/31/18 | 13,271 | ||||
USD | 698,113 | CAD | 903,893 | Morgan Stanley | 12/31/18 | 10,597 | ||||
USD | 701,203 | CAD | 920,322 | Morgan Stanley | 12/31/18 | 1,191 | ||||
JPY | 48,070,000 | USD | 427,108 | Bank of America, N.A. | 12/28/18 | 1,016 | ||||
JPY | 40,700,000 | USD | 365,324 | Bank of America, N.A. | 12/28/18 | (2,839 | ) | |||
JPY | 44,880,000 | USD | 401,057 | Bank of America, N.A. | 12/28/18 | (1,343 | ) | |||
JPY | 25,410,000 | USD | 226,795 | Bank of America, N.A. | 12/28/18 | (486 | ) | |||
USD | 6,100,126 | JPY | 682,110,000 | Bank of America, N.A. | 12/28/18 | 25,067 | ||||
USD | 385,335 | JPY | 43,670,000 | Bank of America, N.A. | 12/28/18 | (3,602 | ) | |||
$ | 457,180 |
12
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CAD | - | Canadian Dollar |
JPY | - | Japanese Yen |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
13
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $1,393,002,302) | $ | 2,967,843,138 | |
Receivable for investments sold | 4,059,020 | ||
Receivable for capital shares sold | 214,900 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 503,166 | ||
Dividends and interest receivable | 1,278,770 | ||
2,973,898,994 | |||
Liabilities | |||
Payable for investments purchased | 107,748 | ||
Payable for capital shares redeemed | 603,527 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 45,986 | ||
Accrued management fees | 2,510,772 | ||
Distribution and service fees payable | 14,660 | ||
3,282,693 | |||
Net Assets | $ | 2,970,616,301 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 1,172,685,801 | |
Distributable earnings | 1,797,930,500 | ||
$ | 2,970,616,301 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||||
Investor Class, $0.01 Par Value | $2,835,969,504 | 38,457,997 | $73.74 | |||
I Class, $0.01 Par Value | $70,985,624 | 946,196 | $75.02 | |||
Y Class, $0.01 Par Value | $14,529,300 | 193,399 | $75.13 | |||
A Class, $0.01 Par Value | $39,459,134 | 546,920 | $72.15* | |||
C Class, $0.01 Par Value | $5,700,182 | 87,979 | $64.79 | |||
R Class, $0.01 Par Value | $2,258,646 | 31,564 | $71.56 | |||
R5 Class, $0.01 Par Value | $6,228 | 83 | $75.04 | |||
R6 Class, $0.01 Par Value | $1,707,683 | 22,755 | $75.05 |
*Maximum offering price $76.55 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $200,264) | $ | 31,175,531 | |
Interest | 160,563 | ||
31,336,094 | |||
Expenses: | |||
Management fees | 29,959,352 | ||
Distribution and service fees: | |||
A Class | 105,197 | ||
C Class | 58,380 | ||
R Class | 13,987 | ||
Directors' fees and expenses | 69,390 | ||
Other expenses | 245 | ||
30,206,551 | |||
Fees waived(1) | (609,326 | ) | |
29,597,225 | |||
Net investment income (loss) | 1,738,869 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 220,012,089 | ||
Forward foreign currency exchange contract transactions | 1,195,322 | ||
Written options contract transactions | 1,009,857 | ||
Foreign currency translation transactions | (2,884 | ) | |
222,214,384 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 31,990,327 | ||
Forward foreign currency exchange contracts | (538,533 | ) | |
Translation of assets and liabilities in foreign currencies | (811 | ) | |
31,450,983 | |||
Net realized and unrealized gain (loss) | 253,665,367 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 255,404,236 |
(1) | Amount consists of $584,217, $13,806, $856, $8,416, $1,168, $559 and $304 for Investor Class, I Class, Y Class, A Class, C Class, R Class and R6 Class, respectively. The waiver amount for R5 Class was less than $0.05. |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 1,738,869 | $ | 8,586,409 | ||
Net realized gain (loss) | 222,214,384 | 167,727,945 | ||||
Change in net unrealized appreciation (depreciation) | 31,450,983 | 462,467,477 | ||||
Net increase (decrease) in net assets resulting from operations | 255,404,236 | 638,781,831 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
Investor Class | (167,885,063 | ) | (85,358,297 | ) | ||
I Class | (3,896,927 | ) | (1,064,287 | ) | ||
Y Class | (361 | ) | — | |||
A Class | (2,434,131 | ) | (1,293,683 | ) | ||
C Class | (366,947 | ) | (169,263 | ) | ||
R Class | (214,888 | ) | (97,514 | ) | ||
R5 Class | (355 | ) | — | |||
R6 Class | (87,056 | ) | (322,276 | ) | ||
Decrease in net assets from distributions | (174,885,728 | ) | (88,305,320 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 24,411,779 | (52,715,513 | ) | |||
Net increase (decrease) in net assets | 104,930,287 | 497,760,998 | ||||
Net Assets | ||||||
Beginning of period | 2,865,686,014 | 2,367,925,016 | ||||
End of period | $ | 2,970,616,301 | $ | 2,865,686,014 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(8,554,850), $(156,843), $(43,226) and $(57,884) for Investor Class, I Class, A Class and R6 Class, respectively. Distributions from net realized gains were $(76,803,447), $(907,444), $(1,250,457), $(169,263), $(97,514) and $(264,392) for Investor Class, I Class, A Class, C Class, R Class and R6 Class, respectively. |
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2018
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’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class, R5 Class and 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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. Exchange-traded options contracts are valued at the settlement price as provided by the appropriate exchange. 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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investment securities and other financial instruments. 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 collateral requirements.
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.
18
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.
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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets). During the period ended October 31, 2018, the investment advisor agreed to waive 0.02% of the fund's management fee. The investment advisor expects this waiver to continue until July 31, 2019 and cannot terminate it prior to such date without the approval of the Board of Directors.
The management fee schedule range and the effective annual management fee before and after waiver for each class for the period ended October 31, 2018 are as follows:
Management Fee | Effective Annual Management Fee | ||
Schedule Range | Before Waiver | After Waiver | |
Investor Class | 0.800% to 0.990% | 0.99% | 0.97% |
I Class | 0.600% to 0.790% | 0.79% | 0.77% |
Y Class | 0.450% to 0.640% | 0.64% | 0.62% |
A Class | 0.800% to 0.990% | 0.99% | 0.97% |
C Class | 0.800% to 0.990% | 0.99% | 0.97% |
R Class | 0.800% to 0.990% | 0.99% | 0.97% |
R5 Class | 0.600% to 0.790% | 0.79% | 0.77% |
R6 Class | 0.450% to 0.640% | 0.64% | 0.62% |
19
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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $11,046,105 and $10,951,581, respectively. The effect of interfund transactions on the Statement of Operations was $3,179,021 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $658,105,694 and $810,475,625, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 350,000,000 | 350,000,000 | ||||||||
Sold | 1,118,907 | $ | 83,197,129 | 1,407,426 | $ | 90,665,297 | ||||
Issued in reinvestment of distributions | 2,272,657 | 160,563,210 | 1,386,370 | 81,463,131 | ||||||
Redeemed | (3,219,750 | ) | (239,485,104 | ) | (3,734,837 | ) | (237,384,030 | ) | ||
171,814 | 4,275,235 | (941,041 | ) | (65,255,602 | ) | |||||
I Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||
Sold | 396,353 | 30,682,340 | 436,454 | 29,772,009 | ||||||
Issued in reinvestment of distributions | 50,080 | 3,593,215 | 17,851 | 1,064,278 | ||||||
Redeemed | (333,201 | ) | (26,075,775 | ) | (94,975 | ) | (6,205,828 | ) | ||
113,232 | 8,199,780 | 359,330 | 24,630,459 | |||||||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 197,116 | 15,403,115 | 78 | 5,000 | ||||||
Issued in reinvestment of distributions | 5 | 361 | — | — | ||||||
Redeemed | (3,800 | ) | (299,030 | ) | — | — | ||||
193,321 | 15,104,446 | 78 | 5,000 | |||||||
A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 76,515 | 5,571,453 | 173,237 | 10,898,266 | ||||||
Issued in reinvestment of distributions | 34,556 | 2,393,697 | 21,975 | 1,267,277 | ||||||
Redeemed | (136,844 | ) | (9,978,951 | ) | (264,980 | ) | (16,695,198 | ) | ||
(25,773 | ) | (2,013,801 | ) | (69,768 | ) | (4,529,655 | ) | |||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 13,535 | 896,225 | 26,075 | 1,515,135 | ||||||
Issued in reinvestment of distributions | 5,350 | 334,996 | 2,670 | 141,044 | ||||||
Redeemed | (19,314 | ) | (1,277,444 | ) | (27,362 | ) | (1,544,561 | ) | ||
(429 | ) | (46,223 | ) | 1,383 | 111,618 | |||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||
Sold | 11,087 | 800,013 | 8,559 | 540,751 | ||||||
Issued in reinvestment of distributions | 3,121 | 214,888 | 1,697 | 97,514 | ||||||
Redeemed | (32,866 | ) | (2,287,575 | ) | (9,476 | ) | (583,108 | ) | ||
(18,658 | ) | (1,272,674 | ) | 780 | 55,157 | |||||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | — | — | 78 | 5,000 | ||||||
Issued in reinvestment of distributions | 5 | 355 | — | — | ||||||
5 | 355 | 78 | 5,000 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 8,063 | 626,743 | 24,008 | 1,582,119 | ||||||
Issued in reinvestment of distributions | 1,215 | 87,056 | 5,411 | 322,276 | ||||||
Redeemed | (7,295 | ) | (549,138 | ) | (142,938 | ) | (9,641,885 | ) | ||
1,983 | 164,661 | (113,519 | ) | (7,737,490 | ) | |||||
Net increase (decrease) | 435,495 | $ | 24,411,779 | (762,679 | ) | $ | (52,715,513 | ) |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
21
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.
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 | $ | 2,857,840,391 | $ | 100,280,031 | — | |||
Temporary Cash Investments | 5,400 | 9,717,316 | — | |||||
$ | 2,857,845,791 | $ | 109,997,347 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 503,166 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 45,986 | — |
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 options contracts based on an equity index or specific security in order to manage its exposure to changes in market conditions. The risks of entering into equity price risk derivative instruments include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments or instruments. A fund may purchase or write an option contract to protect against declines in market value on the underlying index or security. A purchased option contract provides the fund a right, but not an obligation, to buy (call) or sell (put) an equity-related asset at a specified exercise price within a certain period or on a specific date. A written option contract holds the corresponding obligation to sell (call writing) or buy (put writing) the underlying equity-related asset if the purchaser exercises the option contract. The buyer pays the seller an initial purchase price (premium) for this right. Option contracts purchased by a fund are accounted for in the same manner as marketable portfolio securities. The premium received by a fund for option contracts written is recorded as a liability and valued daily. The proceeds from securities sold through the exercise of option contracts are decreased by the premium paid to purchase the option contracts. A fund may recognize a realized gain or loss when the option contract is closed, exercised or expires. Net realized and unrealized gains or losses occurring during the holding period of purchased options contracts are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively. Net realized and unrealized gains or losses occurring during the holding period of written options contracts are a component of net realized gain (loss) on written options contract transactions and change in net unrealized appreciation (depreciation) on written options contracts, respectively. The fund’s average exposure to equity price risk derivative instruments held during the period was 499 written options contracts.
22
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $33,260,709.
Value of Derivative Instruments as of October 31, 2018
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 | $ | 503,166 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 45,986 |
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2018
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 written options contract transactions | $ | 1,009,857 | Change in net unrealized appreciation (depreciation) on written options contracts | — | |||
Foreign Currency Risk | Net realized gain (loss) on forward foreign currency exchange contract transactions | 1,195,322 | Change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts | $ | (538,533 | ) | ||
$ | 2,205,179 | $ | (538,533 | ) |
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 8,116,985 | $ | 8,812,803 | ||
Long-term capital gains | $ | 166,768,743 | $ | 79,492,517 |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 1,393,219,307 | |
Gross tax appreciation of investments | $ | 1,628,979,793 | |
Gross tax depreciation of investments | (54,355,962 | ) | |
Net tax appreciation (depreciation) of investments | 1,574,623,831 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (937 | ) | |
Net tax appreciation (depreciation) | $ | 1,574,622,894 | |
Undistributed ordinary income | $ | 1,533,880 | |
Accumulated long-term gains | $ | 221,773,726 |
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.
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: | 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 | |||||||||||||||||
2018 | $71.92 | 0.04 | 6.20 | 6.24 | (0.21) | (4.21) | (4.42) | $73.74 | 8.94% | 0.97% | 0.99% | 0.06% | 0.04% | 22% | $2,835,970 | ||
2017 | $58.32 | 0.21 | 15.59 | 15.80 | (0.22) | (1.98) | (2.20) | $71.92 | 27.93% | 0.99% | 1.00% | 0.33% | 0.32% | 19% | $2,753,729 | ||
2016 | $61.57 | 0.20 | 0.30 | 0.50 | (0.25) | (3.50) | (3.75) | $58.32 | 0.98% | 0.99% | 0.99% | 0.36% | 0.36% | 16% | $2,287,797 | ||
2015 | $61.31 | 0.21 | 5.71 | 5.92 | (0.24) | (5.42) | (5.66) | $61.57 | 10.93% | 0.99% | 0.99% | 0.35% | 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% | 1.00% | 0.34% | 0.34% | 25% | $2,293,893 | ||
I Class | |||||||||||||||||
2018 | $73.11 | 0.19 | 6.29 | 6.48 | (0.36) | (4.21) | (4.57) | $75.02 | 9.15% | 0.77% | 0.79% | 0.26% | 0.24% | 22% | $70,986 | ||
2017 | $59.25 | 0.31 | 15.87 | 16.18 | (0.34) | (1.98) | (2.32) | $73.11 | 28.20% | 0.79% | 0.80% | 0.53% | 0.52% | 19% | $60,895 | ||
2016 | $62.49 | 0.32 | 0.31 | 0.63 | (0.37) | (3.50) | (3.87) | $59.25 | 1.19% | 0.79% | 0.79% | 0.56% | 0.56% | 16% | $28,061 | ||
2015 | $62.15 | 0.34 | 5.78 | 6.12 | (0.36) | (5.42) | (5.78) | $62.49 | 11.16% | 0.79% | 0.79% | 0.55% | 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% | 0.80% | 0.54% | 0.54% | 25% | $29,130 | ||
Y Class | |||||||||||||||||
2018 | $73.13 | 0.28 | 6.33 | 6.61 | (0.40) | (4.21) | (4.61) | $75.13 | 9.34% | 0.62% | 0.64% | 0.41% | 0.39% | 22% | $14,529 | ||
2017(3) | $63.80 | 0.22 | 9.11 | 9.33 | — | — | — | $73.13 | 14.62% | 0.64%(4) | 0.65%(4) | 0.59%(4) | 0.58%(4) | 19%(5) | $6 |
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 | |||||||||||||||||
2018 | $70.45 | (0.14) | 6.07 | 5.93 | (0.02) | (4.21) | (4.23) | $72.15 | 8.67% | 1.22% | 1.24% | (0.19)% | (0.21)% | 22% | $39,459 | ||
2017 | $57.16 | 0.05 | 15.29 | 15.34 | (0.07) | (1.98) | (2.05) | $70.45 | 27.63% | 1.24% | 1.25% | 0.08% | 0.07% | 19% | $40,345 | ||
2016 | $60.41 | 0.06 | 0.29 | 0.35 | (0.10) | (3.50) | (3.60) | $57.16 | 0.73% | 1.24% | 1.24% | 0.11% | 0.11% | 16% | $36,723 | ||
2015 | $60.25 | 0.06 | 5.61 | 5.67 | (0.09) | (5.42) | (5.51) | $60.41 | 10.67% | 1.24% | 1.24% | 0.10% | 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% | 1.25% | 0.09% | 0.09% | 25% | $39,786 | ||
C Class | |||||||||||||||||
2018 | $64.11 | (0.62) | 5.51 | 4.89 | — | (4.21) | (4.21) | $64.79 | 7.86% | 1.97% | 1.99% | (0.94)% | (0.96)% | 22% | $5,700 | ||
2017 | $52.51 | (0.39) | 13.97 | 13.58 | — | (1.98) | (1.98) | $64.11 | 26.66% | 1.99% | 2.00% | (0.67)% | (0.68)% | 19% | $5,668 | ||
2016 | $56.09 | (0.33) | 0.25 | (0.08) | — | (3.50) | (3.50) | $52.51 | (0.02)% | 1.99% | 1.99% | (0.64)% | (0.64)% | 16% | $4,570 | ||
2015 | $56.64 | (0.36) | 5.23 | 4.87 | — | (5.42) | (5.42) | $56.09 | 9.83% | 1.99% | 1.99% | (0.65)% | (0.65)% | 24% | $5,932 | ||
2014 | $49.32 | (0.34) | 7.88 | 7.54 | — | (0.22) | (0.22) | $56.64 | 15.34% | 2.00% | 2.00% | (0.66)% | (0.66)% | 25% | $5,929 | ||
R Class | |||||||||||||||||
2018 | $70.05 | (0.30) | 6.02 | 5.72 | — | (4.21) | (4.21) | $71.56 | 8.41% | 1.47% | 1.49% | (0.44)% | (0.46)% | 22% | $2,259 | ||
2017 | $56.92 | (0.11) | 15.22 | 15.11 | — | (1.98) | (1.98) | $70.05 | 27.30% | 1.49% | 1.50% | (0.17)% | (0.18)% | 19% | $3,518 | ||
2016 | $60.21 | (0.08) | 0.29 | 0.21 | — | (3.50) | (3.50) | $56.92 | 0.49% | 1.49% | 1.49% | (0.14)% | (0.14)% | 16% | $2,814 | ||
2015 | $60.12 | (0.09) | 5.60 | 5.51 | — | (5.42) | (5.42) | $60.21 | 10.38% | 1.49% | 1.49% | (0.15)% | (0.15)% | 24% | $3,295 | ||
2014 | $52.07 | (0.08) | 8.35 | 8.27 | — | (0.22) | (0.22) | $60.12 | 15.92% | 1.50% | 1.50% | (0.16)% | (0.16)% | 25% | $3,050 |
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) | |||
R5 Class | |||||||||||||||||
2018 | $73.10 | 0.18 | 6.28 | 6.46 | (0.31) | (4.21) | (4.52) | $75.04 | 9.13% | 0.77% | 0.79% | 0.26% | 0.24% | 22% | $6 | ||
2017(3) | $63.83 | 0.17 | 9.10 | 9.27 | — | — | — | $73.10 | 14.52% | 0.79%(4) | 0.80%(4) | 0.44%(4) | 0.43%(4) | 19%(5) | $6 | ||
R6 Class | |||||||||||||||||
2018 | $73.13 | 0.31 | 6.29 | 6.60 | (0.47) | (4.21) | (4.68) | $75.05 | 9.33% | 0.62% | 0.64% | 0.41% | 0.39% | 22% | $1,708 | ||
2017 | $59.27 | 0.51 | 15.76 | 16.27 | (0.43) | (1.98) | (2.41) | $73.13 | 28.38% | 0.64% | 0.65% | 0.68% | 0.67% | 19% | $1,519 | ||
2016 | $62.51 | 0.41 | 0.31 | 0.72 | (0.46) | (3.50) | (3.96) | $59.27 | 1.35% | 0.64% | 0.64% | 0.71% | 0.71% | 16% | $7,959 | ||
2015 | $62.18 | 0.41 | 5.79 | 6.20 | (0.45) | (5.42) | (5.87) | $62.51 | 11.31% | 0.64% | 0.64% | 0.70% | 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% | 0.65% | 0.69% | 0.69% | 25% | $7,672 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Select Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Select Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
31
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
32
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-year period, at its benchmark for the one-year period, and below its benchmark for the 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.
33
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 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, expenses attributable to short sales, 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 slightly 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 temporary
34
reduction of the Fund's annual unified management fee of 0.02% (e.g., the Investor Class unified fee will be reduced from 0.99% to 0.97%) for at least one year, beginning August 1, 2018. 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.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2018.
For corporate taxpayers, the fund hereby designates $8,116,985, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as qualified for the corporate dividends received deduction.
The fund hereby designates $166,768,743 or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
37
Notes |
38
Notes |
39
Notes |
40
![]() | ||
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90969 1812 |
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Annual Report | |
October 31, 2018 | |
Small Cap Growth Fund | |
Investor Class (ANOIX) | |
I Class (ANONX) | |
Y Class (ANOYX) | |
A Class (ANOAX) | |
C Class (ANOCX) | |
R Class (ANORX) | |
R5 Class (ANOGX) | |
R6 Class (ANODX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | ANOIX | 8.89% | 9.50% | 12.96% | — | 6/1/01 |
Russell 2000 Growth Index | — | 4.13% | 8.75% | 13.88% | — | — |
I Class | ANONX | 9.18% | 9.72% | 13.18% | — | 5/18/07 |
Y Class | ANOYX | 9.29% | — | — | 16.23% | 4/10/17 |
A Class | ANOAX | 1/31/03 | ||||
No sales charge | 8.61% | 9.22% | 12.67% | — | ||
With sales charge | 2.35% | 7.92% | 12.00% | — | ||
C Class | ANOCX | 7.83% | 8.41% | 11.83% | — | 1/31/03 |
R Class | ANORX | 8.41% | 8.95% | 12.40% | — | 9/28/07 |
R5 Class | ANOGX | 9.12% | — | — | 16.03% | 4/10/17 |
R6 Class | ANODX | 9.30% | 9.88% | — | 10.73% | 7/26/13 |
Average annual returns since inception are presented when ten years of performance history is not available.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
![chart-1236c86dc6bd53b28d0.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/chart-1236c86dc6bd53b28d0.jpg)
Value on October 31, 2018 | |
Investor Class — $33,858 | |
Russell 2000 Growth Index — $36,724 | |
Total Annual Fund Operating Expenses | |||||||
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
1.36% | 1.16% | 1.01% | 1.61% | 2.36% | 1.86% | 1.16% | 1.01% |
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. Total returns for periods less than one year are not annualized. 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: Jackie Wagner and Jeff Hoernemann
Performance Summary
Small Cap Growth returned 8.89%* for the 12 months ended October 31, 2018, outpacing the 4.13% return of the portfolio’s benchmark, the Russell 2000 Growth Index.
U.S. stock indices registered solid gains during the reporting period, and growth stocks outpaced value stocks by a wide margin across all capitalization ranges, providing a tailwind for the fund. Within the Russell 2000 Growth Index, consumer staples, health care, and consumer discretionary were the top-performing sectors, while materials and energy stocks declined significantly.
Stock choices within the information technology sector helped drive the fund’s outperformance relative to the benchmark. Stock selection in the consumer discretionary, financials, industrials, and energy sectors was also strongly positive. Stock choices in health care and communication services detracted.
Information Technology Stocks Benefited Performance
Within the information technology sector, stock choices among software companies led performance. An overweight allocation to the industry was also beneficial. Bottomline Technologies was a key contributor. This software solutions provider sells products that allow for business-to-business payments and fraud monitoring. The company reported quarterly results that were better than expected on strong revenue growth. Bookings also accelerated, which suggests continued strong revenue growth. RingCentral, a provider of subscription-based software for enterprise communications, was a key contributor. Demand for its products is benefiting from the shift to replace on-premise inflexible solutions with cloud-based offerings. The company reported better-than-expected results and guided expectations higher.
Other top contributors included Medifast. The stock of this nutrition and weight loss company rallied following better-than-expected financial results. An improvement in sales growth for the company’s OptaVia branded products is being driven by growth in its active Health Coaches business and an increase in average revenue per coach. We established a position in Goosehead Insurance through our participation in its initial public offering (IPO) in April. We felt the company was underappreciated by the market given its strong and accelerating growth rates and its opportunity to gain market share. Analysts re-rated the stock after the IPO, sending shares higher. Teladoc Health provides telephonic and video physician consultations. The company’s revenues turned positive in a seasonally slower quarter, and new rules allow reimbursement from Medicare and Medicaid for 2019. The company also announced a non-U.S. acquisition and signed a collaboration deal with CVS Health.
Health Care Weighed on Performance
Stock choices among biotechnology and pharmaceuticals companies led detractors in the health care sector. Our underweight in Nektar Therapeutics hampered portfolio results. Early in the year, the company announced positive data for its cancer drug in combination with drugs owned by a major pharmaceutical company. However, we eliminated our holding on news of weak incremental
*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
clinical data for its drug combination with Bristol-Myers Squibb’s Opdivo. Specifically, the company reported response rates that were lower than expected among patients with renal cancer. Fitness firm Tivity Health underperformed. The company’s SilverSneakers program, which is included in many Medicare Advantage plans, is expected to see increased competition from UnitedHealth Group’s similar program. We eliminated the holding.
Elsewhere, Dycom Industries was a significant detractor. Dycom is a telecommunications-focused construction and engineering company. Management preannounced a weak quarter in which progress on the initial parts of the 5G rollout by its customers was delayed by permitting issues at the local level, while full staffing drove margins lower. We see the company’s backlog growth as indicative of a multi-year growth acceleration driven by the rollout of 5G wireless. The aggregates and cement company Summit Materials reported a second-consecutive miss on revenue and earnings in a seasonally important quarter as competition in the Mississippi River corridor hurt cement prices and input costs rose. We eliminated the holding because these issues are likely to persist. We also eliminated Granite Construction, another key detractor. The construction materials producer posted weaker-than-expected quarterly earnings from ongoing margin headwinds in a few of its large projects.
Outlook
Small Cap Growth’s investment process focuses on smaller companies with accelerating growth rates and share-price momentum. We believe that active investments in such companies will generate outperformance over time compared with the Russell 2000 Growth Index.
The portfolio positioning remains largely stock specific, with few thematic trends. As of October 31, 2018, financials and consumer discretionary were the largest overweight sectors. Communication services and materials were the largest underweights.
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Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Bottomline Technologies de, Inc. | 1.6% |
Paylocity Holding Corp. | 1.4% |
Integrated Device Technology, Inc. | 1.4% |
Teladoc Health, Inc. | 1.3% |
ICU Medical, Inc. | 1.3% |
AAR Corp. | 1.3% |
Masimo Corp. | 1.3% |
Medifast, Inc. | 1.3% |
Planet Fitness, Inc., Class A | 1.2% |
World Wrestling Entertainment, Inc., Class A | 1.2% |
Top Five Industries | % of net assets |
Software | 9.7% |
Biotechnology | 9.0% |
Commercial Services and Supplies | 4.8% |
Health Care Providers and Services | 4.7% |
Health Care Equipment and Supplies | 4.5% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.3% |
Temporary Cash Investments | 2.4% |
Other Assets and Liabilities | 0.3% |
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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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,016.30 | $6.40 | 1.26% |
I Class | $1,000 | $1,017.60 | $5.39 | 1.06% |
Y Class | $1,000 | $1,018.60 | $4.63 | 0.91% |
A Class | $1,000 | $1,015.10 | $7.67 | 1.51% |
C Class | $1,000 | $1,011.40 | $11.46 | 2.26% |
R Class | $1,000 | $1,014.20 | $8.94 | 1.76% |
R5 Class | $1,000 | $1,017.00 | $5.39 | 1.06% |
R6 Class | $1,000 | $1,018.00 | $4.63 | 0.91% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.85 | $6.41 | 1.26% |
I Class | $1,000 | $1,019.86 | $5.40 | 1.06% |
Y Class | $1,000 | $1,020.62 | $4.63 | 0.91% |
A Class | $1,000 | $1,017.59 | $7.68 | 1.51% |
C Class | $1,000 | $1,013.81 | $11.47 | 2.26% |
R Class | $1,000 | $1,016.33 | $8.94 | 1.76% |
R5 Class | $1,000 | $1,019.86 | $5.40 | 1.06% |
R6 Class | $1,000 | $1,020.62 | $4.63 | 0.91% |
(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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 97.3% | |||||
Aerospace and Defense — 4.2% | |||||
AAR Corp. | 237,441 | $ | 11,297,444 | ||
Aerojet Rocketdyne Holdings, Inc.(1) | 231,248 | 8,167,679 | |||
Kratos Defense & Security Solutions, Inc.(1) | 736,596 | 9,229,548 | |||
Mercury Systems, Inc.(1) | 178,463 | 8,362,776 | |||
37,057,447 | |||||
Banks — 2.4% | |||||
Bank of NT Butterfield & Son Ltd. (The) | 185,814 | 7,486,446 | |||
Glacier Bancorp, Inc. | 188,740 | 8,002,576 | |||
Seacoast Banking Corp. of Florida(1) | 221,401 | 5,825,060 | |||
21,314,082 | |||||
Beverages — 1.0% | |||||
MGP Ingredients, Inc. | 122,742 | 8,735,548 | |||
Biotechnology — 9.0% | |||||
ACADIA Pharmaceuticals, Inc.(1) | 160,939 | 3,135,092 | |||
Acceleron Pharma, Inc.(1) | 78,209 | 3,970,671 | |||
Adamas Pharmaceuticals, Inc.(1) | 133,203 | 2,204,510 | |||
Aimmune Therapeutics, Inc.(1) | 142,377 | 3,784,381 | |||
Alder Biopharmaceuticals, Inc.(1) | 168,500 | 2,139,950 | |||
Amicus Therapeutics, Inc.(1) | 380,973 | 4,259,278 | |||
AnaptysBio, Inc.(1) | 29,735 | 2,221,799 | |||
Arena Pharmaceuticals, Inc.(1) | 129,475 | 4,617,079 | |||
Array BioPharma, Inc.(1) | 351,014 | 5,686,427 | |||
Athenex, Inc.(1) | 119,376 | 1,440,868 | |||
Blueprint Medicines Corp.(1) | 61,351 | 3,728,300 | |||
FibroGen, Inc.(1) | 93,319 | 4,000,586 | |||
Flexion Therapeutics, Inc.(1) | 186,808 | 2,529,380 | |||
Global Blood Therapeutics, Inc.(1) | 57,669 | 2,023,605 | |||
Halozyme Therapeutics, Inc.(1) | 174,840 | 2,715,265 | |||
Heron Therapeutics, Inc.(1) | 139,036 | 3,859,639 | |||
Immunomedics, Inc.(1) | 194,058 | 4,372,127 | |||
Intercept Pharmaceuticals, Inc.(1) | 28,892 | 2,773,921 | |||
Loxo Oncology, Inc.(1) | 26,682 | 4,073,274 | |||
Principia Biopharma, Inc.(1) | 95,764 | 2,202,572 | |||
PTC Therapeutics, Inc.(1) | 67,989 | 2,618,936 | |||
Puma Biotechnology, Inc.(1) | 67,821 | 2,512,768 | |||
Sage Therapeutics, Inc.(1) | 24,155 | 3,108,265 | |||
Ultragenyx Pharmaceutical, Inc.(1) | 54,425 | 2,636,891 | |||
Viking Therapeutics, Inc.(1) | 248,753 | 3,383,041 | |||
79,998,625 | |||||
Building Products — 1.3% | |||||
PGT Innovations, Inc.(1) | 235,153 | 4,764,200 |
10
Shares | Value | ||||
Trex Co., Inc.(1) | 105,408 | $ | 6,461,510 | ||
11,225,710 | |||||
Capital Markets — 1.4% | |||||
Ares Management LP | 235,514 | 4,618,430 | |||
Hamilton Lane, Inc., Class A | 202,537 | 7,773,370 | |||
12,391,800 | |||||
Chemicals — 2.1% | |||||
Ferro Corp.(1) | 336,670 | 5,703,190 | |||
Ingevity Corp.(1) | 93,089 | 8,478,546 | |||
Valvoline, Inc. | 236,000 | 4,701,120 | |||
18,882,856 | |||||
Commercial Services and Supplies — 4.8% | |||||
Advanced Disposal Services, Inc.(1) | 340,222 | 9,216,614 | |||
Brink's Co. (The) | 85,022 | 5,638,659 | |||
Casella Waste Systems, Inc., Class A(1) | 237,797 | 7,742,670 | |||
Charah Solutions, Inc.(1) | 284,355 | 2,135,506 | |||
Clean Harbors, Inc.(1) | 122,823 | 8,356,877 | |||
Healthcare Services Group, Inc. | 229,796 | 9,327,420 | |||
42,417,746 | |||||
Communications Equipment — 1.0% | |||||
Lumentum Holdings, Inc.(1) | 43,790 | 2,393,123 | |||
Quantenna Communications, Inc.(1) | 362,861 | 6,516,984 | |||
8,910,107 | |||||
Construction and Engineering — 1.2% | |||||
Dycom Industries, Inc.(1) | 151,988 | 10,316,945 | |||
Consumer Finance — 1.2% | |||||
Curo Group Holdings Corp.(1) | 209,385 | 2,946,047 | |||
Green Dot Corp., Class A(1) | 105,615 | 7,999,280 | |||
10,945,327 | |||||
Distributors — 0.7% | |||||
Pool Corp. | 42,155 | 6,144,091 | |||
Diversified Consumer Services — 1.5% | |||||
Bright Horizons Family Solutions, Inc.(1) | 58,518 | 6,724,304 | |||
Chegg, Inc.(1) | 233,876 | 6,380,137 | |||
13,104,441 | |||||
Electronic Equipment, Instruments and Components — 1.9% | |||||
Dolby Laboratories, Inc., Class A | 150,689 | 10,368,910 | |||
National Instruments Corp. | 130,455 | 6,388,382 | |||
16,757,292 | |||||
Entertainment — 1.7% | |||||
World Wrestling Entertainment, Inc., Class A | 144,945 | 10,521,557 | |||
Zynga, Inc., Class A(1) | 1,356,023 | 4,935,924 | |||
15,457,481 | |||||
Equity Real Estate Investment Trusts (REITs) — 2.3% | |||||
Americold Realty Trust | 394,184 | 9,756,054 | |||
First Industrial Realty Trust, Inc. | 342,683 | 10,520,368 | |||
20,276,422 |
11
Shares | Value | ||||
Health Care Equipment and Supplies — 4.5% | |||||
ICU Medical, Inc.(1) | 44,840 | $ | 11,422,093 | ||
Insulet Corp.(1) | 102,733 | 9,062,078 | |||
Masimo Corp.(1) | 97,431 | 11,263,024 | |||
Merit Medical Systems, Inc.(1) | 149,775 | 8,555,148 | |||
40,302,343 | |||||
Health Care Providers and Services — 4.7% | |||||
Amedisys, Inc.(1) | 56,255 | 6,188,050 | |||
Ensign Group, Inc. (The) | 220,414 | 8,164,134 | |||
Guardant Health, Inc.(1) | 160,154 | 5,361,956 | |||
HealthEquity, Inc.(1) | 70,266 | 6,450,419 | |||
PetIQ, Inc.(1) | 226,024 | 7,155,920 | |||
R1 RCM, Inc.(1) | 1,043,583 | 8,839,148 | |||
42,159,627 | |||||
Health Care Technology — 2.6% | |||||
Inspire Medical Systems, Inc.(1) | 95,695 | 3,835,456 | |||
Teladoc Health, Inc.(1) | 168,239 | 11,665,692 | |||
Vocera Communications, Inc.(1) | 231,844 | 8,047,305 | |||
23,548,453 | |||||
Hotels, Restaurants and Leisure — 3.2% | |||||
Churchill Downs, Inc. | 40,955 | 10,222,778 | |||
Planet Fitness, Inc., Class A(1) | 223,961 | 10,994,245 | |||
Texas Roadhouse, Inc. | 126,324 | 7,637,549 | |||
28,854,572 | |||||
Household Durables — 2.9% | |||||
Cavco Industries, Inc.(1) | 42,055 | 8,436,653 | |||
PlayAGS, Inc.(1) | 379,339 | 9,198,971 | |||
Roku, Inc.(1) | 82,281 | 4,574,824 | |||
TopBuild Corp.(1) | 70,955 | 3,236,967 | |||
25,447,415 | |||||
Household Products — 0.7% | |||||
Central Garden & Pet Co., Class A(1) | 209,397 | 6,208,621 | |||
Insurance — 3.9% | |||||
Goosehead Insurance, Inc., Class A(1) | 228,506 | 7,833,186 | |||
Health Insurance Innovations, Inc., Class A(1) | 73,701 | 3,603,979 | |||
Kemper Corp. | 124,504 | 9,361,456 | |||
Kinsale Capital Group, Inc. | 147,039 | 8,779,699 | |||
Trupanion, Inc.(1) | 215,044 | 5,432,011 | |||
35,010,331 | |||||
Internet and Direct Marketing Retail — 1.4% | |||||
Etsy, Inc.(1) | 198,120 | 8,424,062 | |||
Shutterfly, Inc.(1) | 71,681 | 3,584,050 | |||
12,008,112 | |||||
IT Services — 0.7% | |||||
Evo Payments, Inc., Class A(1) | 137,529 | 3,264,938 | |||
GreenSky, Inc., Class A(1) | 248,760 | 3,278,657 | |||
6,543,595 |
12
Shares | Value | ||||
Leisure Products — 0.6% | |||||
Malibu Boats, Inc., Class A(1) | 131,943 | $ | 5,304,109 | ||
Life Sciences Tools and Services — 1.0% | |||||
PRA Health Sciences, Inc.(1) | 91,977 | 8,909,812 | |||
Machinery — 4.2% | |||||
Chart Industries, Inc.(1) | 124,052 | 8,441,739 | |||
Evoqua Water Technologies Corp.(1) | 319,437 | 3,066,595 | |||
ITT, Inc. | 122,860 | 6,204,430 | |||
John Bean Technologies Corp. | 91,955 | 9,560,561 | |||
Kadant, Inc. | 19,045 | 1,879,742 | |||
Kennametal, Inc. | 236,774 | 8,393,638 | |||
37,546,705 | |||||
Oil, Gas and Consumable Fuels — 2.2% | |||||
Callon Petroleum Co.(1) | 697,624 | 6,955,311 | |||
Centennial Resource Development, Inc., Class A(1) | 191,232 | 3,664,005 | |||
Matador Resources Co.(1) | 144,381 | 4,163,948 | |||
Parex Resources, Inc.(1) | 315,328 | 4,591,772 | |||
19,375,036 | |||||
Personal Products — 1.3% | |||||
Medifast, Inc. | 52,913 | 11,200,624 | |||
Pharmaceuticals — 2.9% | |||||
Aerie Pharmaceuticals, Inc.(1) | 83,217 | 4,425,480 | |||
Catalent, Inc.(1) | 248,146 | 10,010,210 | |||
Horizon Pharma plc(1) | 271,473 | 4,943,523 | |||
Medicines Co. (The)(1) | 99,340 | 2,310,648 | |||
Optinose, Inc.(1) | 190,939 | 2,020,135 | |||
Reata Pharmaceuticals, Inc., Class A(1) | 37,027 | 2,182,001 | |||
25,891,997 | |||||
Real Estate Management and Development — 1.1% | |||||
Altus Group Ltd. | 108,588 | 2,376,407 | |||
FirstService Corp. | 95,134 | 6,979,408 | |||
9,355,815 | |||||
Semiconductors and Semiconductor Equipment — 3.3% | |||||
Inphi Corp.(1) | 144,120 | 4,611,840 | |||
Integrated Device Technology, Inc.(1) | 260,070 | 12,173,877 | |||
Monolithic Power Systems, Inc. | 47,462 | 5,606,211 | |||
Semtech Corp.(1) | 156,346 | 7,026,189 | |||
29,418,117 | |||||
Software — 9.7% | |||||
2U, Inc.(1) | 108,290 | 6,812,524 | |||
Avalara, Inc.(1) | 157,479 | 5,278,696 | |||
Bottomline Technologies de, Inc.(1) | 220,015 | 14,661,800 | |||
Coupa Software, Inc.(1) | 56,623 | 3,670,869 | |||
Fair Isaac Corp.(1) | 26,806 | 5,165,784 | |||
Five9, Inc.(1) | 235,746 | 9,278,962 | |||
Paylocity Holding Corp.(1) | 187,353 | 12,325,954 | |||
RealPage, Inc.(1) | 190,774 | 10,111,022 |
13
Shares | Value | ||||
RingCentral, Inc., Class A(1) | 79,038 | $ | 6,143,624 | ||
Workiva, Inc.(1) | 170,208 | 5,802,391 | |||
Zendesk, Inc.(1) | 127,305 | 6,997,956 | |||
86,249,582 | |||||
Specialty Retail — 4.0% | |||||
At Home Group, Inc.(1) | 255,160 | 6,976,075 | |||
Boot Barn Holdings, Inc.(1) | 396,509 | 9,785,842 | |||
Conn's, Inc.(1) | 166,710 | 4,631,204 | |||
Hudson Ltd., Class A(1) | 270,736 | 5,723,359 | |||
RH(1) | 75,516 | 8,737,956 | |||
35,854,436 | |||||
Textiles, Apparel and Luxury Goods — 1.4% | |||||
Canada Goose Holdings, Inc.(1) | 78,851 | 4,302,899 | |||
G-III Apparel Group Ltd.(1) | 199,312 | 7,944,576 | |||
12,247,475 | |||||
Thrifts and Mortgage Finance — 0.5% | |||||
NMI Holdings, Inc., Class A(1) | 226,978 | 4,798,315 | |||
Trading Companies and Distributors — 2.0% | |||||
MRC Global, Inc.(1) | 460,907 | 7,296,158 | |||
SiteOne Landscape Supply, Inc.(1) | 151,167 | 10,285,403 | |||
17,581,561 | |||||
Water Utilities — 0.8% | |||||
SJW Group | 119,861 | 7,279,159 | |||
TOTAL COMMON STOCKS (Cost $779,791,824) | 865,031,732 | ||||
TEMPORARY CASH INVESTMENTS — 2.4% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $14,402,712), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $14,111,067) | 14,110,283 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 11/15/44, valued at $7,206,631), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $7,062,206) | 7,062,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 11,335 | 11,335 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $21,183,618) | 21,183,618 | ||||
TOTAL INVESTMENT SECURITIES — 99.7% (Cost $800,975,442) | 886,215,350 | ||||
OTHER ASSETS AND LIABILITIES — 0.3% | 2,419,231 | ||||
TOTAL NET ASSETS — 100.0% | $ | 888,634,581 |
14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CAD | 640,812 | USD | 500,753 | Morgan Stanley | 12/31/18 | $ | (13,341 | ) | ||
CAD | 1,418,925 | USD | 1,095,893 | Morgan Stanley | 12/31/18 | (16,635 | ) | |||
CAD | 1,006,237 | USD | 773,142 | Morgan Stanley | 12/31/18 | (7,781 | ) | |||
CAD | 882,344 | USD | 677,986 | Morgan Stanley | 12/31/18 | (6,861 | ) | |||
CAD | 737,972 | USD | 565,743 | Morgan Stanley | 12/31/18 | (4,429 | ) | |||
CAD | 646,765 | USD | 492,664 | Morgan Stanley | 12/31/18 | (725 | ) | |||
USD | 18,793,541 | CAD | 24,224,874 | Morgan Stanley | 12/31/18 | 367,707 | ||||
USD | 437,601 | CAD | 570,001 | Morgan Stanley | 12/31/18 | 4,049 | ||||
USD | 762,032 | CAD | 987,485 | Morgan Stanley | 12/31/18 | 10,934 | ||||
$ | 332,918 |
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, 2018 | |||
Assets | |||
Investment securities, at value (cost of $800,975,442) | $ | 886,215,350 | |
Receivable for investments sold | 13,055,246 | ||
Receivable for capital shares sold | 640,394 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 382,690 | ||
Dividends and interest receivable | 57,357 | ||
900,351,037 | |||
Liabilities | |||
Payable for investments purchased | 9,397,974 | ||
Payable for capital shares redeemed | 1,323,617 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 49,772 | ||
Accrued management fees | 919,668 | ||
Distribution and service fees payable | 25,425 | ||
11,716,456 | |||
Net Assets | $ | 888,634,581 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 696,256,798 | |
Distributable earnings | 192,377,783 | ||
$ | 888,634,581 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $386,455,014 | 21,369,226 | $18.08 | |
I Class, $0.01 Par Value | $371,029,856 | 20,053,334 | $18.50 | |
Y Class, $0.01 Par Value | $1,778,345 | 95,343 | $18.65 | |
A Class, $0.01 Par Value | $77,763,992 | 4,446,666 | $17.49* | |
C Class, $0.01 Par Value | $6,226,742 | 391,027 | $15.92 | |
R Class, $0.01 Par Value | $5,686,873 | 332,728 | $17.09 | |
R5 Class, $0.01 Par Value | $7,180 | 388 | $18.51 | |
R6 Class, $0.01 Par Value | $39,686,579 | 2,128,280 | $18.65 |
*Maximum offering price $18.56 (net asset value divided by 0.9425).
See Notes to Financial Statements.
16
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $8,280) | $ | 2,830,131 | |
Interest | 218,418 | ||
3,048,549 | |||
Expenses: | |||
Management fees | 10,384,025 | ||
Distribution and service fees: | |||
A Class | 203,272 | ||
C Class | 92,996 | ||
R Class | 25,878 | ||
Directors' fees and expenses | 21,412 | ||
Other expenses | 164 | ||
10,727,747 | |||
Net investment income (loss) | (7,679,198 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 119,631,030 | ||
Forward foreign currency exchange contract transactions | 28,540 | ||
Foreign currency translation transactions | 8,285 | ||
119,667,855 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (47,510,301 | ) | |
Forward foreign currency exchange contracts | 172,725 | ||
(47,337,576 | ) | ||
Net realized and unrealized gain (loss) | 72,330,279 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 64,651,081 |
See Notes to Financial Statements.
17
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | (7,679,198 | ) | $ | (4,213,335 | ) |
Net realized gain (loss) | 119,667,855 | 74,355,049 | ||||
Change in net unrealized appreciation (depreciation) | (47,337,576 | ) | 85,665,163 | |||
Net increase (decrease) in net assets resulting from operations | 64,651,081 | 155,806,877 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
Investor Class | (2,095,439 | ) | (5,748,134 | ) | ||
I Class | (1,258,916 | ) | (7,465,031 | ) | ||
Y Class | (33 | ) | (188 | ) | ||
A Class | (482,378 | ) | (2,378,830 | ) | ||
C Class | (64,244 | ) | (341,222 | ) | ||
R Class | (24,888 | ) | (116,383 | ) | ||
R5 Class | (41 | ) | (189 | ) | ||
R6 Class | (162,130 | ) | (910,051 | ) | ||
Decrease in net assets from distributions | (4,088,069 | ) | (16,960,028 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 124,699,558 | 37,784,767 | ||||
Redemption Fees | ||||||
Increase in net assets from redemption fees | — | 46,152 | ||||
Net increase (decrease) in net assets | 185,262,570 | 176,677,768 | ||||
Net Assets | ||||||
Beginning of period | 703,372,011 | 526,694,243 | ||||
End of period | $ | 888,634,581 | $ | 703,372,011 |
See Notes to Financial Statements.
18
Notes to Financial Statements |
OCTOBER 31, 2018
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’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class, R5 Class and 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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.
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Redemption Fees — Prior to October 9, 2017, the fund may have imposed a 2.00% redemption fee on shares held less than 60 days. The fee was not applicable to all classes. The redemption fee was retained by the fund to help 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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets).
The management fee schedule range and the effective annual management fee for each class for the period ended October 31, 2018 are as follows:
Management Fee Schedule Range | Effective Annual Management Fee | |
Investor Class | 1.100% to 1.500% | 1.27% |
I Class | 0.900% to 1.300% | 1.07% |
Y Class | 0.750% to 1.150% | 0.92% |
A Class | 1.100% to 1.500% | 1.27% |
C Class | 1.100% to 1.500% | 1.27% |
R Class | 1.100% to 1.500% | 1.27% |
R5 Class | 0.900% to 1.300% | 1.07% |
R6 Class | 0.750% to 1.150% | 0.92% |
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 period ended October 31, 2018 are detailed in the Statement of Operations.
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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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $3,250,917 and $5,332,959, respectively. The effect of interfund transactions on the Statement of Operations was $671,180 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $1,127,170,009 and $1,002,322,961, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 140,000,000 | 140,000,000 | ||||||||
Sold | 3,837,143 | $ | 73,007,550 | 3,941,253 | $ | 60,605,078 | ||||
Issued in connection with reorganization (Note 10) | — | — | 11,477,646 | 191,178,610 | ||||||
Issued in reinvestment of distributions | 114,703 | 1,959,131 | 330,936 | 5,457,134 | ||||||
Redeemed | (4,206,688 | ) | (77,427,067 | ) | (4,397,306 | ) | (68,805,286 | ) | ||
(254,842 | ) | (2,460,386 | ) | 11,352,529 | 188,435,536 | |||||
I Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||
Sold | 11,225,816 | 207,756,004 | 2,219,923 | 34,034,994 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 17,006 | 289,155 | ||||||
Issued in reinvestment of distributions | 11,148 | 194,417 | 65,809 | 1,107,559 | ||||||
Redeemed | (4,084,074 | ) | (79,828,895 | ) | (9,790,924 | ) | (152,975,647 | ) | ||
7,152,890 | 128,121,526 | (7,488,186 | ) | (117,543,939 | ) | |||||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 96,585 | 1,939,986 | 326 | 5,000 | ||||||
Issued in reinvestment of distributions | 2 | 33 | 11 | 188 | ||||||
Redeemed | (1,581 | ) | (31,377 | ) | — | — | ||||
95,006 | 1,908,642 | 337 | 5,188 | |||||||
A Class/Shares Authorized | 130,000,000 | 130,000,000 | ||||||||
Sold | 935,413 | 17,151,238 | 443,075 | 6,494,852 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 733,376 | 11,849,698 | ||||||
Issued in reinvestment of distributions | 27,926 | 462,175 | 141,539 | 2,263,214 | ||||||
Redeemed | (1,499,001 | ) | (26,644,773 | ) | (3,205,533 | ) | (47,623,536 | ) | ||
(535,662 | ) | (9,031,360 | ) | (1,887,543 | ) | (27,015,772 | ) |
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Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 105,230 | $ | 1,738,900 | 53,630 | $ | 727,224 | ||||
Issued in connection with reorganization (Note 10) | — | — | 60,216 | 893,045 | ||||||
Issued in reinvestment of distributions | 3,614 | 54,825 | 19,042 | 279,538 | ||||||
Redeemed | (387,925 | ) | (6,553,664 | ) | (244,413 | ) | (3,361,284 | ) | ||
(279,081 | ) | (4,759,939 | ) | (111,525 | ) | (1,461,477 | ) | |||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 221,772 | 3,855,488 | 79,409 | 1,160,623 | ||||||
Issued in connection with reorganization (Note 10) | — | — | 23,868 | 377,916 | ||||||
Issued in reinvestment of distributions | 1,481 | 24,003 | 7,118 | 111,533 | ||||||
Redeemed | (127,612 | ) | (2,219,990 | ) | (88,784 | ) | (1,291,440 | ) | ||
95,641 | 1,659,501 | 21,611 | 358,632 | |||||||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 80 | 1,393 | 328 | 5,000 | ||||||
Issued in reinvestment of distributions | 2 | 41 | 11 | 189 | ||||||
Redeemed | (33 | ) | (601 | ) | — | — | ||||
49 | 833 | 339 | 5,189 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 1,173,576 | 22,855,500 | 666,466 | 10,392,722 | ||||||
Issued in reinvestment of distributions | 9,233 | 162,130 | 53,722 | 910,051 | ||||||
Redeemed | (691,385 | ) | (13,756,889 | ) | (1,043,703 | ) | (16,301,363 | ) | ||
491,424 | 9,260,741 | (323,515 | ) | (4,998,590 | ) | |||||
Net increase (decrease) | 6,765,425 | $ | 124,699,558 | 1,564,047 | $ | 37,784,767 |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
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.
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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 | $ | 851,084,145 | $ | 13,947,587 | — | |||
Temporary Cash Investments | 11,335 | 21,172,283 | — | |||||
$ | 851,095,480 | $ | 35,119,870 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 382,690 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 49,772 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $10,470,142.
The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $382,690 in unrealized appreciation on forward foreign currency exchange contracts and as a liability of $49,772 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $28,540 in net realized gain (loss) on forward foreign currency exchange contract transactions and $172,725 in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
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.
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9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | — | — | ||||
Long-term capital gains | $ | 4,088,069 | $ | 16,960,028 |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 802,946,863 | |
Gross tax appreciation of investments | $ | 148,229,527 | |
Gross tax depreciation of investments | (64,961,040 | ) | |
Net tax appreciation (depreciation) | $ | 83,268,487 | |
Undistributed ordinary income | $ | 21,323,960 | |
Accumulated long-term gains | $ | 87,785,336 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
10. Reorganization
On June 29, 2017, the Board of Directors approved an agreement and plan of reorganization (the reorganization), whereby the net assets of New Opportunities Fund, one fund in a series issued by the corporation, were transferred to Small Cap Growth Fund in exchange for shares of Small Cap Growth Fund. The purpose of the transaction was to combine two funds with substantially similar investment objectives and strategies. The financial statements and performance history of Small Cap Growth Fund survived after the reorganization. The reorganization was effective at the close of the NYSE on October 20, 2017.
The reorganization was accomplished by a tax-free exchange of shares. On October 20, 2017, New Opportunities Fund exchanged its shares for shares of Small Cap Growth Fund as follows:
Original Fund/Class | Shares Exchanged | New Fund/Class | Shares Received | |||
New Opportunities Fund – Investor Class | 18,280,839 | Small Cap Growth Fund – Investor Class | 11,477,646 | |||
New Opportunities Fund – I Class | 27,060 | Small Cap Growth Fund – I Class | 17,006 | |||
New Opportunities Fund – A Class | 1,165,326 | Small Cap Growth Fund – A Class | 733,376 | |||
New Opportunities Fund – C Class | 95,508 | Small Cap Growth Fund – C Class | 60,216 | |||
New Opportunities Fund – R Class | 38,203 | Small Cap Growth Fund – R Class | 23,868 |
The net assets of New Opportunities Fund and Small Cap Growth Fund immediately before the reorganization were $204,588,424 and $501,100,744, respectively. New Opportunities Fund's unrealized appreciation of $33,960,092 was combined with that of Small Cap Growth Fund. Immediately after the reorganization, the combined net assets were $705,689,168.
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Assuming the reorganization had been completed on November 1, 2016, the beginning of the annual reporting period, the pro forma results of operations for the period ended October 31, 2017 are as follows:
Net investment income (loss) | $ | (5,585,482 | ) |
Net realized and unrealized gain (loss) | 212,553,163 | ||
Net increase (decrease) in net assets resulting from operations | $ | 206,967,681 |
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 New Opportunities Fund that have been included in the fund’s Statement of Operations since October 20, 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 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 | |||||||||||||
2018 | $16.70 | (0.17) | 1.65 | 1.48 | (0.10) | $18.08 | 8.89% | 1.27% | (0.93)% | 116% | $386,455 | ||
2017 | $12.96 | (0.13) | 4.45 | 4.32 | (0.58) | $16.70 | 33.36% | 1.36% | (0.83)% | 70% | $361,029 | ||
2016 | $13.06 | (0.10) | —(3) | (0.10) | — | $12.96 | (0.77)% | 1.36% | (0.83)% | 130% | $133,140 | ||
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 | ||
I Class | |||||||||||||
2018 | $17.04 | (0.14) | 1.70 | 1.56 | (0.10) | $18.50 | 9.18% | 1.07% | (0.73)% | 116% | $371,030 | ||
2017 | $13.20 | (0.09) | 4.51 | 4.42 | (0.58) | $17.04 | 33.51% | 1.16% | (0.63)% | 70% | $219,881 | ||
2016 | $13.27 | (0.08) | 0.01 | (0.07) | — | $13.20 | (0.53)% | 1.16% | (0.63)% | 130% | $269,094 | ||
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 | ||
Y Class | |||||||||||||
2018 | $17.16 | (0.07) | 1.66 | 1.59 | (0.10) | $18.65 | 9.29% | 0.92% | (0.58)% | 116% | $1,778 | ||
2017(4) | $15.34 | (0.06) | 2.46 | 2.40 | (0.58) | $17.16 | 15.67% | 1.01%(5) | (0.61)%(5) | 70%(6) | $6 |
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) | |||
A Class | |||||||||||||
2018 | $16.19 | (0.21) | 1.61 | 1.40 | (0.10) | $17.49 | 8.61% | 1.52% | (1.18)% | 116% | $77,764 | ||
2017 | $12.61 | (0.16) | 4.32 | 4.16 | (0.58) | $16.19 | 33.02% | 1.61% | (1.08)% | 70% | $80,654 | ||
2016 | $12.74 | (0.13) | —(3) | (0.13) | — | $12.61 | (1.02)% | 1.61% | (1.08)% | 130% | $86,651 | ||
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 | ||
C Class | |||||||||||||
2018 | $14.86 | (0.32) | 1.48 | 1.16 | (0.10) | $15.92 | 7.83% | 2.27% | (1.93)% | 116% | $6,227 | ||
2017 | $11.70 | (0.25) | 3.99 | 3.74 | (0.58) | $14.86 | 31.99% | 2.36% | (1.83)% | 70% | $9,958 | ||
2016 | $11.91 | (0.21) | —(3) | (0.21) | — | $11.70 | (1.68)% | 2.36% | (1.83)% | 130% | $9,146 | ||
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 | ||
R Class | |||||||||||||
2018 | $15.86 | (0.25) | 1.58 | 1.33 | (0.10) | $17.09 | 8.41% | 1.77% | (1.43)% | 116% | $5,687 | ||
2017 | $12.40 | (0.19) | 4.23 | 4.04 | (0.58) | $15.86 | 32.61% | 1.86% | (1.33)% | 70% | $3,761 | ||
2016 | $12.55 | (0.16) | 0.01 | (0.15) | — | $12.40 | (1.20)% | 1.86% | (1.33)% | 130% | $2,672 | ||
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 | ||
R5 Class | |||||||||||||
2018 | $17.05 | (0.14) | 1.70 | 1.56 | (0.10) | $18.51 | 9.12% | 1.07% | (0.73)% | 116% | $7 | ||
2017(4) | $15.26 | (0.07) | 2.44 | 2.37 | (0.58) | $17.05 | 15.56% | 1.16%(5) | (0.76)%(5) | 70%(6) | $6 |
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) | |||
R6 Class | |||||||||||||
2018 | $17.15 | (0.11) | 1.71 | 1.60 | (0.10) | $18.65 | 9.30% | 0.92% | (0.58)% | 116% | $39,687 | ||
2017 | $13.26 | (0.08) | 4.55 | 4.47 | (0.58) | $17.15 | 33.74% | 1.01% | (0.48)% | 70% | $28,077 | ||
2016 | $13.31 | (0.06) | 0.01 | (0.05) | — | $13.26 | (0.38)% | 1.01% | (0.48)% | 130% | $25,992 | ||
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 |
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) | Amount is less than $0.005. |
(4) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Small Cap Growth Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Small Cap Growth Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
30
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-, and five-year periods and below its benchmark for the ten-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.
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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 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, expenses attributable to short sales, 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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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.
37
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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.
38
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $4,088,069, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90978 1812 |
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Annual Report | |
October 31, 2018 | |
Sustainable Equity Fund | |
Investor Class (AFDIX) | |
I Class (AFEIX) | |
Y Class (AFYDX) | |
A Class (AFDAX) | |
C Class (AFDCX) | |
R Class (AFDRX) | |
R5 Class (AFDGX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
A Class | AFDAX | 11/30/04 | ||||
No sales charge | 6.31% | 10.27% | 12.28% | — | ||
With sales charge | 0.18% | 8.97% | 11.62% | — | ||
S&P 500 Index | — | 7.35% | 11.33% | 13.23% | — | — |
Investor Class | AFDIX | 6.60% | 10.55% | 12.55% | — | 7/29/05 |
I Class | AFEIX | 6.80% | 10.76% | 12.78% | — | 7/29/05 |
Y Class | AFYDX | 6.93% | — | — | 13.80% | 4/10/17 |
C Class | AFDCX | 5.51% | 9.44% | 11.43% | — | 11/30/04 |
R Class | AFDRX | 6.04% | 9.99% | 11.99% | — | 7/29/05 |
R5 Class | AFDGX | 6.82% | — | — | 13.64% | 4/10/17 |
Average annual returns since inception are presented when ten years of performance history is not available.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2018 | |
A Class — $31,855 | |
S&P 500 Index — $34,668 | |
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 | I Class | Y Class | A Class | C Class | R Class | R5 Class |
0.85% | 0.65% | 0.50% | 1.10% | 1.85% | 1.35% | 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. Total returns for periods less than one year are not annualized. 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, Justin Brown, Joe Reiland, and Rob Bove
Performance Summary
Sustainable Equity returned 6.60%* for the 12 months ended October 31, 2018, compared with the 7.35% return of the portfolio’s benchmark, the S&P 500 Index.
U.S. stock indices delivered solid returns during the reporting period despite a sharp decline in the final month of the fund’s fiscal year. Growth stocks outperformed value stocks across the capitalization spectrum. Within the S&P 500 Index, every sector except materials and industrials posted gains. Information technology, consumer discretionary, and health care were especially strong sectors, delivering double-digit returns.
Stock selection among communication services companies was a major source of underperformance versus the S&P 500 Index. Stock choices in the financials and health care sectors were also negative. Stock decisions in energy and consumer staples benefited the fund's relative performance.
Communication Services Hampered Performance
At the end of September, S&P eliminated the telecommunication services sector and introduced the communication services sector. Communication services includes stocks of companies that had previously been in a range of other sectors. Underweighting Netflix relative to the benchmark was a major detractor in the sector as the streaming media service rose for most of the period as a result of expectations for solid user growth, particularly overseas, powered by new content.
Insurers contributed to underperformance in the financials sector. Prudential Financial’s stock price fell after the company reported a decline in net profits.
Other significant detractors included ManpowerGroup. The staffing company declined despite reporting strong earnings and revenue for its most recent quarter. Fundamentals remain strong as corporate staffing needs grow along with the economy. ManpowerGroup also has a high environmental, social, and governance (ESG) score, which makes it a solid candidate for our portfolio. The semiconductor maker Applied Materials reported solid quarterly results, but memory pricing is worsening, and investors appeared to worry that reduced 2019 capital spending would impact the industry. We believe the company’s business model offers less cyclicality and more secular growth than in previous cycles and therefore see upside potential. Engine and generator manufacturer Cummins underperformed. While sales exceeded expectations, profitability was lower due to a charge for a product campaign that hampered earnings. Investors also were concerned about the cyclical peak of the truck business at this stage of the economic expansion.
Energy Stocks Led Contributors
Our oil, gas, and consumable fuels stocks outperformed. ConocoPhillips boosted returns as the stock price gained on rising oil prices during the first half of 2018 and a strong earnings report. The company also won an arbitration ruling against Venezuela’s national oil producer, but it remains unclear as to whether it will be able to collect its award.
*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
Other top contributors included The Boeing Co. The aerospace and defense company logged new orders and stands to benefit from the renegotiated North American Free Trade Agreement. Not owning benchmark component General Electric helped relative performance as the stock underperformed due to fundamental challenges in the company’s power and financial business segments and uncertainty over asset dispositions. Cisco Systems was a solid contributor, aided by strength in the technology sector. After struggling for years, the technology giant returned to revenue growth and should benefit from tax reform. Medical device maker Edwards Lifesciences soared on rumors that it might be a takeover target. The company has been a solid performer based on strong sales of its heart valve replacement device. The market for the device is broadening beyond major medical centers.
Outlook
The portfolio invests in a blend of large value and large growth stocks, while seeking to outperform the S&P 500 Index with a comparable dividend yield without taking on significant additional risk. We believe that companies exhibiting both improving business fundamentals and sustainable corporate behaviors will outperform over time. We use a quantitative model that combines fundamental measures of a stock's value and growth potential. We then integrate our view of the company’s financial improvement with multiple sources of ESG data.
As of October 31, 2018, the portfolio’s largest overweight positions relative to the benchmark were in the information technology and real estate sectors. Our exposure to attractive opportunities among communications equipment, software, and services companies led our technology overweight. The real estate overweight reflects our belief that certain equity real estate investment trusts are positioned to do well in the current economic environment. Strengthening fundamentals typically lead to increased occupancy rates, increased rents, and higher property values.
The largest underweight positions relative to the index were in the communication services and energy sectors. We are not finding many companies that are exhibiting both business improvement and favorable ESG profiles in the communication services sector, particularly in the media industry. Many companies in the energy sector score poorly from an ESG perspective. In addition, we see a sustained demand/supply imbalance in energy, resulting from the shale oil and gas revolution.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Microsoft Corp. | 4.3% |
Apple, Inc. | 4.2% |
JPMorgan Chase & Co. | 3.9% |
Exelon Corp. | 3.4% |
Alphabet, Inc.* | 3.4% |
Amazon.com, Inc. | 2.9% |
Prudential Financial, Inc. | 2.7% |
Bank of America Corp. | 2.5% |
Procter & Gamble Co. (The) | 2.5% |
Cisco Systems, Inc. | 2.5% |
*Includes all classes of the issuer held by the fund. | |
Top Five Industries | % of net assets |
Banks | 6.4% |
Software | 6.4% |
Technology Hardware, Storage and Peripherals | 5.1% |
Insurance | 5.0% |
Interactive Media and Services | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.5% |
Exchange-Traded Funds | 0.7% |
Total Equity Exposure | 99.2% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | (0.1)% |
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,018.40 | $4.68 | 0.92% |
I Class | $1,000 | $1,019.10 | $3.66 | 0.72% |
Y Class | $1,000 | $1,019.80 | $2.90 | 0.57% |
A Class | $1,000 | $1,017.00 | $5.95 | 1.17% |
C Class | $1,000 | $1,012.90 | $9.74 | 1.92% |
R Class | $1,000 | $1,015.60 | $7.21 | 1.42% |
R5 Class | $1,000 | $1,019.50 | $3.66 | 0.72% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.57 | $4.69 | 0.92% |
I Class | $1,000 | $1,021.58 | $3.67 | 0.72% |
Y Class | $1,000 | $1,022.33 | $2.91 | 0.57% |
A Class | $1,000 | $1,019.31 | $5.96 | 1.17% |
C Class | $1,000 | $1,015.53 | $9.75 | 1.92% |
R Class | $1,000 | $1,018.05 | $7.22 | 1.42% |
R5 Class | $1,000 | $1,021.58 | $3.67 | 0.72% |
(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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 98.5% | |||||
Aerospace and Defense — 3.4% | |||||
Boeing Co. (The) | 16,586 | $ | 5,885,708 | ||
Lockheed Martin Corp. | 8,777 | 2,579,122 | |||
Northrop Grumman Corp. | 1,415 | 370,659 | |||
8,835,489 | |||||
Airlines — 1.2% | |||||
Delta Air Lines, Inc. | 56,830 | 3,110,306 | |||
Banks — 6.4% | |||||
Bank of America Corp. | 243,400 | 6,693,500 | |||
JPMorgan Chase & Co. | 93,400 | 10,182,468 | |||
16,875,968 | |||||
Beverages — 2.0% | |||||
PepsiCo, Inc. | 46,546 | 5,230,840 | |||
Biotechnology — 3.2% | |||||
AbbVie, Inc. | 26,580 | 2,069,253 | |||
Amgen, Inc. | 10,657 | 2,054,563 | |||
Biogen, Inc.(1) | 10,769 | 3,276,684 | |||
Vertex Pharmaceuticals, Inc.(1) | 6,200 | 1,050,652 | |||
8,451,152 | |||||
Capital Markets — 2.1% | |||||
Ameriprise Financial, Inc. | 11,603 | 1,476,366 | |||
BlackRock, Inc. | 2,506 | 1,031,018 | |||
S&P Global, Inc. | 9,824 | 1,791,112 | |||
State Street Corp. | 19,035 | 1,308,656 | |||
5,607,152 | |||||
Chemicals — 1.3% | |||||
LyondellBasell Industries NV, Class A | 26,630 | 2,377,260 | |||
Sherwin-Williams Co. (The) | 2,347 | 923,474 | |||
3,300,734 | |||||
Communications Equipment — 3.6% | |||||
Cisco Systems, Inc. | 141,359 | 6,467,174 | |||
Motorola Solutions, Inc. | 16,280 | 1,995,277 | |||
Palo Alto Networks, Inc.(1) | 5,347 | 978,715 | |||
9,441,166 | |||||
Consumer Finance — 0.6% | |||||
American Express Co. | 15,631 | 1,605,773 | |||
Containers and Packaging — 0.4% | |||||
International Paper Co. | 23,577 | 1,069,453 | |||
Diversified Telecommunication Services — 1.1% | |||||
AT&T, Inc. | 46,763 | 1,434,689 | |||
Verizon Communications, Inc. | 26,680 | 1,523,161 | |||
2,957,850 |
10
Shares | Value | ||||
Electric Utilities — 3.4% | |||||
Exelon Corp. | 203,420 | $ | 8,911,830 | ||
Electrical Equipment — 0.4% | |||||
Eaton Corp. plc | 14,979 | 1,073,545 | |||
Energy Equipment and Services — 0.5% | |||||
Halliburton Co. | 36,541 | 1,267,242 | |||
Entertainment — 0.6% | |||||
Netflix, Inc.(1) | 5,042 | 1,521,575 | |||
Equity Real Estate Investment Trusts (REITs) — 4.1% | |||||
Host Hotels & Resorts, Inc. | 155,702 | 2,975,465 | |||
Prologis, Inc. | 99,517 | 6,415,861 | |||
SBA Communications Corp.(1) | 7,751 | 1,256,980 | |||
10,648,306 | |||||
Food and Staples Retailing — 2.2% | |||||
Walgreens Boots Alliance, Inc. | 33,792 | 2,695,588 | |||
Walmart, Inc. | 31,349 | 3,143,678 | |||
5,839,266 | |||||
Food Products — 0.9% | |||||
Archer-Daniels-Midland Co. | 16,500 | 779,625 | |||
Mondelez International, Inc., Class A | 40,457 | 1,698,385 | |||
2,478,010 | |||||
Health Care Equipment and Supplies — 2.0% | |||||
Abbott Laboratories | 15,150 | 1,044,441 | |||
Align Technology, Inc.(1) | 1,842 | 407,450 | |||
Edwards Lifesciences Corp.(1) | 19,367 | 2,858,569 | |||
ResMed, Inc. | 8,507 | 901,062 | |||
5,211,522 | |||||
Health Care Providers and Services — 3.9% | |||||
Aetna, Inc. | 4,134 | 820,186 | |||
Centene Corp.(1) | 3,529 | 459,899 | |||
CVS Health Corp. | 16,121 | 1,166,999 | |||
Humana, Inc. | 8,567 | 2,744,952 | |||
Quest Diagnostics, Inc. | 17,962 | 1,690,404 | |||
UnitedHealth Group, Inc. | 12,237 | 3,198,140 | |||
10,080,580 | |||||
Hotels, Restaurants and Leisure — 1.3% | |||||
Royal Caribbean Cruises Ltd. | 32,109 | 3,362,776 | |||
Household Products — 2.5% | |||||
Procter & Gamble Co. (The) | 74,871 | 6,639,560 | |||
Insurance — 5.0% | |||||
Aflac, Inc. | 31,174 | 1,342,664 | |||
Prudential Financial, Inc. | 75,967 | 7,124,185 | |||
Travelers Cos., Inc. (The) | 36,484 | 4,565,243 | |||
13,032,092 | |||||
Interactive Media and Services — 5.0% | |||||
Alphabet, Inc., Class A(1) | 5,578 | 6,083,255 | |||
Alphabet, Inc., Class C(1) | 2,501 | 2,693,002 |
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Shares | Value | ||||
Facebook, Inc., Class A(1) | 27,787 | $ | 4,217,789 | ||
12,994,046 | |||||
Internet and Direct Marketing Retail — 3.2% | |||||
Amazon.com, Inc.(1) | 4,803 | 7,675,242 | |||
Booking Holdings, Inc.(1) | 328 | 614,862 | |||
8,290,104 | |||||
IT Services — 4.5% | |||||
Accenture plc, Class A | 31,183 | 4,915,064 | |||
DXC Technology Co. | 17,533 | 1,276,928 | |||
Visa, Inc., Class A | 41,356 | 5,700,925 | |||
11,892,917 | |||||
Life Sciences Tools and Services — 1.2% | |||||
Agilent Technologies, Inc. | 32,159 | 2,083,581 | |||
Illumina, Inc.(1) | 3,632 | 1,130,097 | |||
3,213,678 | |||||
Machinery — 1.7% | |||||
Caterpillar, Inc. | 13,433 | 1,629,692 | |||
Cummins, Inc. | 10,586 | 1,447,000 | |||
Parker-Hannifin Corp. | 8,934 | 1,354,662 | |||
4,431,354 | |||||
Media — 0.6% | |||||
Comcast Corp., Class A | 42,322 | 1,614,161 | |||
Multi-Utilities — 0.3% | |||||
DTE Energy Co. | 7,201 | 809,392 | |||
Multiline Retail — 1.0% | |||||
Target Corp. | 32,028 | 2,678,502 | |||
Oil, Gas and Consumable Fuels — 4.2% | |||||
ConocoPhillips | 84,126 | 5,880,407 | |||
Devon Energy Corp. | 20,734 | 671,782 | |||
EOG Resources, Inc. | 11,847 | 1,247,963 | |||
Marathon Petroleum Corp. | 29,341 | 2,067,074 | |||
Valero Energy Corp. | 11,793 | 1,074,224 | |||
10,941,450 | |||||
Pharmaceuticals — 4.4% | |||||
Bristol-Myers Squibb Co. | 45,620 | 2,305,635 | |||
Johnson & Johnson | 6,692 | 936,813 | |||
Merck & Co., Inc. | 32,827 | 2,416,395 | |||
Zoetis, Inc. | 65,926 | 5,943,229 | |||
11,602,072 | |||||
Professional Services — 1.0% | |||||
ManpowerGroup, Inc. | 33,685 | 2,569,829 | |||
Road and Rail — 0.9% | |||||
Norfolk Southern Corp. | 13,458 | 2,258,656 | |||
Semiconductors and Semiconductor Equipment — 2.9% | |||||
Applied Materials, Inc. | 34,268 | 1,126,732 | |||
ASML Holding NV | 3,289 | 562,220 | |||
Broadcom, Inc. | 7,696 | 1,719,979 |
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Shares | Value | ||||
Intel Corp. | 34,981 | $ | 1,639,909 | ||
NVIDIA Corp. | 7,159 | 1,509,332 | |||
Texas Instruments, Inc. | 11,898 | 1,104,492 | |||
7,662,664 | |||||
Software — 6.4% | |||||
Adobe, Inc.(1) | 12,544 | 3,082,814 | |||
Microsoft Corp. | 104,652 | 11,177,880 | |||
Red Hat, Inc.(1) | 2,160 | 370,742 | |||
salesforce.com, Inc.(1) | 13,208 | 1,812,666 | |||
ServiceNow, Inc.(1) | 1,950 | 353,028 | |||
16,797,130 | |||||
Specialty Retail — 3.7% | |||||
Best Buy Co., Inc. | 8,899 | 624,354 | |||
Home Depot, Inc. (The) | 33,114 | 5,824,090 | |||
Ross Stores, Inc. | 32,553 | 3,222,747 | |||
9,671,191 | |||||
Technology Hardware, Storage and Peripherals — 5.1% | |||||
Apple, Inc. | 49,700 | 10,877,342 | |||
HP, Inc. | 97,565 | 2,355,219 | |||
13,232,561 | |||||
Textiles, Apparel and Luxury Goods — 0.3% | |||||
VF Corp. | 8,496 | 704,148 | |||
TOTAL COMMON STOCKS (Cost $195,173,536) | 257,916,042 | ||||
EXCHANGE-TRADED FUNDS — 0.7% | |||||
iShares MSCI KLD 400 Social ETF (Cost $1,923,651) | 19,535 | 1,925,174 | |||
TEMPORARY CASH INVESTMENTS — 0.9% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $1,628,971), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $1,595,986) | 1,595,897 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 5/15/45, valued at $818,286), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $798,023) | 798,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 1,959 | 1,959 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,395,856) | 2,395,856 | ||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $199,493,043) | 262,237,072 | ||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (307,305 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 261,929,767 |
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
EUR | 15,264 | USD | 17,638 | Credit Suisse AG | 12/31/18 | $ | (252 | ) | ||
EUR | 27,677 | USD | 32,254 | Credit Suisse AG | 12/31/18 | (730 | ) | |||
EUR | 14,146 | USD | 16,376 | Credit Suisse AG | 12/31/18 | (264 | ) | |||
EUR | 20,856 | USD | 23,890 | Credit Suisse AG | 12/31/18 | (136 | ) | |||
EUR | 15,097 | USD | 17,236 | Credit Suisse AG | 12/31/18 | (42 | ) | |||
USD | 533,231 | EUR | 450,211 | Credit Suisse AG | 12/31/18 | 20,445 | ||||
USD | 15,169 | EUR | 13,084 | Credit Suisse AG | 12/31/18 | 267 | ||||
USD | 15,017 | EUR | 12,972 | Credit Suisse AG | 12/31/18 | 243 | ||||
USD | 17,342 | EUR | 15,041 | Credit Suisse AG | 12/31/18 | 211 | ||||
USD | 16,198 | EUR | 14,146 | Credit Suisse AG | 12/31/18 | 86 | ||||
$ | 19,828 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
EUR | - | Euro |
USD | - | United States Dollar |
(1) | Non-income producing. |
See Notes to Financial Statements.
14
Statement of Assets and Liabilities |
OCTOBER 31, 2018 | |||
Assets | |||
Investment securities, at value (cost of $199,493,043) | $ | 262,237,072 | |
Receivable for capital shares sold | 1,747,787 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 21,252 | ||
Dividends and interest receivable | 249,472 | ||
264,255,583 | |||
Liabilities | |||
Payable for investments purchased | 718,141 | ||
Payable for capital shares redeemed | 1,402,385 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 1,424 | ||
Accrued management fees | 181,248 | ||
Distribution and service fees payable | 22,618 | ||
2,325,816 | |||
Net Assets | $ | 261,929,767 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 183,335,076 | |
Distributable earnings | 78,594,691 | ||
$ | 261,929,767 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $142,922,866 | 5,070,112 | $28.19 | |
I Class, $0.01 Par Value | $38,187,666 | 1,350,634 | $28.27 | |
Y Class, $0.01 Par Value | $14,485,330 | 511,405 | $28.32 | |
A Class, $0.01 Par Value | $50,489,311 | 1,797,492 | $28.09* | |
C Class, $0.01 Par Value | $11,277,287 | 410,341 | $27.48 | |
R Class, $0.01 Par Value | $3,223,091 | 115,393 | $27.93 | |
R5 Class, $0.01 Par Value | $1,344,216 | 47,516 | $28.29 |
*Maximum offering price $29.80 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends | $ | 4,670,199 | |
Interest | 28,885 | ||
4,699,084 | |||
Expenses: | |||
Management fees | 2,327,455 | ||
Distribution and service fees: | |||
A Class | 131,960 | ||
C Class | 156,475 | ||
R Class | 18,787 | ||
Directors' fees and expenses | 5,740 | ||
Other expenses | 807 | ||
2,641,224 | |||
Net investment income (loss) | 2,057,860 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 17,608,265 | ||
Forward foreign currency exchange contract transactions | (5,169 | ) | |
Foreign currency translation transactions | (794 | ) | |
17,602,302 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | (5,477,612 | ) | |
Forward foreign currency exchange contracts | 19,828 | ||
(5,457,784 | ) | ||
Net realized and unrealized gain (loss) | 12,144,518 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 14,202,378 |
See Notes to Financial Statements.
16
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | 2,057,860 | $ | 1,712,498 | ||
Net realized gain (loss) | 17,602,302 | 7,836,118 | ||||
Change in net unrealized appreciation (depreciation) | (5,457,784 | ) | 41,922,276 | |||
Net increase (decrease) in net assets resulting from operations | 14,202,378 | 51,470,892 | ||||
Distributions to Shareholders | ||||||
From earnings: | ||||||
Investor Class | (4,138,891 | ) | (1,035,050 | ) | ||
I Class | (627,088 | ) | (86,690 | ) | ||
Y Class | (28,973 | ) | — | |||
A Class | (1,361,649 | ) | (912,362 | ) | ||
C Class | (397,922 | ) | (30,542 | ) | ||
R Class | (96,581 | ) | (25,123 | ) | ||
R5 Class | (570 | ) | — | |||
Decrease in net assets from distributions | (6,651,674 | ) | (2,089,767 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 25,688,488 | (33,935,108 | ) | |||
Net increase (decrease) in net assets | 33,239,192 | 15,446,017 | ||||
Net Assets | ||||||
Beginning of period | 228,690,575 | 213,244,558 | ||||
End of period | $ | 261,929,767 | $ | 228,690,575 |
See Notes to Financial Statements.
17
Notes to Financial Statements |
OCTOBER 31, 2018
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. Sustainable Equity Fund (the fund) is one fund in a series issued by the corporation. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class and R5 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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 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
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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. 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. (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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets). Effective December 1, 2018, the investment advisor agreed to waive 0.05% of the fund's management fee. The investment advisor expects this waiver to continue until November 30, 2019 and cannot terminate it prior to such date without the approval of the Board of Directors.
The management fee schedule range and the effective annual management fee for each class for the period ended October 31, 2018 are as follows:
Management Fee Schedule Range* | Effective Annual Management Fee | |
Investor Class | 0.800% to 0.840% | 0.95% |
I Class | 0.600% to 0.640% | 0.75% |
Y Class | 0.450% to 0.490% | 0.60% |
A Class | 0.800% to 0.840% | 0.95% |
C Class | 0.800% to 0.840% | 0.95% |
R Class | 0.800% to 0.840% | 0.95% |
R5 Class | 0.600% to 0.640% | 0.75% |
*Prior to August 1, 2018, the management fee schedule range was 0.800% to 0.990% for the Investor Class, A Class, C Class and R Class, 0.600% to 0.790% for the I Class and R5 Class and 0.450% to 0.640% for the Y Class.
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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 period ended October 31, 2018 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.
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $733,660 and $516,052, respectively. The effect of interfund transactions on the Statement of Operations was $(60,749) in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $123,333,776 and $101,205,496, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 120,000,000 | 120,000,000 | ||||||||
Sold | 1,839,519 | $ | 52,400,317 | 2,921,568 | $ | 71,286,795 | ||||
Issued in reinvestment of distributions | 145,487 | 4,040,187 | 40,885 | 941,572 | ||||||
Redeemed | (1,885,394 | ) | (53,831,697 | ) | (2,031,710 | ) | (49,907,476 | ) | ||
99,612 | 2,608,807 | 930,743 | 22,320,891 | |||||||
I Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 938,951 | 27,234,141 | 601,139 | 15,331,397 | ||||||
Issued in reinvestment of distributions | 14,999 | 416,960 | 3,759 | 86,690 | ||||||
Redeemed | (327,636 | ) | (9,499,178 | ) | (139,002 | ) | (3,439,848 | ) | ||
626,314 | 18,151,923 | 465,896 | 11,978,239 | |||||||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 511,054 | 14,904,015 | 14,067 | 369,745 | ||||||
Issued in reinvestment of distributions | 1,041 | 28,973 | — | — | ||||||
Redeemed | (14,718 | ) | (430,894 | ) | (39 | ) | (1,033 | ) | ||
497,377 | 14,502,094 | 14,028 | 368,712 | |||||||
A Class/Shares Authorized | 120,000,000 | 120,000,000 | ||||||||
Sold | 412,006 | 11,852,292 | 204,275 | 4,893,975 | ||||||
Issued in reinvestment of distributions | 43,386 | 1,203,083 | 37,477 | 861,602 | ||||||
Redeemed | (552,597 | ) | (15,648,311 | ) | (2,823,750 | ) | (68,426,795 | ) | ||
(97,205 | ) | (2,592,936 | ) | (2,581,998 | ) | (62,671,218 | ) | |||
C Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 48,877 | 1,380,898 | 43,933 | 1,031,559 | ||||||
Issued in reinvestment of distributions | 12,705 | 346,977 | 1,095 | 24,880 | ||||||
Redeemed | (323,643 | ) | (9,172,601 | ) | (248,865 | ) | (5,945,415 | ) | ||
(262,061 | ) | (7,444,726 | ) | (203,837 | ) | (4,888,976 | ) | |||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 43,553 | 1,246,911 | 28,422 | 684,583 | ||||||
Issued in reinvestment of distributions | 3,496 | 96,581 | 1,096 | 25,123 | ||||||
Redeemed | (76,607 | ) | (2,216,651 | ) | (74,353 | ) | (1,757,462 | ) | ||
(29,558 | ) | (873,159 | ) | (44,835 | ) | (1,047,756 | ) | |||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 48,846 | 1,380,860 | 209 | 5,000 | ||||||
Issued in reinvestment of distributions | 20 | 570 | — | — | ||||||
Redeemed | (1,559 | ) | (44,945 | ) | — | — | ||||
47,307 | 1,336,485 | 209 | 5,000 | |||||||
Net increase (decrease) | 881,786 | $ | 25,688,488 | (1,419,794 | ) | $ | (33,935,108 | ) |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
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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.
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 | $ | 257,353,822 | $ | 562,220 | — | |||
Exchange-Traded Funds | 1,925,174 | — | — | |||||
Temporary Cash Investments | 1,959 | 2,393,897 | — | |||||
$ | 259,280,955 | $ | 2,956,117 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 21,252 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 1,424 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $621,047.
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The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $21,252 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $1,424 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(5,169) in net realized gain (loss) on forward foreign currency exchange contract transactions and $19,828 in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 1,472,981 | $ | 2,089,767 | ||
Long-term capital gains | $ | 5,178,693 | — |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 200,617,395 | |
Gross tax appreciation of investments | $ | 67,722,210 | |
Gross tax depreciation of investments | (6,102,533 | ) | |
Net tax appreciation (depreciation) of investments | $ | 61,619,677 | |
Undistributed ordinary income | $ | 2,054,303 | |
Accumulated long-term gains | $ | 14,920,711 |
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 | |||||||||||||||
2018 | $27.22 | 0.26 | 1.52 | 1.78 | (0.20) | (0.61) | (0.81) | $28.19 | 6.60% | 0.95% | 0.91% | 41% | $142,923 | ||
2017 | $21.75 | 0.23 | 5.51 | 5.74 | (0.27) | — | (0.27) | $27.22 | 26.61% | 1.00% | 0.95% | 18% | $135,315 | ||
2016 | $21.77 | 0.25 | (0.04) | 0.21 | (0.23) | — | (0.23) | $21.75 | 0.99% | 0.99% | 1.18% | 71% | $87,865 | ||
2015 | $21.31 | 0.26 | 0.46 | 0.72 | (0.26) | — | (0.26) | $21.77 | 3.51% | 0.99% | 1.23% | 33% | $95,072 | ||
2014 | $18.41 | 0.24 | 2.88 | 3.12 | (0.22) | — | (0.22) | $21.31 | 17.06% | 1.00% | 1.19% | 41% | $77,015 | ||
I Class | |||||||||||||||
2018 | $27.30 | 0.33 | 1.51 | 1.84 | (0.26) | (0.61) | (0.87) | $28.27 | 6.80% | 0.75% | 1.11% | 41% | $38,188 | ||
2017 | $21.81 | 0.27 | 5.53 | 5.80 | (0.31) | — | (0.31) | $27.30 | 26.88% | 0.80% | 1.15% | 18% | $19,776 | ||
2016 | $21.84 | 0.29 | (0.05) | 0.24 | (0.27) | — | (0.27) | $21.81 | 1.19% | 0.79% | 1.38% | 71% | $5,637 | ||
2015 | $21.37 | 0.31 | 0.47 | 0.78 | (0.31) | — | (0.31) | $21.84 | 3.66% | 0.79% | 1.43% | 33% | $14,077 | ||
2014 | $18.47 | 0.28 | 2.88 | 3.16 | (0.26) | — | (0.26) | $21.37 | 17.29% | 0.80% | 1.39% | 41% | $10,731 | ||
Y Class | |||||||||||||||
2018 | $27.33 | 0.36 | 1.52 | 1.88 | (0.28) | (0.61) | (0.89) | $28.32 | 6.93% | 0.60% | 1.26% | 41% | $14,485 | ||
2017(3) | $23.89 | 0.16 | 3.28 | 3.44 | — | — | — | $27.33 | 14.40% | 0.65%(4) | 1.10%(4) | 18%(5) | $383 |
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) | |||
A Class | |||||||||||||||
2018 | $27.13 | 0.19 | 1.51 | 1.70 | (0.13) | (0.61) | (0.74) | $28.09 | 6.31% | 1.20% | 0.66% | 41% | $50,489 | ||
2017 | $21.67 | 0.17 | 5.50 | 5.67 | (0.21) | — | (0.21) | $27.13 | 26.34% | 1.25% | 0.70% | 18% | $51,396 | ||
2016 | $21.69 | 0.20 | (0.05) | 0.15 | (0.17) | — | (0.17) | $21.67 | 0.74% | 1.24% | 0.93% | 71% | $97,012 | ||
2015 | $21.23 | 0.21 | 0.46 | 0.67 | (0.21) | — | (0.21) | $21.69 | 3.21% | 1.24% | 0.98% | 33% | $122,492 | ||
2014 | $18.35 | 0.19 | 2.86 | 3.05 | (0.17) | — | (0.17) | $21.23 | 16.76% | 1.25% | 0.94% | 41% | $116,462 | ||
C Class | |||||||||||||||
2018 | $26.63 | (0.03) | 1.49 | 1.46 | — | (0.61) | (0.61) | $27.48 | 5.51% | 1.95% | (0.09)% | 41% | $11,277 | ||
2017 | $21.27 | (0.01) | 5.41 | 5.40 | (0.04) | — | (0.04) | $26.63 | 25.40% | 2.00% | (0.05)% | 18% | $17,904 | ||
2016 | $21.29 | 0.04 | (0.04) | —(6) | (0.02) | — | (0.02) | $21.27 | (0.02)% | 1.99% | 0.18% | 71% | $18,640 | ||
2015 | $20.84 | 0.05 | 0.45 | 0.50 | (0.05) | — | (0.05) | $21.29 | 2.42% | 1.99% | 0.23% | 33% | $21,036 | ||
2014 | $18.01 | 0.04 | 2.82 | 2.86 | (0.03) | — | (0.03) | $20.84 | 15.90% | 2.00% | 0.19% | 41% | $16,777 | ||
R Class | |||||||||||||||
2018 | $26.98 | 0.11 | 1.51 | 1.62 | (0.06) | (0.61) | (0.67) | $27.93 | 6.04% | 1.45% | 0.41% | 41% | $3,223 | ||
2017 | $21.55 | 0.11 | 5.47 | 5.58 | (0.15) | — | (0.15) | $26.98 | 26.03% | 1.50% | 0.45% | 18% | $3,910 | ||
2016 | $21.58 | 0.14 | (0.05) | 0.09 | (0.12) | — | (0.12) | $21.55 | 0.44% | 1.49% | 0.68% | 71% | $4,090 | ||
2015 | $21.11 | 0.16 | 0.47 | 0.63 | (0.16) | — | (0.16) | $21.58 | 3.01% | 1.49% | 0.73% | 33% | $5,680 | ||
2014 | $18.25 | 0.14 | 2.84 | 2.98 | (0.12) | — | (0.12) | $21.11 | 16.45% | 1.50% | 0.69% | 41% | $5,294 | ||
R5 Class | |||||||||||||||
2018 | $27.30 | 0.32 | 1.52 | 1.84 | (0.24) | (0.61) | (0.85) | $28.29 | 6.82% | 0.75% | 1.11% | 41% | $1,344 | ||
2017(3) | $23.89 | 0.15 | 3.26 | 3.41 | — | — | — | $27.30 | 14.27% | 0.80%(4) | 1.07%(4) | 18%(5) | $6 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
(6) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Sustainable Equity Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Sustainable Equity Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
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Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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.
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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 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, expenses attributable to short sales, 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 permanent change to the fund's fee schedule that could have the effect of lowering the fund's unified management fee by
34
approximately 0.15% (e.g., the Investor Class unified fee will be reduced from 0.99% to 0.84%) beginning August 1, 2018. 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.
Payments to Intermediaries. The Directors also requested and received a description of payments made to intermediaries by the Fund and the Advisor and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2018.
For corporate taxpayers, the fund hereby designates $1,472,981, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018, as qualified for the corporate dividends received deduction.
The fund hereby designates $7,399,372, or up to the maximum amount allowable, as long-term capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $71,024 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
The fund utilized earnings and profits of $2,487,055 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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90971 1812 |
![acihorizblkd32.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/acihorizblkd32.jpg)
Annual Report | |
October 31, 2018 | |
Ultra® Fund | |
Investor Class (TWCUX) | |
I Class (TWUIX) | |
Y Class (AULYX) | |
A Class (TWUAX) | |
C Class (TWCCX) | |
R Class (AULRX) | |
R5 Class (AULGX) | |
R6 Class (AULDX) |
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 |
![jthomasrev0514.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/jthomasrev0514.jpg)
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2018. Annual reports help convey important information about fund returns, including market factors that affected performance during the reporting period. For additional investment and market insights, we encourage you to visit our website, americancentury.com.
Rising Rates, Heightened Volatility Challenge Investors
U.S. stocks generally delivered gains for the period, but returns were considerably weaker than the robust, double-digit results of the previous fiscal year. Early on, a backdrop of robust corporate earnings results, improving global economic growth, and growth-oriented U.S. tax reform helped drive stock prices higher. The S&P 500 Index returned more than 10% just in the first three months of the reporting period.
Investor sentiment shifted dramatically in early February, as volatility resurfaced after an extended period of relative dormancy. Better-than-expected U.S. economic data triggered expectations for rising inflation, higher interest rates, and a more-hawkish Federal Reserve (Fed). In response, U.S. Treasury yields soared, and stock prices plunged. Although this bout of market unrest quickly subsided, volatility remained a formidable force throughout the rest of the period. Stocks remained resilient, though, and the S&P 500 Index advanced 7.35% for the 12-month period. Growth stocks outpaced value stocks, and large-cap stocks outperformed small-cap stocks. Meanwhile, rising U.S. Treasury yields and Fed rate hikes weighed on interest-rate sensitive assets, including investment-grade bonds and real estate investment trusts.
Outside the U.S., economic growth moderated as the period unfolded, and global bond yields were flat to modestly higher. The U.S. dollar continued to gain ground versus other currencies, which drove down non-U.S. bond returns for unhedged investors. The strong dollar, combined with rising U.S. interest rates, geopolitical tensions, and fiscal challenges in several developing countries, led to negative results for emerging markets bonds.
With global economic growth diverging, Treasury yields rising, and volatility lingering, investors likely will face opportunities and challenges in the months ahead. We believe this scenario underscores the importance of using professionally managed portfolios in pursuit of investment goals. We appreciate your continued trust and confidence in us.
Sincerely,
![image48a01.jpg](https://capedge.com/proxy/N-CSR/0000100334-18-000112/image48a01.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Performance |
Total Returns as of October 31, 2018 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCUX | 13.44% | 13.40% | 15.11% | — | 11/2/81 |
Russell 1000 Growth Index | — | 10.71% | 13.43% | 15.45% | — | — |
S&P 500 Index | — | 7.35% | 11.33% | 13.23% | — | — |
I Class | TWUIX | 13.68% | 13.64% | 15.34% | — | 11/14/96 |
Y Class | AULYX | 13.85% | — | — | 20.15% | 4/10/17 |
A Class | TWUAX | 10/2/96 | ||||
No sales charge | 13.15% | 13.12% | 14.83% | — | ||
With sales charge | 6.65% | 11.79% | 14.15% | — | ||
C Class | TWCCX | 12.32% | 12.28% | 13.97% | — | 10/29/01 |
R Class | AULRX | 12.87% | 12.84% | 14.54% | — | 8/29/03 |
R5 Class | AULGX | 13.69% | — | — | 19.97% | 4/10/17 |
R6 Class | AULDX | 13.85% | 13.81% | — | 14.96% | 7/26/13 |
Average annual returns since inception are presented when ten years of performance history is not available. Fund returns would have been lower if a portion of the fees had not been waived.
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. Total returns for periods less than one year are not annualized. 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, 2008 |
Performance for other share classes will vary due to differences in fee structure. |
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Value on October 31, 2018 | |
Investor Class — $40,878 | |
Russell 1000 Growth Index — $42,082 | |
S&P 500 Index — $34,668 | |
Ending value of Investor Class would have been lower if a portion of the fees had not been waived.
Total Annual Fund Operating Expenses | |||||||
Investor Class | I Class | Y Class | A Class | C Class | R Class | R5 Class | R6 Class |
0.98% | 0.78% | 0.63% | 1.23% | 1.98% | 1.48% | 0.78% | 0.63% |
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. Total returns for periods less than one year are not annualized. 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 Jeff Bourke
Performance Summary
Ultra returned 13.44%* for the 12 months ended October 31, 2018, outpacing the 10.71% return of the portfolio’s benchmark, the Russell 1000 Growth Index.
U.S. stock indices posted solid returns during the reporting period despite a sharp drop during the final month of the fund’s fiscal year. Growth stocks outperformed value stocks by a wide margin across the capitalization spectrum, providing a tailwind for the fund. Within the Russell 1000 Growth Index, all sectors but materials, energy, and communication services posted gains. The small utilities segment—a sector that rarely offers the kind of growth characteristics we seek—reported the top total return, but index gains were largely driven by the strong performance of information technology and consumer discretionary stocks.
Stock selection in the consumer discretionary and information technology sectors led the fund’s outperformance relative to the benchmark. Stock decisions in the financials sector were key detractors, and an overweight allocation and stock selection in health care were slightly negative.
Consumer Discretionary Stocks Led Contributors
Within the consumer discretionary sector, specialty retailers and internet and catalog retailers led outperformance. The stock of off-price retailer The TJX Cos. outperformed. Economic growth and an improved employment picture are supporting greater consumer confidence. Amazon.com was a top contributor. The online retailer continued to demonstrate growth in its Amazon Web Services cloud business as well as strong performance on the e-commerce side.
Other key contributors included Intuitive Surgical. The robotic surgery system manufacturer reported a significant increase in sales and positive surgical procedure growth trends. We believe it is well positioned as a result of demographic trends, geographic expansion, and the increasing number of surgeries that can be performed with its technology. Payment services company MasterCard saw its stock increase on widening profit margins and earnings that beat expectations.
Netflix rose for most of the period as a result of expectations for solid user growth, particularly overseas, powered by new streaming content. The Estee Lauder Cos. outperformed on accelerating organic growth, and the company raised sales guidance for 2018. The cosmetics company’s accelerating revenues provided the market greater confidence in its future growth.
Financials Stocks Led Detractors
Insurers led detractors in the financials sector, largely due to poor performance by MetLife, which suffered weather-related insurance losses. We eliminated our holding in MetLife after the chief financial officer left the company, which follows a number of departures in the management team.
Biotechnology stocks weighed on performance in the health care sector. Celgene fell sharply after announcing that it was discontinuing late-stage clinical trials of its drug to treat Crohn’s disease, putting pressure on its product pipeline. The company also had to lower guidance due to
*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
disappointing sales for its arthritic psoriasis drug Otezla due to pricing competition. Regeneron Pharmaceuticals declined as investors were concerned about competition for its Eylea drug used to treat macular degeneration, a key market for the company.
Other major detractors from performance relative to the benchmark included our underweight in Microsoft relative to the benchmark. The stock is doing better than we anticipated, sooner than we anticipated, with respect to its cloud business. WABCO Holdings detracted. This truck parts company is highly sensitive to economic cyclicality, which depressed the stock price during the period. In addition, concerns over trade tensions weighed on the stock. We still believe in the long-term ability of this company to generate growth. Acuity Brands, a maker of smart lighting controls, declined as gross profit margins decreased and there were questions surrounding when the company will return to profitability. The stock rallied late in the period amid progress on new initiatives and product rollouts. Nonresidential construction data is just starting to improve, which we believe should boost Acuity’s earnings.
Outlook
We remain confident in our belief that high-quality companies with a capability for sustained long-term growth 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, 2018, this process pointed the portfolio toward overweight positions relative to the Russell 1000 Growth Index in the communication services and consumer discretionary sectors. The real estate and industrials sectors represented the largest underweights.
At the end of September, index provider FTSE Russell eliminated the telecommunication services sector—where the portfolio had no holdings—and introduced the communication services sector. Communication services includes stocks of companies that had previously been in a range of other sectors. For example, portfolio holdings Facebook and Google parent Alphabet, which had been included in the information technology sector, are now part of communication services. Our communication services overweight is the result of Russell’s sector changes. Another implication of these changes is that information technology, which had been our largest overweight, ended the period underweight relative to the benchmark.
Consumer discretionary remains a key overweight sector relative to the benchmark. We believe there are particular areas of opportunity in industries, including internet and direct marketing retail, automobiles, specialty retail, and textiles, apparel, and luxury goods.
The industrials sector underweight reflects a lack of exposure to the industrial conglomerates and air freight and logistics industries, where we have found no companies at present offering the attractive, sustainable, long-term growth potential that we seek. Instead, we own companies in the aerospace and defense and machinery industries. These are industries that meet our criteria of having sustained long-term growth potential. We see limited growth opportunities in the real estate sector. As a result, we have no holdings in the sector.
6
Fund Characteristics |
OCTOBER 31, 2018 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 10.1% |
Amazon.com, Inc. | 6.2% |
Alphabet, Inc.* | 6.1% |
Visa, Inc., Class A | 4.4% |
MasterCard, Inc., Class A | 4.2% |
UnitedHealth Group, Inc. | 4.0% |
Facebook, Inc., Class A | 3.6% |
Boeing Co. (The) | 2.9% |
TJX Cos., Inc. (The) | 2.8% |
Intuitive Surgical, Inc. | 2.5% |
*Includes all classes of the issuer held by the fund. | |
Top Five Industries | % of net assets |
IT Services | 11.0% |
Interactive Media and Services | 11.0% |
Technology Hardware, Storage and Peripherals | 10.1% |
Software | 6.6% |
Biotechnology | 6.2% |
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.
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, 2018 to October 31, 2018.
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 I 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 5/1/18 | Ending Account Value 10/31/18 | Expenses Paid During Period(1) 5/1/18 - 10/31/18 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,053.20 | $5.02 | 0.97% |
I Class | $1,000 | $1,054.40 | $3.99 | 0.77% |
Y Class | $1,000 | $1,055.00 | $3.21 | 0.62% |
A Class | $1,000 | $1,051.80 | $6.31 | 1.22% |
C Class | $1,000 | $1,048.10 | $10.17 | 1.97% |
R Class | $1,000 | $1,050.60 | $7.60 | 1.47% |
R5 Class | $1,000 | $1,054.40 | $3.99 | 0.77% |
R6 Class | $1,000 | $1,055.30 | $3.21 | 0.62% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.32 | $4.94 | 0.97% |
I Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
Y Class | $1,000 | $1,022.08 | $3.16 | 0.62% |
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% |
R5 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. Annualized expense ratio reflects actual expenses, including any applicable fee waivers or expense reimbursements and excluding any acquired fund fees and expenses. |
9
Schedule of Investments |
OCTOBER 31, 2018
Shares | Value | ||||
COMMON STOCKS — 99.5% | |||||
Aerospace and Defense — 3.9% | |||||
Boeing Co. (The) | 927,000 | $ | 328,955,220 | ||
United Technologies Corp. | 962,000 | 119,490,020 | |||
448,445,240 | |||||
Automobiles — 1.6% | |||||
Tesla, Inc.(1) | 540,000 | 182,152,800 | |||
Banks — 2.5% | |||||
JPMorgan Chase & Co. | 1,632,000 | 177,920,640 | |||
U.S. Bancorp | 1,956,000 | 102,240,120 | |||
280,160,760 | |||||
Beverages — 1.9% | |||||
Coca-Cola Co. (The) | 1,304,000 | 62,435,520 | |||
Constellation Brands, Inc., Class A | 797,000 | 158,786,310 | |||
221,221,830 | |||||
Biotechnology — 6.2% | |||||
Alexion Pharmaceuticals, Inc.(1) | 700,000 | 78,449,000 | |||
Alnylam Pharmaceuticals, Inc.(1) | 601,000 | 48,338,430 | |||
Biogen, Inc.(1) | 286,000 | 87,021,220 | |||
Bluebird Bio, Inc.(1) | 306,000 | 35,098,200 | |||
Celgene Corp.(1) | 2,345,000 | 167,902,000 | |||
Ionis Pharmaceuticals, Inc.(1) | 1,092,000 | 54,108,600 | |||
Regeneron Pharmaceuticals, Inc.(1) | 559,000 | 189,635,160 | |||
Sage Therapeutics, Inc.(1) | 415,000 | 53,402,200 | |||
713,954,810 | |||||
Capital Markets — 0.7% | |||||
MSCI, Inc. | 543,000 | 81,656,340 | |||
Chemicals — 1.2% | |||||
Ecolab, Inc. | 890,072 | 136,314,527 | |||
Electrical Equipment — 1.0% | |||||
Acuity Brands, Inc. | 929,000 | 116,719,560 | |||
Electronic Equipment, Instruments and Components — 1.1% | |||||
Cognex Corp. | 986,000 | 42,240,240 | |||
Keyence Corp. | 65,000 | 31,856,250 | |||
Yaskawa Electric Corp. | 1,984,000 | 57,409,137 | |||
131,505,627 | |||||
Entertainment — 4.0% | |||||
Netflix, Inc.(1) | 569,000 | 171,712,820 | |||
Walt Disney Co. (The) | 2,481,000 | 284,893,230 | |||
456,606,050 | |||||
Food and Staples Retailing — 2.0% | |||||
Costco Wholesale Corp. | 996,000 | 227,715,480 |
10
Shares | Value | ||||
Health Care Equipment and Supplies — 4.4% | |||||
ABIOMED, Inc.(1) | 156,000 | $ | 53,227,200 | ||
Edwards Lifesciences Corp.(1) | 569,000 | 83,984,400 | |||
IDEXX Laboratories, Inc.(1) | 372,000 | 78,908,640 | |||
Intuitive Surgical, Inc.(1) | 550,592 | 286,957,538 | |||
503,077,778 | |||||
Health Care Providers and Services — 4.0% | |||||
UnitedHealth Group, Inc. | 1,732,000 | 452,658,200 | |||
Hotels, Restaurants and Leisure — 1.7% | |||||
Chipotle Mexican Grill, Inc.(1) | 185,000 | 85,161,050 | |||
Starbucks Corp. | 1,793,000 | 104,478,110 | |||
189,639,160 | |||||
Interactive Media and Services — 11.0% | |||||
Alphabet, Inc., Class A(1) | 294,058 | 320,693,774 | |||
Alphabet, Inc., Class C(1) | 352,000 | 379,023,040 | |||
Baidu, Inc. ADR(1) | 321,000 | 61,009,260 | |||
Facebook, Inc., Class A(1) | 2,730,000 | 414,386,700 | |||
Tencent Holdings Ltd. | 2,413,000 | 82,156,989 | |||
1,257,269,763 | |||||
Internet and Direct Marketing Retail — 6.2% | |||||
Amazon.com, Inc.(1) | 444,000 | 709,516,440 | |||
IT Services — 11.0% | |||||
MasterCard, Inc., Class A | 2,434,963 | 481,319,136 | |||
PayPal Holdings, Inc.(1) | 2,619,000 | 220,493,610 | |||
Square, Inc., Class A(1) | 846,000 | 62,138,700 | |||
Visa, Inc., Class A | 3,606,000 | 497,087,100 | |||
1,261,038,546 | |||||
Machinery — 3.9% | |||||
Cummins, Inc. | 874,000 | 119,467,060 | |||
Donaldson Co., Inc. | 717,000 | 36,767,760 | |||
Nordson Corp. | 286,000 | 35,083,620 | |||
WABCO Holdings, Inc.(1) | 963,000 | 103,474,350 | |||
Wabtec Corp. | 1,789,000 | 146,733,780 | |||
441,526,570 | |||||
Oil, Gas and Consumable Fuels — 1.7% | |||||
Concho Resources, Inc.(1) | 492,000 | 68,432,280 | |||
EOG Resources, Inc. | 1,166,000 | 122,826,440 | |||
191,258,720 | |||||
Personal Products — 1.4% | |||||
Estee Lauder Cos., Inc. (The), Class A | 1,150,000 | 158,056,000 | |||
Road and Rail — 1.0% | |||||
J.B. Hunt Transport Services, Inc. | 999,000 | 110,499,390 | |||
Semiconductors and Semiconductor Equipment — 2.9% | |||||
ams AG(1) | 609,000 | 23,691,228 | |||
Analog Devices, Inc. | 1,310,000 | 109,660,100 | |||
Applied Materials, Inc. | 843,000 | 27,717,840 | |||
Maxim Integrated Products, Inc. | 1,795,000 | 89,785,900 |
11
Shares | Value | ||||
Xilinx, Inc. | 993,000 | $ | 84,772,410 | ||
335,627,478 | |||||
Software — 6.6% | |||||
Adobe, Inc.(1) | 209,000 | 51,363,840 | |||
DocuSign, Inc.(1) | 1,350,000 | 56,619,000 | |||
Microsoft Corp. | 2,327,000 | 248,546,870 | |||
salesforce.com, Inc.(1) | 1,591,000 | 218,348,840 | |||
Splunk, Inc.(1) | 514,000 | 51,317,760 | |||
Tableau Software, Inc., Class A(1) | 1,151,000 | 122,788,680 | |||
748,984,990 | |||||
Specialty Retail — 5.3% | |||||
O'Reilly Automotive, Inc.(1) | 452,000 | 144,979,000 | |||
Ross Stores, Inc. | 1,443,000 | 142,857,000 | |||
TJX Cos., Inc. (The) | 2,915,000 | 320,300,200 | |||
608,136,200 | |||||
Technology Hardware, Storage and Peripherals — 10.1% | |||||
Apple, Inc. | 5,260,645 | 1,151,344,765 | |||
Textiles, Apparel and Luxury Goods — 2.2% | |||||
NIKE, Inc., Class B | 2,480,000 | 186,099,200 | |||
Under Armour, Inc., Class C(1) | 3,407,028 | 67,561,365 | |||
253,660,565 | |||||
TOTAL COMMON STOCKS (Cost $4,740,540,252) | 11,368,747,589 | ||||
TEMPORARY CASH INVESTMENTS — 0.5% | |||||
Repurchase Agreement, BMO Capital Markets Corp., (collateralized by various U.S. Treasury obligations, 1.625% - 4.75%, 1/31/20 - 8/15/45, valued at $43,013,603), in a joint trading account at 2.00%, dated 10/31/18, due 11/1/18 (Delivery value $42,142,607) | 42,140,266 | ||||
Repurchase Agreement, Fixed Income Clearing Corp., (collateralized by various U.S. Treasury obligations, 3.00%, 11/15/44, valued at $21,515,103), at 1.05%, dated 10/31/18, due 11/1/18 (Delivery value $21,091,615) | 21,091,000 | ||||
State Street Institutional U.S. Government Money Market Fund, Premier Class | 9,603 | 9,603 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $63,240,869) | 63,240,869 | ||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $4,803,781,121) | 11,431,988,458 | ||||
OTHER ASSETS AND LIABILITIES† | (5,379,323 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 11,426,609,135 |
12
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||
CHF | 891,684 | USD | 900,336 | UBS AG | 12/31/18 | $ | (9,452 | ) | ||
CHF | 2,600,745 | USD | 2,623,676 | UBS AG | 12/31/18 | (25,263 | ) | |||
CHF | 1,069,062 | USD | 1,075,072 | UBS AG | 12/31/18 | (6,968 | ) | |||
CHF | 702,066 | USD | 704,814 | UBS AG | 12/31/18 | (3,378 | ) | |||
CHF | 906,818 | USD | 907,608 | UBS AG | 12/31/18 | (1,603 | ) | |||
CHF | 1,836,102 | USD | 1,891,524 | UBS AG | 12/31/18 | (57,068 | ) | |||
CHF | 1,054,680 | USD | 1,070,220 | UBS AG | 12/31/18 | (16,485 | ) | |||
CHF | 1,021,122 | USD | 1,037,220 | UBS AG | 12/31/18 | (17,013 | ) | |||
USD | 16,070,089 | CHF | 15,307,242 | UBS AG | 12/31/18 | 776,572 | ||||
USD | 902,176 | CHF | 891,684 | UBS AG | 12/31/18 | 11,292 | ||||
USD | 577,742 | CHF | 572,883 | UBS AG | 12/31/18 | 5,372 | ||||
JPY | 228,833,500 | USD | 2,042,715 | Bank of America, N.A. | 12/28/18 | (4,661 | ) | |||
JPY | 276,731,700 | USD | 2,469,945 | Bank of America, N.A. | 12/28/18 | (5,297 | ) | |||
JPY | 242,525,500 | USD | 2,149,170 | Bank of America, N.A. | 12/28/18 | 10,828 | ||||
JPY | 387,572,500 | USD | 3,478,857 | Bank of America, N.A. | 12/28/18 | (27,030 | ) | |||
USD | 33,202,439 | JPY | 3,712,663,500 | Bank of America, N.A. | 12/28/18 | 136,440 | ||||
USD | 2,967,215 | JPY | 331,975,000 | Bank of America, N.A. | 12/28/18 | 10,555 | ||||
USD | 2,455,476 | JPY | 274,781,500 | Bank of America, N.A. | 12/28/18 | 8,197 | ||||
$ | 785,038 |
NOTES TO SCHEDULE OF INVESTMENTS | ||
ADR | - | American Depositary Receipt |
CHF | - | Swiss Franc |
JPY | - | Japanese Yen |
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, 2018 | |||
Assets | |||
Investment securities, at value (cost of $4,803,781,121) | $ | 11,431,988,458 | |
Receivable for investments sold | 3,381,659 | ||
Receivable for capital shares sold | 3,676,121 | ||
Unrealized appreciation on forward foreign currency exchange contracts | 959,256 | ||
Dividends and interest receivable | 1,285,993 | ||
11,441,291,487 | |||
Liabilities | |||
Payable for capital shares redeemed | 4,949,702 | ||
Unrealized depreciation on forward foreign currency exchange contracts | 174,218 | ||
Accrued management fees | 9,520,229 | ||
Distribution and service fees payable | 38,203 | ||
14,682,352 | |||
Net Assets | $ | 11,426,609,135 | |
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ | 4,023,982,821 | |
Distributable earnings | 7,402,626,314 | ||
$ | 11,426,609,135 |
Net Assets | Shares Outstanding | Net Asset Value Per Share | ||
Investor Class, $0.01 Par Value | $10,524,968,882 | 220,452,573 | $47.74 | |
I Class, $0.01 Par Value | $402,938,375 | 8,158,706 | $49.39 | |
Y Class, $0.01 Par Value | $943,568 | 19,074 | $49.47 | |
A Class, $0.01 Par Value | $102,805,905 | 2,250,853 | $45.67* | |
C Class, $0.01 Par Value | $10,699,739 | 275,990 | $38.77 | |
R Class, $0.01 Par Value | $15,136,586 | 340,345 | $44.47 | |
R5 Class, $0.01 Par Value | $6,622 | 134 | $49.42 | |
R6 Class, $0.01 Par Value | $369,109,458 | 7,468,917 | $49.42 |
*Maximum offering price $48.46 (net asset value divided by 0.9425).
See Notes to Financial Statements.
14
Statement of Operations |
YEAR ENDED OCTOBER 31, 2018 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $136,318) | $ | 94,743,758 | |
Interest | 1,828,365 | ||
96,572,123 | |||
Expenses: | |||
Management fees | 108,241,866 | ||
Distribution and service fees: | |||
A Class | 239,830 | ||
C Class | 79,288 | ||
R Class | 66,004 | ||
Directors' fees and expenses | 260,527 | ||
Other expenses | 1,033 | ||
108,888,548 | |||
Net investment income (loss) | (12,316,425 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 803,383,995 | ||
Forward foreign currency exchange contract transactions | 1,446,891 | ||
Foreign currency translation transactions | (79,067 | ) | |
804,751,819 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 582,030,195 | ||
Forward foreign currency exchange contracts | (654,253 | ) | |
Translation of assets and liabilities in foreign currencies | 11,457 | ||
581,387,399 | |||
Net realized and unrealized gain (loss) | 1,386,139,218 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 1,373,822,793 |
See Notes to Financial Statements.
15
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2018 AND OCTOBER 31, 2017 | ||||||
Increase (Decrease) in Net Assets | October 31, 2018 | October 31, 2017 | ||||
Operations | ||||||
Net investment income (loss) | $ | (12,316,425 | ) | $ | 15,808,978 | |
Net realized gain (loss) | 804,751,819 | 582,096,526 | ||||
Change in net unrealized appreciation (depreciation) | 581,387,399 | 1,808,238,789 | ||||
Net increase (decrease) in net assets resulting from operations | 1,373,822,793 | 2,406,144,293 | ||||
Distributions to Shareholders | ||||||
From earnings:(1) | ||||||
Investor Class | (559,150,978 | ) | (365,711,114 | ) | ||
I Class | (19,100,754 | ) | (9,412,704 | ) | ||
Y Class | (346 | ) | — | |||
A Class | (4,976,796 | ) | (2,685,344 | ) | ||
C Class | (413,008 | ) | (170,965 | ) | ||
R Class | (690,819 | ) | (428,166 | ) | ||
R5 Class | (340 | ) | — | |||
R6 Class | (14,666,196 | ) | (4,027,821 | ) | ||
Decrease in net assets from distributions | (598,999,237 | ) | (382,436,114 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions (Note 5) | 403,469,864 | 81,023,969 | ||||
Net increase (decrease) in net assets | 1,178,293,420 | 2,104,732,148 | ||||
Net Assets | ||||||
Beginning of period | 10,248,315,715 | 8,143,583,567 | ||||
End of period | $ | 11,426,609,135 | $ | 10,248,315,715 |
(1) | Prior period presentation has been updated to reflect the current period combination of distributions to shareholders from net investment income and net realized gains. Distributions from net investment income were $(22,033,975), $(936,176), $(16,542) and $(510,662) for Investor Class, I Class, A Class and R6 Class, respectively. Distributions from net realized gains were $(343,677,139), $(8,476,528), $(2,668,802), $(170,965), $(428,166) and $(3,517,159) for Investor Class, I Class, A Class, C Class, |
R Class and R6 Class, respectively.
See Notes to Financial Statements.
16
Notes to Financial Statements |
OCTOBER 31, 2018
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's investment objective is to seek long-term capital growth.
The fund offers the Investor Class, I Class, Y Class, A Class, C Class, R Class, R5 Class and 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. Sale of the Y Class and R5 Class commenced on April 10, 2017.
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.
Fixed income securities 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. U.S. Treasury and Government Agency securities are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, 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. 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 difference in the fee among the classes is a result of their separate arrangements for non-Rule 12b-1 shareholder services. It is not the result of any difference in advisory or custodial fees or other expenses related to the management of the fund’s assets, which do not vary by class. 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 use very similar investment teams and strategies (strategy assets).
The management fee schedule range and the effective annual management fee for each class for the period ended October 31, 2018 are as follows:
Management Fee Schedule Range | Effective Annual Management Fee | |
Investor Class | 0.800% to 0.990% | 0.97% |
I Class | 0.600% to 0.790% | 0.77% |
Y Class | 0.450% to 0.640% | 0.62% |
A Class | 0.800% to 0.990% | 0.97% |
C Class | 0.800% to 0.990% | 0.97% |
R Class | 0.800% to 0.990% | 0.97% |
R5 Class | 0.600% to 0.790% | 0.77% |
R6 Class | 0.450% to 0.640% | 0.62% |
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 period ended October 31, 2018 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.
19
Interfund Transactions — The fund may enter into security transactions with other American Century Investments funds and other client accounts of the investment advisor, in accordance with the 1940 Act rules and procedures adopted by the Board of Directors. The rules and procedures require, among other things, that these transactions be effected at the independent current market price of the security. During the period, the interfund purchases and sales were $2,244,619 and $24,684,305, respectively. The effect of interfund transactions on the Statement of Operations was $13,997,096 in net realized gain (loss) on investment transactions.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the period ended October 31, 2018 were $1,852,449,660 and $1,989,977,855, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2018 | Year ended October 31, 2017(1) | |||||||||
Shares | Amount | Shares | Amount | |||||||
Investor Class/Shares Authorized | 3,350,000,000 | 3,350,000,000 | ||||||||
Sold | 10,632,542 | $ | 506,249,511 | 6,991,026 | $ | 277,438,803 | ||||
Issued in reinvestment of distributions | 12,316,233 | 540,066,800 | 9,969,734 | 353,028,282 | ||||||
Redeemed | (17,651,912 | ) | (834,762,685 | ) | (19,202,525 | ) | (747,743,609 | ) | ||
5,296,863 | 211,553,626 | (2,241,765 | ) | (117,276,524 | ) | |||||
I Class/Shares Authorized | 130,000,000 | 130,000,000 | ||||||||
Sold | 2,118,340 | 105,334,186 | 2,936,370 | 126,336,971 | ||||||
Issued in reinvestment of distributions | 395,008 | 17,885,944 | 252,374 | 9,211,667 | ||||||
Redeemed | (1,350,062 | ) | (66,260,455 | ) | (1,577,420 | ) | (64,714,752 | ) | ||
1,163,286 | 56,959,675 | 1,611,324 | 70,833,886 | |||||||
Y Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 19,926 | 1,039,561 | 127 | 5,000 | ||||||
Issued in reinvestment of distributions | 8 | 346 | — | — | ||||||
Redeemed | (987 | ) | (51,992 | ) | — | — | ||||
18,947 | 987,915 | 127 | 5,000 | |||||||
A Class/Shares Authorized | 70,000,000 | 70,000,000 | ||||||||
Sold | 714,476 | 32,776,478 | 874,768 | 33,597,337 | ||||||
Issued in reinvestment of distributions | 111,166 | 4,673,419 | 73,609 | 2,507,131 | ||||||
Redeemed | (517,254 | ) | (23,601,206 | ) | (713,427 | ) | (26,741,197 | ) | ||
308,388 | 13,848,691 | 234,950 | 9,363,271 | |||||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||
Sold | 171,628 | 6,767,809 | 66,568 | 2,234,855 | ||||||
Issued in reinvestment of distributions | 10,834 | 389,063 | 5,087 | 150,568 | ||||||
Redeemed | (51,478 | ) | (2,004,274 | ) | (36,228 | ) | (1,157,734 | ) | ||
130,984 | 5,152,598 | 35,427 | 1,227,689 | |||||||
R Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||
Sold | 166,360 | 7,536,648 | 95,802 | 3,601,379 | ||||||
Issued in reinvestment of distributions | 15,447 | 633,645 | 11,791 | 393,362 | ||||||
Redeemed | (112,648 | ) | (4,988,572 | ) | (104,730 | ) | (3,972,590 | ) | ||
69,159 | 3,181,721 | 2,863 | 22,151 | |||||||
R5 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | — | — | 127 | 5,000 | ||||||
Issued in reinvestment of distributions | 7 | 340 | — | — | ||||||
7 | 340 | 127 | 5,000 | |||||||
R6 Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||
Sold | 3,451,148 | 166,159,096 | 3,210,642 | 133,551,173 | ||||||
Issued in reinvestment of distributions | 324,115 | 14,666,196 | 110,442 | 4,027,821 | ||||||
Redeemed | (1,370,862 | ) | (69,039,994 | ) | (511,606 | ) | (20,735,498 | ) | ||
2,404,401 | 111,785,298 | 2,809,478 | 116,843,496 | |||||||
Net increase (decrease) | 9,392,035 | $ | 403,469,864 | 2,452,531 | $ | 81,023,969 |
(1) | April 10, 2017 (commencement of sale) through October 31, 2017 for the Y Class and R5 Class. |
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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.
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 | $ | 11,173,633,985 | $ | 195,113,604 | — | |||
Temporary Cash Investments | 9,603 | 63,231,266 | — | |||||
$ | 11,173,643,588 | $ | 258,344,870 | — | ||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 959,256 | — | ||||
Liabilities | ||||||||
Other Financial Instruments | ||||||||
Forward Foreign Currency Exchange Contracts | — | $ | 174,218 | — |
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 forward foreign currency exchange contract transactions and change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts, 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 $87,340,865.
22
The value of foreign currency risk derivative instruments as of October 31, 2018, is disclosed on the Statement of Assets and Liabilities as an asset of $959,256 in unrealized appreciation on forward foreign currency exchange contracts and a liability of $174,218 in unrealized depreciation on forward foreign currency exchange contracts. For the year ended October 31, 2018, the effect of foreign currency risk derivative instruments on the Statement of Operations was $1,446,891 in net realized gain (loss) on forward foreign currency exchange contract transactions and $(654,253) in change in net unrealized appreciation (depreciation) on forward foreign currency exchange contracts.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||
Distributions Paid From | ||||||
Ordinary income | $ | 17,716,470 | $ | 23,497,355 | ||
Long-term capital gains | $ | 581,282,767 | $ | 358,938,759 |
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 period end, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $ | 4,822,972,790 | |
Gross tax appreciation of investments | $ | 6,755,299,594 | |
Gross tax depreciation of investments | (146,283,926 | ) | |
Net tax appreciation (depreciation) of investments | 6,609,015,668 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | (4,018 | ) | |
Net tax appreciation (depreciation) | $ | 6,609,011,650 | |
Undistributed ordinary income | $ | 1,545,620 | |
Accumulated long-term gains | $ | 792,069,044 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
23
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 | |||||||||||||||||
2018 | $44.59 | (0.06) | 5.82 | 5.76 | (0.07) | (2.54) | (2.61) | $47.74 | 13.44% | 0.97% | 0.97% | (0.12)% | (0.12)% | 17% | $10,524,969 | ||
2017 | $35.83 | 0.07 | 10.39 | 10.46 | (0.10) | (1.60) | (1.70) | $44.59 | 30.42% | 0.98% | 0.98% | 0.17% | 0.17% | 16% | $9,593,102 | ||
2016 | $37.81 | 0.06 | (0.14) | (0.08) | (0.08) | (1.82) | (1.90) | $35.83 | (0.06)% | 0.98% | 0.98% | 0.19% | 0.19% | 18% | $7,790,085 | ||
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 | ||
I Class | |||||||||||||||||
2018 | $46.04 | 0.03 | 6.02 | 6.05 | (0.16) | (2.54) | (2.70) | $49.39 | 13.68% | 0.77% | 0.77% | 0.08% | 0.08% | 17% | $402,938 | ||
2017 | $36.95 | 0.14 | 10.73 | 10.87 | (0.18) | (1.60) | (1.78) | $46.04 | 30.66% | 0.78% | 0.78% | 0.37% | 0.37% | 16% | $322,059 | ||
2016 | $38.93 | 0.14 | (0.14) | — | (0.16) | (1.82) | (1.98) | $36.95 | 0.14% | 0.78% | 0.78% | 0.39% | 0.39% | 18% | $198,930 | ||
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 | ||
Y Class | |||||||||||||||||
2018 | $46.07 | 0.11 | 6.02 | 6.13 | (0.19) | (2.54) | (2.73) | $49.47 | 13.85% | 0.62% | 0.62% | 0.23% | 0.23% | 17% | $944 | ||
2017(3) | $39.40 | 0.10 | 6.57 | 6.67 | — | — | — | $46.07 | 16.93% | 0.63%(4) | 0.63%(4) | 0.43%(4) | 0.43%(4) | 16%(5) | $6 |
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 | |||||||||||||||||
2018 | $42.80 | (0.17) | 5.58 | 5.41 | — | (2.54) | (2.54) | $45.67 | 13.15% | 1.22% | 1.22% | (0.37)% | (0.37)% | 17% | $102,806 | ||
2017 | $34.45 | (0.04) | 10.00 | 9.96 | (0.01) | (1.60) | (1.61) | $42.80 | 30.10% | 1.23% | 1.23% | (0.08)% | (0.08)% | 16% | $83,130 | ||
2016 | $36.43 | (0.02) | (0.14) | (0.16) | — | (1.82) | (1.82) | $34.45 | (0.31)% | 1.23% | 1.23% | (0.06)% | (0.06)% | 18% | $58,829 | ||
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 | ||
C Class | |||||||||||||||||
2018 | $36.96 | (0.45) | 4.80 | 4.35 | — | (2.54) | (2.54) | $38.77 | 12.32% | 1.97% | 1.97% | (1.12)% | (1.12)% | 17% | $10,700 | ||
2017 | $30.17 | (0.28) | 8.67 | 8.39 | — | (1.60) | (1.60) | $36.96 | 29.12% | 1.98% | 1.98% | (0.83)% | (0.83)% | 16% | $5,359 | ||
2016 | $32.36 | (0.25) | (0.12) | (0.37) | — | (1.82) | (1.82) | $30.17 | (1.03)% | 1.98% | 1.98% | (0.81)% | (0.81)% | 18% | $3,306 | ||
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 | ||
R Class | |||||||||||||||||
2018 | $41.84 | (0.28) | 5.45 | 5.17 | — | (2.54) | (2.54) | $44.47 | 12.87% | 1.47% | 1.47% | (0.62)% | (0.62)% | 17% | $15,137 | ||
2017 | $33.79 | (0.12) | 9.77 | 9.65 | — | (1.60) | (1.60) | $41.84 | 29.75% | 1.48% | 1.48% | (0.33)% | (0.33)% | 16% | $11,345 | ||
2016 | $35.85 | (0.10) | (0.14) | (0.24) | — | (1.82) | (1.82) | $33.79 | (0.55)% | 1.48% | 1.48% | (0.31)% | (0.31)% | 18% | $9,066 | ||
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 |
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) | |||
R5 Class | |||||||||||||||||
2018 | $46.04 | 0.04 | 6.02 | 6.06 | (0.14) | (2.54) | (2.68) | $49.42 | 13.69% | 0.77% | 0.77% | 0.08% | 0.08% | 17% | $7 | ||
2017(3) | $39.41 | 0.07 | 6.56 | 6.63 | — | — | — | $46.04 | 16.82% | 0.78%(4) | 0.78%(4) | 0.28%(4) | 0.28%(4) | 16%(5) | $6 | ||
R6 Class | |||||||||||||||||
2018 | $46.07 | 0.10 | 6.02 | 6.12 | (0.23) | (2.54) | (2.77) | $49.42 | 13.85% | 0.62% | 0.62% | 0.23% | 0.23% | 17% | $369,109 | ||
2017 | $36.97 | 0.18 | 10.75 | 10.93 | (0.23) | (1.60) | (1.83) | $46.07 | 30.86% | 0.63% | 0.63% | 0.52% | 0.52% | 16% | $233,309 | ||
2016 | $38.95 | 0.17 | (0.12) | 0.05 | (0.21) | (1.82) | (2.03) | $36.97 | 0.29% | 0.63% | 0.63% | 0.54% | 0.54% | 18% | $83,367 | ||
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 |
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) | April 10, 2017 (commencement of sale) through October 31, 2017. |
(4) | Annualized. |
(5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2017. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the shareholders and the Board of Directors of American Century Mutual Funds, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ultra® Fund, one of the funds constituting the American Century Mutual Funds, Inc. (the “Fund”), as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Ultra® Fund of the American Century Mutual Funds, Inc. as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2018, 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 14, 2018
We have served as the auditor of one or more American Century investment companies since 1997.
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). 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 American Century Services, LLC (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 Jonathan S. Thomas, 16; and Stephen E. Yates, 8) 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 W. Bunn (1953) | Director | Since 2017 | Retired | 67 | SquareTwo Financial; Barings (formerly Babson Capital Funds Trust) (2013 to 2016) |
Barry Fink (1955) | Director | Since 2012 (independent since 2016) | Retired; Executive Vice President, ACC (2007 to 2013); President, ACS (2007 to 2013) | 67 | 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) | 67 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Self-employed Consultant | 67 | Euronet Worldwide Inc. and MGP Ingredients, 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 | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 67 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Director and Chairman of the Board | Since 2012 (Chairman since 2018) | Retired | 72 | None |
Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 117 | 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.
29
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 16 (in the case of Robert J. Leach, 15) investment companies in the American Century family of funds. 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 (2007 to present). Also serves as Chief Executive Officer, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries |
R. Wes Campbell (1974) | Chief Financial Officer and Treasurer since 2018 | Investment Operations and Investment Accounting, ACS (2000 to present) |
Amy D. Shelton (1964) | Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer, American Century funds, (2014 to present); Chief Compliance Officer, ACIM (2014 to present); Chief Compliance Officer, ACIS (2009 to present); Vice President, Client Interactions and Marketing, ACIS (2013 to 2014). Also serves as Vice President, ACIS |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (1994 to present); Vice President, ACC (2005 to present); General Counsel, ACC (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 since 2012 | Senior Vice President, ACS (2017 to present); Vice President, ACS (2000 to 2017) |
Robert J. Leach (1966) | Vice President since 2006 | Vice President, ACS (2000 to present) |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (1994 to present). Also serves as Vice President, ACIM and ACS |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (2003 to present) |
30
Approval of Management Agreement |
At a meeting held on June 28, 2018, the Fund’s Board of Directors (the "Board") 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 continual basis and the information received was supplemental to the extensive information that the Board and its committees receive and consider throughout the year. The Directors also conducted a review of the process by which the Board considers the renewal of the management agreements. The Board consulted with industry experts and reviewed industry best practices and recent judicial precedent. The Directors believe that the enhancements resulting from their review resulted in increased dialogue with the Advisor and an improved process for fund shareholders.
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 and to be provided to the Fund; |
• | the wide range of other programs and services provided and to be provided to the Fund and its shareholders on a routine and non-routine basis; |
• | the investment performance of the Fund, including data comparing the Fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; |
• | the cost of owning the Fund compared to the cost of owning similar funds; |
• | the compliance policies, procedures, and regulatory experience of the Advisor and the Fund's service providers; |
• | 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 |
• | strategic plans of the Advisor; |
• | any economies of scale associated with the Advisor’s management of the Fund and other accounts; |
• | services provided and charges to the Advisor's other investment management clients; |
• | acquired fund fees and expenses; |
• | payments and practices in connection with financial intermediaries holding shares of the Fund and the services provided by intermediaries in connection therewith; and |
• | any collateral benefits derived by the Advisor from the management of the Fund. |
The Directors held two in-person meetings and one telephonic meeting to review and discuss the information provided. The independent Directors also reviewed responses to supplemental information requests provided by the Directors to the Advisor and held active discussions with the Advisor regarding the renewal of the management agreement. The independent Directors had the benefit of the advice of their independent counsel throughout the process.
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Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel in connection with the approval. They determined that the information was sufficient for them to evaluate the management agreement 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 without limitation the following:
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that the Advisor provides or arranges at its own expense a wide variety of services including without limitation the following:
• | portfolio research and security selection |
• | 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 amounts paid by the Fund under Rule 12b-1 plans) |
The Board noted that many of these services have expanded over time in terms of both 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, provides oversight of the investment performance process. It 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 provided by the Advisor during the management agreement renewal process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board receives a report from the Advisor regarding 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-, and five-year periods and slightly below its benchmark for the ten-year period 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.
32
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 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, expenses attributable to short sales, 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. 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 and services provided in response thereto. 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 received representations from the Advisor that all such payments by the Fund were made pursuant to the Fund's Rule 12b-1 Plan and that all such payments by the Advisor were made from the Advisor’s resources and reasonable profits. The Board 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 may receive 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 retirement accounts 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 and change your withholding percentage for future distributions.
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.
*Some 403(b), 457 and qualified retirement plan distributions may be subject to 20% mandatory withholding, as they 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. 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 up to the maximum amount allowable as qualified dividend income for
the fiscal year ended October 31, 2018.
For corporate taxpayers, the fund hereby designates $17,711,917, or up to the maximum amount
allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2018 as
qualified for the corporate dividends received deduction.
The fund hereby designates $581,282,767, or up to the maximum amount allowable, as long-term
capital gain distributions (20% rate gain distributions) for the fiscal year ended October 31, 2018.
The fund hereby designates $4,553, as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871 for the fiscal year ended October 31, 2018.
36
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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. | ||
©2018 American Century Proprietary Holdings, Inc. All rights reserved. CL-ANN-90975 1812 |
ITEM 2. CODE OF ETHICS.
(a) | The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. |
(b) | No response required. |
(c) | None. |
(d) | None. |
(e) | Not applicable. |
(f) | The registrant’s Code of Ethics for Senior Financial Officers was filed as Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.’s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, and is incorporated herein by reference. |
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) | The registrant’s board has determined that the registrant has at least one audit committee financial expert serving on its audit committee. |
(a)(2) | John R. Whitten and Jan M. Lewis 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 2017: | $254,800 |
FY 2018: | $269,430 |
(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 2017:$0
FY 2018:$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 2017:$0
FY 2018:$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 2017: $0
FY 2018: $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 2017: $0
FY 2018: $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 2017:$0
FY 2018:$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 2017:$0
FY 2018:$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 2017: $104,750
FY 2018: $115,750
(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 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. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 13. 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. |
(a)(4) | 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: | December 28, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Jonathan S. Thomas | |
Name: | Jonathan S. Thomas | |
Title: | President | |
(principal executive officer) | ||
Date: | December 28, 2018 |
By: | /s/ R. Wes Campbell | |
Name: | R. Wes Campbell | |
Title: | Treasurer and | |
Chief Financial Officer | ||
(principal financial officer) | ||
Date: | December 28, 2018 |