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: | 10-31-2011 | |||||
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT OCTOBER 31, 2011
| Capital Value Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 22 |
| Report of Independent Registered Public Accounting Firm | 24 |
| Management | 25 |
| Approval of Management Agreement | 28 |
| Additional Information | 33 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
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By Phil Davidson, Chief Investment Officer, U.S. Value Equity
Stocks Advanced Despite Sharp Volatility
Stocks began the 12-month period ended October 31, 2011, in rally mode, fueled by better economic data, robust corporate earnings growth, and the Federal Reserve’s second round of quantitative easing (QE2), or the purchase of U.S. government securities to increase the money supply and encourage risk-taking among investors. Most broad U.S. stock indices gained 15%–20% during the first six months of the period.
Stock market sentiment soured throughout most of the period’s second half. Signs that the economic recovery was stalling and inflation was increasing sent investors away from riskier assets and into defensive securities. In particular, weak economic data, including a first-half 2011 economic growth rate of only 0.8%, combined with the controversial debate surrounding the U.S. debt ceiling in late July and early August and Standard & Poor’s subsequent stripping of the stellar credit rating the U.S. had enjoyed since 1917, rattled investors’ nerves and drove down U.S. and global stocks. At the same time, solvency concerns re-emerged in peripheral Europe, threatening the eurozone’s entire banking system and sending additional shockwaves throughout the global financial markets.
The markets reversed course again in the final month of the period on a fresh round of optimism. Bolstered by better economic news, solid corporate earnings, and Europe’s efforts to stabilize its sovereign debt, stocks rallied sharply in October 2011, which helped generate positive 12-month returns for the major U.S. stock indices.
Value Lagged; Companies Boosted Dividends
Value stocks lagged their growth stock counterparts across the capitalization spectrum. Much of this was due to ongoing challenges facing the financial sector, a large component of most value benchmarks. In particular, the extended period of unusually low interest rates along with new federal regulations are creating profitability problems for many banks.
On a positive note, dividends paid by S&P 500 companies increased 15% on a year-over-year basis. This primarily was due to higher company profits and the increasing recognition that dividend growth is an important demonstration of a company’s sustainable growth.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Value Index | 5.83% | |||
| Russell Midcap Growth Index | 10.08% | |||
4
| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class Return After-Tax on Distributions(1) Return After-Tax on Distributions and Sale of Shares(1) | ACTIX | 5.67%(2) 5.42%(2) 4.01%(2) | -3.23% -3.68% -2.70% | 3.34% 2.93% 2.83% | 3.46% 3.06% 2.91% | 3/31/99 |
| Russell 1000 Value Index | — | 6.16% | -2.05% | 4.57% | 3.51% | — |
Institutional Class Return After-Tax on Distributions(1) Return After-Tax on Distributions and Sale of Shares(1) | ACPIX | 5.87%(2) 5.59%(2) 4.19%(2) | -3.02%(2) -3.50%(2) -2.53%(2) | — — — | 2.64% 2.23% 2.24% | 3/1/02 |
A Class(3) No sales charge* With sales charge* Return After-Tax on Distributions(1) Return After-Tax on Distributions and Sale of Shares(1) | ACCVX | 5.41%(2) -0.67%(2) -0.86%(2) -0.17%(2) | -3.46% -4.59% -5.00% -3.83% | — — — — | 3.87% 3.14% 2.81% 2.72% | 5/14/03 |
* Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
| (1) | After-tax returns are calculated with sales charge, as applicable, using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. |
| (2) | Returns would have been lower if a portion of the management fee had not been waived. |
| (3) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
*Ending value would have been lower if a portion of the management fee had not been waived.
| Total Annual Fund Operating Expenses | ||
| Investor Class | Institutional Class | A Class |
| 1.11% | 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Portfolio Managers: Brendan Healy and Matt Titus
Performance Summary
Capital Value returned 5.67%(1) for the 12 months ended October 31, 2011. By comparison, its benchmark, the Russell 1000 Value Index, returned 6.16%, while the broader market, as measured by the S&P 500 Index, returned 8.09%.(2) The fund’s return reflects operating expenses, while the indices’ returns do not. The average return for Morningstar’s Large Cap Value category (its performance, like Capital Value’s, reflects operating expenses) was 5.07%.(3)
Despite significant volatility, stock prices posted solid gains during the one-year reporting period (as described in the Market Perspective on page 4). When the period began in November 2010, investors were optimistic about the outlook for U.S. economic growth. However, the economy weakened early in 2011, raising concern about the sustainability of the recovery. The equity market was also roiled by a series of dramatic events, including popular uprisings in North Africa and the Middle East, which drove up oil prices, and the tragedy of the earthquake, tsunami, and nuclear disaster in Japan. Throughout the reporting period, fear about the European sovereign debt crisis was pervasive. Market sentiment fluctuated, sometimes dramatically, as investors shifted back and forth between riskier asset classes and traditional safe havens such as U.S. Treasuries. In this environment, growth stocks outperformed value stocks across the capitalization spectrum. Although Capital Value slightly lagged its benchmark index, the portfolio received positive results in absolute terms from nine of the 10 sectors in which it was invested. On a relative basis, positions in the financials, utilities, and information technology sectors detracted. Investments in the energy and consumer discretionary sectors enhanced performance.
Financials Dampened Relative Results
Financials stocks were volatile during the reporting period, largely in response to Europe’s sovereign debt crisis and the efforts of European policymakers to contain it. Although an underweighted position in the sector was advantageous, the portfolio was hampered by its overweights in capital markets and diversified financial services companies. Many of these stocks, including portfolio holdings Goldman Sachs Group and Citigroup, underperformed as interest rates fell and global credit concerns increased. Both companies reported weakness in trading and investment banking. In addition, both shares of Goldman and Citigroup declined on concern that new capital requirements for global banks could hurt their profits.
Utilities Slowed Performance
The portfolio’s underweight in utilities dampened relative results. Utilities stocks, which generally have high dividend yields, performed well during the reporting period, posting the second-strongest sector performance in the benchmark. We continue to believe that many of these stocks are overvalued.
| (1) | All fund returns referenced in this commentary are for Investor Class shares. Returns would have been lower if a portion of the management fee had not been waived. |
| (2) | The S&P 500 Index average annual returns were 0.25% and 3.69% for the five- and 10-year periods ended October 31, 2011, respectively. |
| (3) | The average returns for Morningstar’s Large Cap Value category were -1.44% and 4.03% for the five- and 10-year periods ended October 31, 2011, respectively. © 2011 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. |
7
Information Technology Hampered Progress
Capital Value was hindered by an overweight position and security selection in the information technology sector, which was one of the weakest performers in the benchmark. The management team favors this sector because information technology companies generally have attractive valuations, strong balance sheets, and solid growth prospects. The computers and peripherals industry was the source of notable detractor Hewlett-Packard (HP). HP reduced revenue and earnings guidance on weakness in its services, personal computer, and printer businesses. The company also made an expensive acquisition and made an unexpected change in its chief executive officer.
Energy Boosted Results
An overweight in energy, the strongest-performing sector in the benchmark, contributed significantly to relative performance. In particular, the portfolio benefited from investments among large integrated oil and gas companies. Capital Value’s top two overweights—Exxon Mobil and Chevron Corp.—were also its top two contributors. Both companies have track records of superior earnings and continue to expand their oil and gas production capabilities.
Effective security selection in the energy equipment and services industry also enhanced results. The portfolio was overweight National Oilwell Varco when it reported better-than-expected results on new equipment orders from oil and gas exploration companies.
Consumer Discretionary Contributed
Strong stock selection in the consumer discretionary sector added to relative performance. As advertising revenues improved, the portfolio’s mix of media stocks was especially advantageous. A notable contributor was CBS Corp. CBS shares rose more than 54% during the reporting period as a result of strong earnings, robust advertising sales, and an increase in its quarterly dividend.
Outlook
We continue to be bottom-up investment managers, evaluating each company individually and building our portfolio one stock at a time. As of October 31, 2011, Capital Value is broadly diversified, with ongoing overweight positions in the health care, information technology, telecommunication services, and energy sectors. Our valuation work is also directing us toward smaller relative weightings in utilities, industrials, and financials stocks. In addition, we are still finding value opportunities among mega-cap stocks and have maintained our bias toward them.
8
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Chevron Corp. | 4.7% |
| Pfizer, Inc. | 3.5% |
| AT&T, Inc. | 3.4% |
| General Electric Co. | 3.4% |
| Exxon Mobil Corp. | 3.3% |
| Wells Fargo & Co. | 3.1% |
| JPMorgan Chase & Co. | 3.0% |
| Procter & Gamble Co. (The) | 3.0% |
| Merck & Co., Inc. | 2.9% |
| Johnson & Johnson | 2.9% |
| Top Five Industries | % of net assets |
| Oil, Gas and Consumable Fuels | 11.9% |
| Pharmaceuticals | 10.1% |
| Insurance | 8.7% |
| Commercial Banks | 6.0% |
| Diversified Telecommunication Services | 5.7% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 98.5% |
| Temporary Cash Investments | 1.2% |
| Other Assets and Liabilities | 0.3% |
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class (after waiver) | $1,000 | $915.50 | $4.83 | 1.00% |
| Investor Class (before waiver) | $1,000 | $915.50(2) | $5.31 | 1.10% |
| Institutional Class (after waiver) | $1,000 | $917.10 | $3.87 | 0.80% |
| Institutional Class (before waiver) | $1,000 | $917.10(2) | $4.35 | 0.90% |
| A Class (after waiver) | $1,000 | $915.40 | $6.03 | 1.25% |
| A Class (before waiver) | $1,000 | $915.40(2) | $6.52 | 1.35% |
| Hypothetical | ||||
| Investor Class (after waiver) | $1,000 | $1,020.16 | $5.09 | 1.00% |
| Investor Class (before waiver) | $1,000 | $1,019.66 | $5.60 | 1.10% |
| Institutional Class (after waiver) | $1,000 | $1,021.17 | $4.08 | 0.80% |
| Institutional Class (before waiver) | $1,000 | $1,020.67 | $4.58 | 0.90% |
| A Class (after waiver) | $1,000 | $1,018.90 | $6.36 | 1.25% |
| A Class (before waiver) | $1,000 | $1,018.40 | $6.87 | 1.35% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
| (2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
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OCTOBER 31, 2011
| Shares | Value |
| Common Stocks — 98.5% | ||||||||
| AEROSPACE AND DEFENSE — 1.6% | ||||||||
| Honeywell International, Inc. | 10,430 | $546,532 | ||||||
| Lockheed Martin Corp. | 5,560 | 422,004 | ||||||
| Northrop Grumman Corp. | 5,070 | 292,792 | ||||||
| Raytheon Co. | 14,720 | 650,477 | ||||||
| 1,911,805 | ||||||||
| AIRLINES — 0.4% | ||||||||
| Southwest Airlines Co. | 54,690 | 467,600 | ||||||
| AUTOMOBILES — 0.7% | ||||||||
Ford Motor Co.(1) | 74,740 | 872,963 | ||||||
| BEVERAGES — 0.8% | ||||||||
| PepsiCo, Inc. | 14,960 | 941,732 | ||||||
| BIOTECHNOLOGY — 2.3% | ||||||||
| Amgen, Inc. | 32,730 | 1,874,447 | ||||||
Gilead Sciences, Inc.(1) | 21,160 | 881,526 | ||||||
| 2,755,973 | ||||||||
| CAPITAL MARKETS — 3.5% | ||||||||
| Ameriprise Financial, Inc. | 19,690 | 919,129 | ||||||
| Bank of New York Mellon Corp. (The) | 46,060 | 980,157 | ||||||
| BlackRock, Inc. | 3,640 | 574,356 | ||||||
| Goldman Sachs Group, Inc. (The) | 12,050 | 1,320,077 | ||||||
| Morgan Stanley | 21,250 | 374,850 | ||||||
| 4,168,569 | ||||||||
| CHEMICALS — 0.4% | ||||||||
| E.I. du Pont de Nemours & Co. | 10,310 | 495,602 | ||||||
| COMMERCIAL BANKS — 6.0% | ||||||||
| PNC Financial Services Group, Inc. | 28,060 | 1,507,103 | ||||||
| U.S. Bancorp. | 74,880 | 1,916,179 | ||||||
| Wells Fargo & Co. | 140,340 | 3,636,209 | ||||||
| 7,059,491 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 0.3% | ||||||||
| Avery Dennison Corp. | 12,880 | 342,608 | ||||||
| COMMUNICATIONS EQUIPMENT — 2.6% | ||||||||
| Cisco Systems, Inc. | 165,530 | 3,067,271 | ||||||
| COMPUTERS AND PERIPHERALS — 1.9% | ||||||||
| Hewlett-Packard Co. | 64,280 | 1,710,491 | ||||||
Western Digital Corp.(1) | 21,980 | 585,547 | ||||||
| 2,296,038 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 5.4% | ||||||||
| Bank of America Corp. | 98,830 | 675,009 | ||||||
| Citigroup, Inc. | 67,840 | 2,143,066 | ||||||
| JPMorgan Chase & Co. | 101,770 | 3,537,525 | ||||||
| 6,355,600 | ||||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 5.7% | ||||||||
| AT&T, Inc. | 138,290 | $4,053,280 | ||||||
| CenturyLink, Inc. | 35,290 | 1,244,325 | ||||||
| Verizon Communications, Inc. | 38,510 | 1,424,100 | ||||||
| 6,721,705 | ||||||||
| ELECTRIC UTILITIES — 2.8% | ||||||||
| American Electric Power Co., Inc. | 37,730 | 1,482,034 | ||||||
| Exelon Corp. | 14,920 | 662,299 | ||||||
| PPL Corp. | 39,190 | 1,151,010 | ||||||
| 3,295,343 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 1.3% | ||||||||
| National Oilwell Varco, Inc. | 3,070 | 218,983 | ||||||
| Schlumberger Ltd. | 10,150 | 745,721 | ||||||
| Transocean Ltd. | 10,920 | 624,078 | ||||||
| 1,588,782 | ||||||||
| FOOD AND STAPLES RETAILING — 3.3% | ||||||||
| CVS Caremark Corp. | 49,450 | 1,795,035 | ||||||
| Kroger Co. (The) | 24,390 | 565,360 | ||||||
| SYSCO Corp. | 9,940 | 275,537 | ||||||
| Wal-Mart Stores, Inc. | 21,640 | 1,227,421 | ||||||
| 3,863,353 | ||||||||
| FOOD PRODUCTS — 0.6% | ||||||||
| Kraft Foods, Inc., Class A | 21,640 | 761,295 | ||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 0.9% | ||||||||
| Medtronic, Inc. | 31,910 | 1,108,553 | ||||||
| HEALTH CARE PROVIDERS AND SERVICES — 1.4% | ||||||||
| Aetna, Inc. | 16,280 | 647,293 | ||||||
| Quest Diagnostics, Inc. | 5,360 | 299,088 | ||||||
| WellPoint, Inc. | 10,720 | 738,608 | ||||||
| 1,684,989 | ||||||||
| HOUSEHOLD PRODUCTS — 3.0% | ||||||||
| Procter & Gamble Co. (The) | 55,250 | 3,535,447 | ||||||
| INDUSTRIAL CONGLOMERATES — 3.9% | ||||||||
| General Electric Co. | 236,710 | 3,955,424 | ||||||
| Tyco International Ltd. | 13,450 | 612,648 | ||||||
| 4,568,072 | ||||||||
| INSURANCE — 8.7% | ||||||||
| Allstate Corp. (The) | 30,390 | 800,473 | ||||||
American International Group, Inc.(1) | 16,000 | 395,040 | ||||||
Berkshire Hathaway, Inc., Class B(1) | 15,830 | 1,232,524 | ||||||
| Chubb Corp. (The) | 16,570 | 1,111,018 | ||||||
| Loews Corp. | 27,590 | 1,095,323 | ||||||
| MetLife, Inc. | 44,950 | 1,580,442 | ||||||
| Principal Financial Group, Inc. | 31,000 | 799,180 | ||||||
| Prudential Financial, Inc. | 22,330 | 1,210,286 | ||||||
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| Shares | Value |
| Torchmark Corp. | 9,460 | $387,198 | ||||||
| Travelers Cos., Inc. (The) | 28,150 | 1,642,552 | ||||||
| 10,254,036 | ||||||||
| IT SERVICES — 0.5% | ||||||||
Fiserv, Inc.(1) | 10,040 | 591,055 | ||||||
| MACHINERY — 1.2% | ||||||||
| Dover Corp. | 12,540 | 696,346 | ||||||
| Ingersoll-Rand plc | 21,930 | 682,681 | ||||||
| 1,379,027 | ||||||||
| MEDIA — 3.7% | ||||||||
| CBS Corp., Class B | 20,250 | 522,653 | ||||||
| Comcast Corp., Class A | 75,550 | 1,771,647 | ||||||
| Time Warner, Inc. | 45,520 | 1,592,745 | ||||||
| Viacom, Inc., Class B | 10,900 | 477,965 | ||||||
| 4,365,010 | ||||||||
| METALS AND MINING — 0.8% | ||||||||
| Freeport-McMoRan Copper & Gold, Inc. | 5,030 | 202,508 | ||||||
| Nucor Corp. | 19,140 | 723,109 | ||||||
| 925,617 | ||||||||
| MULTI-UTILITIES — 1.0% | ||||||||
| PG&E Corp. | 26,920 | 1,154,868 | ||||||
| MULTILINE RETAIL — 2.7% | ||||||||
| Kohl’s Corp. | 13,160 | 697,612 | ||||||
| Macy’s, Inc. | 30,120 | 919,564 | ||||||
| Target Corp. | 27,630 | 1,512,742 | ||||||
| 3,129,918 | ||||||||
| OIL, GAS AND CONSUMABLE FUELS — 11.9% | ||||||||
| Apache Corp. | 9,540 | 950,470 | ||||||
| Chevron Corp. | 52,590 | 5,524,579 | ||||||
| ConocoPhillips | 24,890 | 1,733,589 | ||||||
| Exxon Mobil Corp. | 50,490 | 3,942,764 | ||||||
| Occidental Petroleum Corp. | 6,890 | 640,357 | ||||||
| Total SA ADR | 14,530 | 759,919 | ||||||
| Valero Energy Corp. | 21,550 | 530,130 | ||||||
| 14,081,808 | ||||||||
| PAPER AND FOREST PRODUCTS — 0.7% | ||||||||
| International Paper Co. | 29,900 | 828,230 | ||||||
| PHARMACEUTICALS — 10.1% | ||||||||
| Abbott Laboratories | 18,360 | 989,053 | ||||||
| Johnson & Johnson | 52,930 | 3,408,163 | ||||||
| Merck & Co., Inc. | 98,850 | 3,410,325 | ||||||
| Pfizer, Inc. | 215,920 | 4,158,619 | ||||||
| 11,966,160 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.5% | ||||||||
| Applied Materials, Inc. | 54,880 | 676,121 | ||||||
| Intel Corp. | 119,900 | 2,942,346 | ||||||
Marvell Technology Group Ltd.(1) | 37,920 | $530,501 | ||||||
| 4,148,968 | ||||||||
| SOFTWARE — 2.5% | ||||||||
| Activision Blizzard, Inc. | 31,880 | 426,873 | ||||||
Adobe Systems, Inc.(1) | 13,320 | 391,741 | ||||||
| Microsoft Corp. | 39,480 | 1,051,352 | ||||||
| Oracle Corp. | 32,720 | 1,072,235 | ||||||
| 2,942,201 | ||||||||
| SPECIALTY RETAIL — 1.7% | ||||||||
| Lowe’s Cos., Inc. | 59,210 | 1,244,594 | ||||||
| Staples, Inc. | 49,030 | 733,489 | ||||||
| 1,978,083 | ||||||||
| TOBACCO — 0.7% | ||||||||
| Altria Group, Inc. | 29,250 | 805,838 | ||||||
TOTAL COMMON STOCKS (Cost $97,495,803) | 116,413,610 | |||||||
| Temporary Cash Investments — 1.2% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $447,741), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $438,316) | 438,315 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $449,201), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $438,315) | 438,315 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $446,653), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $438,315) | 438,314 | |||||||
| SSgA U.S. Government Money Market Fund | 38,290 | 38,290 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,353,234) | 1,353,234 | |||||||
TOTAL INVESTMENT SECURITIES — 99.7% (Cost $98,849,037) | 117,766,844 | |||||||
| OTHER ASSETS AND LIABILITIES — 0.3% | 365,643 | |||||||
| TOTAL NET ASSETS — 100.0% | $118,132,487 | |||||||
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $98,849,037) | $117,766,844 | |||
| Receivable for investments sold | 1,624,992 | |||
| Receivable for capital shares sold | 83,402 | |||
| Dividends and interest receivable | 194,029 | |||
| 119,669,267 | ||||
| Liabilities | ||||
| Payable for investments purchased | 1,384,828 | |||
| Payable for capital shares redeemed | 54,157 | |||
| Accrued management fees | 97,115 | |||
| Distribution and service fees payable | 680 | |||
| 1,536,780 | ||||
| Net Assets | $118,132,487 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $117,746,947 | |||
| Undistributed net investment income | 1,673,790 | |||
| Accumulated net realized loss | (20,206,057 | ) | ||
| Net unrealized appreciation | 18,917,807 | |||
| $118,132,487 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $111,188,086 | 18,643,551 | $5.96 | |||||||||
| Institutional Class, $0.01 Par Value | $3,617,928 | 605,810 | $5.97 | |||||||||
| A Class, $0.01 Par Value | $3,326,473 | 559,002 | $5.95 | * | ||||||||
*Maximum offering price $6.31 (net asset value divided by 0.9425)
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $2,032) | $3,437,668 | |||
| Interest | 384 | |||
| 3,438,052 | ||||
| Expenses: | ||||
| Management fees | 1,486,438 | |||
| Distribution and service fees — A Class | 10,004 | |||
| Directors’ fees and expenses | 5,647 | |||
| 1,502,089 | ||||
| Fees waived | (135,809 | ) | ||
| 1,366,280 | ||||
| Net investment income (loss) | 2,071,772 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on investment transactions | 12,040,029 | |||
| Change in net unrealized appreciation (depreciation) on investments | (5,433,491 | ) | ||
| Net realized and unrealized gain (loss) | 6,606,538 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $8,678,310 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $2,071,772 | $2,559,390 | ||||||
| Net realized gain (loss) | 12,040,029 | 1,237,403 | ||||||
| Change in net unrealized appreciation (depreciation) | (5,433,491 | ) | 11,294,260 | |||||
| Net increase (decrease) in net assets resulting from operations | 8,678,310 | 15,091,053 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Investor Class | (2,149,583 | ) | (2,997,083 | ) | ||||
| Institutional Class | (71,311 | ) | (160,186 | ) | ||||
| A Class | (56,838 | ) | (74,678 | ) | ||||
| Decrease in net assets from distributions | (2,277,732 | ) | (3,231,947 | ) | ||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (33,415,464 | ) | (38,059,437 | ) | ||||
| Net increase (decrease) in net assets | (27,014,886 | ) | (26,200,331 | ) | ||||
| Net Assets | ||||||||
| Beginning of period | 145,147,373 | 171,347,704 | ||||||
| End of period | $118,132,487 | $145,147,373 | ||||||
| Undistributed net investment income | $1,673,790 | $1,897,090 | ||||||
See Notes to Financial Statements.
16
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Capital Value Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in common stocks of medium to large companies that management believes to be undervalued at the time of purchase. The fund also seeks to minimize the impact of federal income taxes on shareholder returns by attempting to minimize taxable distributions to shareholders.
The fund is authorized to issue the Investor Class, the Institutional Class and the A Class (formerly Advisor Class). The A Class may incur an initial sales charge. The A Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
17
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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.
18
3. Fees and Transactions with Related Parties
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.90% to 1.10% for the Investor Class and A Class. The Institutional Class is 0.20% less at each point within the range. During the year ended October 31, 2011, the investment advisor voluntarily agreed to waive 0.100% of its management fee. The investment advisor expects the fee waiver to continue through July 31, 2012, and cannot terminate it without the approval of the Board of Directors. The total amount of the waiver for each class for the year ended October 31, 2011 was $128,070, $3,738 and $4,001 for the Investor Class, Institutional Class and A Class, respectively. The effective annual management fee before waiver for each class for the year ended October 31, 2011 was 1.10% for the Investor Class and A Class and 0.90% for the Institutional Class. The effective annual management fee after waiver for each class for the year ended October 31, 2011 was 1.00% for the Investor Class and A Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a Master Distribution and Individual Shareholder Services Plan (the plan) for the A Class, pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The fees are computed and accrued daily based on the A Class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plan during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $49,810,476 and $84,958,571, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
| Sold | 1,861,396 | $11,169,225 | 1,955,169 | $10,850,916 | ||||||||||||
| Issued in reinvestment of distributions | 325,518 | 1,927,066 | 451,737 | 2,507,145 | ||||||||||||
| Redeemed | (7,465,681 | ) | (44,959,583 | ) | (8,285,413 | ) | (45,868,497 | ) | ||||||||
| (5,278,767 | ) | (31,863,292 | ) | (5,878,507 | ) | (32,510,436 | ) | |||||||||
| Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||||||
| Sold | 273,829 | 1,635,705 | 390,590 | 2,170,864 | ||||||||||||
| Issued in reinvestment of distributions | 7,940 | 47,007 | 8,418 | 46,637 | ||||||||||||
| Redeemed | (369,861 | ) | (2,257,450 | ) | (1,214,410 | ) | (6,689,788 | ) | ||||||||
| (88,092 | ) | (574,738 | ) | (815,402 | ) | (4,472,287 | ) | |||||||||
| A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
| Sold | 105,439 | 642,697 | 116,151 | 650,738 | ||||||||||||
| Issued in reinvestment of distributions | 9,570 | 56,655 | 13,441 | 74,594 | ||||||||||||
| Redeemed | (278,681 | ) | (1,676,786 | ) | (327,159 | ) | (1,802,046 | ) | ||||||||
| (163,672 | ) | (977,434 | ) | (197,567 | ) | (1,076,714 | ) | |||||||||
| Net increase (decrease) | (5,530,531 | ) | $(33,415,464 | ) | (6,891,476 | ) | $(38,059,437 | ) | ||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Common Stocks | $116,413,610 | — | — | |||||||||
| Temporary Cash Investments | 38,290 | $1,314,944 | — | |||||||||
| Total Value of Investment Securities | $116,451,900 | $1,314,944 | — | |||||||||
20
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $2,277,732 | $3,231,947 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $101,033,007 | |||
| Gross tax appreciation of investments | $22,426,050 | |||
| Gross tax depreciation of investments | (5,692,213 | ) | ||
| Net tax appreciation (depreciation) of investments | $16,733,837 | |||
| Undistributed ordinary income | $1,673,790 | |||
| Accumulated capital losses | $(18,022,087 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
21
| 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 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $5.73 | 0.09 | 0.23 | 0.32 | (0.09 | ) | — | (0.09 | ) | $5.96 | 5.67 | % | 1.00 | % | 1.10 | % | 1.53 | % | 1.43 | % | 37 | % | $111,188 | |||||||||||||||||||||||
| 2010 | $5.32 | 0.09 | 0.42 | 0.51 | (0.10 | ) | — | (0.10 | ) | $5.73 | 9.69 | % | 1.09 | % | 1.11 | % | 1.56 | % | 1.54 | % | 27 | % | $137,037 | |||||||||||||||||||||||
| 2009 | $5.17 | 0.11 | 0.21 | 0.32 | (0.17 | ) | — | (0.17 | ) | $5.32 | 6.85 | % | 1.10 | % | 1.10 | % | 2.33 | % | 2.33 | % | 19 | % | $158,431 | |||||||||||||||||||||||
| 2008 | $8.78 | 0.14 | (3.28 | ) | (3.14 | ) | (0.13 | ) | (0.34 | ) | (0.47 | ) | $5.17 | (37.52 | )% | 1.10 | % | 1.10 | % | 1.98 | % | 1.98 | % | 26 | % | $185,569 | ||||||||||||||||||||
| 2007 | $8.23 | 0.13 | 0.65 | 0.78 | (0.12 | ) | (0.11 | ) | (0.23 | ) | $8.78 | 9.66 | % | 1.10 | % | 1.10 | % | 1.52 | % | 1.52 | % | 15 | % | $461,413 | ||||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $5.74 | 0.10 | 0.24 | 0.34 | (0.11 | ) | — | (0.11 | ) | $5.97 | 5.87 | % | 0.80 | % | 0.90 | % | 1.73 | % | 1.63 | % | 37 | % | $3,618 | |||||||||||||||||||||||
| 2010 | $5.32 | 0.10 | 0.43 | 0.53 | (0.11 | ) | — | (0.11 | ) | $5.74 | 10.11 | % | 0.89 | % | 0.91 | % | 1.76 | % | 1.74 | % | 27 | % | $3,980 | |||||||||||||||||||||||
| 2009 | $5.17 | 0.12 | 0.21 | 0.33 | (0.18 | ) | — | (0.18 | ) | $5.32 | 7.07 | % | 0.90 | % | 0.90 | % | 2.53 | % | 2.53 | % | 19 | % | $8,035 | |||||||||||||||||||||||
| 2008 | $8.79 | 0.15 | (3.28 | ) | (3.13 | ) | (0.15 | ) | (0.34 | ) | (0.49 | ) | $5.17 | (37.46 | )% | 0.90 | % | 0.90 | % | 2.18 | % | 2.18 | % | 26 | % | $12,030 | ||||||||||||||||||||
| 2007 | $8.24 | 0.15 | 0.65 | 0.80 | (0.14 | ) | (0.11 | ) | (0.25 | ) | $8.79 | 9.88 | % | 0.90 | % | 0.90 | % | 1.72 | % | 1.72 | % | 15 | % | $28,077 | ||||||||||||||||||||||
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Operating Expenses (before expense waiver) | Net Investment Income (Loss) | Net Investment Income (Loss) (before expense waiver) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||
A Class(3) | ||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $5.72 | 0.08 | 0.23 | 0.31 | (0.08 | ) | — | (0.08 | ) | $5.95 | 5.41 | % | 1.25 | % | 1.35 | % | 1.28 | % | 1.18 | % | 37 | % | $3,326 | |||||||||||||||||||||||
| 2010 | $5.30 | 0.07 | 0.44 | 0.51 | (0.09 | ) | — | (0.09 | ) | $5.72 | 9.64 | % | 1.34 | % | 1.36 | % | 1.31 | % | 1.29 | % | 27 | % | $4,130 | |||||||||||||||||||||||
| 2009 | $5.15 | 0.10 | 0.21 | 0.31 | (0.16 | ) | — | (0.16 | ) | $5.30 | 6.59 | % | 1.35 | % | 1.35 | % | 2.08 | % | 2.08 | % | 19 | % | $4,881 | |||||||||||||||||||||||
| 2008 | $8.76 | 0.12 | (3.28 | ) | (3.16 | ) | (0.11 | ) | (0.34 | ) | (0.45 | ) | $5.15 | (37.78 | )% | 1.35 | % | 1.35 | % | 1.73 | % | 1.73 | % | 26 | % | $7,004 | ||||||||||||||||||||
| 2007 | $8.21 | 0.11 | 0.65 | 0.76 | (0.10 | ) | (0.11 | ) | (0.21 | ) | $8.76 | 9.40 | % | 1.35 | % | 1.35 | % | 1.27 | % | 1.27 | % | 15 | % | $16,059 | ||||||||||||||||||||||
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) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capital Value Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Capital Value Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |
| Independent Directors | ||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |
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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 | ||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |
| Interested Director | ||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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.
27
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety
of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different
29
time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
30
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
31
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
32
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
33
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, 2011.
For corporate taxpayers, the fund hereby designates $2,277,732, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
34
35
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73908 1112
ANNUAL REPORT OCTOBER 31, 2011
| Balanced Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 28 |
| Statement of Operations | 29 |
| Statement of Changes in Net Assets | 30 |
| Notes to Financial Statements | 31 |
| Financial Highlights | 38 |
| Report of Independent Registered Public Accounting Firm | 39 |
| Management | 40 |
| Approval of Management Agreement | 43 |
| Additional Information | 48 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By Scott Wittman, Chief Investment Officer, Quantitative Equity and
Asset Allocation
U.S. Stocks Advanced Despite Wide Swings in Market Sentiment
The U.S. stock market weathered significant volatility during the 12 months ended October 31, 2011, and generated positive results overall. Stocks rallied throughout the first half of the period as improving economic data and better-than-expected corporate profits provided a boost to investor confidence. Stocks continued to advance in early 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
After peaking in late April, however, stocks reversed course as evidence of a slowdown in economic activity and a worsening sovereign debt crisis in Europe put downward pressure on the equity market. In addition, government wrangling over the federal debt ceiling and an unprecedented credit rating downgrade of U.S. debt weighed on investor confidence. The pullback in stocks picked up steam from July through September, but the market finished the period on a positive note, rebounding in October thanks to better economic news and positive developments in Europe.
For the 12 months, the broad equity indices returned approximately 8%. Large-cap stocks led the market’s advance, while growth shares outperformed value-oriented issues across all market capitalizations.
Broad Gains for U.S. Bonds
The U.S. bond market also gained ground for the 12-month period. The bulk of the bond market’s advance occurred during the final six months of the period as weaker economic conditions and concerns about fiscal deficits worldwide boosted demand for bonds. Treasury bonds benefited the most as investors fled riskier assets and shifted into the relative safety of the Treasury market, driving Treasury yields down to historically low levels.
Nonetheless, investment-grade corporate bonds were the best performers in the bond market during the 12-month period. Corporate securities benefited from improving economic conditions during the first half of the period and kept pace with the broad bond market rally over the last six months. Treasury bonds also posted solid gains, while mortgage-backed securities lagged as record-low mortgage rates led to concerns about higher refinancing activity.
| U.S. Market Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| U.S. Stock Indices | Barclays Capital U.S. Bond Market Indices | |||
| Russell 1000 Index (large-cap) | 8.01% | Corporate (investment-grade) | 6.14% | |
| Russell Midcap Index | 7.85% | Treasury | 5.27% | |
| Russell 2000 Index (small-cap) | 6.71% | Aggregate (multi-sector) | 5.00% | |
| MBS (mortgage-backed securities) | 4.53% | |||
4
| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWBIX | 8.26% | 3.01% | 4.90% | 7.73% | 10/20/88 |
Blended index(1) | — | 7.25% | 3.12% | 4.75% | 8.70%(2) | — |
| S&P 500 Index | — | 8.09% | 0.25% | 3.69% | 9.13%(2) | — |
| Barclays Capital U.S. Aggregate Bond Index | — | 5.00% | 6.41% | 5.46% | 7.24%(2) | — |
| Institutional Class | ABINX | 8.48% | 3.20% | 5.10% | 3.39% | 5/1/00 |
| (1) | The blended index combines two widely known indices in proportion to the asset mix of the fund. The S&P 500 Index represents 60% of the index and the remaining 40% is represented by the Barclays Capital U.S. Aggregate Bond Index. |
| (2) | Since 10/31/88, the date nearest the Investor Class’s inception for which data are available. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | |
| Investor Class | Institutional Class |
| 0.91% | 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
6
Equity Portfolio Managers: Bill Martin and Claudia Musat
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, and Brian Howell
Performance Summary
Balanced returned 8.26%* for the 12 months ended October 31, 2011. By comparison, the fund’s benchmark (a blended index consisting of 60% S&P 500 Index and 40% Barclays Capital U.S. Aggregate Bond Index) returned 7.25%.
The returns for both the fund and its benchmark reflected the positive performance of the U.S. stock and bond markets for the 12-month period. The Balanced fund outpaced its benchmark thanks to strong results from its equity component, which outperformed the S&P 500. In contrast, the fixed-income portion of the portfolio modestly underperformed its component of the benchmark. (It’s worth noting that the fund’s results reflected operating expenses, while the benchmark’s return did not.)
Stock Component Outperformed
The stock portion of the Balanced fund posted a double-digit gain for the 12-month period, surpassing the 8.09% return of the S&P 500. The key factor behind this outperformance was individual stock selection, which added value in seven of ten market sectors, led by the financials and health care sectors.
When it comes to stock selection, underweighting stocks that don’t perform well is just as important as overweighting stocks that do perform well, and this was a key factor in the outperformance of the fund’s financials holdings. For example, underweight positions in diversified financial services firm Bank of America and investment bank Goldman Sachs, both of which lowered earnings projections as they struggled with narrowing net interest margins and problematic loans, contributed meaningfully to outperformance.
In the health care sector, biotechnology firms and health care providers generated virtually all of the outperformance. The top relative performance contributor in the equity portion of the portfolio was biotechnology company Biogen Idec, which rallied sharply amid robust sales of its multiple sclerosis medications. Health care provider Humana, which benefited from rising enrollment and better cost management, also added value.
Other top contributors in the stock component included vehicle maker Polaris Industries, which reported record earnings and revenues resulting from strong sales of its off-road vehicles and motorcycles, and apparel maker VF Corp., which outpaced earnings expectations and made a beneficial acquisition.
On the downside, the utilities and energy sectors of the stock component had the biggest negative impact on results versus the S&P 500. Companies that provide multiple sources of power detracted the most in the utilities sector. Integrys Energy Group, which distributes electricity and natural gas in the Midwest, declined during the period as weaker demand led to lower revenues. In the energy sector, stock choices among oil and gas producers and an underweight position in energy equipment and services providers weighed on performance. The most significant detractors included offshore drilling services provider W&T Offshore and energy producer Marathon Oil.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Although the equity portion’s information technology holdings contributed positively overall to relative results, the two biggest individual detractors came from this sector. Printer maker Lexmark International reported disappointing earnings as increased competition led to weaker sales and declining prices, while electronic components manufacturer Vishay Intertechnology tumbled as revenues fell short of analyst expectations.
Fixed-Income Portion Lagged
The fixed-income component of the Balanced portfolio slightly underperformed the 5.00% return of the Barclays Capital U.S. Aggregate Bond Index for the 12-month period.
Sector allocation produced mixed results. On the positive side, an overweight position in corporate bonds added value as corporate securities were the best performers in the bond market for the 12 months. The fund also benefited from its exposure to municipal bonds in early 2011, as well as a position in German government bonds (hedged to remove the effects of currency fluctuations), which rallied amid a flight to quality in Europe. However, an underweight position in Treasury securities detracted from relative results, particularly in the last half of the period. In addition, a modest position in commercial mortgage-backed securities weighed on performance as these securities underperformed during the reporting period.
We reduced the bond portion’s overweight position in corporate bonds halfway through the period, taking some risk off the table. At the same time, we brought the bond component’s position in residential mortgage-backed securities back to neutral versus its benchmark after holding an underweight position for an extended period of time. This shift detracted from results as corporate bonds outperformed mortgage-backed securities over the last six months.
For much of the period, the bond component was positioned for a flatter yield curve (a narrower gap between long- and short-term Treasury yields). Although this positioning detracted from results early in the period, it added value over the last six months as the yield curve flattened considerably during the Treasury market rally. As a result, we eliminated this yield curve positioning from the portfolio in September.
Outlook
As we move into 2012, uncertainty regarding the economic environment and the sovereign debt situation in Europe is likely to result in continued volatility in the stock and bond markets. We believe that our disciplined investment processes, for both the equity and fixed-income components of the portfolio, are especially critical in periods of extreme market volatility, because we adhere to our investment approach regardless of the short-term swings and emotion sweeping the financial markets.
8
| OCTOBER 31, 2011 | |
| Top Ten Stock Holdings | % of net assets |
| Exxon Mobil Corp. | 2.5% |
| International Business Machines Corp. | 1.7% |
| Chevron Corp. | 1.6% |
| Apple, Inc. | 1.6% |
| Microsoft Corp. | 1.5% |
| Johnson & Johnson | 1.3% |
| AT&T, Inc. | 1.2% |
| Intel Corp. | 1.1% |
| Wells Fargo & Co. | 1.1% |
| Verizon Communications, Inc. | 1.1% |
| Top Five Stock Industries | % of net assets |
| Oil, Gas and Consumable Fuels | 6.4% |
| Pharmaceuticals | 4.1% |
| IT Services | 3.3% |
| Insurance | 2.8% |
| Software | 2.8% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 61.0% |
| U.S. Government Agency Mortgage-Backed Securities | 11.7% |
| Corporate Bonds | 11.4% |
| U.S. Treasury Securities | 6.6% |
| U.S. Government Agency Securities | 2.6% |
| Commercial Mortgage-Backed Securities | 2.2% |
| Collateralized Mortgage Obligations | 1.4% |
| Municipal Securities | 0.7% |
| Sovereign Governments and Agencies | 0.7% |
| Temporary Cash Investments | 2.3% |
| Other Assets and Liabilities | (0.6)% |
| Key Fixed-Income Portfolio Statistics | |
| Weighted Average Life | 7.2 years |
| Average Duration (Effective) | 5.1 years |
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period* 5/1/11 – 10/31/11 | Annualized Expense Ratio* | |
| Actual | ||||
| Investor Class | $1,000 | $984.00 | $4.50 | 0.90% |
| Institutional Class | $1,000 | $984.90 | $3.50 | 0.70% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.67 | $4.58 | 0.90% |
| Institutional Class | $1,000 | $1,021.68 | $3.57 | 0.70% |
* 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.
11
OCTOBER 31, 2011
| Shares/Principal Amount | Value |
| Common Stocks — 61.0% | ||||||||
| AEROSPACE AND DEFENSE — 1.9% | ||||||||
| Boeing Co. (The) | 6,253 | $411,384 | ||||||
| General Dynamics Corp. | 43,103 | 2,766,782 | ||||||
| Northrop Grumman Corp. | 44,915 | 2,593,841 | ||||||
| United Technologies Corp. | 52,659 | 4,106,349 | ||||||
| 9,878,356 | ||||||||
| AIR FREIGHT AND LOGISTICS — 0.6% | ||||||||
| United Parcel Service, Inc., Class B | 44,390 | 3,117,954 | ||||||
| AUTO COMPONENTS — 0.5% | ||||||||
TRW Automotive Holdings Corp.(1) | 56,992 | 2,399,363 | ||||||
| AUTOMOBILES — 0.4% | ||||||||
Ford Motor Co.(1) | 199,962 | 2,335,556 | ||||||
| BEVERAGES — 1.9% | ||||||||
| Coca-Cola Co. (The) | 29,470 | 2,013,391 | ||||||
| Coca-Cola Enterprises, Inc. | 89,128 | 2,390,413 | ||||||
Constellation Brands, Inc., Class A(1) | 111,300 | 2,250,486 | ||||||
| Dr Pepper Snapple Group, Inc. | 65,396 | 2,449,080 | ||||||
| PepsiCo, Inc. | 9,098 | 572,719 | ||||||
| 9,676,089 | ||||||||
| BIOTECHNOLOGY — 1.3% | ||||||||
| Amgen, Inc. | 51,409 | 2,944,193 | ||||||
Biogen Idec, Inc.(1) | 12,897 | 1,500,695 | ||||||
United Therapeutics Corp.(1) | 50,613 | 2,213,307 | ||||||
| 6,658,195 | ||||||||
| CAPITAL MARKETS — 0.9% | ||||||||
Affiliated Managers Group, Inc.(1) | 7,332 | 679,017 | ||||||
| Bank of New York Mellon Corp. (The) | 139,237 | 2,962,963 | ||||||
| Janus Capital Group, Inc. | 97,895 | 642,191 | ||||||
| Legg Mason, Inc. | 14,346 | 394,515 | ||||||
| 4,678,686 | ||||||||
| CHEMICALS — 1.6% | ||||||||
| CF Industries Holdings, Inc. | 16,042 | 2,603,135 | ||||||
| Monsanto Co. | 44,448 | 3,233,592 | ||||||
| PPG Industries, Inc. | 29,345 | 2,535,702 | ||||||
| 8,372,429 | ||||||||
| COMMERCIAL BANKS — 1.3% | ||||||||
| U.S. Bancorp. | 44,312 | 1,133,944 | ||||||
| Wells Fargo & Co. | 216,324 | 5,604,955 | ||||||
| 6,738,899 | ||||||||
| COMMUNICATIONS EQUIPMENT — 0.4% | ||||||||
| Cisco Systems, Inc. | 58,471 | $1,083,468 | ||||||
| Motorola Solutions, Inc. | 25,905 | 1,215,203 | ||||||
| 2,298,671 | ||||||||
| COMPUTERS AND PERIPHERALS — 2.5% | ||||||||
Apple, Inc.(1) | 20,579 | 8,329,968 | ||||||
Dell, Inc.(1) | 164,573 | 2,601,899 | ||||||
Lexmark International, Inc., Class A(1) | 70,985 | 2,250,224 | ||||||
| 13,182,091 | ||||||||
| CONSTRUCTION AND ENGINEERING — 0.5% | ||||||||
| Fluor Corp. | 42,170 | 2,397,364 | ||||||
URS Corp.(1) | 11,164 | 398,555 | ||||||
| 2,795,919 | ||||||||
| CONSUMER FINANCE — 1.4% | ||||||||
| American Express Co. | 72,355 | 3,662,610 | ||||||
| Capital One Financial Corp. | 44,468 | 2,030,409 | ||||||
| Cash America International, Inc. | 32,415 | 1,774,721 | ||||||
| Discover Financial Services | 3,610 | 85,052 | ||||||
| 7,552,792 | ||||||||
| DIVERSIFIED CONSUMER SERVICES — 0.6% | ||||||||
Apollo Group, Inc., Class A(1) | 25,217 | 1,194,025 | ||||||
Career Education Corp.(1) | 202 | 3,258 | ||||||
ITT Educational Services, Inc.(1) | 31,719 | 1,965,309 | ||||||
| 3,162,592 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 0.6% | ||||||||
| Bank of America Corp. | 243,104 | 1,660,400 | ||||||
| Citigroup, Inc. | 2,987 | 94,360 | ||||||
| JPMorgan Chase & Co. | 44,008 | 1,529,718 | ||||||
| 3,284,478 | ||||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 2.2% | ||||||||
| AT&T, Inc. | 208,428 | 6,109,025 | ||||||
| Verizon Communications, Inc. | 148,750 | 5,500,775 | ||||||
| 11,609,800 | ||||||||
| ELECTRIC UTILITIES — 0.8% | ||||||||
| American Electric Power Co., Inc. | 36,698 | 1,441,498 | ||||||
| Entergy Corp. | 37,149 | 2,569,596 | ||||||
| 4,011,094 | ||||||||
| ELECTRICAL EQUIPMENT — 0.1% | ||||||||
| Emerson Electric Co. | 15,782 | 759,430 | ||||||
12
| �� | Shares/Principal Amount | Value |
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.5% | ||||||||
Anixter International, Inc.(1) | 25 | $1,467 | ||||||
| Jabil Circuit, Inc. | 27,386 | 563,056 | ||||||
| TE Connectivity Ltd. | 5,362 | 190,619 | ||||||
Tech Data Corp.(1) | 2,047 | 100,672 | ||||||
Vishay Intertechnology, Inc.(1) | 145,261 | 1,561,556 | ||||||
| 2,417,370 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 1.5% | ||||||||
| Diamond Offshore Drilling, Inc. | 10,624 | 696,297 | ||||||
| Halliburton Co. | 16,109 | 601,832 | ||||||
Helix Energy Solutions Group, Inc.(1) | 119,619 | 2,160,319 | ||||||
| National Oilwell Varco, Inc. | 27,470 | 1,959,435 | ||||||
| Schlumberger Ltd. | 6,644 | 488,135 | ||||||
| SEACOR Holdings, Inc. | 20,317 | 1,729,993 | ||||||
| 7,636,011 | ||||||||
| FOOD AND STAPLES RETAILING — 0.6% | ||||||||
| SUPERVALU, Inc. | 27,599 | 221,344 | ||||||
| Wal-Mart Stores, Inc. | 11,746 | 666,233 | ||||||
| Walgreen Co. | 61,560 | 2,043,792 | ||||||
| 2,931,369 | ||||||||
| FOOD PRODUCTS — 1.2% | ||||||||
| ConAgra Foods, Inc. | 14,748 | 373,567 | ||||||
| H.J. Heinz Co. | 33,663 | 1,798,951 | ||||||
| Hershey Co. (The) | 42,212 | 2,415,793 | ||||||
| Tyson Foods, Inc., Class A | 85,115 | 1,642,719 | ||||||
| 6,231,030 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 0.4% | ||||||||
| Baxter International, Inc. | 4,176 | 229,596 | ||||||
| Medtronic, Inc. | 40,196 | 1,396,409 | ||||||
Zimmer Holdings, Inc.(1) | 11,514 | 605,982 | ||||||
| 2,231,987 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 1.7% | ||||||||
| Humana, Inc. | 32,401 | 2,750,521 | ||||||
| UnitedHealth Group, Inc. | 73,201 | 3,512,916 | ||||||
WellCare Health Plans, Inc.(1) | 48,894 | 2,396,295 | ||||||
| 8,659,732 | ||||||||
| HOTELS, RESTAURANTS AND LEISURE — 0.4% | ||||||||
| Brinker International, Inc. | 44,524 | 1,019,600 | ||||||
| McDonald’s Corp. | 6,319 | 586,719 | ||||||
Penn National Gaming, Inc.(1) | 5,358 | 192,888 | ||||||
| Yum! Brands, Inc. | 5,276 | 282,635 | ||||||
| 2,081,842 | ||||||||
| HOUSEHOLD DURABLES — 0.4% | ||||||||
Tempur-Pedic International, Inc.(1) | 33,117 | 2,253,943 | ||||||
| HOUSEHOLD PRODUCTS — 0.5% | ||||||||
| Procter & Gamble Co. (The) | 42,695 | $2,732,053 | ||||||
| INDUSTRIAL CONGLOMERATES — 0.6% | ||||||||
| General Electric Co. | 175,801 | 2,937,635 | ||||||
| Tyco International Ltd. | 2,486 | 113,237 | ||||||
| 3,050,872 | ||||||||
| INSURANCE — 2.8% | ||||||||
| ACE Ltd. | 41,098 | 2,965,221 | ||||||
| Allied World Assurance Co. Holdings AG | 25,161 | 1,461,854 | ||||||
| American Financial Group, Inc. | 51,549 | 1,847,000 | ||||||
Berkshire Hathaway, Inc., Class B(1) | 18,852 | 1,467,817 | ||||||
| Horace Mann Educators Corp. | 1,483 | 19,946 | ||||||
| Principal Financial Group, Inc. | 92,645 | 2,388,388 | ||||||
| Progressive Corp. (The) | 64,303 | 1,222,400 | ||||||
| Prudential Financial, Inc. | 61,579 | 3,337,582 | ||||||
| 14,710,208 | ||||||||
| INTERNET AND CATALOG RETAIL — 0.4% | ||||||||
| Expedia, Inc. | 44,616 | 1,171,616 | ||||||
priceline.com, Inc.(1) | 1,542 | 782,904 | ||||||
| 1,954,520 | ||||||||
| INTERNET SOFTWARE AND SERVICES — 0.7% | ||||||||
Ancestry.com, Inc.(1) | 9,250 | 210,623 | ||||||
Google, Inc., Class A(1) | 6,232 | 3,693,332 | ||||||
| 3,903,955 | ||||||||
| IT SERVICES — 3.3% | ||||||||
| Accenture plc, Class A | 56,247 | 3,389,444 | ||||||
Alliance Data Systems Corp.(1) | 13,348 | 1,367,369 | ||||||
CACI International, Inc., Class A(1) | 3,318 | 182,125 | ||||||
| International Business Machines Corp. | 47,060 | 8,688,688 | ||||||
| Visa, Inc., Class A | 36,261 | 3,381,701 | ||||||
| Western Union Co. (The) | 14,213 | 248,301 | ||||||
| 17,257,628 | ||||||||
| LEISURE EQUIPMENT AND PRODUCTS — 0.3% | ||||||||
| Polaris Industries, Inc. | 28,811 | 1,824,889 | ||||||
| LIFE SCIENCES TOOLS AND SERVICES — 0.2% | ||||||||
Agilent Technologies, Inc.(1) | 28,712 | 1,064,354 | ||||||
| MACHINERY — 1.3% | ||||||||
AGCO Corp.(1) | 53,947 | 2,364,497 | ||||||
| Caterpillar, Inc. | 4,298 | 405,989 | ||||||
| Parker Hannifin Corp. | 30,707 | 2,504,156 | ||||||
Sauer-Danfoss, Inc.(1) | 35,207 | 1,363,215 | ||||||
| 6,637,857 | ||||||||
13
| Shares/Principal Amount | Value |
| MEDIA — 2.1% | ||||||||
| CBS Corp., Class B | 106,477 | $2,748,171 | ||||||
DirecTV, Class A(1) | 59,583 | 2,708,643 | ||||||
DISH Network Corp., Class A(1) | 87,210 | 2,107,866 | ||||||
| Time Warner, Inc. | 92,859 | 3,249,137 | ||||||
| 10,813,817 | ||||||||
| METALS AND MINING — 1.1% | ||||||||
| Alcoa, Inc. | 76,063 | 818,438 | ||||||
| Freeport-McMoRan Copper & Gold, Inc. | 84,267 | 3,392,589 | ||||||
| Newmont Mining Corp. | 21,966 | 1,467,988 | ||||||
| 5,679,015 | ||||||||
| MULTI-UTILITIES — 0.9% | ||||||||
| Ameren Corp. | 65,587 | 2,090,913 | ||||||
| Consolidated Edison, Inc. | 640 | 37,037 | ||||||
| Public Service Enterprise Group, Inc. | 74,696 | 2,517,255 | ||||||
| 4,645,205 | ||||||||
| MULTILINE RETAIL — 0.5% | ||||||||
| Macy’s, Inc. | 85,245 | 2,602,530 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 6.4% | ||||||||
| Chevron Corp. | 80,979 | 8,506,844 | ||||||
| ConocoPhillips | 72,706 | 5,063,973 | ||||||
| Exxon Mobil Corp. | 163,933 | 12,801,528 | ||||||
| Marathon Oil Corp. | 62,170 | 1,618,285 | ||||||
| Marathon Petroleum Corp. | 7,101 | 254,926 | ||||||
| Suncor Energy, Inc. | 2,334 | 74,478 | ||||||
Tesoro Corp.(1) | 30,585 | 793,375 | ||||||
| Valero Energy Corp. | 116,661 | 2,869,860 | ||||||
| W&T Offshore, Inc. | 68,558 | 1,349,907 | ||||||
| 33,333,176 | ||||||||
| PAPER AND FOREST PRODUCTS — 0.4% | ||||||||
| Domtar Corp. | 26,920 | 2,205,017 | ||||||
| PERSONAL PRODUCTS — 0.8% | ||||||||
| Herbalife Ltd. | 33,518 | 2,090,182 | ||||||
| Nu Skin Enterprises, Inc., Class A | 36,637 | 1,851,268 | ||||||
| 3,941,450 | ||||||||
| PHARMACEUTICALS — 4.1% | ||||||||
| Abbott Laboratories | 81,483 | 4,389,489 | ||||||
| Bristol-Myers Squibb Co. | 37,548 | 1,186,141 | ||||||
| Eli Lilly & Co. | 82,231 | 3,055,704 | ||||||
| Johnson & Johnson | 105,902 | 6,819,030 | ||||||
| Merck & Co., Inc. | 22,439 | 774,146 | ||||||
| Pfizer, Inc. | 261,212 | 5,030,943 | ||||||
| 21,255,453 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.5% | ||||||||
| Rayonier, Inc. | 3,650 | $152,314 | ||||||
| Simon Property Group, Inc. | 17,618 | 2,262,856 | ||||||
| 2,415,170 | ||||||||
| ROAD AND RAIL — 0.2% | ||||||||
Old Dominion Freight Line, Inc.(1) | 1,886 | 68,971 | ||||||
| Union Pacific Corp. | 9,896 | 985,345 | ||||||
| 1,054,316 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.1% | ||||||||
| Applied Materials, Inc. | 39,299 | 484,164 | ||||||
| Intel Corp. | 231,832 | 5,689,157 | ||||||
LSI Corp.(1) | 364,043 | 2,275,269 | ||||||
Teradyne, Inc.(1) | 159,064 | 2,277,796 | ||||||
| 10,726,386 | ||||||||
| SOFTWARE — 2.8% | ||||||||
Cadence Design Systems, Inc.(1) | 223,129 | 2,470,038 | ||||||
| Intuit, Inc. | 2,798 | 150,169 | ||||||
| Microsoft Corp. | 296,964 | 7,908,151 | ||||||
| Oracle Corp. | 55,721 | 1,825,977 | ||||||
Symantec Corp.(1) | 107,983 | 1,836,791 | ||||||
Synopsys, Inc.(1) | 18,260 | 489,551 | ||||||
| 14,680,677 | ||||||||
| SPECIALTY RETAIL — 1.1% | ||||||||
Bed Bath & Beyond, Inc.(1) | 29,326 | 1,813,520 | ||||||
GameStop Corp., Class A(1) | 2,688 | 68,732 | ||||||
| Home Depot, Inc. (The) | 101,011 | 3,616,194 | ||||||
| 5,498,446 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 0.5% | ||||||||
| VF Corp. | 20,815 | 2,877,049 | ||||||
| TOBACCO — 1.0% | ||||||||
| Philip Morris International, Inc. | 78,675 | 5,497,022 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.2% | ||||||||
| Telephone & Data Systems, Inc. | 44,231 | 1,025,275 | ||||||
TOTAL COMMON STOCKS (Cost $271,525,466) | 318,342,018 | |||||||
U.S. Government Agency Mortgage-Backed Securities(2) — 11.7% | ||||||||
| FIXED-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 10.2% | ||||||||
FHLMC, 4.50%, 1/1/19(3) | $834,281 | 892,897 | ||||||
FHLMC, 6.50%, 1/1/28(3) | 61,641 | 69,954 | ||||||
FHLMC, 5.50%, 12/1/33(3) | 576,752 | 627,680 | ||||||
FHLMC, 5.50%, 1/1/38(3) | 1,317,444 | 1,428,217 | ||||||
14
| Shares/Principal Amount | Value |
| FHLMC, 6.00%, 8/1/38 | $254,845 | $279,180 | ||||||
| FHLMC, 4.00%, 4/1/41 | 1,471,629 | 1,539,203 | ||||||
FHLMC, 6.50%, 7/1/47(3) | 40,973 | 45,110 | ||||||
FNMA, 6.50%, 5/1/13(3) | 1,838 | 1,907 | ||||||
FNMA, 6.50%, 6/1/13(3) | 4,310 | 4,507 | ||||||
FNMA, 6.00%, 1/1/14(3) | 20,738 | 22,479 | ||||||
FNMA, 6.00%, 4/1/14(3) | 77,747 | 84,277 | ||||||
FNMA, 4.50%, 5/1/19(3) | 693,507 | 743,965 | ||||||
FNMA, 4.50%, 5/1/19(3) | 288,434 | 309,420 | ||||||
FNMA, 5.00%, 9/1/20(3) | 1,396,094 | 1,507,898 | ||||||
FNMA, 6.50%, 1/1/28(3) | 24,140 | 27,341 | ||||||
FNMA, 6.50%, 1/1/29(3) | 78,235 | 88,609 | ||||||
FNMA, 7.50%, 7/1/29(3) | 120,329 | 140,598 | ||||||
FNMA, 7.50%, 9/1/30(3) | 42,555 | 49,688 | ||||||
| FNMA, 5.00%, 7/1/31 | 2,061,600 | 2,220,085 | ||||||
FNMA, 6.50%, 9/1/31(3) | 69,142 | 78,310 | ||||||
FNMA, 7.00%, 9/1/31(3) | 18,345 | 21,158 | ||||||
FNMA, 6.50%, 1/1/32(3) | 118,009 | 133,067 | ||||||
FNMA, 7.00%, 6/1/32(3) | 277,543 | 319,699 | ||||||
FNMA, 6.50%, 8/1/32(3) | 103,719 | 116,953 | ||||||
FNMA, 5.50%, 6/1/33(3) | 534,746 | 583,792 | ||||||
FNMA, 5.50%, 7/1/33(3) | 777,349 | 848,646 | ||||||
FNMA, 5.50%, 8/1/33(3) | 840,367 | 917,444 | ||||||
FNMA, 5.50%, 9/1/33(3) | 598,896 | 653,826 | ||||||
FNMA, 5.00%, 11/1/33(3) | 2,421,300 | 2,613,112 | ||||||
FNMA, 4.50%, 9/1/35(3) | 2,086,984 | 2,217,095 | ||||||
FNMA, 5.00%, 2/1/36(3) | 2,549,265 | 2,748,825 | ||||||
FNMA, 5.50%, 4/1/36(3) | 1,015,829 | 1,108,682 | ||||||
FNMA, 5.50%, 5/1/36(3) | 2,017,926 | 2,202,377 | ||||||
FNMA, 5.50%, 2/1/37(3) | 641,748 | 698,102 | ||||||
| FNMA, 6.00%, 7/1/37 | 4,462,250 | 4,912,659 | ||||||
FNMA, 6.50%, 8/1/37(3) | 558,700 | 610,871 | ||||||
| FNMA, 4.00%, 1/1/41 | 2,237,356 | 2,344,985 | ||||||
| FNMA, 4.50%, 1/1/41 | 2,040,036 | 2,171,682 | ||||||
| FNMA, 4.50%, 2/1/41 | 2,011,828 | 2,130,338 | ||||||
| FNMA, 4.00%, 5/1/41 | 4,500,000 | 4,685,537 | ||||||
| FNMA, 4.50%, 7/1/41 | 1,234,926 | 1,313,073 | ||||||
FNMA, 6.50%, 6/1/47(3) | 57,740 | 63,005 | ||||||
FNMA, 6.50%, 8/1/47(3) | 233,567 | 254,866 | ||||||
FNMA, 6.50%, 8/1/47(3) | 143,855 | 156,974 | ||||||
FNMA, 6.50%, 9/1/47(3) | 262,050 | 285,947 | ||||||
FNMA, 6.50%, 9/1/47(3) | 15,845 | 17,289 | ||||||
FNMA, 6.50%, 9/1/47(3) | 122,013 | 133,140 | ||||||
FNMA, 6.50%, 9/1/47(3) | 68,026 | 74,229 | ||||||
FNMA, 6.50%, 9/1/47(3) | 106,122 | 115,799 | ||||||
GNMA, 7.00%, 4/20/26(3) | $118,378 | $137,329 | ||||||
GNMA, 7.50%, 8/15/26(3) | 65,579 | 76,542 | ||||||
GNMA, 7.00%, 2/15/28(3) | 16,160 | 18,875 | ||||||
GNMA, 7.50%, 2/15/28(3) | 33,780 | 39,603 | ||||||
GNMA, 7.00%, 12/15/28(3) | 36,859 | 43,051 | ||||||
GNMA, 7.00%, 5/15/31(3) | 132,936 | 155,474 | ||||||
GNMA, 5.50%, 11/15/32(3) | 726,162 | 810,870 | ||||||
| GNMA, 4.00%, 1/20/41 | 3,096,018 | 3,307,478 | ||||||
| GNMA, 4.50%, 5/20/41 | 2,246,798 | 2,440,168 | ||||||
| GNMA, 4.50%, 6/15/41 | 1,243,278 | 1,360,576 | ||||||
| 53,004,463 | ||||||||
| ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 1.5% | ||||||||
FHLMC, VRN, 7.00%, 11/15/11(3) | 13,654 | 14,035 | ||||||
| FNMA, VRN, 3.39%, 11/25/11 | 379,096 | 390,392 | ||||||
| FNMA, VRN, 4.50%, 11/25/11 | 7,014,276 | 7,458,148 | ||||||
FNMA, VRN, 6.50%, 11/25/11(3) | 942 | 985 | ||||||
FNMA, VRN, 6.50%, 11/25/11(3) | 3,122 | 3,265 | ||||||
FNMA, VRN, 6.50%, 11/25/11(3) | 5,324 | 5,567 | ||||||
FNMA, VRN, 7.50%, 11/25/11(3) | 454 | 454 | ||||||
| 7,872,846 | ||||||||
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $57,210,902) | 60,877,309 | |||||||
| Corporate Bonds — 11.4% | ||||||||
| AEROSPACE AND DEFENSE — 0.2% | ||||||||
Lockheed Martin Corp., 4.25%, 11/15/19(3) | 250,000 | 269,216 | ||||||
Lockheed Martin Corp., 4.85%, 9/15/41(3) | 130,000 | 139,167 | ||||||
Raytheon Co., 4.40%, 2/15/20(3) | 110,000 | 120,717 | ||||||
United Technologies Corp., 6.05%, 6/1/36(3) | 454,000 | 569,633 | ||||||
United Technologies Corp., 5.70%, 4/15/40(3) | 90,000 | 113,129 | ||||||
| 1,211,862 | ||||||||
| AUTOMOBILES — 0.1% | ||||||||
American Honda Finance Corp., 2.375%, 3/18/13(3)(4) | 170,000 | 170,838 | ||||||
American Honda Finance Corp., 2.50%, 9/21/15(3)(4) | 220,000 | 223,296 | ||||||
15
| Shares/Principal Amount | Value |
Daimler Finance North America LLC, 2.625%, 9/15/16(4) | $210,000 | $209,225 | ||||||
Nissan Motor Acceptance Corp., 3.25%, 1/30/13(3)(4) | 50,000 | 50,898 | ||||||
| 654,257 | ||||||||
| BEVERAGES — 0.2% | ||||||||
Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/19(3) | 510,000 | 669,307 | ||||||
Coca-Cola Co. (The), 1.80%, 9/1/16(3)(4) | 180,000 | 180,030 | ||||||
Dr Pepper Snapple Group, Inc., 2.90%, 1/15/16(3) | 60,000 | 62,642 | ||||||
PepsiCo, Inc., 4.875%, 11/1/40(3) | 50,000 | 58,402 | ||||||
| 970,381 | ||||||||
| CAPITAL MARKETS — 0.1% | ||||||||
Bear Stearns Cos. LLC (The), 6.40%, 10/2/17(3) | 330,000 | 381,933 | ||||||
| Jefferies Group, Inc., 5.125%, 4/13/18 | 160,000 | 144,960 | ||||||
| 526,893 | ||||||||
| CHEMICALS — 0.1% | ||||||||
| CF Industries, Inc., 6.875%, 5/1/18 | 210,000 | 239,925 | ||||||
Dow Chemical Co. (The), 5.90%, 2/15/15(3) | 110,000 | 122,612 | ||||||
Dow Chemical Co. (The), 2.50%, 2/15/16(3) | 110,000 | 110,752 | ||||||
Rohm & Haas Co., 5.60%, 3/15/13(3) | 240,000 | 252,724 | ||||||
| 726,013 | ||||||||
| COMMERCIAL BANKS — 0.8% | ||||||||
Bank of America N.A., 5.30%, 3/15/17(3) | 720,000 | 690,235 | ||||||
Barclays Bank plc, 5.00%, 9/22/16(3) | 200,000 | 212,934 | ||||||
BB&T Corp., 5.70%, 4/30/14(3) | 60,000 | 65,967 | ||||||
| BB&T Corp., 3.20%, 3/15/16 | 190,000 | 196,500 | ||||||
| Capital One Financial Corp., 4.75%, 7/15/21 | 90,000 | 94,941 | ||||||
Fifth Third Bancorp, 6.25%, 5/1/13(3) | 170,000 | 180,432 | ||||||
Fifth Third Capital Trust IV, VRN, 6.50%, 4/15/17(3) | 100,000 | 98,250 | ||||||
HSBC Bank plc, 3.50%, 6/28/15(3)(4) | 140,000 | 144,726 | ||||||
Huntington Bancshares, Inc., 7.00%, 12/15/20(3) | 30,000 | 33,719 | ||||||
Kreditanstalt fuer Wiederaufbau, 4.125%, 10/15/14(3) | $240,000 | $262,651 | ||||||
| Kreditanstalt fuer Wiederaufbau, 2.00%, 6/1/16 | 260,000 | 268,578 | ||||||
National Australia Bank Ltd., 2.75%, 9/28/15(3)(4) | 100,000 | 101,460 | ||||||
PNC Funding Corp., 4.25%, 9/21/15(3) | 50,000 | 54,034 | ||||||
| Royal Bank of Canada, 2.30%, 7/20/16 | 130,000 | 132,238 | ||||||
| Royal Bank of Scotland plc (The), 3.95%, 9/21/15 | 220,000 | 217,296 | ||||||
Royal Bank of Scotland plc (The), 4.375%, 3/16/16(3) | 370,000 | 373,191 | ||||||
SunTrust Bank, 7.25%, 3/15/18(3) | 110,000 | 126,190 | ||||||
SunTrust Banks, Inc., 3.60%, 4/15/16(3) | 50,000 | 51,333 | ||||||
| Toronto-Dominion Bank (The), 2.375%, 10/19/16 | 210,000 | 214,240 | ||||||
| U.S. Bancorp., 3.44%, 2/1/16 | 120,000 | 123,418 | ||||||
Wachovia Bank N.A., 4.80%, 11/1/14(3) | 373,000 | 397,425 | ||||||
Wachovia Bank N.A., 4.875%, 2/1/15(3) | 123,000 | 130,442 | ||||||
Wells Fargo & Co., 3.68%, 6/15/16(3) | 140,000 | 147,412 | ||||||
Wells Fargo & Co., 5.625%, 12/11/17(3) | 20,000 | 23,094 | ||||||
Wells Fargo & Co., 4.60%, 4/1/21(3) | 110,000 | 118,266 | ||||||
| 4,458,972 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 0.1% | ||||||||
Corrections Corp. of America, 7.75%, 6/1/17(3) | 90,000 | 97,875 | ||||||
Republic Services, Inc., 3.80%, 5/15/18(3) | 70,000 | 73,473 | ||||||
Republic Services, Inc., 5.50%, 9/15/19(3) | 300,000 | 346,309 | ||||||
Republic Services, Inc., 5.70%, 5/15/41(3) | 20,000 | 23,709 | ||||||
Waste Management, Inc., 6.125%, 11/30/39(3) | 120,000 | 148,637 | ||||||
| 690,003 | ||||||||
| COMMUNICATIONS EQUIPMENT — 0.1% | ||||||||
American Tower Corp., 4.625%, 4/1/15(3) | 230,000 | 245,834 | ||||||
Cisco Systems, Inc., 5.90%, 2/15/39(3) | 130,000 | 164,389 | ||||||
| 410,223 | ||||||||
16
| Shares/Principal Amount | Value |
| CONSUMER FINANCE — 0.4% | ||||||||
American Express Centurion Bank, 6.00%, 9/13/17(3) | $250,000 | $286,324 | ||||||
| American Express Credit Corp., 2.80%, 9/19/16 | 130,000 | 132,342 | ||||||
American Express Credit Corp., MTN, 2.75%, 9/15/15(3) | 200,000 | 202,893 | ||||||
Capital One Bank USA N.A., 8.80%, 7/15/19(3) | 250,000 | 298,086 | ||||||
Credit Suisse (New York), 6.00%, 2/15/18(3) | 100,000 | 103,372 | ||||||
Credit Suisse (New York), 5.30%, 8/13/19(3) | 230,000 | 248,223 | ||||||
PNC Bank N.A., 6.00%, 12/7/17(3) | 290,000 | 326,994 | ||||||
SLM Corp., 5.00%, 10/1/13(3) | 180,000 | 180,027 | ||||||
SLM Corp., 6.25%, 1/25/16(3) | 130,000 | 130,258 | ||||||
| 1,908,519 | ||||||||
| CONTAINERS AND PACKAGING — 0.1% | ||||||||
Ball Corp., 7.125%, 9/1/16(3) | 130,000 | 141,375 | ||||||
Ball Corp., 6.75%, 9/15/20(3) | 120,000 | 129,900 | ||||||
| 271,275 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 1.9% | ||||||||
Bank of America Corp., 4.50%, 4/1/15(3) | 190,000 | 187,890 | ||||||
Bank of America Corp., 6.50%, 8/1/16(3) | 620,000 | 646,671 | ||||||
Bank of America Corp., 5.75%, 12/1/17(3) | 150,000 | 149,718 | ||||||
BNP Paribas SA, 3.60%, 2/23/16(3) | 60,000 | 59,960 | ||||||
Citigroup, Inc., 6.00%, 12/13/13(3) | 330,000 | 349,544 | ||||||
Citigroup, Inc., 6.01%, 1/15/15(3) | 520,000 | 559,900 | ||||||
| Citigroup, Inc., 4.75%, 5/19/15 | 70,000 | 72,996 | ||||||
Citigroup, Inc., 6.125%, 5/15/18(3) | 660,000 | 733,955 | ||||||
Citigroup, Inc., 4.50%, 1/14/22(5) | 110,000 | 110,890 | ||||||
Deutsche Bank AG (London), 4.875%, 5/20/13(3) | 330,000 | 341,925 | ||||||
Deutsche Bank AG (London), 3.875%, 8/18/14(3) | 190,000 | 196,602 | ||||||
General Electric Capital Corp., 3.75%, 11/14/14(3) | 200,000 | 211,294 | ||||||
General Electric Capital Corp., 2.25%, 11/9/15(3) | 200,000 | 200,719 | ||||||
General Electric Capital Corp., 5.625%, 9/15/17(3) | 450,000 | 502,168 | ||||||
General Electric Capital Corp., 6.00%, 8/7/19(3) | $350,000 | $399,317 | ||||||
General Electric Capital Corp., 4.375%, 9/16/20(3) | 320,000 | 327,216 | ||||||
General Electric Capital Corp., 5.30%, 2/11/21(3) | 80,000 | 85,555 | ||||||
Goldman Sachs Group, Inc. (The), 3.625%, 2/7/16(3) | 645,000 | 640,420 | ||||||
Goldman Sachs Group, Inc. (The), 7.50%, 2/15/19(3) | 700,000 | 793,825 | ||||||
Goldman Sachs Group, Inc. (The), 6.25%, 2/1/41(3) | 100,000 | 104,237 | ||||||
| HSBC Holdings plc, 5.10%, 4/5/21 | 120,000 | 129,892 | ||||||
HSBC Holdings plc, 6.80%, 6/1/38(3) | 80,000 | 88,765 | ||||||
| JPMorgan Chase & Co., 3.45%, 3/1/16 | 190,000 | 194,559 | ||||||
| JPMorgan Chase & Co., 3.15%, 7/5/16 | 110,000 | 110,444 | ||||||
JPMorgan Chase & Co., 6.00%, 1/15/18(3) | 840,000 | 943,193 | ||||||
Morgan Stanley, 4.20%, 11/20/14(3) | 200,000 | 197,879 | ||||||
Morgan Stanley, 6.625%, 4/1/18(3) | 410,000 | 428,783 | ||||||
Morgan Stanley, 5.625%, 9/23/19(3) | 150,000 | 148,730 | ||||||
Morgan Stanley, 5.50%, 7/24/20(3) | 200,000 | 199,858 | ||||||
Morgan Stanley, 5.75%, 1/25/21(3) | 200,000 | 198,442 | ||||||
UBS AG (Stamford Branch), 2.25%, 8/12/13(3) | 70,000 | 69,855 | ||||||
UBS AG (Stamford Branch), 5.875%, 12/20/17(3) | 380,000 | 417,165 | ||||||
| 9,802,367 | ||||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.6% | ||||||||
AT&T, Inc., 6.80%, 5/15/36(3) | 350,000 | 445,977 | ||||||
AT&T, Inc., 6.55%, 2/15/39(3) | 470,000 | 595,011 | ||||||
British Telecommunications plc, 5.95%, 1/15/18(3) | 270,000 | 300,850 | ||||||
CenturyLink, Inc., 6.15%, 9/15/19(3) | 140,000 | 140,342 | ||||||
CenturyLink, Inc., Series P, 7.60%, 9/15/39(3) | 60,000 | 59,978 | ||||||
Deutsche Telekom International Finance BV, 6.75%, 8/20/18(3) | 210,000 | 251,530 | ||||||
Telecom Italia Capital SA, 6.18%, 6/18/14(3) | 290,000 | 294,872 | ||||||
Telecom Italia Capital SA, 7.00%, 6/4/18(3) | 30,000 | 31,263 | ||||||
17
| Shares/Principal Amount | Value |
Telefonica Emisiones SAU, 5.88%, 7/15/19(3) | $220,000 | $229,204 | ||||||
| Telefonica Emisiones SAU, 5.46%, 2/16/21 | 160,000 | 162,937 | ||||||
Verizon Communications, Inc., 8.75%, 11/1/18(3) | 100,000 | 135,591 | ||||||
Verizon Communications, Inc., 7.35%, 4/1/39(3) | 160,000 | 223,321 | ||||||
Windstream Corp., 7.875%, 11/1/17(3) | 150,000 | 162,750 | ||||||
| 3,033,626 | ||||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.1% | ||||||||
Jabil Circuit, Inc., 7.75%, 7/15/16(3) | 200,000 | 224,000 | ||||||
Jabil Circuit, Inc., 5.625%, 12/15/20(3) | 80,000 | 81,200 | ||||||
| 305,200 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 0.1% | ||||||||
Ensco plc, 3.25%, 3/15/16(3) | 120,000 | 123,168 | ||||||
Transocean, Inc., 6.50%, 11/15/20(3) | 100,000 | 112,037 | ||||||
Weatherford International Ltd., 9.625%, 3/1/19(3) | 150,000 | 196,323 | ||||||
| 431,528 | ||||||||
| FOOD AND STAPLES RETAILING — 0.3% | ||||||||
CVS Caremark Corp., 6.60%, 3/15/19(3) | 350,000 | 428,586 | ||||||
Kroger Co. (The), 6.40%, 8/15/17(3) | 200,000 | 237,763 | ||||||
Wal-Mart Stores, Inc., 5.875%, 4/5/27(3) | 468,000 | 576,689 | ||||||
Wal-Mart Stores, Inc., 6.20%, 4/15/38(3) | 220,000 | 290,203 | ||||||
Wal-Mart Stores, Inc., 5.00%, 10/25/40(3) | 150,000 | 172,712 | ||||||
Wal-Mart Stores, Inc., 5.625%, 4/15/41(3) | 60,000 | 74,939 | ||||||
| 1,780,892 | ||||||||
| FOOD PRODUCTS — 0.2% | ||||||||
Kellogg Co., 4.45%, 5/30/16(3) | 200,000 | 222,931 | ||||||
Kraft Foods, Inc., 6.00%, 2/11/13(3) | 70,000 | 74,000 | ||||||
Kraft Foods, Inc., 6.125%, 2/1/18(3) | 110,000 | 130,199 | ||||||
Kraft Foods, Inc., 5.375%, 2/10/20(3) | 330,000 | 382,057 | ||||||
Mead Johnson Nutrition Co., 3.50%, 11/1/14(3) | 120,000 | 125,756 | ||||||
| 934,943 | ||||||||
| GAS UTILITIES — 0.5% | ||||||||
CenterPoint Energy Resources Corp., 6.25%, 2/1/37(3) | $330,000 | $383,406 | ||||||
El Paso Corp., 7.25%, 6/1/18(3) | 200,000 | 225,000 | ||||||
El Paso Pipeline Partners Operating Co. LLC, 5.00%, 10/1/21(3) | 110,000 | 113,713 | ||||||
Enbridge Energy Partners LP, 6.50%, 4/15/18(3) | 130,000 | 150,238 | ||||||
Enbridge Energy Partners LP, 5.20%, 3/15/20(3) | 100,000 | 110,258 | ||||||
Enbridge Energy Partners LP, 5.50%, 9/15/40(3) | 120,000 | 132,801 | ||||||
Enterprise Products Operating LLC, 3.70%, 6/1/15(3) | 150,000 | 158,515 | ||||||
Enterprise Products Operating LLC, 6.30%, 9/15/17(3) | 390,000 | 458,836 | ||||||
Enterprise Products Operating LLC, 5.95%, 2/1/41(3) | 125,000 | 144,369 | ||||||
Kinder Morgan Energy Partners LP, 6.85%, 2/15/20(3) | 200,000 | 240,010 | ||||||
Kinder Morgan Energy Partners LP, 6.50%, 9/1/39(3) | 130,000 | 147,752 | ||||||
Magellan Midstream Partners LP, 6.55%, 7/15/19(3) | 150,000 | 178,861 | ||||||
Plains All American Pipeline LP/PAA Finance Corp., 3.95%, 9/15/15(3) | 60,000 | 64,087 | ||||||
Plains All American Pipeline LP/PAA Finance Corp., 8.75%, 5/1/19(3) | 190,000 | 244,258 | ||||||
Williams Partners LP, 4.125%, 11/15/20(3) | 80,000 | 82,534 | ||||||
| 2,834,638 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES† | ||||||||
Covidien International Finance SA, 1.875%, 6/15/13(3) | 170,000 | 172,767 | ||||||
| HEALTH CARE PROVIDERS AND SERVICES — 0.2% | ||||||||
Express Scripts, Inc., 5.25%, 6/15/12(3) | 230,000 | 235,810 | ||||||
Express Scripts, Inc., 7.25%, 6/15/19(3) | 360,000 | 447,949 | ||||||
Medco Health Solutions, Inc., 7.25%, 8/15/13(3) | 270,000 | 294,805 | ||||||
18
| Shares/Principal Amount | Value |
Universal Health Services, Inc., 7.125%, 6/30/16(3) | $160,000 | $173,600 | ||||||
WellPoint, Inc., 5.80%, 8/15/40(3) | 60,000 | 71,724 | ||||||
| 1,223,888 | ||||||||
| HOTELS, RESTAURANTS AND LEISURE — 0.1% | ||||||||
McDonald’s Corp., 5.35%, 3/1/18(3) | 170,000 | 203,586 | ||||||
Wyndham Worldwide Corp., 6.00%, 12/1/16(3) | 150,000 | 159,017 | ||||||
| 362,603 | ||||||||
HOUSEHOLD DURABLES† | ||||||||
Toll Brothers Finance Corp., 6.75%, 11/1/19(3) | 100,000 | 103,496 | ||||||
HOUSEHOLD PRODUCTS† | ||||||||
| Jarden Corp., 8.00%, 5/1/16 | 230,000 | 251,562 | ||||||
| INDUSTRIAL CONGLOMERATES — 0.1% | ||||||||
General Electric Co., 5.25%, 12/6/17(3) | 230,000 | 262,791 | ||||||
| INSURANCE — 0.5% | ||||||||
| Allstate Corp. (The), 7.45%, 5/16/19 | 150,000 | 187,268 | ||||||
| American International Group, Inc., 3.65%, 1/15/14 | 70,000 | 68,913 | ||||||
American International Group, Inc., 5.85%, 1/16/18(3) | 310,000 | 313,434 | ||||||
American International Group, Inc., 8.25%, 8/15/18(3) | 100,000 | 113,063 | ||||||
Berkshire Hathaway Finance Corp., 4.25%, 1/15/21(3) | 120,000 | 128,889 | ||||||
CNA Financial Corp., 5.875%, 8/15/20(3) | 60,000 | 61,172 | ||||||
| CNA Financial Corp., 5.75%, 8/15/21 | 50,000 | 50,708 | ||||||
Genworth Financial, Inc., 7.20%, 2/15/21(3) | 70,000 | 63,271 | ||||||
Hartford Financial Services Group, Inc., 4.00%, 3/30/15(3) | 180,000 | 180,644 | ||||||
Hartford Financial Services Group, Inc., 6.30%, 3/15/18(3) | 110,000 | 115,211 | ||||||
International Lease Finance Corp., 5.75%, 5/15/16(3) | 140,000 | 132,366 | ||||||
Liberty Mutual Group, Inc., 5.00%, 6/1/21(3)(4) | 93,000 | 88,182 | ||||||
Lincoln National Corp., 6.25%, 2/15/20(3) | 160,000 | 175,014 | ||||||
MetLife, Inc., 6.75%, 6/1/16(3) | 260,000 | 303,271 | ||||||
MetLife, Inc., 5.70%, 6/15/35(3) | 70,000 | 80,994 | ||||||
Prudential Financial, Inc., 7.375%, 6/15/19(3) | $100,000 | $121,900 | ||||||
Prudential Financial, Inc., 5.375%, 6/21/20(3) | 70,000 | 78,271 | ||||||
Prudential Financial, Inc., 5.40%, 6/13/35(3) | 270,000 | 269,912 | ||||||
Prudential Financial, Inc., 5.625%, 5/12/41(3) | 70,000 | 74,994 | ||||||
| 2,607,477 | ||||||||
INTERNET SOFTWARE AND SERVICES† | ||||||||
eBay, Inc., 3.25%, 10/15/20(3) | 60,000 | 60,641 | ||||||
Google, Inc., 2.125%, 5/19/16(3) | 120,000 | 123,785 | ||||||
| 184,426 | ||||||||
| IT SERVICES — 0.1% | ||||||||
| International Business Machines Corp., 1.95%, 7/22/16 | 410,000 | 421,094 | ||||||
MACHINERY† | ||||||||
Deere & Co., 5.375%, 10/16/29(3) | 200,000 | 249,609 | ||||||
| MEDIA — 1.1% | ||||||||
CBS Corp., 4.30%, 2/15/21(3) | 160,000 | 164,823 | ||||||
Comcast Corp., 5.90%, 3/15/16(3) | 339,000 | 392,687 | ||||||
Comcast Corp., 6.50%, 11/15/35(3) | 90,000 | 108,587 | ||||||
Comcast Corp., 6.40%, 5/15/38(3) | 290,000 | 349,194 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 4.75%, 10/1/14(3) | 155,000 | 168,388 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 3.55%, 3/15/15(3) | 190,000 | 199,564 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 5.00%, 3/1/21(3) | 380,000 | 418,052 | ||||||
Discovery Communications LLC, 5.625%, 8/15/19(3) | 90,000 | 103,529 | ||||||
Discovery Communications LLC, 4.375%, 6/15/21(3) | 120,000 | 126,411 | ||||||
DISH DBS Corp., 6.75%, 6/1/21(3) | 170,000 | 176,375 | ||||||
Embarq Corp., 7.08%, 6/1/16(3) | 69,000 | 74,939 | ||||||
Interpublic Group of Cos., Inc. (The), 10.00%, 7/15/17(3) | 300,000 | 345,000 | ||||||
Lamar Media Corp., 9.75%, 4/1/14(3) | 150,000 | 165,750 | ||||||
19
| Shares/Principal Amount | Value |
NBCUniversal Media LLC, 5.15%, 4/30/20(3) | $90,000 | $101,610 | ||||||
| NBCUniversal Media LLC, 4.375%, 4/1/21 | 220,000 | 235,152 | ||||||
News America, Inc., 4.50%, 2/15/21(3) | 140,000 | 146,939 | ||||||
News America, Inc., 6.90%, 8/15/39(3) | 150,000 | 177,489 | ||||||
Omnicom Group, Inc., 4.45%, 8/15/20(3) | 145,000 | 151,876 | ||||||
Qwest Corp., 7.50%, 10/1/14(3) | 200,000 | 221,000 | ||||||
SBA Telecommunications, Inc., 8.25%, 8/15/19(3) | 120,000 | 131,700 | ||||||
Time Warner Cable, Inc., 6.75%, 7/1/18(3) | 270,000 | 322,800 | ||||||
Time Warner Cable, Inc., 4.00%, 9/1/21(3) | 300,000 | 308,873 | ||||||
Time Warner, Inc., 3.15%, 7/15/15(3) | 140,000 | 146,191 | ||||||
Time Warner, Inc., 7.70%, 5/1/32(3) | 200,000 | 262,818 | ||||||
Time Warner, Inc., 6.10%, 7/15/40(3) | 50,000 | 58,398 | ||||||
Viacom, Inc., 4.375%, 9/15/14(3) | 150,000 | 161,720 | ||||||
Virgin Media Secured Finance plc, 6.50%, 1/15/18(3) | 320,000 | 346,400 | ||||||
Virgin Media Secured Finance plc, 5.25%, 1/15/21(3) | 100,000 | 108,263 | ||||||
| 5,674,528 | ||||||||
| METALS AND MINING — 0.4% | ||||||||
AngloGold Ashanti Holdings plc, 5.375%, 4/15/20(3) | 180,000 | 177,571 | ||||||
ArcelorMittal, 9.85%, 6/1/19(3) | 240,000 | 285,762 | ||||||
ArcelorMittal, 5.25%, 8/5/20(3) | 120,000 | 117,041 | ||||||
| Barrick Finance LLC, 4.40%, 5/30/21 | 130,000 | 141,667 | ||||||
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/17(3) | 210,000 | 224,945 | ||||||
Newmont Mining Corp., 6.25%, 10/1/39(3) | 120,000 | 152,012 | ||||||
Rio Tinto Finance USA Ltd., 3.50%, 11/2/20(3) | 80,000 | 82,248 | ||||||
| Rio Tinto Finance USA Ltd., 3.75%, 9/20/21 | 150,000 | 156,691 | ||||||
Teck Resources Ltd., 5.375%, 10/1/15(3) | 70,000 | 76,615 | ||||||
| Teck Resources Ltd., 3.15%, 1/15/17 | 110,000 | 111,976 | ||||||
Vale Overseas Ltd., 5.625%, 9/15/19(3) | $310,000 | $338,446 | ||||||
| Vale Overseas Ltd., 4.625%, 9/15/20 | 150,000 | 153,574 | ||||||
| 2,018,548 | ||||||||
| MULTI-UTILITIES — 0.6% | ||||||||
Carolina Power & Light Co., 5.15%, 4/1/15(3) | 100,000 | 112,604 | ||||||
Cleveland Electric Illuminating Co. (The), 5.70%, 4/1/17(3) | 81,000 | 89,687 | ||||||
| CMS Energy Corp., 4.25%, 9/30/15 | 160,000 | 162,917 | ||||||
CMS Energy Corp., 8.75%, 6/15/19(3) | 180,000 | 214,005 | ||||||
Dominion Resources, Inc., 6.40%, 6/15/18(3) | 190,000 | 229,273 | ||||||
| Dominion Resources, Inc., 4.90%, 8/1/41 | 70,000 | 77,612 | ||||||
Duke Energy Corp., 6.30%, 2/1/14(3) | 100,000 | 110,726 | ||||||
Duke Energy Corp., 3.95%, 9/15/14(3) | 130,000 | 139,183 | ||||||
Edison International, 3.75%, 9/15/17(3) | 130,000 | 132,356 | ||||||
Exelon Generation Co. LLC, 5.20%, 10/1/19(3) | 150,000 | 162,004 | ||||||
FirstEnergy Solutions Corp., 6.05%, 8/15/21(3) | 300,000 | 341,313 | ||||||
Florida Power Corp., 6.35%, 9/15/37(3) | 230,000 | 305,251 | ||||||
Ipalco Enterprises, Inc., 5.00%, 5/1/18(3)(4) | 100,000 | 101,750 | ||||||
Pacific Gas & Electric Co., 5.80%, 3/1/37(3) | 80,000 | 97,667 | ||||||
PG&E Corp., 5.75%, 4/1/14(3) | 60,000 | 65,752 | ||||||
| Public Service Company of Colorado, 4.75%, 8/15/41 | 50,000 | 56,945 | ||||||
Sempra Energy, 8.90%, 11/15/13(3) | 170,000 | 193,333 | ||||||
Sempra Energy, 6.50%, 6/1/16(3) | 200,000 | 234,340 | ||||||
Southern California Edison Co., 5.625%, 2/1/36(3) | 60,000 | 73,949 | ||||||
| Southern Power Co., 5.15%, 9/15/41 | 40,000 | 42,392 | ||||||
| 2,943,059 | ||||||||
MULTILINE RETAIL† | ||||||||
Macy’s Retail Holdings, Inc., 5.35%, 3/15/12(3) | 175,000 | 177,236 | ||||||
20
| Shares/Principal Amount | Value |
| OFFICE ELECTRONICS — 0.1% | ||||||||
Xerox Corp., 5.65%, 5/15/13(3) | $80,000 | $84,476 | ||||||
Xerox Corp., 4.25%, 2/15/15(3) | 200,000 | 211,245 | ||||||
| 295,721 | ||||||||
| OIL, GAS AND CONSUMABLE FUELS — 0.9% | ||||||||
Anadarko Petroleum Corp., 5.95%, 9/15/16(3) | 50,000 | 57,594 | ||||||
Anadarko Petroleum Corp., 6.45%, 9/15/36(3) | 250,000 | 292,843 | ||||||
Arch Western Finance LLC, 6.75%, 7/1/13(3) | 47,000 | 47,588 | ||||||
BP Capital Markets plc, 3.20%, 3/11/16(3) | 120,000 | 126,356 | ||||||
BP Capital Markets plc, 2.25%, 11/1/16(5) | 180,000 | 181,462 | ||||||
BP Capital Markets plc, 4.50%, 10/1/20(3) | 100,000 | 110,342 | ||||||
Cenovus Energy, Inc., 4.50%, 9/15/14(3) | 140,000 | 151,797 | ||||||
Chesapeake Energy Corp., 7.625%, 7/15/13(3) | 100,000 | 107,500 | ||||||
ConocoPhillips, 5.75%, 2/1/19(3) | 240,000 | 289,809 | ||||||
ConocoPhillips Holding Co., 6.95%, 4/15/29(3) | 70,000 | 96,275 | ||||||
Devon Energy Corp., 5.60%, 7/15/41(3) | 180,000 | 214,901 | ||||||
EOG Resources, Inc., 5.625%, 6/1/19(3) | 150,000 | 178,647 | ||||||
Hess Corp., 6.00%, 1/15/40(3) | 110,000 | 132,560 | ||||||
Marathon Petroleum Corp., 3.50%, 3/1/16(3)(4) | 210,000 | 215,895 | ||||||
Marathon Petroleum Corp., 5.125%, 3/1/21(3)(4) | 150,000 | 162,912 | ||||||
Newfield Exploration Co., 6.875%, 2/1/20(3) | 200,000 | 215,500 | ||||||
Nexen, Inc., 5.875%, 3/10/35(3) | 80,000 | 82,291 | ||||||
Peabody Energy Corp., 7.375%, 11/1/16(3) | 40,000 | 44,000 | ||||||
Peabody Energy Corp., 6.50%, 9/15/20(3) | 70,000 | 74,900 | ||||||
Pemex Project Funding Master Trust, 6.625%, 6/15/35(3) | 50,000 | 55,000 | ||||||
Petrobras International Finance Co. - Pifco, 5.75%, 1/20/20(3) | 200,000 | 217,372 | ||||||
| Petrobras International Finance Co. - Pifco, 5.375%, 1/27/21 | 240,000 | 255,618 | ||||||
Petroleos Mexicanos, 6.00%, 3/5/20(3) | $120,000 | $134,700 | ||||||
Shell International Finance BV, 3.10%, 6/28/15(3) | 140,000 | 149,343 | ||||||
Shell International Finance BV, 6.375%, 12/15/38(3) | 50,000 | 69,417 | ||||||
Suncor Energy, Inc., 6.10%, 6/1/18(3) | 174,000 | 206,674 | ||||||
Suncor Energy, Inc., 6.85%, 6/1/39(3) | 70,000 | 92,569 | ||||||
Talisman Energy, Inc., 7.75%, 6/1/19(3) | 350,000 | 437,160 | ||||||
Talisman Energy, Inc., 3.75%, 2/1/21(3) | 100,000 | 99,155 | ||||||
| 4,500,180 | ||||||||
| PAPER AND FOREST PRODUCTS — 0.1% | ||||||||
Georgia-Pacific LLC, 5.40%, 11/1/20(3)(4) | 270,000 | 302,455 | ||||||
| PHARMACEUTICALS — 0.3% | ||||||||
Abbott Laboratories, 5.30%, 5/27/40(3) | 70,000 | 82,453 | ||||||
AstraZeneca plc, 5.40%, 9/15/12(3) | 295,000 | 307,019 | ||||||
AstraZeneca plc, 5.90%, 9/15/17(3) | 200,000 | 243,266 | ||||||
Pfizer, Inc., 7.20%, 3/15/39(3) | 170,000 | 256,869 | ||||||
Roche Holdings, Inc., 6.00%, 3/1/19(3)(4) | 80,000 | 97,388 | ||||||
Roche Holdings, Inc., 7.00%, 3/1/39(3)(4) | 160,000 | 234,036 | ||||||
Sanofi, 4.00%, 3/29/21(3) | 95,000 | 104,706 | ||||||
Watson Pharmaceuticals, Inc., 5.00%, 8/15/14(3) | 260,000 | 281,183 | ||||||
| 1,606,920 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.3% | ||||||||
Developers Diversified Realty Corp., 5.375%, 10/15/12(3) | 70,000 | 70,835 | ||||||
Developers Diversified Realty Corp., 4.75%, 4/15/18(3) | 290,000 | 273,874 | ||||||
HCP, Inc., 3.75%, 2/1/16(3) | 160,000 | 159,645 | ||||||
| HCP, Inc., 5.375%, 2/1/21 | 55,000 | 56,758 | ||||||
Kimco Realty Corp., 6.875%, 10/1/19(3) | 90,000 | 103,387 | ||||||
Simon Property Group LP, 5.75%, 12/1/15(3) | 140,000 | 157,209 | ||||||
SL Green Realty Corp./SL Green Operating Partnership/Reckson Operating Partnership, 5.00%, 8/15/18(3) | 100,000 | 96,669 | ||||||
UDR, Inc., 4.25%, 6/1/18(3) | 110,000 | 113,533 | ||||||
21
| Shares/Principal Amount | Value |
Ventas Realty LP/Ventas Capital Corp., 3.125%, 11/30/15(3) | $195,000 | $193,075 | ||||||
Ventas Realty LP/Ventas Capital Corp., 4.75%, 6/1/21(3) | 60,000 | 59,050 | ||||||
WEA Finance LLC, 4.625%, 5/10/21(3)(4) | 210,000 | 208,975 | ||||||
| 1,493,010 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT† | ||||||||
ProLogis LP, 6.625%, 12/1/19(3) | 160,000 | 174,775 | ||||||
| ROAD AND RAIL — 0.1% | ||||||||
Burlington Northern Santa Fe LLC, 3.60%, 9/1/20(3) | 176,000 | 181,933 | ||||||
Burlington Northern Santa Fe LLC, 5.05%, 3/1/41(3) | 60,000 | 65,320 | ||||||
CSX Corp., 4.75%, 5/30/42(5) | 110,000 | 113,954 | ||||||
| Union Pacific Corp., 4.75%, 9/15/41 | 150,000 | 159,825 | ||||||
| 521,032 | ||||||||
| SOFTWARE — 0.2% | ||||||||
Intuit, Inc., 5.75%, 3/15/17(3) | 254,000 | 286,283 | ||||||
Oracle Corp., 5.375%, 7/15/40(3)(4) | 445,000 | 540,010 | ||||||
| 826,293 | ||||||||
| SPECIALTY RETAIL — 0.1% | ||||||||
Home Depot, Inc. (The), 5.40%, 3/1/16(3) | 170,000 | 194,405 | ||||||
Home Depot, Inc. (The), 5.95%, 4/1/41(3) | 100,000 | 122,534 | ||||||
| 316,939 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS† | ||||||||
Gap, Inc. (The), 5.95%, 4/12/21(3) | 120,000 | 114,505 | ||||||
Hanesbrands, Inc., 6.375%, 12/15/20(3) | 140,000 | 142,100 | ||||||
| 256,605 | ||||||||
| TOBACCO — 0.1% | ||||||||
Altria Group, Inc., 10.20%, 2/6/39(3) | 50,000 | 77,986 | ||||||
Philip Morris International, Inc., 4.125%, 5/17/21(3) | 180,000 | 197,330 | ||||||
| 275,316 | ||||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.2% | ||||||||
Alltel Corp., 7.875%, 7/1/32(3) | $100,000 | $143,673 | ||||||
America Movil SAB de CV, 5.00%, 10/16/19(3) | 200,000 | 225,105 | ||||||
America Movil SAB de CV, 5.00%, 3/30/20(3) | 110,000 | 123,925 | ||||||
Cellco Partnership/Verizon Wireless Capital LLC, 8.50%, 11/15/18(3) | 330,000 | 447,839 | ||||||
Vodafone Group plc, 5.625%, 2/27/17(3) | 110,000 | 129,552 | ||||||
| 1,070,094 | ||||||||
TOTAL CORPORATE BONDS (Cost $55,123,813) | 59,244,016 | |||||||
| U.S. Treasury Securities — 6.6% | ||||||||
U.S. Treasury Bonds, 5.50%, 8/15/28(3) | 420,000 | 572,316 | ||||||
U.S. Treasury Bonds, 5.25%, 2/15/29(3) | 489,000 | 651,058 | ||||||
U.S. Treasury Bonds, 5.375%, 2/15/31(3) | 500,000 | 684,609 | ||||||
U.S. Treasury Bonds, 4.375%, 11/15/39(3) | 2,000,000 | 2,471,562 | ||||||
U.S. Treasury Bonds, 4.375%, 5/15/41(3) | 2,000,000 | 2,479,074 | ||||||
U.S. Treasury Notes, 1.375%, 5/15/13(3) | 1,000,000 | 1,017,886 | ||||||
U.S. Treasury Notes, 1.25%, 3/15/14(3) | 6,120,000 | 6,256,758 | ||||||
U.S. Treasury Notes, 0.50%, 8/15/14(3) | 6,000,000 | 6,021,576 | ||||||
U.S. Treasury Notes, 2.375%, 8/31/14(3) | 2,500,000 | 2,639,452 | ||||||
U.S. Treasury Notes, 2.00%, 4/30/16(3) | 3,350,000 | 3,525,630 | ||||||
U.S. Treasury Notes, 2.625%, 4/30/18(3) | 375,000 | 403,184 | ||||||
U.S. Treasury Notes, 2.625%, 8/15/20(3) | 1,871,000 | 1,975,220 | ||||||
U.S. Treasury Notes, 3.125%, 5/15/21(3) | 3,300,000 | 3,600,353 | ||||||
U.S. Treasury Notes, 2.125%, 8/15/21(3) | 2,200,000 | 2,198,627 | ||||||
TOTAL U.S. TREASURY SECURITIES (Cost $32,713,464) | 34,497,305 | |||||||
22
| Shares/Principal Amount | Value |
| U.S. Government Agency Securities — 2.6% | ||||||||
| FIXED-RATE U.S. GOVERNMENT AGENCY SECURITIES — 1.9% | ||||||||
| FHLMC, 0.75%, 11/25/14 | $4,000,000 | $4,004,320 | ||||||
FHLMC, 2.875%, 2/9/15(3) | 2,900,000 | 3,094,666 | ||||||
FNMA, 5.00%, 2/13/17(3) | 2,200,000 | 2,605,761 | ||||||
| 9,704,747 | ||||||||
GOVERNMENT-BACKED CORPORATE BONDS(6) — 0.7% | ||||||||
Ally Financial, Inc., 1.75%, 10/30/12(3) | 2,000,000 | 2,029,494 | ||||||
Citigroup Funding, Inc., 1.875%, 11/15/12(3) | 1,800,000 | 1,829,864 | ||||||
| 3,859,358 | ||||||||
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (Cost $12,940,730) | 13,564,105 | |||||||
Commercial Mortgage-Backed Securities(2) — 2.2% | ||||||||
Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A4 SEQ, 4.76%, 11/10/39(3) | 400,000 | 425,034 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2004-6, Class A3 SEQ, 4.51%, 12/10/42(3) | 767,010 | 774,961 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.12%, 11/10/11(3) | 350,000 | 385,334 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.18%, 11/10/11(3) | 350,000 | 370,422 | ||||||
Commercial Mortgage Pass-Through Certificates, Series 2004-LB3A, Class A4 SEQ, VRN, 5.23%, 11/10/11(3) | 225,869 | 233,106 | ||||||
Credit Suisse Mortgage Capital Certificates, Series 2007-TF2A, Class A1, VRN, 0.42%, 11/15/11(3)(4) | 390,155 | 355,793 | ||||||
GE Capital Commercial Mortgage Corp., Series 2005-C3, Class A5, VRN, 4.98%, 11/10/11(3) | 200,000 | 201,299 | ||||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, VRN, 4.80%, 11/10/11(3) | 480,000 | 515,045 | ||||||
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.40%, 11/10/11(3) | $1,000,000 | $1,075,448 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.76%, 7/10/39(3) | 375,000 | 401,163 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.75%, 7/10/39(3) | 1,125,000 | 1,206,687 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C1, Class A4 SEQ, 4.57%, 1/15/31(3) | 625,000 | 662,287 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C2, Class A4 SEQ, 4.37%, 3/15/36(3) | 1,000,000 | 1,063,340 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.32%, 11/15/11(3) | 300,000 | 326,080 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C8, Class AJ, VRN, 4.86%, 11/15/11(3) | 125,000 | 123,965 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class AJ SEQ, 4.84%, 7/15/40(3) | 200,000 | 181,009 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class AM, VRN, 5.02%, 11/15/11(3) | 400,000 | 405,862 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class AM SEQ, VRN, 5.26%, 11/15/11(3) | 400,000 | 423,700 | ||||||
Morgan Stanley Capital I, Series 2003-T11, Class A3 SEQ, 4.85%, 6/13/41(3) | 89,856 | 90,176 | ||||||
Morgan Stanley Capital I, Series 2005-HQ6, Class A2A SEQ, 4.88%, 8/13/42(3) | 126,310 | 127,695 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C11, Class A3 SEQ, 4.72%, 1/15/41(3) | 48,132 | 48,381 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A3 SEQ, 4.50%, 10/15/41(3) | 200,000 | 204,358 | ||||||
23
| Shares/Principal Amount | Value |
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A4 SEQ, 4.80%, 10/15/41(3) | $800,000 | $862,529 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C20, Class A6A, VRN, 5.11%, 11/15/11(3) | 820,688 | 834,898 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $11,221,215) | 11,298,572 | |||||||
Collateralized Mortgage Obligations(2) — 1.4% | ||||||||
| PRIVATE SPONSOR COLLATERALIZED MORTGAGE OBLIGATIONS — 1.1% | ||||||||
| ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33 | 243,920 | 252,448 | ||||||
Banc of America Alternative Loan Trust, Series 2007-2, Class 2A4, 5.75%, 6/25/37(3) | 613,322 | 436,776 | ||||||
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19(3) | 190,010 | 194,386 | ||||||
Chase Mortgage Finance Corp., Series 2006-S4, Class A3, 6.00%, 12/25/36(3) | 256,926 | 246,636 | ||||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 5.33%, 11/25/11(3) | 375,455 | 334,881 | ||||||
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35(3) | 195,572 | 190,311 | ||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-AR28, Class 2A1, VRN, 2.61%, 12/25/11(3) | 540,496 | 456,651 | ||||||
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33(3) | 330,898 | 345,550 | ||||||
| PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 6.12%, 11/18/11 | 337,389 | 346,363 | ||||||
Residential Funding Mortgage Securities I, Series 2006-S10, Class 2A1 SEQ, 5.50%, 10/25/21(3) | 302,606 | 287,799 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 4A6, VRN, 2.69%, 11/25/11(3) | $111,662 | $109,544 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR14, Class A1, VRN, 5.35%, 11/25/11(3) | 184,074 | 177,269 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 6.06%, 11/25/11 | 283,986 | 273,784 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34(3) | 373,187 | 393,634 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust, Series 2004-4, Class A9, 5.50%, 5/25/34 | 211,987 | 218,551 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-2, Class 1A1 SEQ, 5.50%, 4/25/35 | 234,147 | 235,087 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 399,916 | 361,408 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 437,579 | 423,536 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-13, Class A5, 6.00%, 10/25/36(3) | 398,342 | 385,946 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37(3) | 343,484 | 324,422 | ||||||
| 5,994,982 | ||||||||
| U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS — 0.3% | ||||||||
FHLMC, Series 77, Class H, 8.50%, 9/15/20(3) | 96,113 | 107,055 | ||||||
FHLMC, Series 2926, Class EW SEQ, 5.00%, 1/15/25(3) | 1,200,000 | 1,313,198 | ||||||
| 1,420,253 | ||||||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $7,603,323) | 7,415,235 | |||||||
24
| Shares/Principal Amount | Value |
| Municipal Securities — 0.7% | ||||||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 5.94%, 2/15/47(3) | $50,000 | $54,468 | ||||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 7.50%, 2/15/50(3) | 75,000 | 96,541 | ||||||
Bay Area Toll Auth. Toll Bridge Rev., Series 2010 S1, (Building Bonds), 6.92%, 4/1/40(3) | 135,000 | 173,069 | ||||||
California GO, (Building Bonds), 7.30%, 10/1/39(3) | 110,000 | 132,674 | ||||||
California GO, (Building Bonds), 7.60%, 11/1/40(3) | 30,000 | 37,387 | ||||||
Illinois GO, 5.88%, 3/1/19(3) | 240,000 | 255,802 | ||||||
Illinois GO, (Taxable Pension), 5.10%, 6/1/33(3) | 300,000 | 273,117 | ||||||
| Illinois GO, Series 2010-3, (Building Bonds), 6.73%, 4/1/35 | 55,000 | 58,822 | ||||||
Los Angeles Community College District GO, Series 2010 D, (Election of 2008), 6.68%, 8/1/36(3) | 200,000 | 252,734 | ||||||
Los Angeles Department of Water & Power Rev., (Building Bonds), 5.72%, 7/1/39(3) | 60,000 | 68,464 | ||||||
Metropolitan Transportation Auth. Rev., Series 2010 C1, (Building Bonds), 6.69%, 11/15/40(3) | 105,000 | 126,104 | ||||||
Metropolitan Transportation Auth. Rev., Series 2010 E, (Building Bonds), 6.81%, 11/15/40(3) | 60,000 | 72,975 | ||||||
Missouri Highways & Transportation Commission Rev., (Building Bonds), 5.45%, 5/1/33(3) | 130,000 | 149,552 | ||||||
Municipal Electric Auth. of Georgia Rev., Series 2010 J, (Building Bonds), 6.64%, 4/1/57(3) | 105,000 | 108,118 | ||||||
New Jersey State Turnpike Auth. Rev., Series 2009 F, (Building Bonds), 7.41%, 1/1/40(3) | 100,000 | 138,174 | ||||||
New Jersey State Turnpike Auth. Rev., Series 2010 A, (Building Bonds), 7.10%, 1/1/41(3) | $95,000 | $126,915 | ||||||
New York GO, Series 2010 F1, (Building Bonds), 6.27%, 12/1/37(3) | 95,000 | 117,978 | ||||||
Ohio State University (The) Rev., Series 2011 A, 4.80%, 6/1/2111(3) | 100,000 | 101,888 | ||||||
Ohio Water Development Auth. Pollution Control Rev., Series 2010 B2, (Building Bonds), 4.88%, 12/1/34(3) | 110,000 | 121,746 | ||||||
Oregon State Department of Transportation Highway User Tax Rev., Series 2010 A, (Building Bonds), 5.83%, 11/15/34(3) | 70,000 | 85,599 | ||||||
Port Auth. of New York & New Jersey Rev., 4.93%, 10/1/51(3) | 50,000 | 51,429 | ||||||
Rutgers State University Rev., Series 2010 H, (Building Bonds), 5.67%, 5/1/40(3) | 205,000 | 239,768 | ||||||
Sacramento Municipal Utility District Electric Rev., Series 2010 W, (Building Bonds), 6.16%, 5/15/36(3) | 210,000 | 244,753 | ||||||
Salt River Agricultural Improvement & Power District Electric Rev., Series 2010 A, (Building Bonds), 4.84%, 1/1/41(3) | 95,000 | 102,961 | ||||||
San Francisco City & County Public Utilities Water Commission Rev., Series 2010 B, (Building Bonds), 6.00%, 11/1/40(3) | 155,000 | 178,283 | ||||||
Santa Clara Valley Transportation Auth. Sales Tax Rev., Series 2010 A, (Building Bonds), 5.88%, 4/1/32(3) | 120,000 | 140,568 | ||||||
Texas GO, (Building Bonds), 5.52%, 4/1/39(3) | 100,000 | 123,198 | ||||||
Washington GO, Series 2010 F, (Building Bonds), 5.14%, 8/1/40(3) | 170,000 | 194,038 | ||||||
TOTAL MUNICIPAL SECURITIES (Cost $3,340,082) | 3,827,125 | |||||||
25
| Shares/Principal Amount | Value |
| Sovereign Governments and Agencies — 0.7% | ||||||||
| BRAZIL — 0.2% | ||||||||
Brazilian Government International Bond, 5.875%, 1/15/19(3) | $690,000 | $812,475 | ||||||
| Brazilian Government International Bond, 4.875%, 1/22/21 | 20,000 | 22,190 | ||||||
Brazilian Government International Bond, 5.625%, 1/7/41(3) | 130,000 | 147,420 | ||||||
| 982,085 | ||||||||
| CANADA — 0.1% | ||||||||
Hydro-Quebec, 8.40%, 1/15/22(3) | 145,000 | 210,024 | ||||||
Province of Ontario Canada, 5.45%, 4/27/16(3) | 150,000 | 175,247 | ||||||
Province of Ontario Canada, 1.60%, 9/21/16(3) | 110,000 | 109,047 | ||||||
| 494,318 | ||||||||
CHILE† | ||||||||
Chile Government International Bond, 3.25%, 9/14/21(3) | 100,000 | 99,250 | ||||||
COLOMBIA† | ||||||||
| Colombia Government International Bond, 4.375%, 7/12/21 | 100,000 | 104,750 | ||||||
ITALY† | ||||||||
Republic of Italy, 3.125%, 1/26/15(3) | 220,000 | 207,347 | ||||||
| MEXICO — 0.2% | ||||||||
United Mexican States, 5.625%, 1/15/17(3) | 90,000 | 103,050 | ||||||
United Mexican States, 5.95%, 3/19/19(3) | 420,000 | 494,130 | ||||||
United Mexican States, 5.125%, 1/15/20(3) | $130,000 | $145,470 | ||||||
United Mexican States, 6.05%, 1/11/40(3) | 120,000 | 141,300 | ||||||
| 883,950 | ||||||||
PERU† | ||||||||
Peruvian Government International Bond, 6.55%, 3/14/37(3) | 70,000 | 87,500 | ||||||
| POLAND — 0.1% | ||||||||
Poland Government International Bond, 5.125%, 4/21/21(3) | 280,000 | 286,300 | ||||||
| SOUTH KOREA — 0.1% | ||||||||
| Export-Import Bank of Korea, 3.75%, 10/20/16 | 160,000 | 162,163 | ||||||
Korea Development Bank, 3.25%, 3/9/16(3) | 130,000 | 129,444 | ||||||
Korea Development Bank, 4.00%, 9/9/16(3) | 110,000 | 112,581 | ||||||
| 404,188 | ||||||||
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $3,314,302) | 3,549,688 | |||||||
| Temporary Cash Investments — 2.3% | ||||||||
SSgA U.S. Government Money Market Fund (Cost $11,942,200) | 11,942,200 | 11,942,200 | ||||||
TOTAL INVESTMENT SECURITIES — 100.6% (Cost $466,935,497) | 524,557,573 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.6)% | (2,991,944 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $521,565,629 | |||||||
| Credit Default Swap Agreements | |||||||
Counterparty/ Reference Entity | Notional Amount | Buy/Sell Protection | Interest Rate | Termination Date | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | Value |
| Bank of America N.A./CDX North America Investment Grade 16 Index | $4,400,000 | Buy | 1.00% | 6/20/16 | $(6,090) | $31,438 | $25,348 |
26
Notes to Schedule of Investments
CDX = Credit Derivatives Indexes
FDIC = Federal Deposit Insurance Corporation
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
GO = General Obligation
LB-UBS = Lehman Brothers, Inc. - UBS AG
MASTR = Mortgage Asset Securitization Transactions, Inc.
MTN = Medium Term Note
PHHMC = PHH Mortgage Corporation
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
| † | Category is less than 0.05% of total net assets. |
| (1) | Non-income producing. |
| (2) | Final maturity date indicated, unless otherwise noted. |
| (3) | Security, or a portion thereof, has been segregated for when-issued securities and/or swap agreements. At the period end, the aggregate value of securities pledged was $432,000. |
| (4) | Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at the period end was $3,387,869, which represented 0.6% of total net assets. |
| (5) | When-issued security. |
| (6) | The debt is guaranteed under the FDIC Temporary Liquidity Guarantee Program and is backed by the full faith and credit of the United States. |
The expiration date of the FDIC’s guarantee is the earlier of the maturity date of the debt or December 31, 2012.
See Notes to Financial Statements.
27
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $466,935,497) | $524,557,573 | |||
| Receivable for investments sold | 316,737 | |||
| Receivable for capital shares sold | 708,814 | |||
| Swap agreements, at value (including net premiums paid (received) of $(6,090)) | 25,348 | |||
| Dividends and interest receivable | 1,828,082 | |||
| 527,436,554 | ||||
| Liabilities | ||||
| Payable for investments purchased | 5,074,626 | |||
| Payable for capital shares redeemed | 412,869 | |||
| Accrued management fees | 383,430 | |||
| 5,870,925 | ||||
| Net Assets | $521,565,629 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $479,339,432 | |||
| Undistributed net investment income | 954,894 | |||
| Accumulated net realized loss | (16,382,211 | ) | ||
| Net unrealized appreciation | 57,653,514 | |||
| $521,565,629 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $511,829,465 | 32,065,108 | $15.96 | |||||||||
| Institutional Class, $0.01 Par Value | $9,736,164 | 609,863 | $15.96 | |||||||||
See Notes to Financial Statements.
28
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $3,061) | $6,186,211 | |||
| Interest (net of foreign taxes withheld of $737) | 7,892,981 | |||
| 14,079,192 | ||||
| Expenses: | ||||
| Management fees | 4,600,494 | |||
| Directors’ fees and expenses | 20,233 | |||
| 4,620,727 | ||||
| Net investment income (loss) | 9,458,465 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 30,939,628 | |||
| Futures contract transactions | 117,612 | |||
| Swap agreement transactions | (21,558 | ) | ||
| 31,035,682 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (101,651 | ) | ||
| Futures contracts | 163,421 | |||
| Swap agreements | 31,438 | |||
| 93,208 | ||||
| Net realized and unrealized gain (loss) | 31,128,890 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $40,587,355 | |||
See Notes to Financial Statements.
29
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $9,458,465 | $8,968,987 | ||||||
| Net realized gain (loss) | 31,035,682 | 33,534,651 | ||||||
| Change in net unrealized appreciation (depreciation) | 93,208 | 14,794,715 | ||||||
| Net increase (decrease) in net assets resulting from operations | 40,587,355 | 57,298,353 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Investor Class | (9,350,204 | ) | (9,006,369 | ) | ||||
| Institutional Class | (194,380 | ) | (137,117 | ) | ||||
| Decrease in net assets from distributions | (9,544,584 | ) | (9,143,486 | ) | ||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (3,081,008 | ) | (19,983,287 | ) | ||||
| Net increase (decrease) in net assets | 27,961,763 | 28,171,580 | ||||||
| Net Assets | ||||||||
| Beginning of period | 493,603,866 | 465,432,286 | ||||||
| End of period | $521,565,629 | $493,603,866 | ||||||
| Undistributed net investment income | $954,894 | $887,267 | ||||||
See Notes to Financial Statements.
30
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Balanced Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth and current income. The fund pursues its objectives by investing approximately 60% of its assets in equity securities and the remainder in bonds and other fixed-income securities.
The fund is authorized to issue the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing in greater than 60 days at the time of purchase are valued at the evaluated mean as provided by independent pricing services or at the mean of the most recent bid and asked prices as provided by investment dealers. Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Swap agreements are valued at an evaluated price as provided by independent pricing services or investment dealers.
31
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income less foreign taxes withheld, if any, is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums.
When-Issued and Forward Commitments — The fund may engage in securities transactions on a when-issued or forward commitment basis. In these transactions, the securities’ prices and yields are fixed on the date of the commitment. In a when-issued transaction, the payment and delivery are scheduled for a future date and during this period, securities are subject to market fluctuations. In a forward commitment transaction, the fund may sell a security and at the same time make a commitment to purchase the same security at a future date at a specified price. Conversely, the fund may purchase a security and at the same time make a commitment to sell the same security at a future date at a specified price. These types of transactions are executed simultaneously in what are known as “roll” transactions. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. The fund accounts for “roll” transactions as purchases and sales.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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.
32
3. Fees and Transactions with Related Parties
Management Fees — The corporation has entered into a management agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 0.900% for the Investor Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 0.90% for the Investor Class and 0.70% for the Institutional Class.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the year ended October 31, 2011 totaled $436,229,408, of which $114,667,025 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 totaled $437,581,698, of which $115,551,963 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, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 250,000,000 | 250,000,000 | ||||||||||||||
| Sold | 3,223,460 | $50,423,973 | 2,377,402 | $34,180,361 | ||||||||||||
| Issued in reinvestment of distributions | 582,740 | 9,098,277 | 607,236 | 8,759,310 | ||||||||||||
| Redeemed | (4,172,359 | ) | (65,140,298 | ) | (4,356,884 | ) | (62,587,920 | ) | ||||||||
| (366,159 | ) | (5,618,048 | ) | (1,372,246 | ) | (19,648,249 | ) | |||||||||
| Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||||||
| Sold | 1,093,989 | 17,073,594 | 55,917 | 817,168 | ||||||||||||
| Issued in reinvestment of distributions | 12,431 | 194,380 | 9,507 | 137,117 | ||||||||||||
| Redeemed | (931,815 | ) | (14,730,934 | ) | (90,124 | ) | (1,289,323 | ) | ||||||||
| 174,605 | 2,537,040 | (24,700 | ) | (335,038 | ) | |||||||||||
| Net increase (decrease) | (191,554 | ) | $(3,081,008 | ) | (1,396,946 | ) | $(19,983,287 | ) | ||||||||
33
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Common Stocks | $318,342,018 | — | — | |||||||||
| U.S. Government Agency Mortgage-Backed Securities | — | $60,877,309 | — | |||||||||
| Corporate Bonds | — | 59,244,016 | — | |||||||||
| U.S. Treasury Securities | — | 34,497,305 | — | |||||||||
| U.S. Government Agency Securities | — | 13,564,105 | — | |||||||||
| Commercial Mortgage-Backed Securities | — | 11,298,572 | — | |||||||||
| Collateralized Mortgage Obligations | — | 7,415,235 | — | |||||||||
| Municipal Securities | — | 3,827,125 | — | |||||||||
| Sovereign Governments and Agencies | — | 3,549,688 | — | |||||||||
| Temporary Cash Investments | 11,942,200 | — | — | |||||||||
| Total Value of Investment Securities | $330,284,218 | $194,273,355 | — | |||||||||
| Other Financial Instruments | ||||||||||||
| Total Unrealized Gain (Loss) on Swap Agreements | — | $31,438 | — | |||||||||
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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. 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. 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 began investing in credit risk derivative instruments in March 2011. The credit risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume since March 2011.
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 infrequently purchased equity price risk derivative instruments for temporary investment purposes.
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. During the period the fund regularly held interest rate risk derivative instruments though none were held at period end.
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| Value of Derivative Instruments as of October 31, 2011 | ||||||||||
| Asset Derivatives | Liability Derivatives | |||||||||
Type of Risk Exposure | Location on Statement of Assets and Liabilities | Value | Location on Statement of Assets and Liabilities | Value | ||||||
| Credit Risk | Swap agreements | $25,348 | Swap agreements | — | ||||||
| Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2011 | ||||||||||
| 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 | $(21,558 | ) | Change in net unrealized appreciation (depreciation) on swap agreements | $31,438 | |||||
| Equity Price Risk | Net realized gain (loss) on futures contract transactions | 95,768 | Change in net unrealized appreciation (depreciation) on futures contracts | — | ||||||
| Interest Rate Risk | Net realized gain (loss) on futures contract transactions | 21,844 | Change in net unrealized appreciation (depreciation) on futures contracts | 163,421 | ||||||
| $96,054 | $194,859 | |||||||||
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $9,544,584 | $9,143,486 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $472,096,669 | |||
| Gross tax appreciation of investments | $59,903,676 | |||
| Gross tax depreciation of investments | (7,442,772 | ) | ||
| Net tax appreciation (depreciation) of investments | $52,460,904 | |||
| Net tax appreciation (depreciation) on derivatives | $36,571 | |||
| Other book-to-tax adjustments | $(332,024 | ) | ||
| Net tax appreciation (depreciation) | $52,165,451 | |||
| Undistributed ordinary income | $954,894 | |||
| Accumulated capital losses | $(10,894,148 | ) |
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The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. Other book-to-tax adjustments are attributable primarily to the tax deferral of losses on straddle positions.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Income From Investment Operations: | Distributions From: | Total Return(2) | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||
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 | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $15.02 | 0.29 | 0.94 | 1.23 | (0.29 | ) | — | (0.29 | ) | $15.96 | 8.26 | % | 0.90 | % | 1.84 | % | 87 | % | $511,829 | |||||||||||||||||||||
| 2010 | $13.58 | 0.27 | 1.44 | 1.71 | (0.27 | ) | — | (0.27 | ) | $15.02 | 12.70 | % | 0.91 | % | 1.85 | % | 69 | % | $487,066 | |||||||||||||||||||||
| 2009 | $12.66 | 0.28 | 0.93 | 1.21 | (0.29 | ) | — | (0.29 | ) | $13.58 | 9.81 | % | 0.90 | % | 2.21 | % | 110 | % | $459,183 | |||||||||||||||||||||
| 2008 | $17.47 | 0.37 | (3.69 | ) | (3.32 | ) | (0.37 | ) | (1.12 | ) | (1.49 | ) | $12.66 | (20.52 | )% | 0.90 | % | 2.42 | % | 153 | % | $439,969 | ||||||||||||||||||
| 2007 | $17.03 | 0.35 | 1.11 | 1.46 | (0.36 | ) | (0.66 | ) | (1.02 | ) | $17.47 | 8.92 | % | 0.90 | % | 2.08 | % | 161 | % | $636,276 | ||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $15.02 | 0.32 | 0.94 | 1.26 | (0.32 | ) | — | (0.32 | ) | $15.96 | 8.48 | % | 0.70 | % | 2.04 | % | 87 | % | $9,736 | |||||||||||||||||||||
| 2010 | $13.59 | 0.29 | 1.44 | 1.73 | (0.30 | ) | — | (0.30 | ) | $15.02 | 12.84 | % | 0.71 | % | 2.05 | % | 69 | % | $6,538 | |||||||||||||||||||||
| 2009 | $12.66 | 0.30 | 0.94 | 1.24 | (0.31 | ) | — | (0.31 | ) | $13.59 | 10.11 | % | 0.70 | % | 2.41 | % | 110 | % | $6,249 | |||||||||||||||||||||
| 2008 | $17.47 | 0.39 | (3.68 | ) | (3.29 | ) | (0.40 | ) | (1.12 | ) | (1.52 | ) | $12.66 | (20.37 | )% | 0.70 | % | 2.62 | % | 153 | % | $5,927 | ||||||||||||||||||
| 2007 | $17.04 | 0.39 | 1.09 | 1.48 | (0.39 | ) | (0.66 | ) | (1.05 | ) | $17.47 | 9.07 | % | 0.70 | % | 2.28 | % | 161 | % | $1,338 | ||||||||||||||||||||
Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Balanced Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Balanced Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
39
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||
| Independent Directors | ||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
41
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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.
42
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
43
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholderconfirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different
44
time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
45
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
46
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
47
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
48
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, 2011.
For corporate taxpayers, the fund hereby designates $5,856,024, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73903 1112
ANNUAL REPORT OCTOBER 31, 2011
| All Cap Growth Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 24 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Management | 27 |
| Approval of Management Agreement | 30 |
| Additional Information | 35 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance,
particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer,
U.S. Growth Equity—Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWGTX | 7.63% | 6.94% | 7.20%(1) | 11.14% | 11/25/83 |
| Russell 3000 Growth Index | — | 9.92% | 3.01% | 3.74% | 9.06%(2) | — |
| Institutional Class | ACAJX | — | — | — | 10.82%(3) | 9/30/11 |
A Class No sales charge* With sales charge* | ACAQX | — — | — — | — — | 10.78%(3) 4.43%(3) | 9/30/11 |
C Class No sales charge* With sales charge* | ACAHX | — — | — — | — — | 10.70%(3) 9.70%(3) | 9/30/11 |
| R Class | ACAWX | — | — | — | 10.74%(3) | 9/30/11 |
* Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
| (1) | Returns would have been lower if a portion of the management fee had not been waived. |
| (2) | Since 11/30/83, the date nearest the Investor Class’s inception for which data are available. |
| (3) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
*Ending value would have been lower if a portion of the management fee had not been waived.
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional Class | A Class | C Class | R Class |
| 1.01% | 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Portfolio Managers: David Hollond and Michael Orndorff
Effective September 30, 2011, the Fund’s name was changed from Giftrust to All Cap Growth
Performance Summary
All Cap Growth returned 7.63%* for the 12 months ended October 31, 2011, lagging the 9.92% return of the portfolio’s benchmark, the Russell 3000 Growth Index. Despite underperforming for the fiscal year, the portfolio’s longer-term returns continue to exceed those of the benchmark (see page 5).
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Price momentum and acceleration, two factors that the All Cap Growth team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, stock decisions in the information technology and consumer discretionary sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the consumer staples sector partially offset those relative losses.
Information Technology Underperformed Benchmark, but Some Decisions Helped
The information technology sector was All Cap Growth’s largest source of underperformance relative to the benchmark. In the communications equipment industry, two overweight positions significantly trimmed relative results. Video and teleconferencing equipment maker Polycom experienced a sell-off in its shares as investors feared that competition and cuts in corporate spending would hurt revenues. F5 Networks, whose products help optimize the performance of applications over IT networks, also detracted from returns versus the benchmark.
Also within the communications equipment industry, though, All Cap Growth was rewarded for an underweight position in Cisco Systems. The world’s largest maker of computer networking equipment cut its long-term sales outlook in the face of increased competition and a slow economy.
Elsewhere in the information technology sector, All Cap Growth held an underweight stake in IBM. This decision proved detrimental as the company’s stock benefited from being perceived as somewhat of a “safe haven” within the technology sector during the market downturn. The managers do not find IBM attractive based on the stock’s relative valuation and the company’s growth rate.
A stake in Chinese online search engine Baidu helped relative performance. The company continued to benefit from a secular shift to online advertising.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Consumer Discretionary Lagged, but Some Holdings Contributed
The consumer discretionary sector was home to two positions that detracted significantly from relative returns. Netflix represented the largest single detractor from performance versus the benchmark. The company stumbled when it raised prices 60% for its mail-order DVD rental service, and then announced that it would separate its video-streaming business from its DVD offering. Both moves alienated customers, and, although the company lowered guidance for its subscriber base, subscription levels fell below that revised level.
Also within the consumer discretionary sector, All Cap Growth maintained an overweight stake in cruise line Royal Caribbean, which was a key detractor from relative performance. The company, which has exposure to Europe, experienced sluggish European demand for its Mediterranean cruises in part due to concerns about unrest in the Middle East.
An overweight position in Lululemon Athletica, though, contributed significantly to relative performance as the maker of yoga and athletic wear executed well, demonstrating strong same-store sales.
Consumer Staples Gained
All Cap Growth benefited from ownership of two key holdings in the consumer staples sector: specialty grocery chain Whole Foods Market and membership discount retailer Costco Wholesale. Whole Foods, which represented the largest individual contributor to relative returns by far, continued to perform well amid a trend towards natural and organic foods. The company’s strong execution resulted in continued growth in sales and margin improvement. Costco benefited from consumers’ desire to stretch their dollars in the weak economic environment. By offering a compelling assortment of products at attractive prices, Costco improved its sales growth rate.
Outlook
All Cap Growth’s investment process focuses on companies of all sizes with improving business fundamentals as evidenced by accelerating rates of growth and positive relative strength. We believe that active investing in such companies will generate attractive absolute and relative investment performance over time. This process, which has historically added value, has faced unprecedented headwinds in recent reporting periods. Despite this challenge, All Cap Growth provided positive absolute returns during the reporting period as growth stocks were rewarded by the market in a challenging macroeconomic environment.
8
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 8.7% |
| National Oilwell Varco, Inc. | 3.6% |
| QUALCOMM, Inc. | 3.1% |
| Precision Castparts Corp. | 3.0% |
| Caterpillar, Inc. | 2.7% |
| Philip Morris International, Inc. | 2.6% |
| McDonald’s Corp. | 2.3% |
| Exxon Mobil Corp. | 2.3% |
| Google, Inc. Class A | 2.3% |
| Costco Wholesale Corp. | 2.2% |
| Top Five Industries | % of net assets |
| Computers and Peripherals | 10.6% |
| Energy Equipment and Services | 8.0% |
| Software | 6.0% |
| IT Services | 5.0% |
| Aerospace and Defense | 4.8% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 88.9% |
| Foreign Common Stocks* | 10.9% |
| Total Common Stocks | 99.8% |
| Temporary Cash Investments | 0.8% |
| Other Assets and Liabilities | (0.6)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
9
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, 2011 to October 31, 2011 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $909.60 | $4.81 | 1.00% |
| Institutional Class | $1,000 | $1,108.20(2) | $0.74(3) | 0.80% |
| A Class | $1,000 | $1,107.80(2) | $1.15(3) | 1.25% |
| C Class | $1,000 | $1,107.00(2) | $1.85(3) | 2.00% |
| R Class | $1,000 | $1,107.40(2) | $1.39(3) | 1.50% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
| Institutional Class | $1,000 | $1,021.17(4) | $4.08(4) | 0.80% |
| A Class | $1,000 | $1,018.90(4) | $6.36(4) | 1.25% |
| C Class | $1,000 | $1,015.12(4) | $10.16(4) | 2.00% |
| R Class | $1,000 | $1,017.64(4) | $7.63(4) | 1.50% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
| (2) | Ending account value based on actual return from September 30, 2011 (commencement of sale) through October 31, 2011. |
| (3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 32, the number of days in the period from September 30, 2011 (commencement of sale) through October 31, 2011, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
| (4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
11
OCTOBER 31, 2011
| Shares | Value |
| Common Stocks — 99.8% | ||||||||
| AEROSPACE AND DEFENSE — 4.8% | ||||||||
BE Aerospace, Inc.(1) | 277,517 | $10,470,716 | ||||||
| Precision Castparts Corp. | 174,048 | 28,395,931 | ||||||
TransDigm Group, Inc.(1) | 65,967 | 6,195,621 | ||||||
| 45,062,268 | ||||||||
| AUTOMOBILES — 0.8% | ||||||||
| Hyundai Motor Co. | 36,055 | 7,313,534 | ||||||
| BEVERAGES — 2.0% | ||||||||
| Coca-Cola Co. (The) | 221,455 | 15,129,806 | ||||||
Hansen Natural Corp.(1) | 44,356 | 3,951,676 | ||||||
| 19,081,482 | ||||||||
| BIOTECHNOLOGY — 1.2% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 110,013 | 7,426,978 | ||||||
Grifols SA(1) | 212,673 | 3,954,453 | ||||||
| 11,381,431 | ||||||||
| CAPITAL MARKETS — 0.5% | ||||||||
| Lazard Ltd., Class A | 183,713 | 5,022,713 | ||||||
| CHEMICALS — 1.5% | ||||||||
| Albemarle Corp. | 125,795 | 6,703,615 | ||||||
| Monsanto Co. | 94,309 | 6,860,980 | ||||||
| 13,564,595 | ||||||||
| COMMERCIAL BANKS — 0.7% | ||||||||
| East West Bancorp., Inc. | 143,285 | 2,789,759 | ||||||
SVB Financial Group(1) | 73,631 | 3,382,608 | ||||||
| 6,172,367 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 0.3% | ||||||||
Clean Harbors, Inc.(1) | 51,407 | 2,995,486 | ||||||
| COMMUNICATIONS EQUIPMENT — 3.5% | ||||||||
Aruba Networks, Inc.(1) | 111,833 | 2,649,324 | ||||||
Polycom, Inc.(1) | 54,275 | 897,166 | ||||||
| QUALCOMM, Inc. | 565,527 | 29,181,193 | ||||||
| 32,727,683 | ||||||||
| COMPUTERS AND PERIPHERALS — 10.6% | ||||||||
Apple, Inc.(1) | 201,715 | 81,650,198 | ||||||
EMC Corp.(1) | 704,858 | 17,276,069 | ||||||
| 98,926,267 | ||||||||
| CONSTRUCTION AND ENGINEERING — 0.4% | ||||||||
| Chicago Bridge & Iron Co. NV New York Shares | 94,799 | 3,467,747 | ||||||
| CONSUMER FINANCE — 1.7% | ||||||||
| American Express Co. | 112,065 | 5,672,730 | ||||||
| Discover Financial Services | 442,548 | 10,426,431 | ||||||
| 16,099,161 | ||||||||
| CONTAINERS AND PACKAGING — 0.3% | ||||||||
| Rock-Tenn Co., Class A | 43,184 | 2,556,061 | ||||||
| DIVERSIFIED CONSUMER SERVICES — 1.2% | ||||||||
K12, Inc.(1) | 26,328 | $922,796 | ||||||
| Weight Watchers International, Inc. | 135,233 | 10,091,087 | ||||||
| 11,013,883 | ||||||||
| ELECTRICAL EQUIPMENT — 0.7% | ||||||||
Polypore International, Inc.(1) | 115,576 | 6,061,961 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.0% | ||||||||
IPG Photonics Corp.(1) | 45,984 | 2,430,714 | ||||||
| Jabil Circuit, Inc. | 318,044 | 6,538,985 | ||||||
| 8,969,699 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 8.0% | ||||||||
| Baker Hughes, Inc. | 103,385 | 5,995,296 | ||||||
Cameron International Corp.(1) | 119,302 | 5,862,500 | ||||||
| Halliburton Co. | 249,967 | 9,338,767 | ||||||
| National Oilwell Varco, Inc. | 471,551 | 33,635,733 | ||||||
Oil States International, Inc.(1) | 78,804 | 5,485,547 | ||||||
| Schlumberger Ltd. | 200,460 | 14,727,796 | ||||||
| 75,045,639 | ||||||||
| FOOD AND STAPLES RETAILING — 4.4% | ||||||||
| Costco Wholesale Corp. | 251,493 | 20,936,792 | ||||||
| Whole Foods Market, Inc. | 286,239 | 20,643,557 | ||||||
| 41,580,349 | ||||||||
| FOOD PRODUCTS — 2.2% | ||||||||
Green Mountain Coffee Roasters, Inc.(1) | 42,600 | 2,769,852 | ||||||
| Mead Johnson Nutrition Co. | 247,420 | 17,777,127 | ||||||
| 20,546,979 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.6% | ||||||||
| Baxter International, Inc. | 285,820 | 15,714,384 | ||||||
| Cooper Cos., Inc. (The) | 86,636 | 6,003,875 | ||||||
| Covidien plc | 93,787 | 4,411,740 | ||||||
MAKO Surgical Corp.(1) | 114,625 | 4,407,331 | ||||||
Sirona Dental Systems, Inc.(1) | 69,134 | 3,311,519 | ||||||
| 33,848,849 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 2.0% | ||||||||
Catalyst Health Solutions, Inc.(1) | 130,150 | 7,154,345 | ||||||
Express Scripts, Inc.(1) | 186,461 | 8,526,862 | ||||||
| Odontoprev SA | 171,800 | 2,703,810 | ||||||
| 18,385,017 | ||||||||
| HEALTH CARE TECHNOLOGY — 1.2% | ||||||||
SXC Health Solutions Corp.(1) | 233,326 | 10,924,323 | ||||||
12
| Shares | Value |
| HOTELS, RESTAURANTS AND LEISURE — 4.2% | ||||||||
| Arcos Dorados Holdings, Inc., Class A | 199,467 | $4,667,528 | ||||||
Chipotle Mexican Grill, Inc.(1) | 18,759 | 6,305,275 | ||||||
| McDonald’s Corp. | 235,363 | 21,853,454 | ||||||
| Yum! Brands, Inc. | 122,249 | 6,548,879 | ||||||
| 39,375,136 | ||||||||
| HOUSEHOLD PRODUCTS — 1.0% | ||||||||
| Colgate-Palmolive Co. | 100,544 | 9,086,161 | ||||||
| INTERNET AND CATALOG RETAIL — 3.0% | ||||||||
Amazon.com, Inc.(1) | 70,477 | 15,047,545 | ||||||
priceline.com, Inc.(1) | 25,853 | 13,126,085 | ||||||
| 28,173,630 | ||||||||
| INTERNET SOFTWARE AND SERVICES — 4.3% | ||||||||
Baidu, Inc. ADR(1) | 115,842 | 16,238,731 | ||||||
Google, Inc. Class A(1) | 35,615 | 21,106,874 | ||||||
LinkedIn Corp., Class A(1) | 33,393 | 3,002,031 | ||||||
| 40,347,636 | ||||||||
| IT SERVICES — 5.0% | ||||||||
| Accenture plc, Class A | 72,907 | 4,393,376 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 153,339 | 11,155,412 | ||||||
| International Business Machines Corp. | 103,345 | 19,080,587 | ||||||
Teradata Corp.(1) | 207,574 | 12,383,865 | ||||||
| 47,013,240 | ||||||||
| MACHINERY — 4.8% | ||||||||
| Caterpillar, Inc. | 272,530 | 25,743,184 | ||||||
Chart Industries, Inc.(1) | 83,361 | 4,710,730 | ||||||
| Cummins, Inc. | 108,956 | 10,833,495 | ||||||
| Titan International, Inc. | 150,457 | 3,385,283 | ||||||
| 44,672,692 | ||||||||
| MEDIA — 1.7% | ||||||||
| CBS Corp., Class B | 450,769 | 11,634,348 | ||||||
Focus Media Holding Ltd. ADR(1) | 165,095 | 4,487,282 | ||||||
| 16,121,630 | ||||||||
| METALS AND MINING — 0.4% | ||||||||
| Cliffs Natural Resources, Inc. | 50,496 | 3,444,837 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 3.8% | ||||||||
Concho Resources, Inc.(1) | 47,672 | 4,515,492 | ||||||
| Exxon Mobil Corp. | 277,286 | 21,653,264 | ||||||
| Linn Energy LLC | 102,621 | 3,973,485 | ||||||
SandRidge Energy, Inc.(1) | 534,185 | 4,091,857 | ||||||
| SM Energy Co. | 17,412 | 1,443,629 | ||||||
| 35,677,727 | ||||||||
| PHARMACEUTICALS — 4.2% | ||||||||
| Allergan, Inc. | 192,299 | $16,176,192 | ||||||
Elan Corp. plc ADR(1) | 255,331 | 3,061,419 | ||||||
Questcor Pharmaceuticals, Inc.(1) | 170,522 | 6,924,899 | ||||||
| Shire plc | 86,816 | 2,726,028 | ||||||
| Shire plc ADR | 114,818 | 10,827,337 | ||||||
| 39,715,875 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 0.4% | ||||||||
| ARM Holdings plc | 368,668 | 3,453,526 | ||||||
| SOFTWARE — 6.0% | ||||||||
Cerner Corp.(1) | 96,864 | 6,144,084 | ||||||
Check Point Software Technologies Ltd.(1) | 271,844 | 15,666,370 | ||||||
CommVault Systems, Inc.(1) | 99,721 | 4,246,120 | ||||||
NetSuite, Inc.(1) | 205,980 | 7,835,479 | ||||||
| Oracle Corp. | 257,348 | 8,433,294 | ||||||
Salesforce.com, Inc.(1) | 105,570 | 14,058,757 | ||||||
| 56,384,104 | ||||||||
| SPECIALTY RETAIL — 2.9% | ||||||||
| Abercrombie & Fitch Co., Class A | 26,610 | 1,979,784 | ||||||
O’Reilly Automotive, Inc.(1) | 147,276 | 11,200,340 | ||||||
| PetSmart, Inc. | 86,946 | 4,082,114 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 130,035 | 8,750,055 | ||||||
| Williams-Sonoma, Inc. | 40,881 | 1,534,673 | ||||||
| 27,546,966 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.8% | ||||||||
| Coach, Inc. | 91,013 | 5,922,216 | ||||||
Deckers Outdoor Corp.(1) | 36,115 | 4,161,893 | ||||||
Lululemon Athletica, Inc.(1) | 122,805 | 6,936,026 | ||||||
| 17,020,135 | ||||||||
| TOBACCO — 2.6% | ||||||||
| Philip Morris International, Inc. | 349,984 | 24,453,382 | ||||||
| TRADING COMPANIES AND DISTRIBUTORS — 0.8% | ||||||||
| Fastenal Co. | 206,249 | 7,856,024 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.3% | ||||||||
| Tim Participacoes SA ADR | 91,968 | 2,394,847 | ||||||
TOTAL COMMON STOCKS (Cost $695,182,768) | 933,485,042 | |||||||
13
| Shares | Value |
| Temporary Cash Investments — 0.8% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $2,610,954), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $2,555,987) | $2,555,983 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $2,619,464), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $2,555,984) | 2,555,982 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $2,604,606), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $2,555,986) | $2,555,983 | |||||||
| SSgA U.S. Government Money Market Fund | 223,283 | 223,283 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,891,231) | 7,891,231 | |||||||
TOTAL INVESTMENT SECURITIES — 100.6% (Cost $703,073,999) | 941,376,273 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.6)% | (5,514,204 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $935,862,069 | |||||||
| Forward Foreign Currency Exchange Contracts | |||||||||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||
| 2,140,554 | EUR for USD | UBS AG | 11/30/11 | $2,961,045 | $13,062 | ||||||
| 2,902,342 | GBP for USD | Credit Suisse AG | 11/30/11 | 4,665,377 | (39,131 | ) | |||||
| $7,626,422 | $(26,069 | ) | |||||||||
(Value on Settlement Date $7,600,353)
| Geographic Diversification | |
| (as a % of net assets) | |
| United States | 88.9% |
| Ireland | 2.7% |
| People’s Republic of China | 2.2% |
| Israel | 1.7% |
| South Korea | 0.8% |
| Canada | 0.7% |
| Brazil | 0.6% |
| Bermuda | 0.5% |
| Argentina | 0.5% |
| Spain | 0.4% |
| Netherlands | 0.4% |
| United Kingdom | 0.4% |
| Cash and Equivalents* | 0.2% |
* Includes temporary cash investments and other assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
14
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $703,073,999) | $941,376,273 | |||
| Foreign currency holdings, at value (cost of $31,160) | 31,614 | |||
| Receivable for investments sold | 6,494,287 | |||
| Receivable for capital shares sold | 146,244 | |||
| Unrealized gain on forward foreign currency exchange contracts | 13,062 | |||
| Dividends and interest receivable | 324,702 | |||
| 948,386,182 | ||||
| Liabilities | ||||
| Payable for investments purchased | 11,260,808 | |||
| Payable for capital shares redeemed | 458,563 | |||
| Unrealized loss on forward foreign currency exchange contracts | 39,131 | |||
| Accrued management fees | 765,574 | |||
| Distribution and service fees payable | 37 | |||
| 12,524,113 | ||||
| Net Assets | $935,862,069 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $677,054,585 | |||
| Undistributed net investment income | 26,069 | |||
| Undistributed net realized gain | 20,504,756 | |||
| Net unrealized appreciation | 238,276,659 | |||
| $935,862,069 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $935,751,329 | 33,351,004 | $28.06 | |||||||||
| Institutional Class, $0.01 Par Value | $27,700 | 987 | $28.06 | |||||||||
| A Class, $0.01 Par Value | $27,690 | 987 | $28.05 | * | ||||||||
| C Class, $0.01 Par Value | $27,670 | 987 | $28.03 | |||||||||
| R Class, $0.01 Par Value | $27,680 | 987 | $28.04 | |||||||||
*Maximum offering price $29.76 (net asset value divided by 0.9425)
See Notes to Financial Statements.
15
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $12,135) | $9,229,914 | |||
| Interest | 3,399 | |||
| 9,233,313 | ||||
| Expenses: | ||||
| Management fees | 10,039,444 | |||
| Distribution and service fees: | ||||
| A Class | 5 | |||
| C Class | 21 | |||
| R Class | 11 | |||
| Directors’ fees and expenses | 40,118 | |||
| 10,079,599 | ||||
| Net investment income (loss) | (846,286 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 126,162,005 | |||
| Foreign currency transactions (net of foreign tax expenses paid (refunded) of $59,456) | 86,278 | |||
| 126,248,283 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (49,901,511 | ) | ||
| Translation of assets and liabilities in foreign currencies | 74,552 | |||
| (49,826,959 | ) | |||
| Net realized and unrealized gain (loss) | 76,421,324 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $75,575,038 | |||
See Notes to Financial Statements.
16
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $(846,286 | ) | $(1,928,945 | ) | ||||
| Net realized gain (loss) | 126,248,283 | 88,509,606 | ||||||
| Change in net unrealized appreciation (depreciation) | (49,826,959 | ) | 113,572,450 | |||||
| Net increase (decrease) in net assets resulting from operations | 75,575,038 | 200,153,111 | ||||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (99,159,677 | ) | (78,545,824 | ) | ||||
| Net increase (decrease) in net assets | (23,584,639 | ) | 121,607,287 | |||||
| Net Assets | ||||||||
| Beginning of period | 959,446,708 | 837,839,421 | ||||||
| End of period | $935,862,069 | $959,446,708 | ||||||
| Undistributed net investment income | $26,069 | $100,128 | ||||||
See Notes to Financial Statements.
17
OCTOBER 31, 2011
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 (formerly Giftrust® Fund) (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing in equity securities of companies of any size that management believes will increase in value over time.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. Sale of the Institutional Class, A Class, C Class and R Class commenced on September 30, 2011.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
18
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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. Certain countries impose taxes on the contract amount of purchases and sales of foreign currency contracts in their currency. The fund records the foreign tax expense, if any, as a reduction to the net realized gain (loss) on foreign currency transactions.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. Additionally, non-U.S. tax returns filed by the fund due to investments in certain foreign securities remain subject to examination by the relevant taxing authority for seven years from the date of filing. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
19
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.00% for the Investor Class, A Class, C Class and R Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $745,142,030 and $836,307,611, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2011(1) | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
| Sold | 229,937 | $6,555,442 | 271,644 | $6,307,332 | ||||||||||||
| Redeemed | (3,675,174 | ) | (105,815,119 | ) | (3,644,275 | ) | (84,853,156 | ) | ||||||||
| (3,445,237 | ) | (99,259,677 | ) | (3,372,631 | ) | (78,545,824 | ) | |||||||||
| Institutional Class/Shares Authorized | 25,000,000 | N/A | ||||||||||||||
| Sold | 987 | 25,000 | ||||||||||||||
| A Class/Shares Authorized | 25,000,000 | N/A | ||||||||||||||
| Sold | 987 | 25,000 | ||||||||||||||
| C Class/Shares Authorized | 25,000,000 | N/A | ||||||||||||||
| Sold | 987 | 25,000 | ||||||||||||||
| R Class/Shares Authorized | 25,000,000 | N/A | ||||||||||||||
| Sold | 987 | 25,000 | ||||||||||||||
| Net increase (decrease) | (3,441,289 | ) | $(99,159,677 | ) | (3,372,631 | ) | $(78,545,824 | ) | ||||||||
(1) September 30, 2011 (commencement of sale) through October 31, 2011 for the Institutional Class, A Class, C Class and R Class.
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $831,758,575 | — | — | |||||||||
| Foreign Common Stocks | 81,575,116 | $20,151,351 | — | |||||||||
| Temporary Cash Investments | 223,283 | 7,667,948 | — | |||||||||
| Total Value of Investment Securities | $913,556,974 | $27,819,299 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(26,069 | ) | — | ||||||||
21
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
The value of foreign currency risk derivative instruments as of October 31, 2011, is disclosed on the Statement of Assets and Liabilities as an asset of $13,062 in unrealized gain on forward foreign currency exchange contracts and as a liability of $39,131 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $139,614 in net realized gain (loss) on foreign currency transactions and $74,059 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
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9. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. There were no distributions paid by the fund during the years ended October 31, 2011 and October 31, 2010.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $706,166,905 | |||
| Gross tax appreciation of investments | $249,612,681 | |||
| Gross tax depreciation of investments | (14,403,313 | ) | ||
| Net tax appreciation (depreciation) of investments | $235,209,368 | |||
| Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $454 | |||
| Net tax appreciation (depreciation) | $235,209,822 | |||
| Undistributed ordinary income | — | |||
| Accumulated long-term gains | $23,597,662 |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||
| 2011 | $26.07 | (0.02 | ) | 2.01 | 1.99 | — | $28.06 | 7.63 | % | 1.00 | % | (0.08 | )% | 75 | % | $935,751 | ||||||||||||||||||
| 2010 | $20.86 | (0.05 | ) | 5.26 | 5.21 | — | $26.07 | 24.98 | % | 1.01 | % | (0.22 | )% | 88 | % | $959,447 | ||||||||||||||||||
| 2009 | $19.08 | 0.03 | 1.81 | 1.84 | (0.06 | ) | $20.86 | 9.72 | % | 1.00 | % | 0.19 | % | 167 | % | $837,839 | ||||||||||||||||||
| 2008 | $31.53 | (0.13 | ) | (12.32 | ) | (12.45 | ) | — | $19.08 | (39.49 | )% | 1.00 | % | (0.48 | )% | 171 | % | $803,771 | ||||||||||||||||
| 2007 | $20.13 | (0.14 | ) | 11.54 | 11.40 | — | $31.53 | 56.63 | % | 1.00 | % | (0.57 | )% | 147 | % | $1,421,214 | ||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||
2011(3) | $25.32 | (0.01 | ) | 2.75 | 2.74 | — | $28.06 | 10.82 | % | 0.80 | %(4) | (0.28 | )%(4) | 75 | %(5) | $28 | ||||||||||||||||||
| A Class | ||||||||||||||||||||||||||||||||||
2011(3) | $25.32 | (0.02 | ) | 2.75 | 2.73 | — | $28.05 | 10.78 | % | 1.25 | %(4) | (0.73 | )%(4) | 75 | %(5) | $28 | ||||||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||
2011(3) | $25.32 | (0.03 | ) | 2.74 | 2.71 | — | $28.03 | 10.70 | % | 2.00 | %(4) | (1.48 | )%(4) | 75 | %(5) | $28 | ||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||
2011(3) | $25.32 | (0.02 | ) | 2.74 | 2.72 | — | $28.04 | 10.74 | % | 1.50 | %(4) | (0.98 | )%(4) | 75 | %(5) | $28 | ||||||||||||||||||
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Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (3) | September 30, 2011 (commencement of sale) through October 31, 2011. |
| (4) | Annualized. |
| (5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2011. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of All Cap Growth Fund (formerly, Giftrust Fund), one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of All Cap Growth Fund (formerly, Giftrust Fund) of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||
| Independent Directors | ||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent
directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owningsimilar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investmentmanagement clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholderconfirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
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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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
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Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
33
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
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Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73905 1112
ANNUAL REPORT OCTOBER 31, 2011
Ultra® Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 24 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Management | 27 |
| Approval of Management Agreement | 30 |
| Additional Information | 35 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
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By Greg Woodhams,
Chief Investment Officer,
U.S. Growth Equity—Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWCUX | 10.59% | 3.37% | 3.03% | 10.97% | 11/2/81 |
| Russell 1000 Growth Index | — | 9.92% | 3.04% | 3.56% | 9.98%(1) | — |
| S&P 500 Index | — | 8.09% | 0.25% | 3.69% | 11.00%(1) | — |
| Institutional Class | TWUIX | 10.85% | 3.58% | 3.24% | 4.57% | 11/14/96 |
A Class(2) No sales charge* With sales charge* | TWUAX | 10.33% 3.98% | 3.11% 1.90% | 2.78% 2.17% | 4.35% 3.95% | 10/2/96 |
| C Class | TWCCX | 9.48% | 2.34% | 2.01% | 1.83% | 10/29/01 |
| R Class | AULRX | 10.03% | 2.85% | — | 3.29% | 8/29/03 |
* | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Since 10/31/81, the date nearest the Investor Class’s inception for which data are available. |
| (2) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
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| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional Class | A Class | C Class | R Class |
| 1.00% | 0.80% | 1.25% | 2.00% | 1.50% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
6
Portfolio Managers: Keith Lee and Michael Li
Performance Summary
Ultra returned 10.59%* for the 12 months ended October 31, 2011, compared with the 9.92% return of its benchmark, the Russell 1000 Growth Index, and the 8.09% return of the S&P 500 Index, a broader market measure.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Although this created a challenging environment for growth and momentum oriented shares, Ultra delivered solid returns and outperformed its benchmark.
Within the portfolio, security selection in the information technology and health care sectors accounted for the bulk of Ultra’s outperformance relative to the benchmark. Stock selection in the materials, consumer discretionary, and consumer staples sectors also added to relative returns. Stock decisions in the energy and financials sectors detracted from relative results.
Information Technology, Health Care Led Gains
The information technology sector was a source of relative outperformance for Ultra. Within the computers and peripherals industry group, an underweight stake in Hewlett-Packard helped relative results as the stock underperformed in the benchmark. An overweight position in personal electronic device maker Apple also benefited relative performance. The company experienced acceleration in revenues and earnings, added new carriers, and gained penetration with existing carriers, while increasing market share.
Within the software industry group, the portfolio held an overweight position in video game publisher Electronic Arts. The company’s share price climbed amid rising sales of its core video games as well as growth of its newer digital business, which includes downloadable content for PCs, social networks, and mobile platforms. Effective stock decisions in the communications equipment and semiconductor groups also contributed to relative returns.
Also in the information technology sector, though, Ultra did not hold a position in IBM. This decision proved detrimental as the company’s stock benefited from being perceived as somewhat of a “safe haven” within the technology sector during the market downturn. The managers do not find IBM attractive based on the stock’s relative valuation and the company’s growth rate.
In the health care equipment group, an overweight stake in Intuitive Surgical added meaningfully to gains. The maker of robotic surgery systems experienced a sharp rise in earnings amid continued adoption of its technology and increased sales of its surgical system.
*All fund returns referenced in this commentary are for Investor Class shares.
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Materials, Consumer Discretionary, Consumer Staples Helped
Within the materials sector, the portfolio’s overweight allocation to the chemicals industry included a stake in chemicals company Nalco Holding Co. The company experienced strong volume and price gains amid growing demand.
In the consumer discretionary sector, an overweight stake in Tiffany added meaningfully to relative results. The fine jewelry retailer delivered higher-than-expected earnings as sales levels climbed, driven largely by same-store sales growth in Asia, Europe, and the Americas.
However, not all holdings in the consumer discretionary sector helped performance. An overweight stake in Netflix represented the largest single detractor from relative returns. The company stumbled when it raised prices 60% for its mail order DVD rental service, and then announced that it would separate its video streaming business from its DVD offering. Both moves alienated customers, and, although the company lowered guidance for its subscriber base, subscription levels fell below that revised level. Although Netflix management handled the transition poorly, we believe that the company’s evolution from its legacy DVD business to the video streaming business is positive, as it will require lower overhead and offers more growth potential.
Within the consumer staples sector, an overweight position in Costco Wholesale contributed to relative returns. The membership discount retailer benefited from a focus on lower-end providers of consumer goods in the weak economic environment.
Energy, Financials, Lagged Benchmark
The energy sector detracted from relative returns. Within the sector, Ultra held several overweight stakes in the oil, gas, and consumable fuels group that underperformed, while maintaining underweight positions in some companies that outperformed in the benchmark.
The financials sector was also a source of underperformance relative to the benchmark. Here, Ultra held several positions in the diversified financial services group that lagged.
Starting Point for Next Reporting Period
The environment for growth- and momentum-oriented investment styles continued to be challenging during the reporting period. Nonetheless, Ultra delivered sound results for the period. Going forward, we remain confident in our investment beliefs that stocks which exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term.
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| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 7.2% |
| Google, Inc., Class A | 4.5% |
| Amazon.com, Inc. | 3.0% |
| Exxon Mobil Corp. | 2.6% |
| Gilead Sciences, Inc. | 2.4% |
| Philip Morris International, Inc. | 2.4% |
| Schlumberger Ltd. | 2.3% |
| Costco Wholesale Corp. | 2.2% |
| Oracle Corp. | 2.2% |
| QUALCOMM, Inc. | 2.2% |
| Top Five Industries | % of net assets |
| Computers and Peripherals | 8.7% |
| Software | 7.5% |
| Internet Software and Services | 6.4% |
| Oil, Gas and Consumable Fuels | 6.3% |
| Machinery | 5.9% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 92.5% |
| Foreign Common Stocks* | 7.1% |
| Total Common Stocks | 99.6% |
| Temporary Cash Investments | 0.5% |
| Other Assets and Liabilities | (0.1)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $950.90 | $4.87 | 0.99% |
| Institutional Class | $1,000 | $951.90 | $3.89 | 0.79% |
| A Class | $1,000 | $949.50 | $6.09 | 1.24% |
| C Class | $1,000 | $946.00 | $9.76 | 1.99% |
| R Class | $1,000 | $948.40 | $7.32 | 1.49% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.22 | $5.04 | 0.99% |
| Institutional Class | $1,000 | $1,021.22 | $4.02 | 0.79% |
| A Class | $1,000 | $1,018.96 | $6.31 | 1.24% |
| C Class | $1,000 | $1,015.17 | $10.11 | 1.99% |
| R Class | $1,000 | $1,017.69 | $7.58 | 1.49% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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| Shares | Value | |
| Common Stocks — 99.6% | ||
| AEROSPACE AND DEFENSE — 1.6% | ||
| General Dynamics Corp. | 1,539,583 | $ 98,825,833 |
| AUTO COMPONENTS — 0.5% | ||
| Gentex Corp. | 1,077,000 | 32,439,240 |
| BEVERAGES — 1.1% | ||
| Coca-Cola Co. (The) | 949,000 | 64,835,680 |
| BIOTECHNOLOGY — 4.4% | ||
Alexion Pharmaceuticals, Inc.(1) | 645,000 | 43,543,950 |
Celgene Corp.(1) | 1,202,000 | 77,925,660 |
Gilead Sciences, Inc.(1) | 3,522,000 | 146,726,520 |
| 268,196,130 | ||
| CHEMICALS — 4.3% | ||
| Monsanto Co. | 1,550,000 | 112,762,500 |
| Nalco Holding Co. | 1,570,000 | 59,204,700 |
| Potash Corp. of Saskatchewan, Inc. | 1,356,000 | 64,179,480 |
| RPM International, Inc. | 1,107,000 | 24,874,290 |
| 261,020,970 | ||
| COMMUNICATIONS EQUIPMENT — 2.5% | ||
| Cisco Systems, Inc. | 1,036,000 | 19,197,080 |
| QUALCOMM, Inc. | 2,538,000 | 130,960,800 |
| 150,157,880 | ||
| COMPUTERS AND PERIPHERALS — 8.7% | ||
Apple, Inc.(1) | 1,085,000 | 439,186,300 |
EMC Corp.(1) | 3,843,000 | 94,191,930 |
| 533,378,230 | ||
| CONSUMER FINANCE — 1.1% | ||
| American Express Co. | 1,341,000 | 67,881,420 |
| DIVERSIFIED FINANCIAL SERVICES — 2.0% | ||
| CME Group, Inc. | 270,000 | 74,401,200 |
| JPMorgan Chase & Co. | 1,372,000 | 47,690,720 |
| 122,091,920 | ||
| ELECTRICAL EQUIPMENT — 4.9% | ||
ABB Ltd.(1) | 1,756,000 | 33,105,449 |
ABB Ltd. ADR(1) | 2,431,000 | 45,727,110 |
| Cooper Industries plc | 1,317,000 | 69,089,820 |
| Emerson Electric Co. | 2,221,000 | 106,874,520 |
Polypore International, Inc.(1) | 858,673 | 45,037,399 |
| 299,834,298 | ||
| ENERGY EQUIPMENT AND SERVICES — 2.7% | ||
| Core Laboratories NV | 215,000 | 23,275,900 |
| Schlumberger Ltd. | 1,911,000 | 140,401,170 |
| 163,677,070 | ||
| FOOD AND STAPLES RETAILING — 2.2% | ||
| Costco Wholesale Corp. | 1,612,000 | 134,199,000 |
| FOOD PRODUCTS — 2.9% | ||
| Hershey Co. (The) | 994,000 | 56,886,620 |
| Mead Johnson Nutrition Co. | 731,000 | 52,522,350 |
| Nestle SA | 1,207,000 | 69,848,761 |
| 179,257,731 | ||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.8% | ||
HeartWare International, Inc.(1) | 161,000 | 10,936,730 |
Intuitive Surgical, Inc.(1) | 275,000 | 119,311,500 |
| St. Jude Medical, Inc. | 1,492,000 | 58,188,000 |
Varian Medical Systems, Inc.(1) | 684,000 | 40,164,480 |
| 228,600,710 | ||
| HEALTH CARE PROVIDERS AND SERVICES — 3.4% | ||
Express Scripts, Inc.(1) | 2,643,000 | 120,864,390 |
Medco Health Solutions, Inc.(1) | 175,899 | 9,649,819 |
| UnitedHealth Group, Inc. | 1,600,000 | 76,784,000 |
| 207,298,209 | ||
| HOTELS, RESTAURANTS AND LEISURE — 4.0% | ||
Chipotle Mexican Grill, Inc.(1) | 91,000 | 30,586,920 |
| McDonald’s Corp. | 1,378,000 | 127,947,300 |
| Starbucks Corp. | 2,064,000 | 87,389,760 |
| 245,923,980 | ||
| INSURANCE — 1.1% | ||
| MetLife, Inc. | 1,841,000 | 64,729,560 |
| INTERNET AND CATALOG RETAIL — 3.7% | ||
Amazon.com, Inc.(1) | 846,000 | 180,629,460 |
Netflix, Inc.(1) | 524,000 | 43,009,920 |
| 223,639,380 | ||
| INTERNET SOFTWARE AND SERVICES — 6.4% | ||
Baidu, Inc. ADR(1) | 505,000 | 70,790,900 |
Google, Inc., Class A(1) | 469,000 | 277,948,160 |
| Tencent Holdings Ltd. | 1,835,000 | 42,030,653 |
| 390,769,713 | ||
| IT SERVICES — 2.4% | ||
| MasterCard, Inc., Class A | 301,000 | 104,519,240 |
Teradata Corp.(1) | 686,000 | 40,926,760 |
| 145,446,000 | ||
| LEISURE EQUIPMENT AND PRODUCTS — 0.9% | ||
| Hasbro, Inc. | 1,456,000 | 55,415,360 |
| MACHINERY — 5.9% | ||
| Cummins, Inc. | 575,000 | 57,172,250 |
| Donaldson Co., Inc. | 513,000 | 32,857,650 |
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| Shares | Value |
| Joy Global, Inc. | 1,253,000 | $ 109,261,600 |
| Parker Hannifin Corp. | 1,062,000 | 86,606,100 |
WABCO Holdings, Inc.(1) | 940,000 | 47,197,400 |
| Wabtec Corp. | 441,000 | 29,626,380 |
| 362,721,380 | ||
| METALS AND MINING — 1.7% | ||
| BHP Billiton Ltd. ADR | 479,000 | 37,400,320 |
| Freeport-McMoRan Copper & Gold, Inc. | 1,713,000 | 68,965,380 |
| 106,365,700 | ||
| OIL, GAS AND CONSUMABLE FUELS — 6.3% | ||
| Cimarex Energy Co. | 484,000 | 30,976,000 |
| EOG Resources, Inc. | 356,000 | 31,837,080 |
| Exxon Mobil Corp. | 2,060,000 | 160,865,400 |
Newfield Exploration Co.(1) | 723,000 | 29,107,980 |
| Occidental Petroleum Corp. | 1,071,000 | 99,538,740 |
Southwestern Energy Co.(1) | 796,000 | 33,463,840 |
| 385,789,040 | ||
| PERSONAL PRODUCTS — 1.1% | ||
| Estee Lauder Cos., Inc. (The), Class A | 695,000 | 68,422,750 |
| PHARMACEUTICALS — 0.7% | ||
| Teva Pharmaceutical Industries Ltd. ADR | 1,107,000 | 45,220,950 |
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.5% | ||
| Altera Corp. | 1,905,000 | 72,237,600 |
| Linear Technology Corp. | 2,441,000 | 78,868,710 |
| Microchip Technology, Inc. | 1,721,000 | 62,231,360 |
| 213,337,670 | ||
| SOFTWARE — 7.5% | ||
Adobe Systems, Inc.(1) | 1,703,000 | 50,085,230 |
Electronic Arts, Inc.(1) | 4,408,000 | 102,926,800 |
| Microsoft Corp. | 994,000 | 26,470,220 |
NetSuite, Inc.(1) | 613,000 | 23,318,520 |
| Oracle Corp. | 4,052,000 | 132,784,040 |
Salesforce.com, Inc.(1) | 474,000 | 63,122,580 |
VMware, Inc., Class A(1) | 583,000 | 56,988,250 |
| 455,695,640 | ||
| SPECIALTY RETAIL — 4.3% | ||
O’Reilly Automotive, Inc.(1) | 763,000 | 58,026,150 |
| Tiffany & Co. | 1,455,000 | 116,007,150 |
| TJX Cos., Inc. (The) | 1,545,000 | 91,046,850 |
| 265,080,150 | ||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.6% | ||
| NIKE, Inc., Class B | 1,010,000 | 97,313,500 |
| TOBACCO — 2.4% | ||
| Philip Morris International, Inc. | 2,055,000 | 143,582,850 |
TOTAL COMMON STOCKS(Cost $3,939,630,810) | 6,081,147,944 | |
| Temporary Cash Investments — 0.5% | ||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $9,182,054), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $8,988,751) | 8,988,736 | |
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $9,211,981), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $8,988,742) | 8,988,735 | |
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $9,159,731), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $8,988,745) | 8,988,735 | |
| SSgA U.S. Government Money Market Fund | 688,715 | 688,715 |
TOTAL TEMPORARY CASH INVESTMENTS (Cost $27,654,921) | 27,654,921 | |
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $3,967,285,731) | 6,108,802,865 | |
| OTHER ASSETS AND LIABILITIES — (0.1)% | (3,924,879) | |
| TOTAL NET ASSETS — 100.0% | $6,104,877,986 | |
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| Forward Foreign Currency Exchange Contracts | |||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
| 74,053,400 | CHF for USD | Credit Suisse AG | 11/30/11 | $84,396,597 | $(47,552) |
(Value on Settlement Date $84,349,045)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CHF = Swiss Franc
USD = United States Dollar
| (1) | Non-income producing. |
See Notes to Financial Statements.
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| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $3,967,285,731) | $6,108,802,865 | |||
| Foreign currency holdings, at value (cost of $129,650) | 129,911 | |||
| Receivable for capital shares sold | 1,380,666 | |||
| Dividends and interest receivable | 3,695,383 | |||
| 6,114,008,825 | ||||
| Liabilities | ||||
| Payable for investments purchased | 812,824 | |||
| Payable for capital shares redeemed | 3,317,312 | |||
| Unrealized loss on forward foreign currency exchange contracts | 47,552 | |||
| Accrued management fees | 4,937,343 | |||
| Distribution and service fees payable | 15,808 | |||
| 9,130,839 | ||||
| Net Assets | $6,104,877,986 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $4,501,993,545 | |||
| Undistributed net investment income | 47,552 | |||
| Accumulated net realized loss | (538,815,412 | ) | ||
| Net unrealized appreciation | 2,141,652,301 | |||
| $6,104,877,986 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $5,984,971,737 | 255,590,135 | $23.42 | |||||||||
| Institutional Class, $0.01 Par Value | $52,751,124 | 2,202,924 | $23.95 | |||||||||
| A Class, $0.01 Par Value | $62,304,182 | 2,738,838 | $22.75 | * | ||||||||
| C Class, $0.01 Par Value | $677,999 | 32,255 | $21.02 | |||||||||
| R Class, $0.01 Par Value | $4,172,944 | 184,658 | $22.60 | |||||||||
| * | Maximum offering price $24.14 (net asset value divided by 0.9425) |
See Notes to Financial Statements.
15
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $517,960) | $72,688,495 | |||
| Interest | 20,643 | |||
| 72,709,138 | ||||
| Expenses: | ||||
| Management fees | 62,300,410 | |||
| Distribution and service fees: | ||||
| A Class | 176,386 | |||
| B Class | 1,020 | |||
| C Class | 7,690 | |||
| R Class | 18,623 | |||
| Directors’ fees and expenses | 253,387 | |||
| Other expenses | 2,847 | |||
| 62,760,363 | ||||
| Net investment income (loss) | 9,948,775 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 302,986,483 | |||
| Foreign currency transactions | (10,491,201 | ) | ||
| 292,495,282 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | 328,812,884 | |||
| Translation of assets and liabilities in foreign currencies | (225,211 | ) | ||
| 328,587,673 | ||||
| Net realized and unrealized gain (loss) | 621,082,955 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $631,031,730 | |||
See Notes to Financial Statements.
16
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $9,948,775 | $14,027,620 | ||||||
| Net realized gain (loss) | 292,495,282 | 188,141,888 | ||||||
| Change in net unrealized appreciation (depreciation) | 328,587,673 | 836,699,181 | ||||||
| Net increase (decrease) in net assets resulting from operations | 631,031,730 | 1,038,868,689 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Investor Class | (12,309,961 | ) | (26,725,188 | ) | ||||
| Institutional Class | (189,254 | ) | (528,963 | ) | ||||
| A Class | — | (172,872 | ) | |||||
| Decrease in net assets from distributions | (12,499,215 | ) | (27,427,023 | ) | ||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (537,865,157 | ) | (577,726,077 | ) | ||||
| Net increase (decrease) in net assets | 80,667,358 | 433,715,589 | ||||||
| Net Assets | ||||||||
| Beginning of period | 6,024,210,628 | 5,590,495,039 | ||||||
| End of period | $6,104,877,986 | $6,024,210,628 | ||||||
| Undistributed net investment income | $47,552 | $12,243,093 | ||||||
See Notes to Financial Statements.
17
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Ultra Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in equity securities of large companies that management believes will increase in value over time.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
18
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 a capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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.
19
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 1.000% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 0.99% for the Investor Class, A Class, C Class and R Class and 0.79% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $800,364,554 and $1,333,203,776, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 3,500,000,000 | 3,500,000,000 | ||||||||||||||
| Sold | 7,967,748 | $184,093,884 | 8,040,692 | $157,299,128 | ||||||||||||
| Issued in reinvestment of distributions | 529,802 | 11,930,837 | 1,335,312 | 25,958,465 | ||||||||||||
| Redeemed | (31,294,147 | ) | (725,130,132 | ) | (35,922,123 | ) | (700,572,950 | ) | ||||||||
| (22,796,597 | ) | (529,105,411 | ) | (26,546,119 | ) | (517,315,357 | ) | |||||||||
| Institutional Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
| Sold | 651,707 | 15,348,582 | 729,074 | 14,762,326 | ||||||||||||
| Issued in reinvestment of distributions | 8,231 | 189,232 | 25,921 | 514,529 | ||||||||||||
| Redeemed | (567,827 | ) | (13,398,417 | ) | (2,701,567 | ) | (53,218,916 | ) | ||||||||
| 92,111 | 2,139,397 | (1,946,572 | ) | (37,942,061 | ) | |||||||||||
| A Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||||||||
| Sold | 1,456,808 | 33,705,237 | 534,148 | 10,123,675 | ||||||||||||
| Issued in reinvestment of distributions | — | — | 8,809 | 166,840 | ||||||||||||
| Redeemed | (2,020,737 | ) | (44,830,105 | ) | (1,712,426 | ) | (32,190,650 | ) | ||||||||
| (563,929 | ) | (11,124,868 | ) | (1,169,469 | ) | (21,900,135 | ) | |||||||||
| B Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
| Sold | 929 | 19,516 | 6 | 112 | ||||||||||||
| Redeemed | (5,900 | ) | (131,961 | ) | — | — | ||||||||||
| (4,971 | ) | (112,445 | ) | 6 | 112 | |||||||||||
| C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
| Sold | 6,859 | 146,359 | 3,687 | 64,700 | ||||||||||||
| Redeemed | (15,725 | ) | (324,172 | ) | (17,068 | ) | (301,317 | ) | ||||||||
| (8,866 | ) | (177,813 | ) | (13,381 | ) | (236,617 | ) | |||||||||
| R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
| Sold | 78,707 | 1,717,632 | 41,073 | 780,064 | ||||||||||||
| Redeemed | (52,771 | ) | (1,201,649 | ) | (59,405 | ) | (1,112,083 | ) | ||||||||
| 25,936 | 515,983 | (18,332 | ) | (332,019 | ) | |||||||||||
| Net increase (decrease) | (23,256,316 | ) | $(537,865,157 | ) | (29,693,867 | ) | $(577,726,077 | ) | ||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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.
21
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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $5,649,568,421 | — | — | |||||||||
| Foreign Common Stocks | 286,594,660 | $144,984,863 | — | |||||||||
| Temporary Cash Investments | 688,715 | 26,966,206 | — | |||||||||
| Total Value of Investment Securities | $5,936,851,796 | $171,951,069 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(47,552 | ) | — | ||||||||
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
The value of foreign currency risk derivative instruments as of October 31, 2011, is disclosed on the Statement of Assets and Liabilities as a liability of $47,552 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(11,183,109) in net realized gain (loss) on foreign currency transactions and $(281,636) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
22
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $12,499,215 | $27,427,023 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $4,022,866,028 | |||
| Gross tax appreciation of investments | $2,201,322,486 | |||
| Gross tax depreciation of investments | (115,385,649 | ) | ||
| Net tax appreciation (depreciation) of investments | $2,085,936,837 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $182,718 | |||
| Net tax appreciation (depreciation) | $2,086,119,555 | |||
| Undistributed ordinary income | — | |||
| Accumulated capital losses | $(483,235,114 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
23
| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||
| Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||
| Investor Class | ||||||||||||||
| 2011 | $21.22 | 0.04 | 2.20 | 2.24 | (0.04) | — | (0.04) | $23.42 | 10.59% | 0.99% | 0.16% | 13% | $5,984,972 | |
| 2010 | $17.82 | 0.05 | 3.44 | 3.49 | (0.09) | — | (0.09) | $21.22 | 19.63% | 1.00% | 0.25% | 24% | $5,906,158 | |
| 2009 | $15.67 | 0.11 | 2.12 | 2.23 | (0.08) | — | (0.08) | $17.82 | 14.35% | 1.00% | 0.69% | 53% | $5,435,051 | |
| 2008 | $33.48 | 0.08 | (9.95) | (9.87) | — | (7.94) | (7.94) | $15.67 | (38.02)% | 0.99% | 0.36% | 152% | $5,275,836 | |
| 2007 | $28.55 | (0.01) | 6.95 | 6.94 | — | (2.01) | (2.01) | $33.48 | 25.89% | 0.99% | (0.04)% | 93% | $10,065,759 | |
| Institutional Class | ||||||||||||||
| 2011 | $21.69 | 0.08 | 2.27 | 2.35 | (0.09) | — | (0.09) | $23.95 | 10.85% | 0.79% | 0.36% | 13% | $52,751 | |
| 2010 | $18.22 | 0.09 | 3.51 | 3.60 | (0.13) | — | (0.13) | $21.69 | 19.81% | 0.80% | 0.45% | 24% | $45,791 | |
| 2009 | $16.02 | 0.14 | 2.17 | 2.31 | (0.11) | — | (0.11) | $18.22 | 14.58% | 0.80% | 0.89% | 53% | $73,933 | |
| 2008 | $33.98 | 0.15 | (10.17) | (10.02) | — | (7.94) | (7.94) | $16.02 | (37.89)% | 0.79% | 0.56% | 152% | $76,339 | |
| 2007 | $28.90 | 0.05 | 7.04 | 7.09 | — | (2.01) | (2.01) | $33.98 | 26.14% | 0.79% | 0.16% | 93% | $325,035 | |
A Class(3) | ||||||||||||||
| 2011 | $20.62 | (0.02) | 2.15 | 2.13 | — | — | — | $22.75 | 10.33% | 1.24% | (0.09)% | 13% | $62,304 | |
| 2010 | $17.33 | —(4) | 3.33 | 3.33 | (0.04) | — | (0.04) | $20.62 | 19.24% | 1.25% | 0.00%(5) | 24% | $68,109 | |
| 2009 | $15.23 | 0.07 | 2.07 | 2.14 | (0.04) | — | (0.04) | $17.33 | 14.14% | 1.25% | 0.44% | 53% | $77,484 | |
| 2008 | $32.83 | 0.03 | (9.69) | (9.66) | — | (7.94) | (7.94) | $15.23 | (38.19)% | 1.24% | 0.11% | 152% | $85,723 | |
| 2007 | $28.11 | (0.08) | 6.81 | 6.73 | — | (2.01) | (2.01) | $32.83 | 25.56% | 1.24% | (0.29)% | 93% | $235,217 | |
24
| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||
| Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||
| C Class | ||||||||||||||
| 2011 | $19.20 | (0.17) | 1.99 | 1.82 | — | — | — | $21.02 | 9.48% | 1.99% | (0.84)% | 13% | $678 | |
| 2010 | $16.22 | (0.13) | 3.11 | 2.98 | — | — | — | $19.20 | 18.45% | 2.00% | (0.75)% | 24% | $789 | |
| 2009 | $14.32 | (0.04) | 1.94 | 1.90 | — | — | — | $16.22 | 13.20% | 2.00% | (0.31)% | 53% | $884 | |
| 2008 | $31.54 | (0.13) | (9.15) | (9.28) | — | (7.94) | (7.94) | $14.32 | (38.63)% | 1.99% | (0.64)% | 152% | $891 | |
| 2007 | $27.26 | (0.29) | 6.58 | 6.29 | — | (2.01) | (2.01) | $31.54 | 24.64% | 1.99% | (1.04)% | 93% | $2,129 | |
| R Class | ||||||||||||||
| 2011 | $20.54 | (0.08) | 2.14 | 2.06 | — | — | — | $22.60 | 10.03% | 1.49% | (0.34)% | 13% | $4,173 | |
| 2010 | $17.26 | (0.05) | 3.33 | 3.28 | — | — | — | $20.54 | 19.00% | 1.50% | (0.25)% | 24% | $3,260 | |
| 2009 | $15.17 | 0.03 | 2.07 | 2.10 | (0.01) | — | (0.01) | $17.26 | 13.84% | 1.50% | 0.19% | 53% | $3,056 | |
| 2008 | $32.80 | (0.03) | (9.66) | (9.69) | — | (7.94) | (7.94) | $15.17 | (38.35)% | 1.49% | (0.14)% | 152% | $3,276 | |
| 2007 | $28.15 | (0.15) | 6.81 | 6.66 | — | (2.01) | (2.01) | $32.80 | 25.26% | 1.49% | (0.54)% | 93% | $5,971 | |
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) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class. |
| (4) | Per-share amount was less than $0.005. |
| (5) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
25
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ultra Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ultra Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
26
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
| Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust |
27
| (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 | |||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. |
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) |
| Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None |
28
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | |
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | |
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | |
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
30
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons.
31
The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
32
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
33
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
34
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
35
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $12,499,215, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73910 1112
ANNUAL REPORT OCTOBER 31, 2011
Veedot® Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 6 |
| Fund Characteristics | 8 |
| Shareholder Fee Example | 9 |
| Schedule of Investments | 11 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 22 |
| Report of Independent Registered Public Accounting Firm | 23 |
| Management | 24 |
| Approval of Management Agreement | 27 |
| Additional Information | 32 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer,
U.S. Growth Equity—Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
4
| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | AMVIX | 10.16% | 0.29% | 3.78% | 1.90% | 11/30/99 |
| Russell 3000 Index | — | 7.90% | 0.55% | 4.37% | 1.71% | — |
| Institutional Class | AVDIX | 10.55% | 0.49% | 3.99% | 0.41% | 8/1/00 |
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | |
| Investor Class | Institutional Class |
| 1.26% | 1.06% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors. International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
Portfolio Managers: John Small, Jr. and Stephen Pool
Performance Summary
Veedot returned 10.16%* for the 12 months ended October 31, 2011, outperforming its benchmark, the Russell 3000 Index, which returned 7.90% for the period.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Price momentum, a factor that the Veedot team looks for in portfolio holdings, was not consistently rewarded. Even so, Veedot’s highly systematic investment process delivered portfolio returns that surpassed those of its benchmark.
Within the portfolio, stock selection in the consumer staples and financials sectors accounted for the bulk of outperformance relative to the benchmark. Stock decisions in the consumer discretionary, industrials, and utilities sectors also benefited relative returns. Those gains were partially offset by relative losses in the energy and telecommunications services sectors.
Consumer Staples, Financials Led Gains
Veedot derived the majority of its relative gains from the consumer staples sector. Within the sector, a handful of overweight positions in the food products industry group contributed meaningfully to relative performance, including B&G Foods. The manufacturer and distributor of shelf-stable foods improved net income levels in the face of rising costs largely through a shift to higher margin products. Effective stock decisions in the personal products industry also added to relative results.
The financials sector was also a source of relative gains. Here, a number of overweight stakes in the real estate investment trusts industry group benefited performance versus the benchmark.
Consumer Discretionary Contributed, but Some Holdings Detracted
The consumer discretionary sector was a key source of outperformance relative to the benchmark. Within the auto components industry, an overweight stake in automotive supplier TRW Automotive Holdings Corp. helped absolute and relative returns. The company, which makes safety electronics and airbags, delivered solid earnings as a result of strong demand from China and a federal mandate requiring side airbags for all U.S.-made passenger vehicles by 2012.
However, some holdings in the sector detracted meaningfully from relative gains. Within the media industry, an overweight position in Cablevision Systems hurt performance relative to the benchmark. The New York-area cable company suffered a drop in net income, caused in part by costs created by Hurricane Irene.
*All fund returns referenced in this commentary are for Investor Class shares.
6
Industrials, Utilities Outperformed Benchmark
In the industrials sector, Veedot was rewarded for an overweight stake in professional services company SFN Group. The temporary staffing company agreed to be acquired by global staffing firm Randstad Holding during the reporting period. Effective stock selection in the machinery and the air freight and logistics industry groups also contributed to relative results.
Veedot derived relative gains from stock decisions in the utilities sector. Notably, an overweight stake in CenterPoint Energy represented the largest single contributor to performance versus the benchmark. The distributor of electricity and natural gas in the South and Midwest reported higher-than-expected earnings levels amid growth in its field-services unit that serves producers, with gathering volumes rising in its Haynesville Shale region.
Energy, Telecommunications Services Detracted, but Some Holdings Helped
Within the energy sector, two overweight holdings—EXCO Resources and Marathon Oil—detracted from relative returns. Both oil and gas exploration companies were hurt by a decline in prices during the reporting period.
Elsewhere in the energy sector, though, Veedot held a stake in HollyFrontier, which was formed during the reporting period as the result of a merger between Holly Corp. and Frontier Oil. The petroleum refiner experienced a sharp rise in revenues following the merger, due to higher refinery gross margins.
The telecommunications services sector was also a source of relative underperformance. Here, Veedot held several detrimental overweight positions in the wireless telecommunication services industry, including a stake in United States Cellular. A loss in subscribers plagued the wireless carrier, as many subscribers chose carriers that offered Apple’s iPhone.
Although the information technology sector did not detract from relative returns, one holding in the sector significantly trimmed returns versus the benchmark. Finland-based Nokia experienced a share price decline as its smartphones continued to lose market share to rival Apple’s iPhone.
Outlook
Using a systematic and technically-driven process, Veedot focuses on finding companies whose fundamental characteristics meet strict requirements for accelerating earnings and revenue growth. Such companies must also have historical stock price performance that suggests impending share price appreciation.
During the reporting period, the environment for growth and momentum oriented investment styles remained difficult. Despite these headwinds, Veedot delivered solid results and outperformed its benchmark. Looking ahead, we remain confident that our systematic process of identifying companies with accelerating growth and price momentum will continue to successfully identify opportunities across industry sectors.
7
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Wal-Mart Stores, Inc. | 2.4% |
| UGI Corp. | 1.7% |
| Rayonier, Inc. | 1.3% |
| Eli Lilly & Co. | 1.3% |
| Abbott Laboratories | 1.3% |
| HSN, Inc. | 1.3% |
| Cardinal Health, Inc. | 1.3% |
| Baxter International, Inc. | 1.2% |
| AstraZeneca plc ADR | 1.2% |
| Philip Morris International, Inc. | 1.2% |
| Top Five Industries | % of net assets |
| Oil, Gas and Consumable Fuels | 17.9% |
| Food and Staples Retailing | 8.5% |
| Pharmaceuticals | 6.8% |
| Real Estate Investment Trusts (REITs) | 5.1% |
| Health Care Providers and Services | 4.5% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 83.3% |
| Foreign Common Stocks* | 16.6% |
| Total Common Stocks | 99.9% |
| Temporary Cash Investments | 1.3% |
| Other Assets and Liabilities | (1.2)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
8
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
9
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 - 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $935.60 | $6.10 | 1.25% |
| Institutional Class | $1,000 | $938.10 | $5.13 | 1.05% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
| Institutional Class | $1,000 | $1,019.91 | $5.35 | 1.05% |
| (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. |
10
OCTOBER 31, 2011
| Shares | Value | |
| Common Stocks — 99.9% | ||
| AEROSPACE AND DEFENSE — 2.2% | ||
| Lockheed Martin Corp. | 10,877 | $825,564 |
| Raytheon Co. | 17,610 | 778,186 |
| 1,603,750 | ||
| AIRLINES — 1.0% | ||
Ryanair Holdings plc ADR(1) | 26,260 | 755,500 |
| AUTO COMPONENTS — 1.1% | ||
Dana Holding Corp.(1) | 55,200 | 780,528 |
| BEVERAGES — 2.1% | ||
| Coca-Cola Femsa SAB de CV ADR | 7,962 | 712,997 |
| Dr Pepper Snapple Group, Inc. | 21,805 | 816,597 |
| 1,529,594 | ||
| BIOTECHNOLOGY — 1.0% | ||
Pharmasset, Inc.(1) | 9,996 | 703,718 |
| CHEMICALS — 2.0% | ||
Flotek Industries, Inc.(1) | 98,075 | 729,678 |
| Olin Corp. | 37,087 | 699,461 |
| 1,429,139 | ||
| COMMERCIAL SERVICES AND SUPPLIES — 2.0% | ||
| Pitney Bowes, Inc. | 36,027 | 734,230 |
| Republic Services, Inc. | 25,911 | 737,427 |
| 1,471,657 | ||
| COMPUTERS AND PERIPHERALS — 1.1% | ||
Quantum Corp.(1) | 317,985 | 829,941 |
| CONTAINERS AND PACKAGING — 0.4% | ||
| Packaging Corp. of America | 9,950 | 259,496 |
| DIVERSIFIED CONSUMER SERVICES — 1.7% | ||
American Public Education, Inc.(1) | 21,017 | 752,619 |
ITT Educational Services, Inc.(1) | 7,430 | 460,363 |
| 1,212,982 | ||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 1.6% | ||
| BCE, Inc. | 5,399 | 213,854 |
| Chunghwa Telecom Co. Ltd. ADR | 3,867 | 130,047 |
| TELUS Corp. | 16,420 | 837,256 |
| 1,181,157 | ||
| ELECTRIC UTILITIES — 2.1% | ||
| Cia Energetica de Minas Gerais ADR | 45,897 | 782,085 |
| Enersis SA ADR | 40,134 | 787,830 |
| 1,569,915 | ||
| ELECTRICAL EQUIPMENT — 0.8% | ||
ABB Ltd. ADR(1) | 32,733 | $615,708 |
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.0% | ||
Flextronics International Ltd.(1) | 112,805 | 740,565 |
| ENERGY EQUIPMENT AND SERVICES — 1.0% | ||
Nabors Industries Ltd.(1) | 39,458 | 723,265 |
| FOOD AND STAPLES RETAILING — 8.5% | ||
| Casey’s General Stores, Inc. | 6,782 | 336,048 |
| Costco Wholesale Corp. | 9,792 | 815,184 |
| CVS Caremark Corp. | 22,058 | 800,705 |
| Kroger Co. (The) | 36,384 | 843,381 |
| Safeway, Inc. | 42,113 | 815,729 |
| Wal-Mart Stores, Inc. | 31,500 | 1,786,680 |
| Walgreen Co. | 24,000 | 796,800 |
| 6,194,527 | ||
| FOOD PRODUCTS — 1.0% | ||
| McCormick & Co., Inc. | 15,420 | 748,795 |
| GAS UTILITIES — 1.7% | ||
| UGI Corp. | 44,000 | 1,261,480 |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.3% | ||
| Baxter International, Inc. | 16,009 | 880,175 |
| Becton, Dickinson and Co. | 9,817 | 767,984 |
| Medtronic, Inc. | 21,281 | 739,302 |
| 2,387,461 | ||
| HEALTH CARE PROVIDERS AND SERVICES — 4.5% | ||
| AmerisourceBergen Corp. | 20,388 | 831,830 |
| Cardinal Health, Inc. | 20,758 | 918,957 |
| McKesson Corp. | 9,951 | 811,504 |
Molina Healthcare, Inc.(1) | 34,138 | 723,043 |
| 3,285,334 | ||
| HOTELS, RESTAURANTS AND LEISURE — 2.7% | ||
Buffalo Wild Wings, Inc.(1) | 5,422 | 359,045 |
| Darden Restaurants, Inc. | 16,417 | 786,046 |
Home Inns & Hotels Management, Inc. ADR(1) | 23,469 | 801,701 |
| 1,946,792 | ||
| INSURANCE — 1.5% | ||
Genworth Financial, Inc. Class A(1) | 109,099 | 696,052 |
| Maiden Holdings Ltd. | 48,116 | 392,145 |
| 1,088,197 | ||
| INTERNET AND CATALOG RETAIL — 1.3% | ||
| HSN, Inc. | 25,839 | 921,677 |
11
| Shares | Value |
| INTERNET SOFTWARE AND SERVICES — 1.3% | ||
| j2 Global Communications, Inc. | 6,810 | $209,612 |
| VeriSign, Inc. | 23,870 | 765,988 |
| 975,600 | ||
| IT SERVICES — 2.0% | ||
| Fidelity National Information Services, Inc. | 7,838 | 205,199 |
| Sapient Corp. | 66,955 | 827,564 |
| Western Union Co. (The) | 26,366 | 460,614 |
| 1,493,377 | ||
| LEISURE EQUIPMENT AND PRODUCTS — 1.1% | ||
| Hasbro, Inc. | 20,650 | 785,939 |
| MACHINERY — 1.4% | ||
| Douglas Dynamics, Inc. | 19,814 | 297,606 |
| Toro Co. (The) | 13,515 | 730,351 |
| 1,027,957 | ||
| MEDIA — 0.8% | ||
| Cablevision Systems Corp., Class A | 26,396 | 381,950 |
| Washington Post Co. (The) Class B | 590 | 200,695 |
| 582,645 | ||
| METALS AND MINING — 0.6% | ||
| Southern Copper Corp. | 13,174 | 404,178 |
| MULTI-UTILITIES — 4.3% | ||
| Alliant Energy Corp. | 19,606 | 799,533 |
| MDU Resources Group, Inc. | 36,228 | 746,659 |
| TECO Energy, Inc. | 42,515 | 789,504 |
| Xcel Energy, Inc. | 31,084 | 803,521 |
| 3,139,217 | ||
| OIL, GAS AND CONSUMABLE FUELS — 17.9% | ||
Alpha Natural Resources, Inc.(1) | 27,979 | 672,615 |
| Arch Coal, Inc. | 37,868 | 689,955 |
| Atlas Energy LP | 15,161 | 359,771 |
| BP Prudhoe Bay Royalty Trust | 6,664 | 716,380 |
CVR Energy, Inc.(1) | 4,719 | 116,842 |
| Encore Energy Partners LP | 36,765 | 794,492 |
| Energy Transfer Equity LP | 19,610 | 750,082 |
| Enerplus Corp. | 26,014 | 725,270 |
| Genesis Energy LP | 31,563 | 832,948 |
| Legacy Reserves LP | 26,870 | 791,859 |
| Marathon Oil Corp. | 27,645 | 719,599 |
| MarkWest Energy Partners LP | 15,669 | 780,786 |
| Martin Midstream Partners LP | 20,690 | 743,185 |
Patriot Coal Corp.(1) | 58,040 | 728,982 |
| Permian Basin Royalty Trust | 37,257 | 735,826 |
| Pioneer Southwest Energy Partners LP | 26,217 | 719,657 |
| Regency Energy Partners LP | 32,858 | 761,648 |
| San Juan Basin Royalty Trust | 29,258 | 715,066 |
Western Refining, Inc.(1) | 44,742 | 714,977 |
| 13,069,940 | ||
| PERSONAL PRODUCTS — 1.2% | ||
USANA Health Sciences, Inc.(1) | 25,008 | 865,277 |
| PHARMACEUTICALS — 6.8% | ||
| Abbott Laboratories | 17,218 | 927,534 |
| AstraZeneca plc ADR | 18,362 | 879,723 |
| Dr Reddy’s Laboratories Ltd. ADR | 22,826 | 756,682 |
| Eli Lilly & Co. | 25,000 | 929,000 |
Jazz Pharmaceuticals, Inc.(1) | 18,641 | 726,253 |
| Merck & Co., Inc. | 22,715 | 783,668 |
| 5,002,860 | ||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 5.1% | ||
| American Capital Agency Corp. | 24,251 | 667,145 |
| CBL & Associates Properties, Inc. | 36,396 | 559,770 |
| MFA Financial, Inc. | 108,469 | 732,166 |
| Rayonier, Inc. | 22,500 | 938,925 |
| Realty Income Corp. | 24,770 | 827,566 |
| 3,725,572 | ||
| ROAD AND RAIL — 1.0% | ||
Hertz Global Holdings, Inc.(1) | 61,156 | 709,410 |
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.1% | ||
First Solar, Inc.(1) | 14,024 | 697,974 |
Micron Technology, Inc.(1) | 83,954 | 469,303 |
| Siliconware Precision Industries Co. ADR | 72,598 | 377,510 |
| 1,544,787 | ||
| SOFTWARE — 3.0% | ||
| Activision Blizzard, Inc. | 49,383 | 661,238 |
| Microsoft Corp. | 28,502 | 759,008 |
Mitek Systems, Inc.(1) | 74,588 | 754,085 |
| 2,174,331 | ||
| SPECIALTY RETAIL — 1.9% | ||
| Home Depot, Inc. (The) | 23,490 | 840,942 |
| Lowe’s Cos., Inc. | 25,627 | 538,679 |
Rue21, Inc.(1) | 1,742 | 46,407 |
| 1,426,028 |
12
| Shares | Value |
| TOBACCO — 1.6% | ||
| Imperial Tobacco Group plc ADR | 3,900 | $284,700 |
| Philip Morris International, Inc. | 12,388 | 865,550 |
| 1,150,250 | ||
| WIRELESS TELECOMMUNICATION SERVICES — 2.2% | ||
| NTT DoCoMo, Inc. ADR | 43,402 | 772,122 |
| Philippine Long Distance Telephone Co. ADR | 14,948 | 830,212 |
| 1,602,334 | ||
TOTAL COMMON STOCKS(Cost $72,337,116) | 72,920,880 | |
| Temporary Cash Investments — 1.3% | ||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $313,874), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $307,267) | 307,266 | |
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $314,897), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $307,266) | 307,266 | |
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $313,111), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $307,266) | 307,266 | |
| SSgA U.S. Government Money Market Fund | 26,841 | 26,841 |
TOTAL TEMPORARY CASH INVESTMENTS(Cost $948,639) | 948,639 | |
TOTAL INVESTMENT SECURITIES — 101.2% (Cost $73,285,755) | 73,869,519 | |
| OTHER ASSETS AND LIABILITIES — (1.2)% | (849,553) | |
| TOTAL NET ASSETS — 100.0% | $73,019,966 | |
| Geographic Diversification | |
| (as a % of net assets) | |
| United States | 83.3% |
| Canada | 2.4% |
| United Kingdom | 1.6% |
| Bermuda | 1.5% |
| Philippines | 1.1% |
| People’s Republic of China | 1.1% |
| Chile | 1.1% |
| Brazil | 1.1% |
| Japan | 1.1% |
| India | 1.0% |
| Ireland | 1.0% |
| Singapore | 1.0% |
| Mexico | 1.0% |
| Switzerland | 0.9% |
| Taiwan (Republic of China) | 0.7% |
| Cash and Equivalents* | 0.1% |
*Includes temporary cash investments and other assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
| (1) | Non-income producing. |
See Notes to Financial Statements.
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $73,285,755) | $73,869,519 | |||
| Receivable for investments sold | 7,813,765 | |||
| Receivable for capital shares sold | 12,390 | |||
| Dividends and interest receivable | 92,048 | |||
| 81,787,722 | ||||
| Liabilities | ||||
| Payable for investments purchased | 8,597,413 | |||
| Payable for capital shares redeemed | 95,646 | |||
| Accrued management fees | 74,697 | |||
| 8,767,756 | ||||
| Net Assets | $73,019,966 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $101,869,105 | |||
| Undistributed net investment income | 516,856 | |||
| Accumulated net realized loss | (29,949,759 | ) | ||
| Net unrealized appreciation | 583,764 | |||
| $73,019,966 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $72,850,507 | 11,653,856 | $6.25 | |||||||||
| Institutional Class, $0.01 Par Value | $169,459 | 26,612 | $6.37 | |||||||||
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $14,143) | $1,665,903 | |||
| Interest | 525 | |||
| 1,666,428 | ||||
| Expenses: | ||||
| Management fees | 1,001,557 | |||
| Directors’ fees and expenses | 3,237 | |||
| 1,004,794 | ||||
| Net investment income (loss) | 661,634 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on investment and foreign currency transactions | 20,605,823 | |||
| Change in net unrealized appreciation (depreciation) on investments | (12,997,900 | ) | ||
| Net realized and unrealized gain (loss) | 7,607,923 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $8,269,557 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | |||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | |||||
| Operations | |||||||
| Net investment income (loss) | $661,634 | $(39,074 | ) | ||||
| Net realized gain (loss) | 20,605,823 | 8,472,692 | |||||
| Change in net unrealized appreciation (depreciation) | (12,997,900 | ) | 6,795,479 | ||||
| Net increase (decrease) in net assets resulting from operations | 8,269,557 | 15,229,097 | |||||
| Distributions to Shareholders | |||||||
| From net investment income: | |||||||
| Investor Class | (95,981 | ) | (48,886 | ) | |||
| Institutional Class | (9,897 | ) | (8,309 | ) | |||
| Decrease in net assets from distributions | (105,878 | ) | (57,195 | ) | |||
| Capital Share Transactions | |||||||
| Net increase (decrease) in net assets from capital share transactions | (16,567,847 | ) | (12,443,945 | ) | |||
| Redemption Fees | |||||||
| Increase in net assets from redemption fees | 2,072 | 2,579 | |||||
| Net increase (decrease) in net assets | (8,402,096 | ) | 2,730,536 | ||||
| Net Assets | |||||||
| Beginning of period | 81,422,062 | 78,691,526 | |||||
| End of period | $73,019,966 | $81,422,062 | |||||
| Undistributed net investment income | $516,856 | — | |||||
See Notes to Financial Statements.
16
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Veedot Fund (the fund) is one fund in a series issued by the corporation. The fund is nondiversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing in common stocks that management believes will increase in value over time, using an investment strategy developed by American Century Investments. This approach relies heavily on quantitative tools to identify attractive investment opportunities, regardless of company size, industry type or geographic location, on a disciplined, consistent basis.
The fund is authorized to issue the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
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If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption — The fund may impose a 2.00% redemption fee on shares held less than 180 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Effective November 14, 2011, the redemption fee applies only to shares held less than 60 days.
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 1.000% to 1.250% for the Investor Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.25% and 1.05% for the Investor Class and Institutional Class, respectively.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $223,345,930 and $235,349,784, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | ||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||
| Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | |||||||||||||
| Sold | 609,907 | $3,792,990 | 394,054 | $2,119,491 | |||||||||||
| Issued in reinvestment of distributions | 15,435 | 93,224 | 8,820 | 47,717 | |||||||||||
| Redeemed | (2,786,705 | ) | (17,345,567 | ) | (2,645,725 | ) | (13,942,170 | ) | |||||||
| (2,161,363 | ) | (13,459,353 | ) | (2,242,851 | ) | (11,774,962 | ) | ||||||||
| Institutional Class/Shares Authorized | 100,000,000 | 100,000,000 | |||||||||||||
| Sold | 33,847 | 215,520 | 24,836 | 134,114 | |||||||||||
| Issued in reinvestment of distributions | 1,612 | 9,897 | 1,511 | 8,309 | |||||||||||
| Redeemed | (524,367 | ) | (3,333,911 | ) | (155,132 | ) | (811,406 | ) | |||||||
| (488,908 | ) | (3,108,494 | ) | (128,785 | ) | (668,983 | ) | ||||||||
| Net increase (decrease) | (2,650,271 | ) | $(16,567,847 | ) | (2,371,636 | ) | $(12,443,945 | ) | |||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | |||||||||
| Investment Securities | |||||||||||
| Domestic Common Stocks | $60,801,708 | — | — | ||||||||
| Foreign Common Stocks | 12,119,172 | — | — | ||||||||
| Temporary Cash Investments | 26,841 | $921,798 | — | ||||||||
| Total Value of Investment Securities | $72,947,721 | $921,798 | — | ||||||||
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.
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions. Investing in emerging markets may accentuate these risks.
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8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $105,878 | $57,195 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $73,211,720 | |||
| Gross tax appreciation of investments | $3,343,884 | |||
| Gross tax depreciation of investments | (2,686,085 | ) | ||
| Net tax appreciation (depreciation) of investments | $657,799 | |||
| Undistributed ordinary income | $516,856 | |||
| Accumulated capital losses | $(30,023,794 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and return of capital dividends received.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(7,339,030) and $(22,684,764) expire in 2016 and 2017, respectively.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||
| Income From Investment Operations: | Distributions From Net Investment Income | 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 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 | ||||||||||||
| 2011 | $5.68 | 0.05 | 0.53 | 0.58 | (0.01) | $6.25 | 10.16% | 1.25% | 0.82% | 280% | $72,851 | |
| 2010 | $4.71 | —(3) | 0.97 | 0.97 | —(3) | $5.68 | 20.66% | 1.26% | (0.06)% | 260% | $78,441 | |
| 2009 | $5.34 | —(3) | (0.63) | (0.63) | — | $4.71 | (11.80)% | 1.25% | (0.03)% | 320% | $75,603 | |
| 2008 | $9.25 | (0.02) | (3.89) | (3.91) | — | $5.34 | (42.27)% | 1.25% | (0.27)% | 257% | $98,991 | |
| 2007 | $6.17 | (0.01) | 3.09 | 3.08 | — | $9.25 | 49.92% | 1.25% | (0.18)% | 207% | $195,105 | |
| Institutional Class | ||||||||||||
| 2011 | $5.78 | 0.06 | 0.55 | 0.61 | (0.02) | $6.37 | 10.55% | 1.05% | 1.02% | 280% | $169 | |
| 2010 | $4.79 | 0.01 | 0.99 | 1.00 | (0.01) | $5.78 | 20.97% | 1.06% | 0.14% | 260% | $2,981 | |
| 2009 | $5.43 | 0.01 | (0.65) | (0.64) | — | $4.79 | (11.79)% | 1.05% | 0.17% | 320% | $3,089 | |
| 2008 | $9.38 | (0.01) | (3.94) | (3.95) | — | $5.43 | (42.11)% | 1.05% | (0.07)% | 257% | $4,864 | |
| 2007 | $6.25 | —(3) | 3.13 | 3.13 | — | $9.38 | 50.08% | 1.05% | 0.02% | 207% | $9,188 | |
Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
| (3) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Veedot Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Veedot Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
| Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization)(2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust |
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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 | |||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. |
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) |
| Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None |
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | |
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | |
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | |
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks
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and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
29
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
30
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
31
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $105,878, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73911 1112
ANNUAL REPORT OCTOBER 31, 2011
VistaSM Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 25 |
| Report of Independent Registered Public Accounting Firm | 27 |
| Management | 28 |
| Approval of Management Agreement | 31 |
| Additional Information | 36 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
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By David Hollond,
Chief Investment Officer,
U.S. Growth Equity — Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWCVX | 5.64% | 1.78% | 5.33% | 8.87% | 11/25/83 |
Russell Midcap Growth Index | — | 10.08% | 3.46% | 6.98% | N/A(1) | — |
| Institutional Class | TWVIX | 5.93% | 1.99% | 5.55% | 4.87% | 11/14/96 |
A Class(2) No sales charge* With sales charge* | TWVAX | 5.42% -0.64% | 1.53% 0.33% | 5.08% 4.47% | 3.89% 3.48% | 10/2/96 |
| C Class | AVNCX | 4.62% | — | — | 8.99% | 3/1/10 |
| R Class | AVTRX | 5.19% | 1.29% | — | 1.99% | 7/29/05 |
* | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Index data not available prior to 12/31/85. |
| (2) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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Portfolio Managers: Brad Eixmann and Bryan Unterhalter
Performance Summary
Vista returned 5.64%* for the 12 months ended October 31, 2011, lagging the 10.08% return of its benchmark, the Russell Midcap Growth Index.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and U.S. Treasury debt downgrade. Price momentum and acceleration, two factors that the Vista team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, security selection in the information technology sector accounted for the majority of underperformance relative to the benchmark. Holdings in the industrials, financials, and consumer discretionary sectors also hurt results versus the benchmark. Effective stock choices in the health care and consumer staples sectors partially offset those relative losses.
Information Technology Underperformed Benchmark
The information technology sector was Vista’s largest source of underperformance relative to the benchmark. In the communications equipment industry, two overweight positions significantly trimmed relative results. Video and teleconferencing equipment maker Polycom experienced a sell-off in its shares as investors feared that competition and cuts in corporate spending would hurt revenues. An overweight position in F5 Networks, whose products help optimize the performance of applications over IT networks, also detracted from returns versus the benchmark. Elsewhere in the sector, stock decisions in the software industry hindered relative returns.
However, a position in UK-based ARM Holdings plc contributed meaningfully to relative results. The semiconductor intellectual property supplier experienced a surge in demand from chip makers, driven by rising end-market requirements for mobile chips.
Industrials, Financials Lagged
Vista’s underperformance in the industrials sector largely reflected stock decisions among machinery companies. An example was an overweight stake in WABCO Holdings. The maker of braking systems for commercial vehicles experienced a share price decline while it was held in the portfolio due to macroeconomic concerns.
The financials sector was a source of underperformance relative to the benchmark. Within the sector, an underweight in real estate investment trusts and overweight in the real estate management industry curbed relative results.
*All fund returns referenced in this commentary are for Investor Class shares.
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Consumer Discretionary Lagged, but Some Holdings Helped
In the consumer discretionary sector, stock weightings in the hotels, restaurants, and leisure industry detracted from relative returns. An overweight position in Lululemon Athletica, though, contributed significantly to relative outperformance as the maker of women’s yoga and athletic wear executed well, demonstrating strong same-store comparable sales levels.
Health Care, Consumer Staples Outperformed, but Some Holdings Lagged
An overweight position in Alexion Pharmaceuticals accounted for the bulk of Vista’s relative outperformance in the health care sector. The biotechnology company received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders. Effective stock selection in the pharmaceuticals industry group also benefited relative returns. In the industry, Vista held one outperforming position that was not represented in the benchmark, while successfully sidestepping some benchmark laggards.
In the consumer staples sector, companies with products at the upper end of the retail market performed well. Vista benefited from this situation with a significant position in specialty grocery chain Whole Foods Markets, which represented the largest individual contributor to relative returns. The company, which continued to perform well amid a trend towards healthier diets, executed well as it demonstrated strong buying power and improving supply chain management.
Elsewhere in the sector, though, an underweight position in Green Mountain Coffee Roasters detracted from relative results. The largest U.S. seller of single-serve brewers experienced robust share price gains as it continued to increase revenues through the success of its Keurig Single-Cup Brewing System. The portfolio had some exposure to Green Mountain, but less than the benchmark.
Outlook
Our investment process focuses on medium-sized and smaller companies with accelerating earnings growth rates and share-price momentum. We believe that active investing in such companies will generate outperformance over time compared with the Russell Midcap Growth Index.
This process, which has historically added value, has faced unprecedented headwinds in recent reporting periods. Based on historical trends, we believe we will move past this environment of extreme underperformance for stocks exhibiting price momentum and acceleration and into a period where fundamentals, and specifically fundamental improvement, is recognized and rewarded by the market.
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| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Teradata Corp. | 2.9% |
| Whole Foods Market, Inc. | 2.7% |
| National Oilwell Varco, Inc. | 2.6% |
| Alliance Data Systems Corp. | 2.3% |
| TransDigm Group, Inc. | 2.2% |
| Kansas City Southern | 2.0% |
| Check Point Software Technologies Ltd. | 2.0% |
| Joy Global, Inc. | 2.0% |
| ARM Holdings plc | 2.0% |
| Dollar Tree, Inc. | 1.9% |
| Top Five Industries | % of net assets |
| Software | 8.0% |
| Specialty Retail | 7.0% |
| IT Services | 6.2% |
| Oil, Gas and Consumable Fuels | 4.9% |
| Energy Equipment and Services | 4.8% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 87.8% |
| Foreign Common Stocks* | 11.3% |
| Total Common Stocks | 99.1% |
| Temporary Cash Investments | 1.6% |
| Other Assets and Liabilities | (0.7)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares. | |
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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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period* 5/1/11 – 10/31/11 | Annualized Expense Ratio* | |
| Actual | ||||
| Investor Class | $1,000 | $880.30 | $4.74 | 1.00% |
| Institutional Class | $1,000 | $881.60 | $3.79 | 0.80% |
| A Class | $1,000 | $879.60 | $5.92 | 1.25% |
| C Class | $1,000 | $876.20 | $9.46 | 2.00% |
| R Class | $1,000 | $878.40 | $7.10 | 1.50% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
| Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
| A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
| C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
| R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
* | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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OCTOBER 31, 2011
| Shares | Value | |
| Common Stocks — 99.1% | ||
| AEROSPACE AND DEFENSE — 4.0% | ||
BE Aerospace, Inc.(1) | 746,000 | $ 28,146,579 |
TransDigm Group, Inc.(1) | 383,000 | 35,971,360 |
| 64,117,939 | ||
| AUTO COMPONENTS — 1.6% | ||
BorgWarner, Inc.(1) | 329,000 | 25,165,210 |
| BIOTECHNOLOGY — 2.8% | ||
Alexion Pharmaceuticals, Inc.(1) | 433,046 | 29,234,936 |
Cepheid, Inc.(1) | 188,000 | 6,745,440 |
Grifols SA(1) | 493,250 | 9,171,517 |
| 45,151,893 | ||
| CAPITAL MARKETS — 2.0% | ||
Affiliated Managers Group, Inc.(1) | 131,000 | 12,131,910 |
American Capital Ltd.(1) | 1,333,000 | 10,357,410 |
| KKR & Co. LP | 628,000 | 8,465,440 |
| 30,954,760 | ||
| CHEMICALS — 3.0% | ||
| Albemarle Corp. | 273,000 | 14,548,170 |
| International Flavors & Fragrances, Inc. | 347,000 | 21,014,320 |
Rockwood Holdings, Inc.(1) | 280,000 | 12,891,200 |
| 48,453,690 | ||
| COMMERCIAL BANKS — 0.4% | ||
| East West Bancorp., Inc. | 322,853 | 6,285,948 |
| COMMERCIAL SERVICES AND SUPPLIES — 1.6% | ||
Stericycle, Inc.(1) | 296,000 | 24,739,680 |
| COMMUNICATIONS EQUIPMENT — 0.6% | ||
Aruba Networks, Inc.(1) | 427,000 | 10,115,630 |
| CONSUMER FINANCE — 2.0% | ||
| Discover Financial Services | 977,000 | 23,018,120 |
First Cash Financial Services, Inc.(1) | 210,000 | 8,715,000 |
| 31,733,120 | ||
| CONTAINERS AND PACKAGING — 1.9% | ||
Crown Holdings, Inc.(1) | 599,000 | 20,240,210 |
| Rock-Tenn Co., Class A | 164,000 | 9,707,160 |
| 29,947,370 | ||
| DIVERSIFIED CONSUMER SERVICES — 0.6% | ||
| Weight Watchers International, Inc. | 122,000 | 9,103,640 |
| ELECTRICAL EQUIPMENT — 1.1% | ||
Polypore International, Inc.(1) | 344,000 | 18,042,800 |
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.2% | ||
IPG Photonics Corp.(1) | 134,000 | $ 7,083,240 |
Trimble Navigation Ltd.(1) | 301,000 | 12,163,410 |
| 19,246,650 | ||
| ENERGY EQUIPMENT AND SERVICES — 4.8% | ||
Atwood Oceanics, Inc.(1) | 284,000 | 12,138,160 |
| Core Laboratories NV | 106,000 | 11,475,560 |
| National Oilwell Varco, Inc. | 587,000 | 41,870,710 |
Oil States International, Inc.(1) | 161,000 | 11,207,210 |
| 76,691,640 | ||
| FOOD AND STAPLES RETAILING — 2.7% | ||
| Whole Foods Market, Inc. | 601,000 | 43,344,120 |
| FOOD PRODUCTS — 2.4% | ||
Green Mountain Coffee Roasters, Inc.(1) | 111,000 | 7,217,220 |
| J.M. Smucker Co. (The) | 113,000 | 8,703,260 |
| Mead Johnson Nutrition Co. | 302,000 | 21,698,700 |
| 37,619,180 | ||
| GAS UTILITIES — 1.0% | ||
| Oneok, Inc. | 210,000 | 15,970,500 |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 2.9% | ||
| Cooper Cos., Inc. (The) | 264,000 | 18,295,200 |
MAKO Surgical Corp.(1) | 379,000 | 14,572,550 |
Mettler-Toledo International, Inc.(1) | 84,000 | 12,902,400 |
| 45,770,150 | ||
| HEALTH CARE PROVIDERS AND SERVICES — 0.7% | ||
Catalyst Health Solutions, Inc.(1) | 205,000 | 11,268,850 |
| HEALTH CARE TECHNOLOGY — 1.9% | ||
SXC Health Solutions Corp.(1) | 627,000 | 29,356,140 |
| HOTELS, RESTAURANTS AND LEISURE — 3.9% | ||
| Arcos Dorados Holdings, Inc., Class A | 537,000 | 12,565,800 |
Chipotle Mexican Grill, Inc.(1) | 75,000 | 25,209,000 |
Domino’s Pizza, Inc.(1) | 238,000 | 7,623,140 |
Panera Bread Co., Class A(1) | 122,000 | 16,310,180 |
| 61,708,120 | ||
| HOUSEHOLD DURABLES — 1.0% | ||
Tempur-Pedic International, Inc.(1) | 229,000 | 15,585,740 |
| HOUSEHOLD PRODUCTS — 1.0% | ||
| Church & Dwight Co., Inc. | 372,000 | 16,434,960 |
| INTERNET AND CATALOG RETAIL — 1.5% | ||
priceline.com, Inc.(1) | 46,000 | 23,355,120 |
12
| Shares | Value |
| INTERNET SOFTWARE AND SERVICES — 1.5% | ||
Baidu, Inc. ADR(1) | 171,000 | $ 23,970,780 |
| IT SERVICES — 6.2% | ||
Alliance Data Systems Corp.(1) | 364,000 | 37,288,160 |
Cognizant Technology Solutions Corp., Class A(1) | 216,000 | 15,714,000 |
Teradata Corp.(1) | 778,000 | 46,415,480 |
| 99,417,640 | ||
| LIFE SCIENCES TOOLS AND SERVICES — 0.5% | ||
Waters Corp.(1) | 99,000 | 7,931,880 |
| MACHINERY — 3.9% | ||
Chart Industries, Inc.(1) | 209,000 | 11,810,590 |
| Cummins, Inc. | 81,000 | 8,053,830 |
| Joy Global, Inc. | 365,000 | 31,828,000 |
| Titan International, Inc. | 461,000 | 10,372,500 |
| 62,064,920 | ||
| MEDIA — 2.3% | ||
| CBS Corp., Class B | 979,000 | 25,267,990 |
Focus Media Holding Ltd. ADR(1) | 435,000 | 11,823,300 |
| 37,091,290 | ||
| METALS AND MINING — 0.9% | ||
| Cliffs Natural Resources, Inc. | 213,000 | 14,530,860 |
| MULTILINE RETAIL — 1.9% | ||
Dollar Tree, Inc.(1) | 382,000 | 30,544,720 |
| OIL, GAS AND CONSUMABLE FUELS — 4.9% | ||
| Cabot Oil & Gas Corp. | 308,000 | 23,937,760 |
Concho Resources, Inc.(1) | 283,000 | 26,805,760 |
SandRidge Energy, Inc.(1) | 2,323,000 | 17,794,180 |
| SM Energy Co. | 119,000 | 9,866,290 |
| 78,403,990 | ||
| PHARMACEUTICALS — 4.6% | ||
Elan Corp. plc ADR(1) | 831,000 | 9,963,690 |
| Perrigo Co. | 151,000 | 13,632,280 |
Questcor Pharmaceuticals, Inc.(1) | 560,000 | 22,741,600 |
| Shire plc | 384,000 | 12,057,626 |
Watson Pharmaceuticals, Inc.(1) | 217,000 | 14,573,720 |
| 72,968,916 | ||
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.6% | ||
CBRE Group, Inc.(1) | 551,000 | 9,796,780 |
| ROAD AND RAIL — 2.0% | ||
Kansas City Southern(1) | 510,000 | 32,216,700 |
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.4% | ||
| ARM Holdings plc | 3,359,000 | 31,465,692 |
| Avago Technologies Ltd. | 387,000 | 13,068,990 |
Cypress Semiconductor Corp.(1) | 515,993 | 9,860,626 |
| 54,395,308 | ||
| SOFTWARE — 8.0% | ||
Cerner Corp.(1) | 108,000 | 6,850,440 |
Check Point Software Technologies Ltd.(1) | 553,000 | 31,869,390 |
Citrix Systems, Inc.(1) | 253,000 | 18,425,990 |
Informatica Corp.(1) | 280,000 | 12,740,000 |
NetSuite, Inc.(1) | 318,000 | 12,096,720 |
QLIK Technologies, Inc.(1) | 334,000 | 9,542,380 |
Salesforce.com, Inc.(1) | 119,000 | 15,847,230 |
| Solera Holdings, Inc. | 382,000 | 20,868,660 |
| 128,240,810 | ||
| SPECIALTY RETAIL — 7.0% | ||
| DSW, Inc., Class A | 216,000 | 11,305,440 |
O’Reilly Automotive, Inc.(1) | 332,000 | 25,248,600 |
| PetSmart, Inc. | 423,000 | 19,859,850 |
| Tiffany & Co. | 115,000 | 9,168,950 |
| Tractor Supply Co. | 271,000 | 19,224,740 |
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 405,000 | 27,252,450 |
| 112,060,030 | ||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.9% | ||
Fossil, Inc.(1) | 165,000 | 17,103,900 |
Lululemon Athletica, Inc.(1) | 237,000 | 13,385,760 |
| 30,489,660 | ||
| TRADING COMPANIES AND DISTRIBUTORS — 2.0% | ||
| Fastenal Co. | 517,000 | 19,692,530 |
United Rentals, Inc.(1) | 544,000 | 12,735,040 |
| 32,427,570 | ||
| WIRELESS TELECOMMUNICATION SERVICES — 0.9% | ||
SBA Communications Corp., Class A(1) | 372,000 | 14,169,480 |
TOTAL COMMON STOCKS(Cost $1,281,304,517) | 1,580,884,184 | |
13
| Shares | Value |
| Temporary Cash Investments — 1.6% | ||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $8,571,223), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $8,390,779) | $ 8,390,765 | |
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $8,599,159), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $8,390,771) | 8,390,764 | |
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $8,550,385), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $8,390,774) | 8,390,765 | |
| SSgA U.S. Government Money Market Fund | 732,646 | 732,646 |
TOTAL TEMPORARY CASH INVESTMENTS(Cost $25,904,940) | 25,904,940 | |
TOTAL INVESTMENT SECURITIES — 100.7% (Cost $1,307,209,457) | 1,606,789,124 | |
| OTHER ASSETS AND LIABILITIES — (0.7)% | (11,147,750) | |
| TOTAL NET ASSETS — 100.0% | $1,595,641,374 | |
| Forward Foreign Currency Exchange Contracts | |||||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||
| 5,384,317 | EUR for USD | UBS AG | 11/30/11 | $ 7,448,169 | $ 32,855 | ||
| 21,308,158 | GBP for USD | Credit Suisse AG | 11/30/11 | 34,251,854 | (260,858) | ||
| $41,700,023 | $(228,003) | ||||||
| (Value on Settlement Date $41,472,020) | |||||||
| Geographic Diversification | |
| (as a % of net assets) | |
| United States | 87.8% |
| People’s Republic of China | 2.2% |
| Israel | 2.0% |
| United Kingdom | 2.0% |
| Ireland | 1.4% |
| Canada | 0.8% |
| Singapore | 0.8% |
| Argentina | 0.8% |
| Netherlands | 0.7% |
| Spain | 0.6% |
| Cash and Equivalents* | 0.9% |
| *Includes temporary cash investments and other assets and liabilities. | |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
| (1) | Non-income producing. |
See Notes to Financial Statements.
14
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $1,307,209,457) | $1,606,789,124 | |||
| Foreign currency holdings, at value (cost of $72,848) | 72,568 | |||
| Receivable for investments sold | 18,306,450 | |||
| Receivable for capital shares sold | 614,294 | |||
| Unrealized gain on forward foreign currency exchange contracts | 32,855 | |||
| Dividends and interest receivable | 404,599 | |||
| 1,626,219,890 | ||||
| Liabilities | ||||
| Payable for investments purchased | 26,115,706 | |||
| Payable for capital shares redeemed | 2,886,538 | |||
| Unrealized loss on forward foreign currency exchange contracts | 260,858 | |||
| Accrued management fees | 1,281,402 | |||
| Distribution and service fees payable | 34,012 | |||
| 30,578,516 | ||||
| Net Assets | $1,595,641,374 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $1,475,555,109 | |||
| Undistributed net investment income | 232,336 | |||
| Accumulated net realized loss | (179,561,578 | ) | ||
| Net unrealized appreciation | 299,415,507 | |||
| $1,595,641,374 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $1,368,299,254 | 84,931,731 | $16.11 | |||||||||
| Institutional Class, $0.01 Par Value | $83,260,653 | 5,016,576 | $16.60 | |||||||||
| A Class, $0.01 Par Value | $124,296,109 | 7,989,928 | $15.56 | * | ||||||||
| C Class, $0.01 Par Value | $85,752 | 5,411 | $15.85 | |||||||||
| R Class, $0.01 Par Value | $19,699,606 | 1,262,513 | $15.60 | |||||||||
*Maximum offering price $16.51 (net asset value divided by 0.9425) | ||||||||||||
See Notes to Financial Statements.
15
| YEAR DED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $19,163) | $11,018,166 | |||
| Interest | 16,861 | |||
| 11,035,027 | ||||
| Expenses: | ||||
| Management fees | 19,557,183 | |||
| Distribution and service fees: | ||||
| A Class | 405,194 | |||
| C Class | 656 | |||
| R Class | 121,445 | |||
| Directors’ fees and expenses | 89,697 | |||
| 20,174,175 | ||||
| Net investment income (loss) | (9,139,148 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 341,417,123 | |||
| Futures contract transactions | 1,148,539 | |||
| Foreign currency transactions | (324,625 | ) | ||
| 342,241,037 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (169,754,016 | ) | ||
| Translation of assets and liabilities in foreign currencies | 173,283 | |||
| (169,580,733 | ) | |||
| Net realized and unrealized gain (loss) | 172,660,304 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $163,521,156 | |||
See Notes to Financial Statements.
16
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | |||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | |||||
| Operations | |||||||
| Net investment income (loss) | $(9,139,148 | ) | $(9,950,529 | ) | |||
| Net realized gain (loss) | 342,241,037 | 354,965,987 | |||||
| Change in net unrealized appreciation (depreciation) | (169,580,733 | ) | 156,009,051 | ||||
| Net increase (decrease) in net assets resulting from operations | 163,521,156 | 501,024,509 | |||||
| Capital Share Transactions | |||||||
| Net increase (decrease) in net assets from capital share transactions | (695,555,495 | ) | (553,319,017 | ) | |||
| Net increase (decrease) in net assets | (532,034,339 | ) | (52,294,508 | ) | |||
| Net Assets | |||||||
| Beginning of period | 2,127,675,713 | 2,179,970,221 | |||||
| End of period | $1,595,641,374 | $2,127,675,713 | |||||
| Undistributed net investment income | $232,336 | $346,850 | |||||
See Notes to Financial Statements.
17
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. Vista Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in equity securities of companies that are medium-sized and smaller at the time of purchase that management believes will increase in value.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class (formerly Advisor Class), the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. Sale of the C Class commenced on March 1, 2010.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
18
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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.
Business Development Companies — The fund may invest in securities of closed-end investment companies that have elected to be treated as a business development company under the 1940 Act. A business development company operates similar to an exchange-traded fund and represents a portfolio of securities. The fund may purchase a business development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business development company generally reflect the risks of owning the underlying securities. Business development companies have expenses that reduce their value.
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.
19
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.00% for the Investor Class, A Class, C Class and R Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
20
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC. Various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP) own, in aggregate, 12% of the shares of the fund. ACAAP does not invest in the fund for purposes of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $1,760,189,930 and $2,450,039,398, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010(1) | ||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||
| Investor Class/Shares Authorized | 750,000,000 | 750,000,000 | |||||||||||||
| Sold | 8,621,805 | $143,273,101 | 8,630,658 | $117,497,322 | |||||||||||
| Redeemed | (39,205,210 | ) | (673,000,417 | ) | (32,468,753 | ) | (444,901,904 | ) | |||||||
| (30,583,405 | ) | (529,727,316 | ) | (23,838,095 | ) | (327,404,582 | ) | ||||||||
| Institutional Class/Shares Authorized | 80,000,000 | 80,000,000 | |||||||||||||
| Sold | 1,888,308 | 31,910,361 | 4,712,353 | 65,500,385 | |||||||||||
| Redeemed | (6,639,853 | ) | (114,083,570 | ) | (11,923,548 | ) | (169,469,691 | ) | |||||||
| (4,751,545 | ) | (82,173,209 | ) | (7,211,195 | ) | (103,969,306 | ) | ||||||||
| A Class/Shares Authorized | 310,000,000 | 310,000,000 | |||||||||||||
| Sold | 2,133,309 | 34,631,696 | 2,682,180 | 35,631,591 | |||||||||||
| Redeemed | (6,781,320 | ) | (109,933,117 | ) | (11,741,693 | ) | (156,158,675 | ) | |||||||
| (4,648,011 | ) | (75,301,421 | ) | (9,059,513 | ) | (120,527,084 | ) | ||||||||
| C Class/Shares Authorized | 50,000,000 | 50,000,000 | |||||||||||||
| Sold | 3,649 | 62,747 | 1,989 | 27,200 | |||||||||||
| Redeemed | (227 | ) | (3,470 | ) | — | — | |||||||||
| 3,422 | 59,277 | 1,989 | 27,200 | ||||||||||||
| R Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Sold | 269,541 | 4,389,911 | 506,557 | 6,818,706 | |||||||||||
| Redeemed | (805,128 | ) | (12,802,737 | ) | (614,404 | ) | (8,263,951 | ) | |||||||
| (535,587 | ) | (8,412,826 | ) | (107,847 | ) | (1,445,245 | ) | ||||||||
| Net increase (decrease) | (40,515,126 | ) | $(695,555,495 | ) | (40,214,661 | ) | $(553,319,017 | ) | |||||||
| (1) | March 1, 2010 (commencement of sale) through October 31, 2010 for the C Class. |
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6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $1,400,066,079 | — | — | |||||||||
| Foreign Common Stocks | 128,123,270 | $52,694,835 | — | |||||||||
| Temporary Cash Investments | 732,646 | 25,172,294 | — | |||||||||
| Total Value of Investment Securities | $1,528,921,995 | $77,867,129 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(228,003 | ) | — | ||||||||
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 infrequently purchased equity price risk derivative instruments for temporary investment purposes.
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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 foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
Value of Derivative Instruments as of October 31, 2011
| 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 gain on forward foreign currency exchange contracts | $32,855 | Unrealized loss on forward foreign currency exchange contracts | $260,858 | |||
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2011
| 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 | $1,148,539 | Change in net unrealized appreciation (depreciation) on futures contracts | — | |||
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (308,000) | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $137,263 | |||
| $ 840,539 | $137,263 | ||||||
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.
The fund invests in common stocks of small companies. Because of this, it may be subject to greater risk and market fluctuations than a fund investing in larger, more established companies.
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9. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. There were no distributions paid by the fund during the years ended October 31, 2011 and October 31, 2010.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $1,318,149,616 | |||
| Gross tax appreciation of investments | $326,594,520 | |||
| Gross tax depreciation of investments | (37,955,012 | ) | ||
| Net tax appreciation (depreciation) of investments | $288,639,508 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $68,176 | |||
| Net tax appreciation (depreciation) | $288,707,684 | |||
| Undistributed ordinary income | — | |||
| Accumulated capital losses | $(168,621,419 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||
| Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses(7) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||
| Investor Class | ||||||||||||
| 2011 | $15.25 | (0.08) | 0.94 | 0.86 | — | $16.11 | 5.64% | 1.00% | (0.44)% | 90% | $1,368,299 | |
| 2010 | $12.13 | (0.06) | 3.18 | 3.12 | — | $15.25 | 25.72% | 1.01% | (0.45)% | 132% | $1,761,319 | |
| 2009 | $12.43 | (0.05) | (0.25) | (0.30) | — | $12.13 | (2.41)% | 1.00% | (0.48)% | 183% | $1,690,576 | |
| 2008 | $24.24 | (0.11) | (9.61) | (9.72) | (2.09) | $12.43 | (43.58)% | 1.00% | (0.56)% | 167% | $1,800,788 | |
| 2007 | $16.35 | (0.12) | 8.14 | 8.02 | (0.13) | $24.24 | 49.39% | 1.00% | (0.60)% | 121% | $2,920,908 | |
| Institutional Class | ||||||||||||
| 2011 | $15.67 | (0.04) | 0.97 | 0.93 | — | $16.60 | 5.93% | 0.80% | (0.24)% | 90% | $83,261 | |
| 2010 | $12.45 | (0.03) | 3.25 | 3.22 | — | $15.67 | 25.86% | 0.81% | (0.25)% | 132% | $153,112 | |
| 2009 | $12.73 | (0.03) | (0.25) | (0.28) | — | $12.45 | (2.12)% | 0.80% | (0.28)% | 183% | $211,357 | |
| 2008 | $24.72 | (0.07) | (9.83) | (9.90) | (2.09) | $12.73 | (43.50)% | 0.80% | (0.36)% | 167% | $238,727 | |
| 2007 | $16.64 | (0.08) | 8.29 | 8.21 | (0.13) | $24.72 | 49.68% | 0.80% | (0.40)% | 121% | $254,528 | |
A Class(3) | ||||||||||||
| 2011 | $14.76 | (0.11) | 0.91 | 0.80 | — | $15.56 | 5.42% | 1.25% | (0.69)% | 90% | $124,296 | |
| 2010 | $11.77 | (0.09) | 3.08 | 2.99 | — | $14.76 | 25.40% | 1.26% | (0.70)% | 132% | $186,529 | |
| 2009 | $12.09 | (0.08) | (0.24) | (0.32) | — | $11.77 | (2.65)% | 1.25% | (0.73)% | 183% | $255,419 | |
| 2008 | $23.69 | (0.15) | (9.36) | (9.51) | (2.09) | $12.09 | (43.72)% | 1.25% | (0.81)% | 167% | $257,057 | |
| 2007 | $16.03 | (0.16) | 7.95 | 7.79 | (0.13) | $23.69 | 48.94% | 1.25% | (0.85)% | 121% | $380,555 | |
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||
| Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Realized Gains | Net Asset Value, End of Period | Total Return(2) | Operating Expenses(7) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||
| C Class | ||||||||||||
| 2011 | $15.15 | (0.25) | 0.95 | 0.70 | — | $15.85 | 4.62% | 2.00% | (1.44)% | 90% | $86 | |
2010(4) | $13.73 | (0.14) | 1.56 | 1.42 | — | $15.15 | 10.34% | 2.01%(5) | (1.51)%(5) | 132%(6) | $30 | |
| R Class | ||||||||||||
| 2011 | $14.84 | (0.16) | 0.92 | 0.76 | — | $15.60 | 5.19% | 1.50% | (0.94)% | 90% | $19,700 | |
| 2010 | $11.87 | (0.13) | 3.10 | 2.97 | — | $14.84 | 25.02% | 1.51% | (0.95)% | 132% | $26,686 | |
| 2009 | $12.22 | (0.12) | (0.23) | (0.35) | — | $11.87 | (2.86)% | 1.50% | (0.98)% | 183% | $22,618 | |
| 2008 | $23.98 | (0.18) | (9.49) | (9.67) | (2.09) | $12.22 | (43.87)% | 1.50% | (1.06)% | 167% | $11,423 | |
| 2007 | $16.25 | (0.21) | 8.07 | 7.86 | (0.13) | $23.98 | 48.71% | 1.50% | (1.10)% | 121% | $2,398 | |
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) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class. |
| (4) | March 1, 2010 (commencement of sale) through October 31, 2010. |
| (5) | Annualized. |
| (6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2010. |
| (7) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
See Notes to Financial Statements.
26
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vista Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Vista Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
27
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years |
| Independent Directors | |||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None |
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust |
28
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 |
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. |
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. |
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) |
| Interested Director | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None |
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 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | |
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | |
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | |
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | |
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | |
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | |
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | data comparing the cost of owning the Fund to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
31
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different
32
time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
33
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
34
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
35
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
36
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73912 1112
ANNUAL REPORT | OCTOBER 31, 2011
| Small Cap Growth Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 17 |
| Statement of Operations | 18 |
| Statement of Changes in Net Assets | 19 |
| Notes to Financial Statements | 20 |
| Financial Highlights | 25 |
| Report of Independent Registered Public Accounting Firm | 28 |
| Management | 29 |
| Approval of Management Agreement | 32 |
| Additional Information | 37 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer,
U.S. Growth Equity—Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
| Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | ANOIX | 8.19% | 3.14% | 7.62% | 6.27% | 6/1/01 |
| Russell 2000 Growth Index | — | 9.84% | 2.68% | 6.04% | 3.67%(1) | — |
| Institutional Class | ANONX | 8.40% | — | — | -0.18% | 5/18/07 |
A Class No sales charge* With sales charge* | ANOAX | 8.03% 1.79% | 2.90% 1.69% | — — | 9.55% 8.82% | 1/31/03 |
B Class No sales charge* With sales charge* | ANOBX | 7.04% 3.04% | 2.10% 1.92% | — — | 8.73% 8.73% | 1/31/03 |
| C Class | ANOCX | 7.01% | 2.12% | — | 8.77%(2) | 1/31/03 |
| R Class | ANORX | 7.64% | — | — | -3.00% | 9/28/07 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Since 5/31/01, the date nearest the Investor Class’s inception for which data are available. |
| (2) | Returns would have been lower if a portion of the distribution and service fees had not been waived. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | |||||
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 1.42% | 1.22% | 1.67% | 2.42% | 2.42% | 1.92% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Portfolio Managers: Stafford Southwick and Matthew Ferretti
Performance Summary
Small Cap Growth returned 8.19%* for the 12 months ended October 31, 2011, lagging the performance of its benchmark, the Russell 2000 Growth Index, which returned 9.84%.
Commitment to Process in a Volatile Environment
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Price momentum and acceleration, two factors that the Small Cap Growth team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, stock decisions in the information technology sector were the leading source of relative underperformance by far. Holdings in the energy sector also detracted from returns versus the benchmark. On the positive side, the portfolio benefited, on a relative basis, from stock choices in the consumer discretionary sector.
Information Technology Led Declines
The information technology sector was the most significant detractor from returns compared with the benchmark. In the software industry group, an overweight stake in Motricity detracted most. The mobile internet service provider faced challenges in its North American carrier business, increased competition internationally, and delays in closing its acquisition of mobile marketing software firm Adenyo.
An overweight stake in MIPS Technologies, which licenses architectures and other intellectual property to semiconductor manufacturers, also proved detrimental. The company’s license sales declined amid softer consumer demand for digital televisions and set-top boxes, as well as increased competition.
An overweight position in SMART Modular Technology also trimmed relative returns. The maker of DRAM computer memory modules experienced a share price decline on weak DRAM pricing before the company was acquired at a premium.
A position in semiconductor company Inphi, however, added to relative returns. The company, which went public in November 2010, was one of several IPOs in which the portfolio invested.
Energy Lagged
The energy sector was a source of underperformance relative to the benchmark. In the sector, several overweight positions hurt relative returns amid macroeconomic concerns and a corresponding decline in oil prices from a high above $100 per barrel earlier in the fiscal year.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Consumer Discretionary Contributed
The consumer discretionary sector generated significant gains for Small Cap Growth. In the household durables industry, the portfolio held a substantial position in Tempur-Pedic International. The maker of memory foam mattresses continued to gain market share from traditional mattress companies.
Small Cap Growth was rewarded for an overweight position in leisure equipment company Polaris Industries. The manufacturer of all-terrain vehicles and snowmobiles experienced gains in revenues and market share during the reporting period.
In the specialty retail industry group, the portfolio held a position in Lithia Motors, which is not a member of the benchmark. The retailer of new and used vehicles benefited from the improvement in auto sales as the economy recovered.
Some Consumer Staples Holdings Helped
The consumer staples sector was only a modest source of outperformance. Within the sector, though, the portfolio derived significant gains from an overweight position in PriceSmart, an international membership warehouse retailer. The company, known as the Costco of Latin America, benefited from the trend toward more affordable goods and services, and delivered strong earnings during the year that surpassed analysts’ estimates.
Industrials Delivered Mixed Results
Underlying the industrials sector’s slight contribution to relative outperformance for Small Cap Growth, a number of key individual contributors and detractors resided within the sector. The portfolio derived substantial relative gains from an overweight position in aerospace manufacturer Ladish, which agreed to be acquired by Allegheny Technologies. Small Cap Growth maintained an overweight stake in mobile equipment manufacturer Sauer-Danfoss. The position contributed significantly to relative gains, although results were trimmed as expectations for economic growth weakened.
Not all holdings in the industrials sector helped performance, however. A position in United Continental Holdings represented the largest individual detractor from returns versus the benchmark. The airline suffered a decline due to higher oil prices and concerns about a slow economic environment.
Commitment to Process
Our investment process focuses primarily on small- and micro-cap companies with accelerating earnings and revenue growth rates, positive relative price performance, and a positive risk/reward profile. Although these companies have faced headwinds for the past several quarters, we believe that active investing in such companies will generate outperformance over time compared with the Russell 2000 Growth Index, as can be seen from the portfolio’s longer-term relative performance.
8
OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Tempur-Pedic International, Inc. | 2.9% |
| Polaris Industries, Inc. | 1.7% |
| Titan International, Inc. | 1.6% |
| Triumph Group, Inc. | 1.5% |
| Lithia Motors, Inc., Class A | 1.5% |
| Iconix Brand Group, Inc. | 1.3% |
| Keynote Systems, Inc. | 1.2% |
| Sauer-Danfoss, Inc. | 1.2% |
| PriceSmart, Inc. | 1.1% |
| Raven Industries, Inc. | 1.1% |
| Top Five Industries | % of net assets |
| Software | 7.4% |
| Machinery | 7.2% |
| Internet Software and Services | 6.0% |
| Oil, Gas and Consumable Fuels | 5.3% |
| Semiconductors and Semiconductor Equipment | 4.4% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 99.3% |
| Temporary Cash Investments | 0.1% |
| Other Assets and Liabilities | 0.6% |
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $844.90 | $6.51 | 1.40% |
| Institutional Class | $1,000 | $845.10 | $5.58 | 1.20% |
| A Class | $1,000 | $843.80 | $7.67 | 1.65% |
| B Class | $1,000 | $839.80 | $11.13 | 2.40% |
| C Class | $1,000 | $840.30 | $11.13 | 2.40% |
| R Class | $1,000 | $842.00 | $8.82 | 1.90% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,018.15 | $7.12 | 1.40% |
| Institutional Class | $1,000 | $1,019.16 | $6.11 | 1.20% |
| A Class | $1,000 | $1,016.89 | $8.39 | 1.65% |
| B Class | $1,000 | $1,013.11 | $12.18 | 2.40% |
| C Class | $1,000 | $1,013.11 | $12.18 | 2.40% |
| R Class | $1,000 | $1,015.63 | $9.65 | 1.90% |
| (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. |
11
| Shares | Value | |||||||
| Common Stocks — 99.3% | ||||||||
| AEROSPACE AND DEFENSE — 1.5% | ||||||||
| Triumph Group, Inc. | 106,861 | $6,208,624 | ||||||
| AIR FREIGHT AND LOGISTICS — 0.2% | ||||||||
| Forward Air Corp. | 25,061 | 820,748 | ||||||
| AUTO COMPONENTS — 1.1% | ||||||||
American Axle & Manufacturing Holdings, Inc.(1) | 308,758 | 2,991,865 | ||||||
Tenneco, Inc.(1) | 42,314 | 1,384,514 | ||||||
| 4,376,379 | ||||||||
| BIOTECHNOLOGY — 4.1% | ||||||||
Acorda Therapeutics, Inc.(1) | 29,486 | 643,974 | ||||||
Alkermes plc(1) | 70,065 | 1,225,437 | ||||||
ARIAD Pharmaceuticals, Inc.(1) | 101,652 | 1,182,213 | ||||||
Cepheid, Inc.(1) | 45,912 | 1,647,323 | ||||||
Cubist Pharmaceuticals, Inc.(1) | 43,952 | 1,661,825 | ||||||
Exelixis, Inc.(1) | 100,655 | 778,063 | ||||||
Halozyme Therapeutics, Inc.(1) | 61,899 | 521,809 | ||||||
ImmunoGen, Inc.(1) | 41,031 | 557,201 | ||||||
Incyte Corp. Ltd.(1) | 67,488 | 929,310 | ||||||
InterMune, Inc.(1) | 18,863 | 481,006 | ||||||
Ironwood Pharmaceuticals, Inc.(1) | 38,887 | 528,863 | ||||||
Isis Pharmaceuticals, Inc.(1) | 73,956 | 613,095 | ||||||
Momenta Pharmaceuticals, Inc.(1) | 36,919 | 546,401 | ||||||
NPS Pharmaceuticals, Inc.(1) | 65,910 | 340,755 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 46,574 | 1,906,274 | ||||||
| PDL BioPharma, Inc. | 88,776 | 538,870 | ||||||
Seattle Genetics, Inc.(1) | 73,184 | 1,610,048 | ||||||
Theravance, Inc.(1) | 43,591 | 969,028 | ||||||
| 16,681,495 | ||||||||
| BUILDING PRODUCTS — 0.2% | ||||||||
| Apogee Enterprises, Inc. | 59,076 | 645,110 | ||||||
| CAPITAL MARKETS — 1.2% | ||||||||
| BGC Partners, Inc., Class A | 65,749 | 450,381 | ||||||
HFF, Inc., Class A(1) | 112,619 | 1,238,809 | ||||||
| Triangle Capital Corp. | 113,462 | 1,901,623 | ||||||
WisdomTree Investments, Inc.(1) | 168,488 | 1,256,920 | ||||||
| 4,847,733 | ||||||||
| CHEMICALS — 1.4% | ||||||||
| Balchem Corp. | 20,702 | $763,283 | ||||||
Flotek Industries, Inc.(1) | 106,296 | 790,842 | ||||||
| H.B. Fuller Co. | 44,158 | 948,956 | ||||||
Intrepid Potash, Inc.(1) | 39,858 | 1,109,248 | ||||||
| NewMarket Corp. | 8,507 | 1,651,549 | ||||||
TPC Group, Inc.(1) | 16,566 | 329,166 | ||||||
| 5,593,044 | ||||||||
| COMMERCIAL BANKS — 2.3% | ||||||||
| Banco Latinoamericano de Comercio Exterior SA E Shares | 74,407 | 1,209,114 | ||||||
| Bryn Mawr Bank Corp. | 31,266 | 574,044 | ||||||
| Cardinal Financial Corp. | 22,911 | 246,064 | ||||||
| Cathay General Bancorp. | 89,512 | 1,252,273 | ||||||
| Home Bancshares, Inc. | 71,980 | 1,687,931 | ||||||
Pinnacle Financial Partners, Inc.(1) | 41,488 | 622,735 | ||||||
| Sandy Spring Bancorp, Inc. | 15,168 | 258,008 | ||||||
Signature Bank(1) | 31,990 | 1,783,442 | ||||||
Texas Capital Bancshares, Inc.(1) | 53,802 | 1,506,456 | ||||||
West Coast Bancorp.(1) | 13,924 | 207,885 | ||||||
| 9,347,952 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 1.6% | ||||||||
AT Cross Co. Class A(1) | 25,681 | 312,281 | ||||||
| Brink’s Co. (The) | 36,365 | 1,010,583 | ||||||
| Deluxe Corp. | 78,969 | 1,865,248 | ||||||
| G&K Services, Inc., Class A | 53,288 | 1,617,824 | ||||||
| Steelcase, Inc., Class A | 71,452 | 529,459 | ||||||
Team, Inc.(1) | 45,938 | 1,148,910 | ||||||
| 6,484,305 | ||||||||
| COMMUNICATIONS EQUIPMENT — 2.3% | ||||||||
Acme Packet, Inc.(1) | 29,300 | 1,060,953 | ||||||
Aruba Networks, Inc.(1) | 82,199 | 1,947,294 | ||||||
| InterDigital, Inc. | 17,784 | 772,715 | ||||||
Netgear, Inc.(1) | 59,700 | 2,116,962 | ||||||
Procera Networks, Inc.(1) | 70,848 | 807,667 | ||||||
| Sycamore Networks, Inc. | 74,955 | 1,440,635 | ||||||
Tekelec(1) | 99,988 | 981,882 | ||||||
| Tessco Technologies, Inc. | 23,790 | 331,157 | ||||||
| 9,459,265 | ||||||||
| COMPUTERS AND PERIPHERALS — 0.2% | ||||||||
Synaptics, Inc.(1) | 23,870 | 806,567 | ||||||
| CONSTRUCTION AND ENGINEERING — 0.3% | ||||||||
Dycom Industries, Inc.(1) | 55,879 | 1,085,729 | ||||||
12
| Shares | Value | |||||||
| CONSUMER FINANCE — 1.1% | ||||||||
EZCORP, Inc., Class A(1) | 65,303 | $1,814,117 | ||||||
World Acceptance Corp.(1) | 39,658 | 2,682,864 | ||||||
| 4,496,981 | ||||||||
| DIVERSIFIED CONSUMER SERVICES — 1.3% | ||||||||
| Sotheby’s | 82,429 | 2,903,149 | ||||||
Steiner Leisure, Ltd.(1) | 47,547 | 2,290,815 | ||||||
| 5,193,964 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 0.7% | ||||||||
| MarketAxess Holdings, Inc. | 94,841 | 2,772,202 | ||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.5% | ||||||||
8x8, Inc.(1) | 174,037 | 654,379 | ||||||
Premiere Global Services, Inc.(1) | 161,477 | 1,462,982 | ||||||
| 2,117,361 | ||||||||
| ELECTRICAL EQUIPMENT — 0.3% | ||||||||
| Franklin Electric Co., Inc. | 24,533 | 1,126,555 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.5% | ||||||||
| Cognex Corp. | 109,604 | 3,714,480 | ||||||
FARO Technologies, Inc.(1) | 5,129 | 214,290 | ||||||
KEMET Corp.(1) | 155,432 | 1,433,083 | ||||||
| Littelfuse, Inc. | 45,468 | 2,226,113 | ||||||
| MTS Systems Corp. | 12,456 | 456,761 | ||||||
OSI Systems, Inc.(1) | 24,082 | 1,066,833 | ||||||
Rogers Corp.(1) | 27,341 | 1,180,311 | ||||||
| 10,291,871 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 3.6% | ||||||||
Basic Energy Services, Inc.(1) | 161,389 | 2,959,874 | ||||||
Complete Production Services, Inc.(1) | 89,634 | 2,939,995 | ||||||
Hornbeck Offshore Services, Inc.(1) | 74,259 | 2,438,666 | ||||||
Mitcham Industries, Inc.(1) | 99,254 | 1,447,123 | ||||||
Newpark Resources, Inc.(1) | 145,573 | 1,299,967 | ||||||
Pioneer Drilling Co.(1) | 347,390 | 3,435,687 | ||||||
| 14,521,312 | ||||||||
| FOOD AND STAPLES RETAILING — 2.7% | ||||||||
| Andersons, Inc. (The) | 78,008 | 2,880,055 | ||||||
| Casey’s General Stores, Inc. | 15,278 | 757,025 | ||||||
| PriceSmart, Inc. | 60,623 | 4,609,773 | ||||||
| Spartan Stores, Inc. | 13,829 | 236,752 | ||||||
Winn-Dixie Stores, Inc.(1) | 360,584 | 2,286,103 | ||||||
| 10,769,708 | ||||||||
| FOOD PRODUCTS — 0.2% | ||||||||
Omega Protein Corp.(1) | 83,137 | 900,374 | ||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.6% | ||||||||
Abaxis, Inc.(1) | 17,524 | 491,723 | ||||||
Align Technology, Inc.(1) | 45,504 | $1,047,957 | ||||||
Arthrocare Corp.(1) | 20,571 | 620,216 | ||||||
Cyberonics, Inc.(1) | 21,361 | 615,197 | ||||||
DexCom, Inc.(1) | 52,554 | 514,504 | ||||||
Haemonetics Corp.(1) | 19,309 | 1,176,883 | ||||||
HeartWare International, Inc.(1) | 9,414 | 639,493 | ||||||
Insulet Corp.(1) | 34,179 | 557,801 | ||||||
Integra LifeSciences Holdings Corp.(1) | 15,468 | 495,904 | ||||||
MAKO Surgical Corp.(1) | 24,137 | 928,068 | ||||||
| Masimo Corp. | 39,615 | 819,238 | ||||||
| Meridian Bioscience, Inc. | 32,922 | 599,839 | ||||||
Neogen Corp.(1) | 17,505 | 676,568 | ||||||
NuVasive, Inc.(1) | 31,718 | 470,061 | ||||||
NxStage Medical, Inc.(1) | 35,784 | 822,674 | ||||||
Orthofix International NV(1) | 14,805 | 519,803 | ||||||
| STERIS Corp. | 44,363 | 1,374,366 | ||||||
Volcano Corp.(1) | 39,246 | 978,403 | ||||||
| West Pharmaceutical Services, Inc. | 14,809 | 575,626 | ||||||
Zoll Medical Corp.(1) | 16,839 | 636,683 | ||||||
| 14,561,007 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 2.7% | ||||||||
Accretive Health, Inc.(1) | 30,648 | 729,729 | ||||||
Air Methods Corp.(1) | 9,046 | 731,098 | ||||||
Bio-Reference Labs, Inc.(1) | 21,085 | 422,543 | ||||||
Centene Corp.(1) | 24,742 | 869,681 | ||||||
| Chemed Corp. | 15,531 | 921,920 | ||||||
ExamWorks Group, Inc.(1) | 26,447 | 279,016 | ||||||
HMS Holdings Corp.(1) | 61,083 | 1,492,869 | ||||||
IPC The Hospitalist Co., Inc.(1) | 12,458 | 522,364 | ||||||
| Landauer, Inc. | 7,339 | 376,124 | ||||||
MWI Veterinary Supply, Inc.(1) | 9,609 | 725,479 | ||||||
| Owens & Minor, Inc. | 38,022 | 1,137,618 | ||||||
PSS World Medical, Inc.(1) | 42,809 | 952,500 | ||||||
WellCare Health Plans, Inc.(1) | 31,891 | 1,562,978 | ||||||
| 10,723,919 | ||||||||
| HEALTH CARE TECHNOLOGY — 0.8% | ||||||||
athenahealth, Inc.(1) | 25,552 | 1,351,957 | ||||||
| Computer Programs & Systems, Inc. | 8,555 | 436,904 | ||||||
MedAssets, Inc.(1) | 30,352 | 323,552 | ||||||
| Quality Systems, Inc. | 28,742 | 1,118,351 | ||||||
| 3,230,764 | ||||||||
13
| Shares | Value |
| HOTELS, RESTAURANTS AND LEISURE — 1.9% | ||||||||
| Ameristar Casinos, Inc. | 53,354 | $987,049 | ||||||
| Cedar Fair LP | 79,753 | 1,595,858 | ||||||
Jack in the Box, Inc.(1) | 43,540 | 896,053 | ||||||
| Marcus Corp. | 91,449 | 1,090,072 | ||||||
Papa John’s International, Inc.(1) | 60,031 | 2,026,647 | ||||||
Ruth’s Hospitality Group, Inc.(1) | 214,434 | 1,012,128 | ||||||
| 7,607,807 | ||||||||
| HOUSEHOLD DURABLES — 3.3% | ||||||||
Tempur-Pedic International, Inc.(1) | 172,826 | 11,762,538 | ||||||
Zagg, Inc.(1) | 125,459 | 1,692,442 | ||||||
| 13,454,980 | ||||||||
| INDUSTRIAL CONGLOMERATES — 1.3% | ||||||||
| Raven Industries, Inc. | 75,403 | 4,524,934 | ||||||
| Standex International Corp. | 22,867 | 882,895 | ||||||
| 5,407,829 | ||||||||
| INSURANCE — 1.4% | ||||||||
AMERISAFE, Inc.(1) | 71,020 | 1,530,481 | ||||||
| Amtrust Financial Services, Inc. | 108,773 | 2,760,659 | ||||||
| RLI Corp. | 18,687 | 1,314,443 | ||||||
| 5,605,583 | ||||||||
| INTERNET AND CATALOG RETAIL — 0.6% | ||||||||
priceline.com, Inc.(1) | 4,423 | 2,245,646 | ||||||
| INTERNET SOFTWARE AND SERVICES — 6.0% | ||||||||
Dice Holdings, Inc.(1) | 236,552 | 2,408,099 | ||||||
| j2 Global Communications, Inc. | 79,161 | 2,436,576 | ||||||
| Keynote Systems, Inc. | 198,440 | 4,736,763 | ||||||
KIT Digital, Inc.(1) | 105,622 | 950,598 | ||||||
Liquidity Services, Inc.(1) | 28,239 | 919,462 | ||||||
Rackspace Hosting, Inc.(1) | 35,092 | 1,452,458 | ||||||
SciQuest, Inc.(1) | 94,212 | 1,398,106 | ||||||
| Stamps.com, Inc. | 95,002 | 3,093,265 | ||||||
ValueClick, Inc.(1) | 224,268 | 3,947,117 | ||||||
Vocus, Inc.(1) | 124,447 | 2,536,230 | ||||||
Zix Corp.(1) | 111,507 | 276,537 | ||||||
| 24,155,211 | ||||||||
| IT SERVICES — 2.0% | ||||||||
Cardtronics, Inc.(1) | 79,242 | 1,975,503 | ||||||
ExlService Holdings, Inc.(1) | 45,304 | 1,181,528 | ||||||
| Heartland Payment Systems, Inc. | 124,474 | 2,708,554 | ||||||
| MAXIMUS, Inc. | 51,358 | 2,071,782 | ||||||
| 7,937,367 | ||||||||
| LEISURE EQUIPMENT AND PRODUCTS — 2.0% | ||||||||
| Polaris Industries, Inc. | 108,157 | $6,850,664 | ||||||
| Sturm Ruger & Co., Inc. | 40,345 | 1,223,261 | ||||||
| 8,073,925 | ||||||||
| LIFE SCIENCES TOOLS AND SERVICES — 0.4% | ||||||||
Luminex Corp.(1) | 29,637 | 650,829 | ||||||
PAREXEL International Corp.(1) | 39,476 | 869,656 | ||||||
Sequenom, Inc.(1) | 57,755 | 287,042 | ||||||
| 1,807,527 | ||||||||
| MACHINERY — 7.2% | ||||||||
Blount International, Inc.(1) | 124,399 | 1,931,916 | ||||||
| CLARCOR, Inc. | 68,361 | 3,314,141 | ||||||
EnPro Industries, Inc.(1) | 28,890 | 994,972 | ||||||
| Lindsay Corp. | 64,315 | 3,736,702 | ||||||
Middleby Corp.(1) | 21,581 | 1,818,847 | ||||||
NN, Inc.(1) | 134,310 | 1,187,300 | ||||||
| Robbins & Myers, Inc. | 82,228 | 3,674,769 | ||||||
Sauer-Danfoss, Inc.(1) | 120,263 | 4,656,583 | ||||||
| Titan International, Inc. | 296,053 | 6,661,193 | ||||||
| Twin Disc, Inc. | 32,757 | 1,274,247 | ||||||
| 29,250,670 | ||||||||
| MEDIA — 1.0% | ||||||||
| MDC Partners, Inc., Class A | 152,846 | 2,573,927 | ||||||
| Sinclair Broadcast Group, Inc., Class A | 160,070 | 1,533,470 | ||||||
| 4,107,397 | ||||||||
| METALS AND MINING — 1.6% | ||||||||
Allied Nevada Gold Corp.(1) | 45,989 | 1,746,662 | ||||||
| Globe Specialty Metals, Inc. | 95,393 | 1,590,201 | ||||||
| Haynes International, Inc. | 42,892 | 2,508,753 | ||||||
Materion Corp.(1) | 17,135 | 453,050 | ||||||
| 6,298,666 | ||||||||
| OIL, GAS AND CONSUMABLE FUELS — 5.3% | ||||||||
| Berry Petroleum Co., Class A | 36,639 | 1,265,877 | ||||||
| Crosstex Energy LP | 117,666 | 1,880,303 | ||||||
CVR Energy, Inc.(1) | 98,265 | 2,433,041 | ||||||
Goodrich Petroleum Corp.(1) | 81,261 | 1,287,987 | ||||||
Gulfport Energy Corp.(1) | 116,593 | 3,630,706 | ||||||
Rosetta Resources, Inc.(1) | 71,210 | 3,157,451 | ||||||
Stone Energy Corp.(1) | 92,014 | 2,235,020 | ||||||
| Tesoro Logistics LP | 19,000 | 509,200 | ||||||
| W&T Offshore, Inc. | 64,746 | 1,274,849 | ||||||
Western Refining, Inc.(1) | 238,575 | 3,812,429 | ||||||
| 21,486,863 | ||||||||
14
| Shares | Value |
| PAPER AND FOREST PRODUCTS — 1.9% | ||||||||
| Buckeye Technologies, Inc. | 145,102 | $4,387,885 | ||||||
KapStone Paper and Packaging Corp.(1) | 192,798 | 3,161,887 | ||||||
| 7,549,772 | ||||||||
| PERSONAL PRODUCTS — 0.5% | ||||||||
| Nu Skin Enterprises, Inc., Class A | 26,928 | 1,360,672 | ||||||
Prestige Brands Holdings, Inc.(1) | 82,834 | 876,384 | ||||||
| 2,237,056 | ||||||||
| PHARMACEUTICALS — 2.2% | ||||||||
Auxilium Pharmaceuticals, Inc.(1) | 38,973 | 606,420 | ||||||
Impax Laboratories, Inc.(1) | 46,797 | 884,931 | ||||||
Jazz Pharmaceuticals, Inc.(1) | 17,052 | 664,346 | ||||||
| Medicis Pharmaceutical Corp., Class A | 37,792 | 1,447,056 | ||||||
Nektar Therapeutics(1) | 60,651 | 328,728 | ||||||
Optimer Pharmaceuticals, Inc.(1) | 32,589 | 465,045 | ||||||
Par Pharmaceutical Cos., Inc.(1) | 20,312 | 621,547 | ||||||
Questcor Pharmaceuticals, Inc.(1) | 39,302 | 1,596,054 | ||||||
Salix Pharmaceuticals Ltd.(1) | 44,070 | 1,509,618 | ||||||
VIVUS, Inc.(1) | 68,967 | 650,359 | ||||||
| 8,774,104 | ||||||||
| PROFESSIONAL SERVICES — 0.7% | ||||||||
Acacia Research – Acacia Technologies(1) | 34,321 | 1,367,349 | ||||||
| Kelly Services, Inc., Class A | 27,031 | 441,957 | ||||||
Mistras Group, Inc.(1) | 41,292 | 900,165 | ||||||
| 2,709,471 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.6% | ||||||||
| Ashford Hospitality Trust, Inc. | 81,928 | 729,159 | ||||||
| Associated Estates Realty Corp. | 32,226 | 547,197 | ||||||
| EastGroup Properties, Inc. | 14,290 | 623,187 | ||||||
| Education Realty Trust, Inc. | 45,551 | 421,347 | ||||||
| Home Properties, Inc. | 14,919 | 878,729 | ||||||
| Medical Properties Trust, Inc. | 32,326 | 326,493 | ||||||
| Post Properties, Inc. | 38,289 | 1,572,912 | ||||||
| Sovran Self Storage, Inc. | 33,791 | 1,493,562 | ||||||
| 6,592,586 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.4% | ||||||||
Cavium Networks, Inc.(1) | 32,014 | $1,046,538 | ||||||
CEVA, Inc.(1) | 96,273 | 2,991,202 | ||||||
Cirrus Logic, Inc.(1) | 51,340 | 854,297 | ||||||
Entegris, Inc.(1) | 172,408 | 1,544,776 | ||||||
GT Advanced Technologies, Inc.(1) | 243,957 | 2,000,447 | ||||||
Photronics, Inc.(1) | 289,307 | 1,813,955 | ||||||
Semtech Corp.(1) | 66,578 | 1,625,835 | ||||||
Silicon Motion Technology Corp. ADR(1) | 70,478 | 1,183,325 | ||||||
Skyworks Solutions, Inc.(1) | 110,596 | 2,190,907 | ||||||
Ultratech, Inc.(1) | 109,451 | 2,386,032 | ||||||
| 17,637,314 | ||||||||
| SOFTWARE — 7.4% | ||||||||
ACI Worldwide, Inc.(1) | 65,136 | 1,997,721 | ||||||
Actuate Corp.(1) | 187,924 | 1,221,506 | ||||||
Allot Communications Ltd.(1) | 108,441 | 1,449,856 | ||||||
Ariba, Inc.(1) | 34,129 | 1,081,207 | ||||||
Bottomline Technologies, Inc.(1) | 43,800 | 1,063,902 | ||||||
BroadSoft, Inc.(1) | 29,115 | 1,048,140 | ||||||
| Clicksoftware Technologies Ltd. | 112,831 | 1,117,027 | ||||||
Fortinet, Inc.(1) | 46,040 | 1,061,682 | ||||||
Glu Mobile, Inc.(1) | 153,738 | 465,826 | ||||||
Interactive Intelligence, Inc.(1) | 31,274 | 867,853 | ||||||
Kenexa Corp.(1) | 197,415 | 4,514,881 | ||||||
Majesco Entertainment Co.(1) | 79,900 | 269,263 | ||||||
Mitek Systems, Inc.(1) | 181,589 | 1,835,865 | ||||||
NetScout Systems, Inc.(1) | 58,067 | 951,718 | ||||||
| Opnet Technologies, Inc. | 57,913 | 2,533,115 | ||||||
Perfect World Co., Ltd. ADR(1) | 65,670 | 854,367 | ||||||
PROS Holdings, Inc.(1) | 122,291 | 1,939,535 | ||||||
Taleo Corp., Class A(1) | 30,385 | 984,474 | ||||||
TIBCO Software, Inc.(1) | 97,074 | 2,804,468 | ||||||
Ultimate Software Group, Inc.(1) | 20,872 | 1,256,077 | ||||||
Websense, Inc.(1) | 27,665 | 493,544 | ||||||
| 29,812,027 | ||||||||
| SPECIALTY RETAIL — 4.1% | ||||||||
| Buckle, Inc. (The) | 25,381 | 1,130,977 | ||||||
| Cato Corp. (The), Class A | 26,244 | 672,634 | ||||||
| DSW, Inc., Class A | 24,174 | 1,265,267 | ||||||
Genesco, Inc.(1) | 41,653 | 2,455,028 | ||||||
15
| Shares | Value |
| Hot Topic, Inc. | 32,044 | $242,253 | ||||||
| Lithia Motors, Inc., Class A | 298,015 | 6,130,169 | ||||||
| Tractor Supply Co. | 50,992 | 3,617,372 | ||||||
Vitamin Shoppe, Inc.(1) | 24,120 | 909,565 | ||||||
| 16,423,265 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 3.3% | ||||||||
Crocs, Inc.(1) | 62,593 | 1,106,018 | ||||||
Deckers Outdoor Corp.(1) | 20,054 | 2,311,023 | ||||||
G-III Apparel Group Ltd.(1) | 69,585 | 1,961,601 | ||||||
Iconix Brand Group, Inc.(1) | 282,098 | 5,063,659 | ||||||
| Oxford Industries, Inc. | 46,243 | 1,826,599 | ||||||
True Religion Apparel, Inc.(1) | 28,403 | 963,430 | ||||||
| 13,232,330 | ||||||||
| THRIFTS AND MORTGAGE FINANCE — 0.3% | ||||||||
BofI Holding, Inc.(1) | 24,089 | 368,562 | ||||||
| Rockville Financial, Inc. | 57,421 | 577,081 | ||||||
Walker & Dunlop, Inc.(1) | 33,377 | 423,888 | ||||||
| 1,369,531 | ||||||||
| TRADING COMPANIES AND DISTRIBUTORS — 2.5% | ||||||||
| Applied Industrial Technologies, Inc. | 38,774 | 1,303,582 | ||||||
DXP Enterprises, Inc.(1) | 43,281 | 1,081,159 | ||||||
Rush Enterprises, Inc., Class A(1) | 55,722 | 1,075,435 | ||||||
Titan Machinery, Inc.(1) | 158,742 | 3,703,451 | ||||||
United Rentals, Inc.(1) | 124,486 | 2,914,217 | ||||||
| 10,077,844 | ||||||||
TOTAL COMMON STOCKS (Cost $330,340,266) | 400,917,740 | |||||||
| Temporary Cash Investments — 0.1% | ||||||||
| Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $61,681), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $60,382) | $60,382 | |||||||
| Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $61,882), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $60,383) | 60,383 | |||||||
| Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $61,531), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $60,383) | 60,383 | |||||||
| SSgA U.S. Government Money Market Fund | 5,289 | 5,289 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $186,437) | 186,437 | |||||||
TOTAL INVESTMENT SECURITIES — 99.4% (Cost $330,526,703) | 401,104,177 | |||||||
| OTHER ASSETS AND LIABILITIES — 0.6% | 2,554,110 | |||||||
| TOTAL NET ASSETS — 100.0% | $403,658,287 | |||||||
Notes to Schedule of Investments
ADR = American Depositary Receipt
| (1) | Non-income producing. |
See Notes to Financial Statements.
16
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $330,526,703) | $401,104,177 | |||
| Receivable for investments sold | 7,159,944 | |||
| Receivable for capital shares sold | 163,673 | |||
| Dividends and interest receivable | 138,543 | |||
| 408,566,337 | ||||
| Liabilities | ||||
| Payable for investments purchased | 3,438,768 | |||
| Payable for capital shares redeemed | 994,211 | |||
| Accrued management fees | 439,533 | |||
| Distribution and service fees payable | 35,538 | |||
| 4,908,050 | ||||
| Net Assets | $403,658,287 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $607,019,394 | |||
| Accumulated net investment loss | (334,719 | ) | ||
| Accumulated net realized loss | (273,603,862 | ) | ||
| Net unrealized appreciation | 70,577,474 | |||
| $403,658,287 | ||||
| Net assets | Shares outstanding | Net asset value per share | |
| Investor Class, $0.01 Par Value | $166,242,729 | 20,628,985 | $8.06 |
| Institutional Class, $0.01 Par Value | $105,520,358 | 12,977,342 | $8.13 |
| A Class, $0.01 Par Value | $115,741,370 | 14,584,590 | $7.94* |
| B Class, $0.01 Par Value | $2,197,113 | 289,008 | $7.60 |
| C Class, $0.01 Par Value | $12,691,125 | 1,662,859 | $7.63 |
| R Class, $0.01 Par Value | $1,265,592 | 160,322 | $7.89 |
*Maximum offering price $8.42 (net asset value divided by 0.9425)
See Notes to Financial Statements.
17
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $12,793) | $2,486,217 | |||
| Interest | 4,235 | |||
| 2,490,452 | ||||
| Expenses: | ||||
| Management fees | 5,935,729 | |||
| Distribution and service fees: | ||||
| A Class | 331,995 | |||
| B Class | 29,395 | |||
| C Class | 146,905 | |||
| R Class | 6,026 | |||
| Directors’ fees and expenses | 24,679 | |||
| 6,474,729 | ||||
| Net investment income (loss) | (3,984,277 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on investment transactions | 51,226,321 | |||
| Change in net unrealized appreciation (depreciation) on investments | (15,851,118 | ) | ||
| Net realized and unrealized gain (loss) | 35,375,203 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $31,390,926 | |||
See Notes to Financial Statements.
18
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $(3,984,277 | ) | $(2,176,343 | ) | ||||
| Net realized gain (loss) | 51,226,321 | 94,629,181 | ||||||
| Change in net unrealized appreciation (depreciation) | (15,851,118 | ) | 36,489,688 | |||||
| Net increase (decrease) in net assets resulting from operations | 31,390,926 | 128,942,526 | ||||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (29,540,806 | ) | (135,018,924 | ) | ||||
| Redemption Fees | ||||||||
| Increase in net assets from redemption fees | 157,637 | 185,421 | ||||||
| Net increase (decrease) in net assets | 2,007,757 | (5,890,977 | ) | |||||
| Net Assets | ||||||||
| Beginning of period | 401,650,530 | 407,541,507 | ||||||
| End of period | $403,658,287 | $401,650,530 | ||||||
| Accumulated net investment loss | $(334,719 | ) | — | |||||
See Notes to Financial Statements.
19
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Small Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in small cap companies that management believes will increase in value.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during
20
the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Business Development Companies — The fund may invest in securities of closed-end investment companies that have elected to be treated as a business development company under the 1940 Act. A business development company operates similar to an exchange-traded fund and represents a portfolio of securities. The fund may purchase a business development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business development company generally reflect the risks of owning the underlying securities. Business development companies have expenses that reduce their value.
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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption — The fund may impose a 2.00% redemption fee on shares held less than 180 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Effective November 14, 2011, the redemption fee applies only to shares held less than 60 days.
21
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 1.10% to 1.50% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.20% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.39% for the Investor Class, A Class, B Class, C Class and R Class and 1.19% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $473,385,485 and $496,939,673, respectively.
22
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 165,000,000 | 165,000,000 | ||||||||||||||
| Sold | 8,803,517 | $75,368,241 | 6,784,305 | $43,916,604 | ||||||||||||
| Redeemed | (7,346,365 | ) | (61,075,419 | ) | (18,735,868 | ) | (122,423,452 | ) | ||||||||
| 1,457,152 | 14,292,822 | (11,951,563 | ) | (78,506,848 | ) | |||||||||||
| Institutional Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||||||
| Sold | 2,202,843 | 18,437,124 | 2,660,213 | 17,212,447 | ||||||||||||
| Redeemed | (4,492,812 | ) | (37,796,193 | ) | (7,096,717 | ) | (46,645,112 | ) | ||||||||
| (2,289,969 | ) | (19,359,069 | ) | (4,436,504 | ) | (29,432,665 | ) | |||||||||
| A Class/Shares Authorized | 110,000,000 | 110,000,000 | ||||||||||||||
| Sold | 2,317,591 | 19,344,137 | 2,350,237 | 15,349,838 | ||||||||||||
| Redeemed | (4,972,627 | ) | (41,162,124 | ) | (6,185,109 | ) | (39,950,252 | ) | ||||||||
| (2,655,036 | ) | (21,817,987 | ) | (3,834,872 | ) | (24,600,414 | ) | |||||||||
| B Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
| Sold | 11,789 | 88,253 | 4,481 | 27,688 | ||||||||||||
| Redeemed | (160,539 | ) | (1,294,643 | ) | (132,247 | ) | (828,181 | ) | ||||||||
| (148,750 | ) | (1,206,390 | ) | (127,766 | ) | (800,493 | ) | |||||||||
| C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
| Sold | 496,741 | 4,074,090 | 413,664 | 2,630,469 | ||||||||||||
| Redeemed | (725,256 | ) | (5,727,473 | ) | (719,773 | ) | (4,536,633 | ) | ||||||||
| (228,515 | ) | (1,653,383 | ) | (306,109 | ) | (1,906,164 | ) | |||||||||
| R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
| Sold | 79,880 | 673,191 | 68,676 | 446,713 | ||||||||||||
| Redeemed | (55,683 | ) | (469,990 | ) | (33,289 | ) | (219,053 | ) | ||||||||
| 24,197 | 203,201 | 35,387 | 227,660 | |||||||||||||
| Net increase (decrease) | (3,840,921 | ) | $(29,540,806 | ) | (20,621,427 | ) | $(135,018,924 | ) | ||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | 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.
23
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 | ||||||||||
| Investment Securities | ||||||||||||
| Common Stocks | $400,917,740 | — | — | |||||||||
| Temporary Cash Investments | 5,289 | $181,148 | — | |||||||||
| Total Value of Investment Securities | $400,923,029 | $181,148 | — | |||||||||
7. Risk Factors
The fund concentrates its investments in common stocks of small companies. Because of this, it 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.
8. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. There were no distributions paid by the fund during the years ended October 31, 2011 and October 31, 2010.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $334,589,124 | |||
| Gross tax appreciation of investments | $80,635,137 | |||
| Gross tax depreciation of investments | (14,120,084 | ) | ||
| Net tax appreciation (depreciation) of investments | $66,515,053 | |||
| Undistributed ordinary income | — | |||
| Accumulated capital losses | $(269,876,160 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire as follows:
| 2014 | 2015 | 2016 | 2017 |
| $(32,333,611) | — | $(125,173,360) | $(112,369,189) |
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
24
| 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(7) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.45 | (0.07 | ) | 0.68 | 0.61 | — | $8.06 | 8.19 | % | 1.40 | % | (0.84 | )% | 108 | % | $166,243 | ||||||||||||||||||||||||||||
| 2010 | $5.47 | (0.03 | ) | 2.01 | 1.98 | — | $7.45 | 36.20 | % | 1.42 | % | (0.48 | )% | 183 | % | $142,793 | ||||||||||||||||||||||||||||
| 2009 | $5.57 | (0.02 | ) | (0.08 | ) | (0.10 | ) | — | $5.47 | (1.80 | )% | 1.41 | % | (0.40 | )% | 204 | % | $170,125 | ||||||||||||||||||||||||||
| 2008 | $9.42 | (0.04 | ) | (3.73 | ) | (3.77 | ) | (0.08 | ) | $5.57 | (40.34 | )% | 1.36 | % | (0.49 | )% | 148 | % | $222,017 | |||||||||||||||||||||||||
| 2007 | $7.63 | (0.05 | ) | 2.52 | 2.47 | (0.68 | ) | $9.42 | 35.22 | % | 1.41 | % | (0.70 | )% | 204 | % | $303,189 | |||||||||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.50 | (0.05 | ) | 0.68 | 0.63 | — | $8.13 | 8.40 | % | 1.20 | % | (0.64 | )% | 108 | % | $105,520 | ||||||||||||||||||||||||||||
| 2010 | $5.49 | (0.02 | ) | 2.03 | 2.01 | — | $7.50 | 36.61 | % | 1.22 | % | (0.28 | )% | 183 | % | $114,513 | ||||||||||||||||||||||||||||
| 2009 | $5.59 | (0.01 | ) | (0.09 | ) | (0.10 | ) | — | $5.49 | (1.79 | )% | 1.21 | % | (0.20 | )% | 204 | % | $108,261 | ||||||||||||||||||||||||||
| 2008 | $9.43 | (0.02 | ) | (3.74 | ) | (3.76 | ) | (0.08 | ) | $5.59 | (40.19 | )% | 1.16 | % | (0.29 | )% | 148 | % | $91,791 | |||||||||||||||||||||||||
2007(3) | $8.27 | (0.03 | ) | 1.19 | 1.16 | — | $9.43 | 14.03 | % | 1.21 | %(4) | (0.65 | )%(4) | 204 | %(5) | $18,384 | ||||||||||||||||||||||||||||
| A Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.35 | (0.09 | ) | 0.68 | 0.59 | — | $7.94 | 8.03 | % | 1.65 | % | (1.09 | )% | 108 | % | $115,741 | ||||||||||||||||||||||||||||
| 2010 | $5.41 | (0.05 | ) | 1.99 | 1.94 | — | $7.35 | 35.86 | % | 1.67 | % | (0.73 | )% | 183 | % | $126,763 | ||||||||||||||||||||||||||||
| 2009 | $5.53 | (0.03 | ) | (0.09 | ) | (0.12 | ) | — | $5.41 | (2.17 | )% | 1.66 | % | (0.65 | )% | 204 | % | $114,026 | ||||||||||||||||||||||||||
| 2008 | $9.37 | (0.06 | ) | (3.70 | ) | (3.76 | ) | (0.08 | ) | $5.53 | (40.45 | )% | 1.61 | % | (0.74 | )% | 148 | % | $129,791 | |||||||||||||||||||||||||
| 2007 | $7.59 | (0.07 | ) | 2.51 | 2.44 | (0.66 | ) | $9.37 | 34.91 | % | 1.66 | % | (0.95 | )% | 204 | % | $202,515 | |||||||||||||||||||||||||||
25
| 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(7) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||
| B Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.10 | (0.15 | ) | 0.65 | 0.50 | — | $7.60 | 7.04 | % | 2.40 | % | (1.84 | )% | 108 | % | $2,197 | ||||||||||||||||||||||||||||
| 2010 | $5.26 | (0.09 | ) | 1.93 | 1.84 | — | $7.10 | 34.98 | % | 2.42 | % | (1.48 | )% | 183 | % | $3,107 | ||||||||||||||||||||||||||||
| 2009 | $5.41 | (0.07 | ) | (0.08 | ) | (0.15 | ) | — | $5.26 | (2.77 | )% | 2.41 | % | (1.40 | )% | 204 | % | $2,976 | ||||||||||||||||||||||||||
| 2008 | $9.25 | (0.11 | ) | (3.65 | ) | (3.76 | ) | (0.08 | ) | $5.41 | (40.97 | )% | 2.36 | % | (1.49 | )% | 148 | % | $2,846 | |||||||||||||||||||||||||
| 2007 | $7.49 | (0.13 | ) | 2.49 | 2.36 | (0.60 | ) | $9.25 | 33.84 | % | 2.41 | % | (1.70 | )% | 204 | % | $4,549 | |||||||||||||||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.13 | (0.15 | ) | 0.65 | 0.50 | — | $7.63 | 7.01 | % | 2.40 | % | (1.84 | )% | 108 | % | $12,691 | ||||||||||||||||||||||||||||
| 2010 | $5.28 | (0.09 | ) | 1.94 | 1.85 | — | $7.13 | 35.04 | % | 2.42 | % | (1.48 | )% | 183 | % | $13,476 | ||||||||||||||||||||||||||||
| 2009 | $5.44 | (0.07 | ) | (0.09 | ) | (0.16 | ) | — | $5.28 | (2.94 | )% | 2.41 | % | (1.40 | )% | 204 | % | $11,608 | ||||||||||||||||||||||||||
| 2008 | $9.29 | (0.11 | ) | (3.66 | ) | (3.77 | ) | (0.08 | ) | $5.44 | (40.91 | )% | 2.36 | % | (1.49 | )% | 148 | % | $12,983 | |||||||||||||||||||||||||
| 2007 | $7.52 | (0.13 | ) | 2.50 | 2.37 | (0.60 | ) | $9.29 | 34.02 | % | 2.41 | % | (1.70 | )% | 204 | % | $16,406 | |||||||||||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $7.33 | (0.11 | ) | 0.67 | 0.56 | — | $7.89 | 7.64 | % | 1.90 | % | (1.34 | )% | 108 | % | $1,266 | ||||||||||||||||||||||||||||
| 2010 | $5.41 | (0.06 | ) | 1.98 | 1.92 | — | $7.33 | 35.49 | % | 1.92 | % | (0.98 | )% | 183 | % | $998 | ||||||||||||||||||||||||||||
| 2009 | $5.54 | (0.06 | ) | (0.07 | ) | (0.13 | ) | — | $5.41 | (2.35 | )% | 1.91 | % | (0.90 | )% | 204 | % | $545 | ||||||||||||||||||||||||||
| 2008 | $9.42 | (0.06 | ) | (3.74 | ) | (3.80 | ) | (0.08 | ) | $5.54 | (40.66 | )% | 1.86 | % | (0.99 | )% | 148 | % | $108 | |||||||||||||||||||||||||
2007(6) | $9.02 | (0.01 | ) | 0.41 | 0.40 | — | $9.42 | 4.43 | % | 1.91 | %(4) | (1.61 | )%(4) | 204 | %(5) | $26 | ||||||||||||||||||||||||||||
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Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (3) | May 18, 2007 (commencement of sale) through October 31, 2007. |
| (4) | Annualized. |
| (5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2007. |
| (6) | September 28, 2007 (commencement of sale) through October 31, 2007. |
| (7) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
See Notes to Financial Statements.
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American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Small Cap Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Small Cap Growth Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||
| Independent Directors | ||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | data comparing the cost of owning the Fund to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons.
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The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
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Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
35
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
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As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73914 1112
ANNUAL REPORT | OCTOBER 31, 2011
| Select Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 23 |
| Report of Independent Registered Public Accounting Firm | 25 |
| Management | 26 |
| Approval of Management Agreement | 29 |
| Additional Information | 34 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
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By Greg Woodhams, Chief Investment Officer,
U.S. Growth Equity — Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
| Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWCIX | 10.49% | 3.97% | 2.47% | 12.04% | 6/30/71(1) |
| Russell 1000 Growth Index | — | 9.92% | 3.04% | 3.56% | N/A(2) | — |
| Institutional Class | TWSIX | 10.73% | 4.18% | 2.67% | 4.58% | 3/13/97 |
A Class(3) No sales charge* With sales charge* | TWCAX | 10.23% 3.91% | 3.71% 2.49% | 2.21% 1.61% | 2.81% 2.38% | 8/8/97 |
| C Class | ACSLX | 9.43% | 2.93% | — | 4.48% | 1/31/03 |
| R Class | ASERX | 9.96% | 3.45% | — | 1.83% | 7/29/05 |
*Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
| (1) | Although the fund’s actual inception date was 10/31/58, this inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. |
| (2) | Benchmark began 12/29/78. |
| (3) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Performance Summary
Select returned 10.49%* for the 12 months ended October 31, 2011, compared with the 9.92% return of its benchmark, the Russell 1000 Growth Index, and the 8.09%** return of the S&P 500 Index, a broader market measure.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Despite this challenging environment, Select delivered solid results and outperformed its benchmark.
Within the portfolio, security selection in the information technology and health care sectors accounted for the bulk of Select’s outperformance relative to the benchmark. Stock selection in the materials and consumer staples sectors also added to relative returns. Stock decisions in the industrials, financials, and consumer discretionary sectors detracted from relative results.
Information Technology, Health Care Led Gains
The information technology sector was a source of relative outperformance for Select. Notably, IT services company Teradata was the largest single contributor to relative gains. The company exceeded analysts’ expectations and raised earnings guidance for the full year, helped by strong demand for its consulting services. An overweight position in MasterCard was also a leading contributor. The company reported better-than-expected margins and earnings, and benefited from resolution of uncertainty around interchange fees on debit transactions.
Also in the information technology sector, though, Select did not hold a position in IBM. This decision proved detrimental as the company’s stock benefited from being perceived as somewhat of a “safe haven” within the technology sector during the market downturn. The managers do not find IBM attractive based on the stock’s relative valuation and the company’s growth rate.
In the health care sector, Select was rewarded for a stake in UnitedHealth Group, which is not represented in the benchmark. The company delivered solid earnings growth due largely to effective cost containment and an increase in members. In the health care equipment group, an overweight stake in Intuitive Surgical added meaningfully to gains. The maker of robotic surgery systems experienced a sharp rise in earnings amid continued adoption of its technology and increased sales of its surgical system.
*All fund returns referenced in this commentary are for Investor Class shares.
**The S&P 500 Index average annual returns were 0.25% and 3.69% for the five- and 10-year periods ended October 31, 2011, respectively.
7
Materials, Consumer Staples Helped
The materials sector was a key contributor to performance relative to the benchmark. Within the metals and mining industry group, an overweight stake in coal company Walter Energy added significantly to relative results. The company, which is a major producer of metallurgical coal for the steel industry, experienced robust demand amid rising steel prices early in the period, but retraced some of those gains as steel prices sank. For the time it was held in the portfolio, the position declined less than in the benchmark. Stock decisions in the chemicals industry also helped relative results.
Within the consumer staples sector, an overweight position in Costco Wholesale contributed to relative returns. The membership discount retailer benefited from a focus on lower-end providers of consumer goods in the weak economic environment. Effective stock decisions in the food products and the beverages industry groups also helped performance versus the benchmark.
Industrials Detracted
Within the industrials sector, stock decisions in the aerospace and defense industry hindered relative performance. In particular, a sizable overweight stake in Rockwell Collins, Inc. detracted from results compared with the benchmark. The manufacturer of communications and aviation electronics for military and commercial customers relies heavily on the U.S. government’s military spending, and was hurt by uncertainty about the military budgetary outlook. The electrical equipment industry was also a key source of underperformance within the sector.
Financials, Consumer Discretionary Lagged Benchmark
Holdings in the financials sector lagged the benchmark. Here, Select held several positions in the diversified financial services group that underperformed.
In the consumer discretionary sector, an overweight stake in Netflix represented the largest single detractor from relative returns. The company stumbled when it raised prices 60% for its mail order DVD rental service, and then announced that it would separate its video streaming business from its DVD offering. Both moves alienated customers, and, although the company lowered guidance for its subscriber base, subscription numbers fell below that revised level. Although Netflix management handled the transition poorly, we believe that the company’s evolution from its legacy DVD business to the video streaming business is positive, as it will require lower overhead and offers more growth potential.
Starting Point for Next Reporting Period
The environment for growth- and momentum-oriented investment styles continued to be challenging during the reporting period. Although Select’s investment process experienced a significant headwind, the portfolio delivered sound positive results. Going forward, we remain confident in our investment beliefs that stocks which exhibit high-quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term.
8
| Shareholder Fee Example |
OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 7.1% |
| Google, Inc., Class A | 4.5% |
| Exxon Mobil Corp. | 3.2% |
| Costco Wholesale Corp. | 2.8% |
| Teradata Corp. | 2.8% |
| EMC Corp. | 2.6% |
| Gilead Sciences, Inc. | 2.5% |
| Coach, Inc. | 2.4% |
| MasterCard, Inc., Class A | 2.2% |
| Monsanto Co. | 2.2% |
| Top Five Industries | % of net assets |
| Computers and Peripherals | 9.7% |
| Internet Software and Services | 6.1% |
| Energy Equipment and Services | 5.5% |
| Oil, Gas and Consumable Fuels | 5.3% |
| IT Services | 5.0% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 91.9% |
| Foreign Common Stocks* | 6.9% |
| Total Common Stocks | 98.8% |
| Temporary Cash Investments | 1.3% |
| Other Assets and Liabilities | (0.1)% |
| *Includes depositary shares, dual listed securities and foreign ordinary shares. | |
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period* 5/1/11 – 10/31/11 | Annualized Expense Ratio* | |
| Actual | ||||
| Investor Class | $1,000 | $945.60 | $4.90 | 1.00% |
| Institutional Class | $1,000 | $946.50 | $3.92 | 0.80% |
| A Class | $1,000 | $944.40 | $6.13 | 1.25% |
| C Class | $1,000 | $941.10 | $9.79 | 2.00% |
| R Class | $1,000 | $943.40 | $7.35 | 1.50% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
| Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
| A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
| C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
| R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
*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.
11
| Shares | Value | |||||||
| Common Stocks — 98.8% | ||||||||
| AEROSPACE AND DEFENSE — 3.6% | ||||||||
| General Dynamics Corp. | 523,100 | $33,577,789 | ||||||
| Rockwell Collins, Inc. | 570,000 | 31,823,100 | ||||||
| 65,400,889 | ||||||||
| AIR FREIGHT AND LOGISTICS — 1.5% | ||||||||
| United Parcel Service, Inc., Class B | 391,000 | 27,463,840 | ||||||
| BEVERAGES — 1.5% | ||||||||
| Diageo plc | 1,309,695 | 27,128,320 | ||||||
| BIOTECHNOLOGY — 3.1% | ||||||||
Biogen Idec, Inc.(1) | 87,800 | 10,216,408 | ||||||
Gilead Sciences, Inc.(1) | 1,091,000 | 45,451,060 | ||||||
| 55,667,468 | ||||||||
| CAPITAL MARKETS — 1.3% | ||||||||
| Franklin Resources, Inc. | 221,300 | 23,597,219 | ||||||
| CHEMICALS — 3.5% | ||||||||
| Monsanto Co. | 548,000 | 39,867,000 | ||||||
| Potash Corp. of Saskatchewan, Inc. | 480,900 | 22,760,997 | ||||||
| 62,627,997 | ||||||||
| COMMUNICATIONS EQUIPMENT — 2.0% | ||||||||
| QUALCOMM, Inc. | 685,600 | 35,376,960 | ||||||
| COMPUTERS AND PERIPHERALS — 9.7% | ||||||||
Apple, Inc.(1) | 316,600 | 128,153,348 | ||||||
EMC Corp.(1) | 1,880,700 | 46,095,957 | ||||||
| 174,249,305 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 2.4% | ||||||||
| CME Group, Inc. | 65,300 | 17,994,068 | ||||||
| Hong Kong Exchanges and Clearing Ltd. | 601,508 | 10,082,612 | ||||||
| JPMorgan Chase & Co. | 430,900 | 14,978,084 | ||||||
| 43,054,764 | ||||||||
| ELECTRICAL EQUIPMENT — 3.2% | ||||||||
ABB Ltd. ADR(1) | 1,236,900 | 23,266,089 | ||||||
| Emerson Electric Co. | 728,100 | 35,036,172 | ||||||
| 58,302,261 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 5.5% | ||||||||
| Diamond Offshore Drilling, Inc. | 293,400 | 19,229,436 | ||||||
| Halliburton Co. | 710,100 | 26,529,336 | ||||||
| National Oilwell Varco, Inc. | 290,300 | 20,707,099 | ||||||
| Schlumberger Ltd. | 428,300 | 31,467,201 | ||||||
| 97,933,072 | ||||||||
| FOOD AND STAPLES RETAILING — 2.8% | ||||||||
| Costco Wholesale Corp. | 596,500 | 49,658,625 | ||||||
| FOOD PRODUCTS — 2.3% | ||||||||
| Hershey Co. (The) | 301,700 | $17,266,291 | ||||||
| Mead Johnson Nutrition Co. | 339,000 | 24,357,150 | ||||||
| 41,623,441 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 1.4% | ||||||||
Intuitive Surgical, Inc.(1) | 58,000 | 25,163,880 | ||||||
| HEALTH CARE PROVIDERS AND SERVICES — 4.3% | ||||||||
Medco Health Solutions, Inc.(1) | 700,115 | 38,408,309 | ||||||
| UnitedHealth Group, Inc. | 821,200 | 39,409,388 | ||||||
| 77,817,697 | ||||||||
| HOTELS, RESTAURANTS AND LEISURE — 2.4% | ||||||||
| McDonald’s Corp. | 398,700 | 37,019,295 | ||||||
Peet’s Coffee & Tea, Inc.(1) | 85,500 | 5,448,060 | ||||||
| 42,467,355 | ||||||||
| HOUSEHOLD DURABLES — 1.2% | ||||||||
| Harman International Industries, Inc. | 515,400 | 22,244,664 | ||||||
| INSURANCE — 0.9% | ||||||||
| Travelers Cos., Inc. (The) | 274,300 | 16,005,405 | ||||||
| INTERNET AND CATALOG RETAIL — 2.8% | ||||||||
Amazon.com, Inc.(1) | 173,400 | 37,022,634 | ||||||
Netflix, Inc.(1) | 153,000 | 12,558,240 | ||||||
| 49,580,874 | ||||||||
| INTERNET SOFTWARE AND SERVICES — 6.1% | ||||||||
Baidu, Inc. ADR(1) | 195,100 | 27,349,118 | ||||||
Google, Inc., Class A(1) | 135,700 | 80,421,248 | ||||||
Responsys, Inc.(1) | 175,200 | 1,913,184 | ||||||
| 109,683,550 | ||||||||
| IT SERVICES — 5.0% | ||||||||
| MasterCard, Inc., Class A | 115,600 | 40,140,944 | ||||||
Teradata Corp.(1) | 828,100 | 49,404,446 | ||||||
| 89,545,390 | ||||||||
| LEISURE EQUIPMENT AND PRODUCTS — 1.3% | ||||||||
| Hasbro, Inc. | 598,900 | 22,794,134 | ||||||
| MACHINERY — 3.1% | ||||||||
| Graco, Inc. | 189,700 | 8,145,718 | ||||||
| Nordson Corp. | 296,000 | 13,725,520 | ||||||
| Parker Hannifin Corp. | 411,700 | 33,574,135 | ||||||
| 55,445,373 | ||||||||
| MEDIA — 0.6% | ||||||||
| Walt Disney Co. (The) | 335,900 | 11,716,192 | ||||||
| METALS AND MINING — 1.4% | ||||||||
| Freeport-McMoRan Copper & Gold, Inc. | 634,800 | 25,557,048 | ||||||
12
| Shares | Value | |||||||
| OIL, GAS AND CONSUMABLE FUELS — 5.3% | ||||||||
| Exxon Mobil Corp. | 732,800 | $57,224,352 | ||||||
| Occidental Petroleum Corp. | 414,100 | 38,486,454 | ||||||
| 95,710,806 | ||||||||
| PERSONAL PRODUCTS — 1.2% | ||||||||
| Estee Lauder Cos., Inc. (The), Class A | 210,400 | 20,713,880 | ||||||
| PHARMACEUTICALS — 2.9% | ||||||||
| Allergan, Inc. | 455,000 | 38,274,600 | ||||||
| Teva Pharmaceutical Industries Ltd. ADR | 321,800 | 13,145,530 | ||||||
| 51,420,130 | ||||||||
| PROFESSIONAL SERVICES — 0.9% | ||||||||
IHS, Inc. Class A(1) | 119,200 | 10,011,608 | ||||||
Verisk Analytics, Inc. Class A(1) | 175,300 | 6,161,795 | ||||||
| 16,173,403 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.0% | ||||||||
Broadcom Corp., Class A(1) | 531,900 | 19,196,271 | ||||||
| Linear Technology Corp. | 1,089,300 | 35,195,283 | ||||||
| 54,391,554 | ||||||||
| SOFTWARE — 3.6% | ||||||||
Adobe Systems, Inc.(1) | 546,400 | 16,069,624 | ||||||
| Microsoft Corp. | 322,000 | 8,574,860 | ||||||
| Oracle Corp. | 1,204,200 | 39,461,634 | ||||||
| 64,106,118 | ||||||||
| SPECIALTY RETAIL — 2.2% | ||||||||
| TJX Cos., Inc. (The) | 674,800 | 39,765,964 | ||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 4.3% | ||||||||
| Coach, Inc. | 658,700 | 42,861,609 | ||||||
Fossil, Inc.(1) | 177,600 | 18,410,016 | ||||||
Hanesbrands, Inc.(1) | 582,400 | 15,357,888 | ||||||
| 76,629,513 | ||||||||
| TOBACCO — 2.2% | ||||||||
| Philip Morris International, Inc. | 559,700 | $39,106,239 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.3% | ||||||||
American Tower Corp., Class A(1) | 101,300 | 5,581,630 | ||||||
TOTAL COMMON STOCKS (Cost $1,271,126,240) | 1,773,704,960 | |||||||
| Temporary Cash Investments — 1.3% | ||||||||
| Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $7,984,505), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $7,816,413) | 7,816,400 | |||||||
| Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $8,010,529), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $7,816,407) | 7,816,400 | |||||||
| Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $7,965,093), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $7,816,408) | 7,816,399 | |||||||
SSgA U.S. Government Money Market Fund | 682,440 | 682,440 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $24,131,639) | 24,131,639 | |||||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $1,295,257,879) | 1,797,836,599 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.1)% | (1,782,930 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $1,796,053,669 | |||||||
| Forward Foreign Currency Exchange Contracts | |||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
| 13,819,902 | GBP for USD | Credit Suisse AG | 11/30/11 | $22,214,836 | $(180,531) |
| (Value on Settlement Date $22,034,305) | |||||
Notes to Schedule of Investments
ADR = American Depositary Receipt
GBP = British Pound
USD = United States Dollar
| (1) | Non-income producing. |
See Notes to Financial Statements.
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $1,295,257,879) | $1,797,836,599 | |||
| Foreign currency holdings, at value (cost of $293,996) | 300,237 | |||
| Receivable for capital shares sold | 313,201 | |||
| Dividends and interest receivable | 1,042,229 | |||
| 1,799,492,266 | ||||
| Liabilities | ||||
| Payable for investments purchased | 1,268,109 | |||
| Payable for capital shares redeemed | 524,811 | |||
| Unrealized loss on forward foreign currency exchange contracts | 180,531 | |||
| Accrued management fees | 1,460,004 | |||
| Distribution and service fees payable | 5,142 | |||
| 3,438,597 | ||||
| Net Assets | $1,796,053,669 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $1,465,179,671 | |||
| Undistributed net investment income | 4,867,506 | |||
| Accumulated net realized loss | (176,397,938 | ) | ||
| Net unrealized appreciation | 502,404,430 | |||
| $1,796,053,669 | ||||
| Net assets | Shares outstanding | Net asset value per share | |
| Investor Class, $0.01 Par Value | $1,765,717,586 | 45,109,600 | $39.14 |
| Institutional Class, $0.01 Par Value | $5,132,944 | 129,607 | $39.60 |
| A Class, $0.01 Par Value | $24,573,025 | 637,559 | $38.54* |
| C Class, $0.01 Par Value | $570,910 | 15,464 | $36.92 |
| R Class, $0.01 Par Value | $59,204 | 1,532 | $38.64 |
| *Maximum offering price $40.89 (net asset value divided by 0.9425) | |||
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $47,071) | $23,226,689 | |||
| Interest | 5,935 | |||
| 23,232,624 | ||||
| Expenses: | ||||
| Management fees | 18,395,726 | |||
| Distribution and service fees: | ||||
| A Class | 55,099 | |||
| B Class | 15,292 | |||
| C Class | 3,745 | |||
| R Class | 246 | |||
| Directors’ fees and expenses | 74,044 | |||
| 18,544,152 | ||||
| Net investment income (loss) | 4,688,472 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 39,237,589 | |||
| Foreign currency transactions | (107,888 | ) | ||
| 39,129,701 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | 138,775,060 | |||
| Translation of assets and liabilities in foreign currencies | 116,618 | |||
| 138,891,678 | ||||
| Net realized and unrealized gain (loss) | 178,021,379 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $182,709,851 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $4,688,472 | $5,682,049 | ||||||
| Net realized gain (loss) | 39,129,701 | (20,615,057 | ) | |||||
| Change in net unrealized appreciation (depreciation) | 138,891,678 | 275,739,559 | ||||||
| Net increase (decrease) in net assets resulting from operations | 182,709,851 | 260,806,551 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Investor Class | (5,930,534 | ) | (8,227,971 | ) | ||||
| Institutional Class | (25,646 | ) | (28,810 | ) | ||||
| A Class | (17,175 | ) | (49,312 | ) | ||||
| Decrease in net assets from distributions | (5,973,355 | ) | (8,306,093 | ) | ||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (130,244,559 | ) | (120,734,647 | ) | ||||
| Net increase (decrease) in net assets | 46,491,937 | 131,765,811 | ||||||
| Net Assets | ||||||||
| Beginning of period | 1,749,561,732 | 1,617,795,921 | ||||||
| End of period | $1,796,053,669 | $1,749,561,732 | ||||||
| Undistributed net investment income | $4,867,506 | $6,260,277 | ||||||
See Notes to Financial Statements.
16
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Select Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by purchasing stocks of larger-sized companies that management believes will increase in value over time.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
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If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 1.000% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.00% for the Investor Class, A Class, C Class and R Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $311,151,298 and $441,029,462, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 300,000,000 | 300,000,000 | ||||||||||||||
| Sold | 1,326,866 | $51,400,404 | 1,050,151 | $34,737,773 | ||||||||||||
| Issued in reinvestment of distributions | 150,928 | 5,679,445 | 238,915 | 7,886,605 | ||||||||||||
| Redeemed | (4,831,149 | ) | (187,400,425 | ) | (4,873,529 | ) | (160,602,909 | ) | ||||||||
| (3,353,355 | ) | (130,320,576 | ) | (3,584,463 | ) | (117,978,531 | ) | |||||||||
| Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||||||
| Sold | 32,761 | 1,267,331 | 22,888 | 771,300 | ||||||||||||
| Issued in reinvestment of distributions | 670 | 25,466 | 851 | 28,366 | ||||||||||||
| Redeemed | (30,754 | ) | (1,223,056 | ) | (24,480 | ) | (817,754 | ) | ||||||||
| 2,677 | 69,741 | (741 | ) | (18,088 | ) | |||||||||||
| A Class/Shares Authorized | 75,000,000 | 75,000,000 | ||||||||||||||
| Sold | 163,231 | 6,203,697 | 64,941 | 2,090,917 | ||||||||||||
| Issued in reinvestment of distributions | 454 | 16,873 | 1,473 | 47,993 | ||||||||||||
| Redeemed | (116,745 | ) | (4,454,011 | ) | (134,115 | ) | (4,336,286 | ) | ||||||||
| 46,940 | 1,766,559 | (67,701 | ) | (2,197,376 | ) | |||||||||||
| B Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | 1,180 | 44,854 | 925 | 27,964 | ||||||||||||
| Redeemed | (53,880 | ) | (1,958,733 | ) | (18,364 | ) | (576,033 | ) | ||||||||
| (52,700 | ) | (1,913,879 | ) | (17,439 | ) | (548,069 | ) | |||||||||
| C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | 9,157 | 319,498 | 5,833 | 180,826 | ||||||||||||
| Redeemed | (5,253 | ) | (194,203 | ) | (5,028 | ) | (153,876 | ) | ||||||||
| 3,904 | 125,295 | 805 | 26,950 | |||||||||||||
| R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
| Sold | 1,023 | 40,053 | 72 | 2,323 | ||||||||||||
| Redeemed | (303 | ) | (11,752 | ) | (676 | ) | (21,856 | ) | ||||||||
| 720 | 28,301 | (604 | ) | (19,533 | ) | |||||||||||
| Net increase (decrease) | (3,351,814 | ) | $(130,244,559 | ) | (3,670,143 | ) | $(120,734,647 | ) | ||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $1,649,972,294 | — | — | |||||||||
| Foreign Common Stocks | 86,521,734 | $37,210,932 | — | |||||||||
| Temporary Cash Investments | 682,440 | 23,449,199 | — | |||||||||
| Total Value of Investment Securities | $1,737,176,468 | $60,660,131 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(180,531 | ) | — | ||||||||
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
The value of foreign currency risk derivative instruments as of October 31, 2011, is disclosed on the Statement of Assets and Liabilities as a liability of $180,531 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(128,123) in net realized gain (loss) on foreign currency transactions and $112,135 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
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9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $5,973,355 | $8,306,093 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $1,298,608,273 | |||
| Gross tax appreciation of investments | $521,981,787 | |||
| Gross tax depreciation of investments | (22,753,461 | ) | ||
| Net tax appreciation (depreciation) of investments | $499,228,326 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $6,241 | |||
| Net tax appreciation (depreciation) | $499,234,567 | |||
| Undistributed ordinary income | $4,686,975 | |||
| Accumulated capital losses | $(173,047,544 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(152,558,490) and $(20,489,054) expire in 2017 and 2018, respectively.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Net Asset Value, End of Period | Total Return(2) | Ratio to Average Net Assets of: | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
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 | Operating Expenses | Net Investment Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $35.54 | 0.10 | 3.62 | 3.72 | (0.12 | ) | — | (0.12 | ) | $39.14 | 10.49 | % | 1.00 | % | 0.26 | % | 17 | % | $1,765,718 | |||||||||||||||||||||||||||||||
| 2010 | $30.58 | 0.11 | 5.01 | 5.12 | (0.16 | ) | — | (0.16 | ) | $35.54 | 16.78 | % | 1.01 | % | 0.34 | % | 35 | % | $1,722,138 | |||||||||||||||||||||||||||||||
| 2009 | $26.25 | 0.19 | 4.40 | 4.59 | (0.26 | ) | — | (0.26 | ) | $30.58 | 17.77 | % | 1.00 | % | 0.75 | % | 31 | % | $1,591,621 | |||||||||||||||||||||||||||||||
| 2008 | $45.58 | 0.07 | (16.10 | ) | (16.03 | ) | — | (3.30 | ) | (3.30 | ) | $26.25 | (37.71 | )% | 1.00 | % | 0.19 | % | 64 | % | $1,448,954 | |||||||||||||||||||||||||||||
| 2007 | $36.22 | 0.04 | 10.06 | 10.10 | (0.16 | ) | (0.58 | ) | (0.74 | ) | $45.58 | 28.37 | % | 1.00 | % | 0.11 | % | 79 | % | $2,550,254 | ||||||||||||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $35.95 | 0.18 | 3.67 | 3.85 | (0.20 | ) | — | (0.20 | ) | $39.60 | 10.73 | % | 0.80 | % | 0.46 | % | 17 | % | $5,133 | |||||||||||||||||||||||||||||||
| 2010 | $30.94 | 0.18 | 5.06 | 5.24 | (0.23 | ) | — | (0.23 | ) | $35.95 | 17.02 | % | 0.81 | % | 0.54 | % | 35 | % | $4,563 | |||||||||||||||||||||||||||||||
| 2009 | $26.56 | 0.28 | 4.41 | 4.69 | (0.31 | ) | — | (0.31 | ) | $30.94 | 18.00 | % | 0.80 | % | 0.95 | % | 31 | % | $3,950 | |||||||||||||||||||||||||||||||
| 2008 | $45.98 | 0.15 | (16.27 | ) | (16.12 | ) | — | (3.30 | ) | (3.30 | ) | $26.56 | (37.60 | )% | 0.80 | % | 0.39 | % | 64 | % | $94,419 | |||||||||||||||||||||||||||||
| 2007 | $36.53 | 0.12 | 10.15 | 10.27 | (0.24 | ) | (0.58 | ) | (0.82 | ) | $45.98 | 28.63 | % | 0.80 | % | 0.31 | % | 79 | % | $168,441 | ||||||||||||||||||||||||||||||
A Class(3) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $34.99 | — | (4) | 3.58 | 3.58 | (0.03 | ) | — | (0.03 | ) | $38.54 | 10.23 | % | 1.25 | % | 0.01 | % | 17 | % | $24,573 | ||||||||||||||||||||||||||||||
| 2010 | $30.11 | 0.03 | 4.93 | 4.96 | (0.08 | ) | — | (0.08 | ) | $34.99 | 16.48 | % | 1.26 | % | 0.09 | % | 35 | % | $20,666 | |||||||||||||||||||||||||||||||
| 2009 | $25.85 | 0.13 | 4.33 | 4.46 | (0.20 | ) | — | (0.20 | ) | $30.11 | 17.47 | % | 1.25 | % | 0.50 | % | 31 | % | $19,824 | |||||||||||||||||||||||||||||||
| 2008 | $45.05 | (0.02 | ) | (15.88 | ) | (15.90 | ) | — | (3.30 | ) | (3.30 | ) | $25.85 | (37.88 | )% | 1.25 | % | (0.06 | )% | 64 | % | $19,450 | ||||||||||||||||||||||||||||
| 2007 | $35.80 | (0.09 | ) | 9.99 | 9.90 | (0.07 | ) | (0.58 | ) | (0.65 | ) | $45.05 | 28.07 | % | 1.25 | % | (0.14 | )% | 79 | % | $42,770 | |||||||||||||||||||||||||||||
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Net Asset Value, End of Period | Total Return(2) | Ratio to Average Net Assets of: | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
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 | Operating Expenses | Net Investment Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $33.74 | (0.28 | ) | 3.46 | 3.18 | — | — | — | $36.92 | 9.43 | % | 2.00 | % | (0.74 | )% | 17 | % | $571 | ||||||||||||||||||||||||||||||||
| 2010 | $29.19 | (0.20 | ) | 4.75 | 4.55 | — | — | — | $33.74 | 15.63 | % | 2.01 | % | (0.66 | )% | 35 | % | $390 | ||||||||||||||||||||||||||||||||
| 2009 | $25.05 | (0.06 | ) | 4.22 | 4.16 | (0.02 | ) | — | (0.02 | ) | $29.19 | 16.58 | % | 2.00 | % | (0.25 | )% | 31 | % | $314 | ||||||||||||||||||||||||||||||
| 2008 | $44.07 | (0.29 | ) | (15.43 | ) | (15.72 | ) | — | (3.30 | ) | (3.30 | ) | $25.05 | (38.34 | )% | 2.00 | % | (0.81 | )% | 64 | % | $394 | ||||||||||||||||||||||||||||
| 2007 | $35.24 | (0.34 | ) | 9.75 | 9.41 | — | (0.58 | ) | (0.58 | ) | $44.07 | 27.07 | % | 2.00 | % | (0.89 | )% | 79 | % | $1,001 | ||||||||||||||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $35.14 | (0.08 | ) | 3.58 | 3.50 | — | — | — | $38.64 | 9.96 | % | 1.50 | % | (0.24 | )% | 17 | % | $59 | ||||||||||||||||||||||||||||||||
| 2010 | $30.24 | (0.05 | ) | 4.95 | 4.90 | — | — | — | $35.14 | 16.20 | % | 1.51 | % | (0.16 | )% | 35 | % | $29 | ||||||||||||||||||||||||||||||||
| 2009 | $25.96 | 0.06 | 4.36 | 4.42 | (0.14 | ) | — | (0.14 | ) | $30.24 | 17.17 | % | 1.50 | % | 0.25 | % | 31 | % | $43 | |||||||||||||||||||||||||||||||
| 2008 | $45.33 | (0.11 | ) | (15.96 | ) | (16.07 | ) | — | (3.30 | ) | (3.30 | ) | $25.96 | (38.03 | )% | 1.50 | % | (0.31 | )% | 64 | % | $32 | ||||||||||||||||||||||||||||
| 2007 | $36.05 | (0.15 | ) | 10.01 | 9.86 | — | (0.58 | ) | (0.58 | ) | $45.33 | 27.72 | % | 1.50 | % | (0.39 | )% | 79 | % | $32 | ||||||||||||||||||||||||||||||
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) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class. |
| (4) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
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| Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Select Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Select Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | ||
| Independent Directors | |||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | ||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | ||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | ||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | ||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | data comparing the cost of owning the Fund to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different
30
time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
31
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
32
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
33
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $5,973,355, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
35
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73904 1112
ANNUAL REPORT | OCTOBER 31, 2011
NT VistaSM Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 6 |
| Fund Characteristics | 8 |
| Shareholder Fee Example | 9 |
| Schedule of Investments | 11 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 23 |
| Report of Independent Registered Public Accounting Firm | 24 |
| Management | 25 |
| Approval of Management Agreement | 28 |
| Additional Information | 33 |
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.
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer,
U.S. Growth Equity — Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
4
| Total Returns as of October 31, 2011 | |||||
| Average Annual Returns | |||||
| Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
| Institutional Class | ACLWX | 6.25% | 2.24% | 0.10% | 5/12/06 |
| Russell Midcap Growth Index | — | 10.08% | 3.46% | 3.03%(1) | — |
| (1) | Since 4/30/06, the date nearest the Institutional Class’s inception for which data are available. |
| Growth of $10,000 Over Life of Class |
| $10,000 investment made May 12, 2006 |
*From 5/12/06, the Institutional Class’s inception date. Index data from 4/30/06, the date nearest the Institutional Class’s inception for which data are available. Not annualized.
| Total Annual Fund Operating Expenses |
Institutional Class 0.80% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
Performance Summary
NT Vista returned 6.25% for the 12 months ended October 31, 2011, compared with the 10.08% return of its benchmark, the Russell Midcap Growth Index.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and U.S. Treasury debt downgrade. Price momentum and acceleration, two factors that the NT Vista team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, security selection in the information technology sector accounted for the majority of underperformance relative to the benchmark. Holdings in the industrials, financials, and consumer discretionary sectors also hurt results versus the benchmark. Effective stock choices in the health care and consumer staples sectors partially offset those relative losses.
Information Technology Underperformed Benchmark
The information technology sector was NT Vista’s largest source of underperformance relative to the benchmark. In the communications equipment industry, two overweight positions significantly trimmed relative results. Video and teleconferencing equipment maker Polycom experienced a sell-off in its shares as investors feared that competition and cuts in corporate spending would hurt revenues. An overweight position in F5 Networks, whose products help optimize the performance of applications over IT networks, also detracted from returns versus the benchmark. Elsewhere in the sector, stock decisions in the software industry hindered relative returns.
However, a position in UK-based ARM Holdings plc contributed meaningfully to relative results. The semiconductor intellectual property supplier experienced a surge in demand from chip makers, driven by rising end-market requirements for mobile chips.
Industrials, Financials Lagged
NT Vista’s underperformance in the industrials sector largely reflected stock decisions among machinery companies. An example was an overweight stake in WABCO Holdings. The maker of braking systems for commercial vehicles experienced a share price decline while it was held in the portfolio due to macroeconomic concerns, although it delivered positive results for the entire reporting period.
The financials sector was a source of underperformance relative to the benchmark. Within the sector, a detrimental underweight in real estate investment trusts and overweight in the real estate management industry curbed relative results.
6
Consumer Discretionary Lagged, but Some Holdings Helped
In the consumer discretionary sector, stock decisions in the hotels, restaurants, and leisure industry detracted from relative returns. An overweight position in Lululemon Athletica, though, contributed significantly to relative outperformance as the maker of women’s yoga and athletic wear executed well, demonstrating strong same-store comparable sales levels.
Health Care, Consumer Staples Outperformed, but Some Holdings Lagged
An overweight position in Alexion Pharmaceuticals accounted for the bulk of NT Vista’s relative outperformance in the health care sector. The biotechnology company received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders. Effective stock selection in the pharmaceuticals industry group also benefited relative returns. In the industry, NT Vista held one outperforming position that was not represented in the benchmark, while successfully sidestepping some benchmark laggards.
In the consumer staples sector, companies with products at the upper end of the retail market performed well. NT Vista benefited from this situation with a significant position in specialty grocery chain Whole Foods Markets, which represented the largest individual contributor to relative returns. The company, which continued to perform well amid a trend towards healthier diets, executed well as it demonstrated strong buying power and improving supply chain management.
Elsewhere in the sector, though, an underweight position in Green Mountain Coffee Roasters detracted from relative results. The largest U.S. seller of single-serve brewers experienced robust share price gains as it continued to increase revenues through the success of its Keurig Single-Cup Brewing System. The portfolio had some exposure to Green Mountain, but less than the benchmark.
Outlook
Our investment process focuses on medium-sized and smaller companies with accelerating earnings growth rates and share-price momentum. We believe that active investing in such companies will generate outperformance over time compared with the Russell Midcap Growth Index.
This process, which has historically added value, has faced unprecedented headwinds in recent reporting periods. Based on historical trends, we believe we will move past this environment of extreme underperformance for stocks exhibiting price momentum and acceleration and into a period where fundamentals, and specifically fundamental improvement, is recognized and rewarded by the market.
7
OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Teradata Corp. | 2.9% |
| Whole Foods Market, Inc. | 2.7% |
| National Oilwell Varco, Inc. | 2.6% |
| Alliance Data Systems Corp. | 2.3% |
| TransDigm Group, Inc. | 2.2% |
| Kansas City Southern | 2.0% |
| Check Point Software Technologies Ltd. | 2.0% |
| Joy Global, Inc. | 2.0% |
| ARM Holdings plc | 2.0% |
| Dollar Tree, Inc. | 1.9% |
| Top Five Industries | % of net assets |
| Software | 8.0% |
| Specialty Retail | 7.0% |
| IT Services | 6.2% |
| Oil, Gas and Consumable Fuels | 4.9% |
| Energy Equipment and Services | 4.8% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 87.6% |
| Foreign Common Stocks* | 11.3% |
| Total Common Stocks | 98.9% |
| Temporary Cash Investments | 1.9% |
| Other Assets and Liabilities | (0.8)% |
| *Includes depositary shares, dual listed securities and foreign ordinary shares. | |
8
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
9
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period* 5/1/11 – 10/31/11 | Annualized Expense Ratio* | |
| Actual | ||||
| Institutional Class | $1,000 | $882.90 | $3.80 | 0.80% |
| Hypothetical | ||||
| Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
* Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period.
10
OCTOBER 31, 2011
| Shares | Value | |||||||
| Common Stocks — 98.9% | ||||||||
| AEROSPACE AND DEFENSE — 4.0% | ||||||||
BE Aerospace, Inc.(1) | 100,400 | $3,788,092 | ||||||
TransDigm Group, Inc.(1) | 51,500 | 4,836,880 | ||||||
| 8,624,972 | ||||||||
| AUTO COMPONENTS — 1.6% | ||||||||
BorgWarner, Inc.(1) | 44,302 | 3,388,660 | ||||||
| BIOTECHNOLOGY — 2.8% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 58,365 | 3,940,221 | ||||||
Cepheid, Inc.(1) | 25,300 | 907,764 | ||||||
Grifols SA(1) | 66,501 | 1,236,523 | ||||||
| 6,084,508 | ||||||||
| CAPITAL MARKETS — 1.9% | ||||||||
Affiliated Managers Group, Inc.(1) | 17,600 | 1,629,936 | ||||||
American Capital Ltd.(1) | 179,400 | 1,393,938 | ||||||
| KKR & Co. LP | 84,500 | 1,139,060 | ||||||
| 4,162,934 | ||||||||
| CHEMICALS — 3.0% | ||||||||
| Albemarle Corp. | 36,700 | 1,955,743 | ||||||
| International Flavors & Fragrances, Inc. | 46,700 | 2,828,152 | ||||||
Rockwood Holdings, Inc.(1) | 37,700 | 1,735,708 | ||||||
| 6,519,603 | ||||||||
| COMMERCIAL BANKS — 0.4% | ||||||||
| East West Bancorp., Inc. | 43,485 | 846,653 | ||||||
| COMMERCIAL SERVICES AND SUPPLIES — 1.6% | ||||||||
Stericycle, Inc.(1) | 39,700 | 3,318,126 | ||||||
| COMMUNICATIONS EQUIPMENT — 0.6% | ||||||||
Aruba Networks, Inc.(1) | 57,500 | 1,362,175 | ||||||
| CONSUMER FINANCE — 2.0% | ||||||||
| Discover Financial Services | 131,500 | 3,098,140 | ||||||
First Cash Financial Services, Inc.(1) | 28,300 | 1,174,450 | ||||||
| 4,272,590 | ||||||||
| CONTAINERS AND PACKAGING — 1.9% | ||||||||
Crown Holdings, Inc.(1) | 80,000 | 2,703,200 | ||||||
| Rock-Tenn Co., Class A | 22,100 | 1,308,099 | ||||||
| 4,011,299 | ||||||||
| DIVERSIFIED CONSUMER SERVICES — 0.6% | ||||||||
| Weight Watchers International, Inc. | 16,800 | 1,253,616 | ||||||
| ELECTRICAL EQUIPMENT — 1.1% | ||||||||
Polypore International, Inc.(1) | 46,282 | 2,427,491 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.2% | ||||||||
IPG Photonics Corp.(1) | 18,000 | $951,480 | ||||||
Trimble Navigation Ltd.(1) | 40,500 | 1,636,605 | ||||||
| 2,588,085 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 4.8% | ||||||||
Atwood Oceanics, Inc.(1) | 38,200 | 1,632,668 | ||||||
| Core Laboratories NV | 14,300 | 1,548,118 | ||||||
| National Oilwell Varco, Inc. | 79,000 | 5,635,070 | ||||||
Oil States International, Inc.(1) | 21,700 | 1,510,537 | ||||||
| 10,326,393 | ||||||||
| FOOD AND STAPLES RETAILING — 2.7% | ||||||||
| Whole Foods Market, Inc. | 80,900 | 5,834,508 | ||||||
| FOOD PRODUCTS — 2.4% | ||||||||
Green Mountain Coffee Roasters, Inc.(1) | 14,900 | 968,798 | ||||||
| J.M. Smucker Co. (The) | 15,200 | 1,170,704 | ||||||
| Mead Johnson Nutrition Co. | 40,600 | 2,917,110 | ||||||
| 5,056,612 | ||||||||
| GAS UTILITIES — 1.0% | ||||||||
| Oneok, Inc. | 28,300 | 2,152,215 | ||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 2.9% | ||||||||
| Cooper Cos., Inc. (The) | 35,500 | 2,460,150 | ||||||
MAKO Surgical Corp.(1) | 51,000 | 1,960,950 | ||||||
Mettler-Toledo International, Inc.(1) | 11,300 | 1,735,680 | ||||||
| 6,156,780 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 0.7% | ||||||||
Catalyst Health Solutions, Inc.(1) | 27,600 | 1,517,172 | ||||||
| HEALTH CARE TECHNOLOGY — 1.8% | ||||||||
SXC Health Solutions Corp.(1) | 84,200 | 3,942,244 | ||||||
| HOTELS, RESTAURANTS AND LEISURE — 3.9% | ||||||||
| Arcos Dorados Holdings, Inc., Class A | 72,300 | 1,691,820 | ||||||
Chipotle Mexican Grill, Inc.(1) | 10,100 | 3,394,812 | ||||||
Domino’s Pizza, Inc.(1) | 32,000 | 1,024,960 | ||||||
Panera Bread Co., Class A(1) | 16,400 | 2,192,516 | ||||||
| 8,304,108 | ||||||||
| HOUSEHOLD DURABLES — 1.0% | ||||||||
Tempur-Pedic International, Inc.(1) | 30,800 | 2,096,248 | ||||||
| HOUSEHOLD PRODUCTS — 1.0% | ||||||||
| Church & Dwight Co., Inc. | 50,300 | 2,222,254 | ||||||
| INTERNET AND CATALOG RETAIL — 1.5% | ||||||||
priceline.com, Inc.(1) | 6,200 | 3,147,864 | ||||||
11
| Shares | Value | |||||||
| INTERNET SOFTWARE AND SERVICES — 1.5% | ||||||||
Baidu, Inc. ADR(1) | 23,000 | $3,224,140 | ||||||
| IT SERVICES — 6.2% | ||||||||
Alliance Data Systems Corp.(1) | 49,000 | 5,019,560 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 29,100 | 2,117,025 | ||||||
Teradata Corp.(1) | 104,700 | 6,246,402 | ||||||
| 13,382,987 | ||||||||
| LIFE SCIENCES TOOLS AND SERVICES — 0.5% | ||||||||
Waters Corp.(1) | 13,300 | 1,065,596 | ||||||
| MACHINERY — 3.9% | ||||||||
Chart Industries, Inc.(1) | 28,100 | 1,587,931 | ||||||
| Cummins, Inc. | 10,900 | 1,083,787 | ||||||
| Joy Global, Inc. | 49,100 | 4,281,520 | ||||||
| Titan International, Inc. | 62,063 | 1,396,418 | ||||||
| 8,349,656 | ||||||||
| MEDIA — 2.3% | ||||||||
| CBS Corp., Class B | 131,800 | 3,401,758 | ||||||
Focus Media Holding Ltd. ADR(1) | 58,500 | 1,590,030 | ||||||
| 4,991,788 | ||||||||
| METALS AND MINING — 0.9% | ||||||||
| Cliffs Natural Resources, Inc. | 28,700 | 1,957,914 | ||||||
| MULTILINE RETAIL — 1.9% | ||||||||
Dollar Tree, Inc.(1) | 51,450 | 4,113,942 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 4.9% | ||||||||
| Cabot Oil & Gas Corp. | 41,300 | 3,209,836 | ||||||
Concho Resources, Inc.(1) | 38,100 | 3,608,832 | ||||||
SandRidge Energy, Inc.(1) | 312,700 | 2,395,282 | ||||||
| SM Energy Co. | 16,000 | 1,326,560 | ||||||
| 10,540,510 | ||||||||
| PHARMACEUTICALS — 4.6% | ||||||||
Elan Corp. plc ADR(1) | 111,800 | 1,340,482 | ||||||
| Perrigo Co. | 20,300 | 1,832,684 | ||||||
Questcor Pharmaceuticals, Inc.(1) | 75,500 | 3,066,055 | ||||||
| Shire plc | 51,800 | 1,626,523 | ||||||
Watson Pharmaceuticals, Inc.(1) | 29,100 | 1,954,356 | ||||||
| 9,820,100 | ||||||||
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.6% | ||||||||
CBRE Group, Inc.(1) | 74,200 | 1,319,276 | ||||||
| ROAD AND RAIL — 2.0% | ||||||||
Kansas City Southern(1) | 68,600 | $4,333,462 | ||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.4% | ||||||||
| ARM Holdings plc | 452,100 | 4,235,082 | ||||||
| Avago Technologies Ltd. | 52,100 | 1,759,417 | ||||||
Cypress Semiconductor Corp.(1) | 69,584 | 1,329,750 | ||||||
| 7,324,249 | ||||||||
| SOFTWARE — 8.0% | ||||||||
Cerner Corp.(1) | 14,500 | 919,735 | ||||||
Check Point Software Technologies Ltd.(1) | 74,400 | 4,287,672 | ||||||
Citrix Systems, Inc.(1) | 34,000 | 2,476,220 | ||||||
Informatica Corp.(1) | 37,600 | 1,710,800 | ||||||
NetSuite, Inc.(1) | 42,800 | 1,628,112 | ||||||
QLIK Technologies, Inc.(1) | 44,800 | 1,279,936 | ||||||
Salesforce.com, Inc.(1) | 16,000 | 2,130,720 | ||||||
| Solera Holdings, Inc. | 51,400 | 2,807,982 | ||||||
| 17,241,177 | ||||||||
| SPECIALTY RETAIL — 7.0% | ||||||||
| DSW, Inc., Class A | 29,100 | 1,523,094 | ||||||
O’Reilly Automotive, Inc.(1) | 44,700 | 3,399,435 | ||||||
| PetSmart, Inc. | 56,910 | 2,671,925 | ||||||
| Tiffany & Co. | 15,500 | 1,235,815 | ||||||
| Tractor Supply Co. | 36,500 | 2,589,310 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 54,500 | 3,667,305 | ||||||
| 15,086,884 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.9% | ||||||||
Fossil, Inc.(1) | 22,200 | 2,301,252 | ||||||
Lululemon Athletica, Inc.(1) | 31,800 | 1,796,064 | ||||||
| 4,097,316 | ||||||||
| TRADING COMPANIES AND DISTRIBUTORS — 2.0% | ||||||||
| Fastenal Co. | 69,600 | 2,651,064 | ||||||
United Rentals, Inc.(1) | 73,200 | 1,713,612 | ||||||
| 4,364,676 | ||||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.9% | ||||||||
SBA Communications Corp., Class A(1) | 50,302 | 1,916,003 | ||||||
TOTAL COMMON STOCKS (Cost $179,020,413) | 212,746,786 | |||||||
12
| Shares | Value |
| Temporary Cash Investments — 1.9% | ||||||||
| Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $1,394,910), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $1,365,544) | $1,365,542 | |||||||
| Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $1,399,457), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $1,365,543) | 1,365,542 | |||||||
| Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $1,391,519), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $1,365,544) | 1,365,542 | |||||||
| SSgA U.S. Government Money Market Fund | 18,469 | 18,469 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $4,115,095) | 4,115,095 | |||||||
TOTAL INVESTMENT SECURITIES — 100.8% (Cost $183,135,508) | 216,861,881 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.8)% | (1,801,822 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $215,060,059 | |||||||
| Forward Foreign Currency Exchange Contracts | |||||||||||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||||
| 728,851 | EUR for USD | UBS AG | 11/30/11 | $1,008,225 | $4,458 | ||||||||
| 2,868,832 | GBP for USD | Credit Suisse AG | 11/30/11 | 4,611,510 | (33,855 | ) | |||||||
| $5,619,735 | $(29,397 | ) | |||||||||||
(Value on Settlement Date $5,590,338)
| Geographic Diversification | |
| (as a % of net assets) | |
| United States | 87.6% |
| People’s Republic of China | 2.2% |
| Israel | 2.0% |
| United Kingdom | 2.0% |
| Ireland | 1.4% |
| Canada | 0.8% |
| Singapore | 0.8% |
| Argentina | 0.8% |
| Netherlands | 0.7% |
| Spain | 0.6% |
| Cash and Equivalents* | 1.1% |
*Includes temporary cash investments and other assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
| (1) | Non-income producing. |
See Notes to Financial Statements.
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $183,135,508) | $216,861,881 | |||
| Foreign currency holdings, at value (cost of $9,006) | 9,379 | |||
| Receivable for investments sold | 2,432,385 | |||
| Unrealized gain on forward foreign currency exchange contracts | 4,458 | |||
| Dividends and interest receivable | 33,214 | |||
| 219,341,317 | ||||
| Liabilities | ||||
| Payable for investments purchased | 4,109,300 | |||
| Unrealized loss on forward foreign currency exchange contracts | 33,855 | |||
| Accrued management fees | 138,103 | |||
| 4,281,258 | ||||
| Net Assets | $215,060,059 | |||
| Institutional Class Capital Shares, $0.01 Par Value | ||||
| Shares authorized | 150,000,000 | |||
| Shares outstanding | 21,446,579 | |||
| Net Asset Value Per Share | $10.03 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $180,354,307 | |||
| Undistributed net investment income | 31,336 | |||
| Undistributed net realized gain | 973,943 | |||
| Net unrealized appreciation | 33,700,473 | |||
| $215,060,059 | ||||
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $1,920) | $1,023,215 | |||
| Interest | 2,182 | |||
| 1,025,397 | ||||
| Expenses: | ||||
| Management fees | 1,526,633 | |||
| Directors’ fees and expenses | 7,421 | |||
| 1,534,054 | ||||
| Net investment income (loss) | (508,657 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 9,603,710 | |||
| Futures contract transactions | 293,119 | |||
| Foreign currency transactions | 5,515 | |||
| 9,902,344 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | 634,429 | |||
| Translation of assets and liabilities in foreign currencies | 528 | |||
| 634,957 | ||||
| Net realized and unrealized gain (loss) | 10,537,301 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $10,028,644 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $(508,657 | ) | $(322,140 | ) | ||||
| Net realized gain (loss) | 9,902,344 | 8,492,963 | ||||||
| Change in net unrealized appreciation (depreciation) | 634,957 | 21,735,147 | ||||||
| Net increase (decrease) in net assets resulting from operations | 10,028,644 | 29,905,970 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income | — | (11,506 | ) | |||||
| Capital Share Transactions | ||||||||
| Proceeds from shares sold | 65,778,540 | 46,264,949 | ||||||
| Payments for shares redeemed | (22,050,710 | ) | (6,092,543 | ) | ||||
| Net increase (decrease) in net assets from capital share transactions | 43,727,830 | 40,172,406 | ||||||
| Net increase (decrease) in net assets | 53,756,474 | 70,066,870 | ||||||
| Net Assets | ||||||||
| Beginning of period | 161,303,585 | 91,236,715 | ||||||
| End of period | $215,060,059 | $161,303,585 | ||||||
| Undistributed net investment income | $31,336 | $25,905 | ||||||
| Transactions in Shares of the Fund | ||||||||
| Sold | 6,541,903 | 5,628,784 | ||||||
| Redeemed | (2,177,130 | ) | (719,862 | ) | ||||
| Net increase (decrease) in shares of the fund | 4,364,773 | 4,908,922 | ||||||
See Notes to Financial Statements.
16
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 Vista Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in equity securities of companies that are medium-sized and smaller at the time of purchase that management believes will increase in value. The fund is not permitted to invest in any securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
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If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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.
Business Development Companies — The fund may invest in securities of closed-end investment companies that have elected to be treated as a business development company under the 1940 Act. A business development company operates similar to an exchange-traded fund and represents a portfolio of securities. The fund may purchase a business development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business development company generally reflect the risks of owning the underlying securities. Business development companies have expenses that reduce their value.
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.
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Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2008. Additionally, non-U.S. tax returns filed by the fund due to investments in certain foreign securities remain subject to examination by the relevant taxing authority for seven years from the date of filing. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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
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 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 the daily net assets of the fund and paid monthly in arrears. The annual management fee is 0.80%.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC. The fund is wholly owned, in aggregate, by various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP). ACAAP does not invest in the fund for the purpose of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $259,168,710 and $215,840,573, respectively.
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5. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $188,410,915 | — | — | |||||||||
| Foreign Common Stocks | 17,237,743 | $7,098,128 | — | |||||||||
| Temporary Cash Investments | 18,469 | 4,096,626 | — | |||||||||
| Total Value of Investment Securities | $205,667,127 | $11,194,754 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(29,397 | ) | — | ||||||||
6. 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 infrequently purchased equity price risk derivative instruments for temporary investment purposes.
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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 foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
| Value of Derivative Instruments as of October 31, 2011 | |||||||||||
| 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 gain on forward foreign currency exchange contracts | $4,458 | Unrealized loss on forward foreign currency exchange contracts | $33,855 | |||||||
| Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2011 | |||||||||||
| 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 | $293,119 | Change in net unrealized appreciation (depreciation) on futures contracts | — | |||||||
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | 8,800 | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $(1,996 | ) | ||||||
| $301,919 | $(1,996 | ) | |||||||||
7. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
The fund invests in common stocks of small companies. Because of this, it 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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8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | — | $11,506 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $185,717,249 | |||
| Gross tax appreciation of investments | $35,382,673 | |||
| Gross tax depreciation of investments | (4,238,041 | ) | ||
| Net tax appreciation (depreciation) of investments | $31,144,632 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $5,436 | |||
| Net tax appreciation (depreciation) | $31,150,068 | |||
| Undistributed ordinary income | — | |||
| Accumulated long-term gains | $3,555,684 |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Income From Investment Operations: | Distributions From: | Total Return(1) | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||||||||||||
Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Operating Expenses(4) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | $9.44 | (0.03 | )(2) | 0.62 | 0.59 | — | — | — | $10.03 | 6.25 | % | 0.80 | % | (0.27 | )% | 115 | % | $215,060 | ||||||||||||||||||||||||||||||||
| 2010 | $7.50 | (0.02 | )(2) | 1.96 | 1.94 | — | (3) | — | — | (3) | $9.44 | 26.05 | % | 0.80 | % | (0.26 | )% | 152 | % | $161,304 | ||||||||||||||||||||||||||||||
| 2009 | $7.62 | (0.02 | )(2) | (0.10 | ) | (0.12 | ) | — | — | — | $7.50 | (1.71 | )% | 0.80 | % | (0.35 | )% | 190 | % | $91,237 | ||||||||||||||||||||||||||||||
| 2008 | $13.42 | (0.04 | )(2) | (5.73 | ) | (5.77 | ) | — | (0.03 | ) | (0.03 | ) | $7.62 | (43.09 | )% | 0.81 | % | (0.35 | )% | 183 | % | $40,136 | ||||||||||||||||||||||||||||
| 2007 | $9.00 | (0.04 | ) | 4.46 | 4.42 | — | — | — | $13.42 | 49.11 | % | 0.80 | % | (0.36 | )% | 147 | % | $44,652 | ||||||||||||||||||||||||||||||||
Notes to Financial Highlights
| (1) | 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. |
| (2) | Computed using average shares outstanding throughout the period. |
| (3) | Per-share amount was less than $0.005. |
| (4) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Vista Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of NT Vista Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |
| Independent Directors | ||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |
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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 | ||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |
| Interested Director | ||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | data comparing the cost of owning the Fund to the cost of owning similar funds; |
• | the Advisor’s compliance policies, procedures, and regulatory experience; |
• | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different
29
time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
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Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
31
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
32
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73916 1112
ANNUAL REPORT OCTOBER 31, 2011
| NT Growth Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 6 |
| Fund Characteristics | 8 |
| Shareholder Fee Example | 9 |
| Schedule of Investments | 11 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 22 |
| Report of Independent Registered Public Accounting Firm | 23 |
| Management | 24 |
| Approval of Management Agreement | 27 |
| Additional Information | 32 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
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By Greg Woodhams, Chief Investment Officer, U.S. Growth Equity—Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | |||||
| Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 year | Since Inception | Inception Date | |
| Institutional Class | ACLTX | 8.48% | 3.90% | 4.61% | 5/12/06 |
| Russell 1000 Growth Index | — | 9.92% | 3.04% | 3.41%(1) | — |
(1) Since 4/30/06, the date nearest the Institutional Class’s inception for which data are available.
| Growth of $10,000 Over Life of Class |
| $10,000 investment made May 12, 2006 |
* From 5/12/06, the Institutional Class’s inception date. Index data from 4/30/06, the date nearest the Institutional Class’s inception for which data are available. Not annualized.
| Total Annual Fund Operating Expenses |
Institutional Class 0.79% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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Portfolio Managers: Greg Woodhams and Prescott LeGard
Performance Summary
NT Growth gained 8.48% in the 12 months ended October 31, 2011. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 9.92%. The portfolio continued to outperform its benchmark for the period since its May, 2006 inception through October (see the previous page).
In terms of the NT Growth fund’s absolute returns for the fiscal year, information technology shares contributed most to performance. Financials led a handful of sectors that detracted fractionally from absolute results. Relative to the benchmark, stock selection made the consumer discretionary and financials sectors the leading detractors. Stock choices in the industrials and health care sectors contributed most to relative performance.
Leading Detractors
In the consumer discretionary space, positioning in the multiline retail; media; and textiles, apparel, and luxury goods industry segments detracted most. Specialty retailer OfficeMax, auto parts maker Autoliv, and media company Scripps Networks Interactive were among the leading individual detractors. We eliminated our holdings in OfficeMax and Scripps. Autoliv’s stock suffered from uncertainty as a result of an EU investigation relating to price fixing. The nature of the investigation means that the company can say little to investors other than that they will take a charge as a result. We continued to hold the stock because the firm’s active safety business has a positive outlook for the next few years.
Among financial shares, stock selection meant holdings in the insurance industry segment detracted. It also hurt to be underrepresented in shares of real estate investment trusts. In the energy sector, positioning among oil, gas, and consumable fuels companies detracted most, while in the materials segment chemicals firms were responsible for the underperformance. Dutch chemical firm LyondellBasell Industries suffered from weakness in the end-market for its products. Nevertheless, we continue to hold the stock because of its competitive advantage in terms of using onshore natural gas as opposed to oil as an input in its production process.
A number of the leading individual detractors were in the technology sector. It hurt to hold an underweight position in IBM, whose stock benefited from being perceived as somewhat of a “safe-haven” within the technology sector during the market downturn. We believe IBM is trading at an historically high relative valuation given the company’s growth rate and impending slowdown in their mainframe computer business. It also hurt to hold a stake in storage hardware provider Network Appliance, which reported inline results but lowered its forward outlook because of a slowdown in the financial and government sectors. We reduced the position, but still believe Network Appliance will continue to gain market share from competitors Hewlett-Packard, Hitachi, and IBM.
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Leading Contributors
Looking at positive contributors to relative results, stock selection drove outperformance in the industrials and health care sectors. In the industrial space, the leading contribution to performance came from a stake in aerospace and defense firm Goodrich. The company was acquired during the period by United Technologies at a significant premium. Holdings in the machinery and electrical equipment industries also helped relative performance. In addition, it was beneficial to have no exposure to the poor-performing airlines segment.
Among health care shares, positioning among health care equipment and pharmaceutical stocks helped performance compared with the benchmark. The largest individual contributor was biotechnology firm Alexion Pharmaceutical. The company received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders. Other notable contributors in this space were Covidien, Intuitive Surgical, and Allergan, among others.
In terms of individual contributors, it was beneficial to have no exposure to shares of Hewlett-Packard. The technology giant underperformed as its personal computer business struggled, services costs rose, and margins declined, while management continued to struggle to turn around the company. Another notable contributor was Accenture, which provides technology consulting and services. The company benefited from rising demand for its business consulting services, as customers focused on both cost-cutting and revenue enhancements.
Current Positioning
We believe that NT Growth can play an important role as a large-cap growth portfolio in a larger, diversified investment strategy. Maintaining low cash balances and avoiding style drift provides our clients with confidence that the NT Growth portfolio is providing the large-cap growth representation that they seek.
In our opinion, stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result of this approach, the portfolio’s sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2011, the information technology and consumer discretionary sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight position was in industrial shares.
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| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 5.9% |
| Exxon Mobil Corp. | 3.8% |
| Google, Inc., Class A | 2.8% |
| Coca-Cola Co. (The) | 2.6% |
| Schlumberger Ltd. | 2.6% |
| Oracle Corp. | 2.5% |
| PepsiCo, Inc. | 2.1% |
| United Technologies Corp. | 1.7% |
| McDonald's Corp. | 1.7% |
| Microsoft Corp. | 1.7% |
| Top Five Industries | % of net assets |
| Software | 7.9% |
| Computers and Peripherals | 7.7% |
| Oil, Gas and Consumable Fuels | 7.3% |
| Beverages | 5.1% |
| Aerospace and Defense | 4.5% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 98.1% |
| Exchange-Traded Funds | 0.4% |
| Total Equity Exposure | 98.5% |
| Temporary Cash Investments | 1.9% |
| Other Assets and Liabilities | (0.4)% |
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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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 - 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Institutional Class | $1,000 | $926.20 | $3.79 | 0.78% |
| Hypothetical | ||||
| Institutional Class | $1,000 | $1,021.27 | $3.97 | 0.78% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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OCTOBER 31, 2011
| Shares | Value |
| Common Stocks — 98.1% | ||||||||
| AEROSPACE AND DEFENSE — 4.5% | ||||||||
Hexcel Corp.(1) | 57,881 | $1,430,240 | ||||||
| Honeywell International, Inc. | 115,512 | 6,052,829 | ||||||
| Precision Castparts Corp. | 24,089 | 3,930,120 | ||||||
| Textron, Inc. | 74,289 | 1,442,692 | ||||||
| United Technologies Corp. | 101,885 | 7,944,992 | ||||||
| 20,800,873 | ||||||||
| AIR FREIGHT AND LOGISTICS — 1.5% | ||||||||
| United Parcel Service, Inc., Class B | 100,788 | 7,079,349 | ||||||
| AUTO COMPONENTS — 1.8% | ||||||||
| Autoliv, Inc. | 51,567 | 2,979,026 | ||||||
BorgWarner, Inc.(1) | 68,117 | 5,210,269 | ||||||
| 8,189,295 | ||||||||
| AUTOMOBILES — 0.7% | ||||||||
| Harley-Davidson, Inc. | 78,536 | 3,055,050 | ||||||
| BEVERAGES — 5.1% | ||||||||
Boston Beer Co., Inc., Class A(1) | 6,731 | 595,559 | ||||||
| Coca-Cola Co. (The) | 178,317 | 12,182,617 | ||||||
Hansen Natural Corp.(1) | 15,816 | 1,409,047 | ||||||
| PepsiCo, Inc. | 150,630 | 9,482,159 | ||||||
| 23,669,382 | ||||||||
| BIOTECHNOLOGY — 1.6% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 27,849 | 1,880,086 | ||||||
| Amgen, Inc. | 38,306 | 2,193,785 | ||||||
Gilead Sciences, Inc.(1) | 82,793 | 3,449,156 | ||||||
| 7,523,027 | ||||||||
| CAPITAL MARKETS — 0.6% | ||||||||
| BlackRock, Inc. | 17,145 | 2,705,310 | ||||||
| CHEMICALS — 2.8% | ||||||||
| E.I. du Pont de Nemours & Co. | 119,989 | 5,767,871 | ||||||
| Monsanto Co. | 60,132 | 4,374,603 | ||||||
Rockwood Holdings, Inc.(1) | 64,281 | 2,959,497 | ||||||
| 13,101,971 | ||||||||
| COMMUNICATIONS EQUIPMENT — 3.3% | ||||||||
| Cisco Systems, Inc. | 257,702 | 4,775,218 | ||||||
F5 Networks, Inc.(1) | 23,901 | 2,484,509 | ||||||
Polycom, Inc.(1) | 66,030 | 1,091,476 | ||||||
| QUALCOMM, Inc. | 130,272 | 6,722,035 | ||||||
| 15,073,238 | ||||||||
| COMPUTERS AND PERIPHERALS — 7.7% | ||||||||
Apple, Inc.(1) | 67,688 | $27,398,749 | ||||||
EMC Corp.(1) | 244,849 | 6,001,249 | ||||||
NetApp, Inc.(1) | 57,599 | 2,359,255 | ||||||
| 35,759,253 | ||||||||
| CONSUMER FINANCE — 0.7% | ||||||||
| American Express Co. | 68,382 | 3,461,497 | ||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.3% | ||||||||
| Windstream Corp. | 97,298 | 1,184,117 | ||||||
| ELECTRICAL EQUIPMENT — 0.7% | ||||||||
| Rockwell Automation, Inc. | 45,986 | 3,110,953 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.7% | ||||||||
| Jabil Circuit, Inc. | 149,162 | 3,066,771 | ||||||
| ENERGY EQUIPMENT AND SERVICES — 3.7% | ||||||||
| Core Laboratories NV | 19,229 | 2,081,732 | ||||||
Hornbeck Offshore Services, Inc.(1) | 24,082 | 790,853 | ||||||
| Oceaneering International, Inc. | 60,791 | 2,542,887 | ||||||
| Schlumberger Ltd. | 161,573 | 11,870,768 | ||||||
| 17,286,240 | ||||||||
| FOOD AND STAPLES RETAILING — 1.5% | ||||||||
| Costco Wholesale Corp. | 56,137 | 4,673,405 | ||||||
| Whole Foods Market, Inc. | 28,746 | 2,073,162 | ||||||
| 6,746,567 | ||||||||
| FOOD PRODUCTS — 1.9% | ||||||||
| Hershey Co. (The) | 42,760 | 2,447,155 | ||||||
| Kellogg Co. | 87,622 | 4,749,988 | ||||||
| Mead Johnson Nutrition Co. | 23,433 | 1,683,661 | ||||||
| 8,880,804 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.6% | ||||||||
| Becton, Dickinson and Co. | 22,989 | 1,798,429 | ||||||
| Cooper Cos., Inc. (The) | 18,207 | 1,261,745 | ||||||
| Covidien plc | 86,640 | 4,075,546 | ||||||
| DENTSPLY International, Inc. | 48,524 | 1,793,447 | ||||||
Edwards Lifesciences Corp.(1) | 24,636 | 1,858,047 | ||||||
| Hill-Rom Holdings, Inc. | 31,286 | 1,053,400 | ||||||
IDEXX Laboratories, Inc.(1) | 16,291 | 1,172,789 | ||||||
Intuitive Surgical, Inc.(1) | 4,865 | 2,110,729 | ||||||
Zimmer Holdings, Inc.(1) | 26,984 | 1,420,168 | ||||||
| 16,544,300 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 1.5% | ||||||||
Express Scripts, Inc.(1) | 122,152 | 5,586,011 | ||||||
| UnitedHealth Group, Inc. | 24,076 | 1,155,407 | ||||||
| 6,741,418 | ||||||||
11
| Shares | Value |
| HOTELS, RESTAURANTS AND LEISURE — 4.3% | ||||||||
Chipotle Mexican Grill, Inc.(1) | 6,223 | $2,091,675 | ||||||
| McDonald’s Corp. | 84,819 | 7,875,444 | ||||||
| Starbucks Corp. | 132,986 | 5,630,627 | ||||||
| Starwood Hotels & Resorts Worldwide, Inc. | 83,570 | 4,187,693 | ||||||
| 19,785,439 | ||||||||
| HOUSEHOLD DURABLES — 0.6% | ||||||||
Tempur-Pedic International, Inc.(1) | 37,654 | 2,562,731 | ||||||
| HOUSEHOLD PRODUCTS — 1.7% | ||||||||
| Church & Dwight Co., Inc. | 25,800 | 1,139,844 | ||||||
| Colgate-Palmolive Co. | 75,363 | 6,810,554 | ||||||
| 7,950,398 | ||||||||
| INSURANCE — 0.2% | ||||||||
| Brown & Brown, Inc. | 52,090 | 1,150,147 | ||||||
| INTERNET AND CATALOG RETAIL — 1.6% | ||||||||
Amazon.com, Inc.(1) | 34,908 | 7,453,207 | ||||||
| INTERNET SOFTWARE AND SERVICES — 2.8% | ||||||||
Google, Inc., Class A(1) | 22,130 | 13,115,123 | ||||||
| IT SERVICES — 3.9% | ||||||||
| Accenture plc, Class A | 95,807 | 5,773,330 | ||||||
| International Business Machines Corp. | 35,466 | 6,548,088 | ||||||
| MasterCard, Inc., Class A | 16,860 | 5,854,466 | ||||||
| 18,175,884 | ||||||||
| LIFE SCIENCES TOOLS AND SERVICES — 1.0% | ||||||||
Agilent Technologies, Inc.(1) | 58,864 | 2,182,088 | ||||||
Illumina, Inc.(1) | 27,789 | 850,899 | ||||||
Thermo Fisher Scientific, Inc.(1) | 34,058 | 1,712,096 | ||||||
| 4,745,083 | ||||||||
| MACHINERY — 3.2% | ||||||||
| Cummins, Inc. | 27,918 | 2,775,887 | ||||||
| Deere & Co. | 49,380 | 3,747,942 | ||||||
| Gardner Denver, Inc. | 21,644 | 1,673,731 | ||||||
| Illinois Tool Works, Inc. | 29,557 | 1,437,357 | ||||||
| Joy Global, Inc. | 59,792 | 5,213,862 | ||||||
| 14,848,779 | ||||||||
| MARINE — 0.3% | ||||||||
Kirby Corp.(1) | 21,725 | 1,336,956 | ||||||
| MEDIA — 2.0% | ||||||||
| CBS Corp., Class B | 75,105 | 1,938,460 | ||||||
DirecTV, Class A(1) | 88,079 | 4,004,072 | ||||||
| Viacom, Inc., Class B | 77,599 | 3,402,716 | ||||||
| 9,345,248 | ||||||||
| METALS AND MINING — 1.6% | ||||||||
| Cliffs Natural Resources, Inc. | 55,927 | $3,815,340 | ||||||
| Freeport-McMoRan Copper & Gold, Inc. | 86,337 | 3,475,928 | ||||||
| 7,291,268 | ||||||||
| MULTILINE RETAIL — 1.4% | ||||||||
Dollar General Corp.(1) | 64,187 | 2,545,657 | ||||||
| Macy’s, Inc. | 130,657 | 3,988,958 | ||||||
| 6,534,615 | ||||||||
| OIL, GAS AND CONSUMABLE FUELS — 7.3% | ||||||||
| Devon Energy Corp. | 37,964 | 2,465,762 | ||||||
| EOG Resources, Inc. | 31,784 | 2,842,443 | ||||||
| Exxon Mobil Corp. | 223,032 | 17,416,569 | ||||||
| Noble Energy, Inc. | 39,284 | 3,509,633 | ||||||
| Occidental Petroleum Corp. | 59,460 | 5,526,212 | ||||||
Southwestern Energy Co.(1) | 41,477 | 1,743,693 | ||||||
| 33,504,312 | ||||||||
| PERSONAL PRODUCTS — 0.8% | ||||||||
| Estee Lauder Cos., Inc. (The), Class A | 36,027 | 3,546,858 | ||||||
| PHARMACEUTICALS — 2.5% | ||||||||
| Abbott Laboratories | 132,559 | 7,140,953 | ||||||
| Allergan, Inc. | 35,988 | 3,027,311 | ||||||
| Perrigo Co. | 16,268 | 1,468,675 | ||||||
| 11,636,939 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.0% | ||||||||
| AvalonBay Communities, Inc. | 18,106 | 2,420,591 | ||||||
| Simon Property Group, Inc. | 18,783 | 2,412,489 | ||||||
| 4,833,080 | ||||||||
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.5% | ||||||||
CBRE Group, Inc.(1) | 127,847 | 2,273,120 | ||||||
| ROAD AND RAIL — 0.9% | ||||||||
| Union Pacific Corp. | 40,872 | 4,069,625 | ||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.0% | ||||||||
| Avago Technologies Ltd. | 66,696 | 2,252,324 | ||||||
Broadcom Corp., Class A(1) | 163,906 | 5,915,367 | ||||||
Cree, Inc.(1) | 41,000 | 1,092,240 | ||||||
| KLA-Tencor Corp. | 45,164 | 2,126,773 | ||||||
| Linear Technology Corp. | 94,668 | 3,058,723 | ||||||
| Xilinx, Inc. | 126,471 | 4,231,720 | ||||||
| 18,677,147 | ||||||||
12
| Shares | Value |
| SOFTWARE — 7.9% | ||||||||
Cerner Corp.(1) | 25,268 | $1,602,749 | ||||||
Check Point Software Technologies Ltd.(1) | 55,860 | 3,219,212 | ||||||
Electronic Arts, Inc.(1) | 111,541 | 2,604,482 | ||||||
Fortinet, Inc.(1) | 77,526 | 1,787,750 | ||||||
| Microsoft Corp. | 291,140 | 7,753,058 | ||||||
| Oracle Corp. | 345,565 | 11,324,165 | ||||||
QLIK Technologies, Inc.(1) | 51,155 | 1,461,498 | ||||||
Red Hat, Inc.(1) | 73,015 | 3,625,195 | ||||||
Salesforce.com, Inc.(1) | 22,165 | 2,951,713 | ||||||
| 36,329,822 | ||||||||
| SPECIALTY RETAIL — 2.3% | ||||||||
| Home Depot, Inc. (The) | 109,612 | 3,924,110 | ||||||
| Limited Brands, Inc. | 62,838 | 2,683,811 | ||||||
O’Reilly Automotive, Inc.(1) | 36,879 | 2,804,648 | ||||||
| Tractor Supply Co. | 18,095 | 1,283,659 | ||||||
| 10,696,228 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.0% | ||||||||
| Coach, Inc. | 57,502 | 3,741,655 | ||||||
Lululemon Athletica, Inc.(1) | 12,988 | 733,562 | ||||||
| 4,475,217 | ||||||||
| WIRELESS TELECOMMUNICATION SERVICES — 1.1% | ||||||||
Crown Castle International Corp.(1) | 119,964 | 4,961,711 | ||||||
TOTAL COMMON STOCKS (Cost $381,228,428) | 453,278,352 | |||||||
| Exchange-Traded Funds — 0.4% | ||||||||
iShares Russell 1000 Growth Index Fund (Cost $1,673,245) | 28,492 | 1,661,368 | ||||||
| Temporary Cash Investments — 1.9% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $2,848,973), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $2,788,996) | $2,788,991 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $2,858,259), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $2,788,993) | 2,788,991 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $2,842,047), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $2,788,994) | 2,788,991 | |||||||
| SSgA U.S. Government Money Market Fund | 243,639 | 243,639 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,610,612) | 8,610,612 | |||||||
TOTAL INVESTMENT SECURITIES — 100.4% (Cost $391,512,285) | 463,550,332 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.4)% | (1,705,481 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $461,844,851 | |||||||
Notes to Schedule of Investments
(1) Non-income producing.
| See Notes to Financial Statements. |
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $391,512,285) | $463,550,332 | |||
| Foreign currency holdings, at value (cost of $3,655) | 3,594 | |||
| Receivable for investments sold | 2,622,815 | |||
| Receivable for capital shares sold | 54,688 | |||
| Dividends and interest receivable | 287,574 | |||
| 466,519,003 | ||||
| Liabilities | ||||
| Payable for investments purchased | 4,384,465 | |||
| Accrued management fees | 289,687 | |||
| 4,674,152 | ||||
| Net Assets | $461,844,851 | |||
| Institutional Class Capital Shares, $0.01 Par Value | ||||
| Shares authorized | 150,000,000 | |||
| Shares outstanding | 38,747,113 | |||
| Net Asset Value Per Share | $11.92 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $381,287,994 | |||
| Undistributed net investment income | 2,208,459 | |||
| Undistributed net realized gain | 6,309,192 | |||
| Net unrealized appreciation | 72,039,206 | |||
| $461,844,851 | ||||
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $11,107) | $6,454,258 | |||
| Interest | 2,759 | |||
| 6,457,017 | ||||
| Expenses: | ||||
| Management fees | 3,199,150 | |||
| Directors’ fees and expenses | 16,026 | |||
| 3,215,176 | ||||
| Net investment income (loss) | 3,241,841 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 18,574,407 | |||
| Futures contract transactions | 191,522 | |||
| Foreign currency transactions | (46,499 | ) | ||
| 18,719,430 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | 6,731,407 | |||
| Translation of assets and liabilities in foreign currencies | 170 | |||
| 6,731,577 | ||||
| Net realized and unrealized gain (loss) | 25,451,007 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $28,692,848 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $3,241,841 | $1,690,758 | ||||||
| Net realized gain (loss) | 18,719,430 | 11,144,590 | ||||||
| Change in net unrealized appreciation (depreciation) | 6,731,577 | 35,098,212 | ||||||
| Net increase (decrease) in net assets resulting from operations | 28,692,848 | 47,933,560 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income | (2,311,137 | ) | (996,841 | ) | ||||
| Capital Share Transactions | ||||||||
| Proceeds from shares sold | 112,894,557 | 100,015,427 | ||||||
| Proceeds from reinvestment of distributions | 2,311,137 | — | ||||||
| Payments for shares redeemed | (20,159,480 | ) | (14,872,070 | ) | ||||
| Net increase (decrease) in net assets from capital share transactions | 95,046,214 | 85,143,357 | ||||||
| Net increase (decrease) in net assets | 121,427,925 | 132,080,076 | ||||||
| Net Assets | ||||||||
| Beginning of period | 340,416,926 | 208,336,850 | ||||||
| End of period | $461,844,851 | $340,416,926 | ||||||
| Undistributed net investment income | $2,208,459 | $1,402,229 | ||||||
| Transactions in Shares of the Fund | ||||||||
| Sold | 9,513,850 | 9,964,567 | ||||||
| Issued in reinvestment of distributions | 196,358 | — | ||||||
| Redeemed | (1,751,186 | ) | (1,474,183 | ) | ||||
| Net increase (decrease) in shares of the fund | 7,959,022 | 8,490,384 | ||||||
See Notes to Financial Statements.
16
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in equity securities of larger-sized companies that management believes will increase in value over time. The fund is not permitted to invest in any securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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. 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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.
18
3. Fees and Transactions with Related Parties
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee). The agreement provides that all expenses of 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 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 have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund include the assets of Growth Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.600% to 0.800%. The effective annual management fee for the year ended October 31, 2011 was 0.77%.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC. The fund is wholly owned, in aggregate, by various funds in a series issued by American Century Asset Allocation Portfolios, Inc. (ACAAP). ACAAP does not invest in the fund for the purpose of exercising management or control.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $479,083,444 and $387,249,304, respectively.
5. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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.
19
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 | ||||||||||
| Investment Securities | ||||||||||||
| Common Stocks | $453,278,352 | — | — | |||||||||
| Exchange-Traded Funds | 1,661,368 | — | — | |||||||||
| Temporary Cash Investments | 243,639 | $8,366,973 | — | |||||||||
| Total Value of Investment Securities | $455,183,359 | $8,366,973 | — | |||||||||
6. 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 infrequently purchased 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 foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The fund participated in foreign currency risk derivative instruments during the first eight months of the period consistent with its exposure to foreign denominated securities.
20
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities.
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2011 | |||||
| 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 | $191,522 | Change in net unrealized appreciation (depreciation) on futures contracts | — | |
| Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (50,065) | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $2,877 | |
| $141,457 | $2,877 | ||||
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $2,311,137 | $996,841 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $397,133,623 | |||
| Gross tax appreciation of investments | $72,061,878 | |||
| Gross tax depreciation of investments | (5,645,169 | ) | ||
| Net tax appreciation (depreciation) of investments | $66,416,709 | |||
| Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $1,159 | |||
| Net tax appreciation (depreciation) | $66,417,868 | |||
| Undistributed ordinary income | $2,208,459 | |||
| Accumulated long-term gains | $11,930,530 |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Total Return(1) | Ratio to Average Net Assets of: | Portfolio Turnover Rate | ||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Operating Expenses | Net Investment Income (Loss) | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.06 | 0.09 | (2) | 0.85 | 0.94 | (0.08 | ) | — | (0.08 | ) | $11.92 | 8.48 | % | 0.78 | % | 0.78 | % | 95 | % | $461,845 | ||||||||||||||||||||
| 2010 | $9.34 | 0.06 | (2) | 1.71 | 1.77 | (0.05 | ) | — | (0.05 | ) | $11.06 | 18.94 | % | 0.79 | % | 0.63 | % | 95 | % | $340,417 | ||||||||||||||||||||
| 2009 | $8.13 | 0.06 | (2) | 1.21 | 1.27 | (0.06 | ) | — | (0.06 | ) | $9.34 | 15.88 | % | 0.80 | % | 0.67 | % | 132 | % | $208,337 | ||||||||||||||||||||
| 2008 | $12.87 | 0.04 | (2) | (4.19 | ) | (4.15 | ) | (0.03 | ) | (0.56 | ) | (0.59 | ) | $8.13 | (33.68 | )% | 0.80 | % | 0.38 | % | 136 | % | $83,440 | |||||||||||||||||
| 2007 | $10.57 | 0.04 | 2.29 | 2.33 | (0.03 | ) | — | (0.03 | ) | $12.87 | 22.12 | % | 0.80 | % | 0.35 | % | 140 | % | $88,446 | |||||||||||||||||||||
Notes to Financial Highlights
| (1) | 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. |
| (2) | Computed using average shares outstanding throughout the period. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of NT Growth Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||
| Independent Directors | ||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization)(2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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.
26
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
27
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks
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and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
29
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
30
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
31
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $2,311,137, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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34
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73915 1112
ANNUAL REPORT OCTOBER 31, 2011
| New Opportunities Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 17 |
| Statement of Operations | 18 |
| Statement of Changes in Net Assets | 19 |
| Notes to Financial Statements | 20 |
| Financial Highlights | 25 |
| Report of Independent Registered Public Accounting Firm | 27 |
| Management | 28 |
| Approval of Management Agreement | 31 |
| Additional Information | 36 |
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.
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity—
Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWNOX | 8.89% | 3.01% | 4.52% | 6.11% | 12/26/96 |
| Russell 2500 Growth Index | — | 11.91% | 3.88% | 6.85% | 5.87%(1) | — |
| Institutional Class | TWNIX | 9.02% | — | — | 13.43% | 3/1/10 |
A Class No sales charge* With sales charge* | TWNAX | 8.61% 2.34% | — — | — — | 12.97% 9.04% | 3/1/10 |
| C Class | TWNCX | 7.78% | — | — | 12.06% | 3/1/10 |
| R Class | TWNRX | 8.19% | — | — | 12.61% | 3/1/10 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
(1) Since 12/31/96, the date nearest the Investor Class’s inception for which data are available.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional Class | A Class | C Class | R Class |
| 1.51% | 1.31% | 1.76% | 2.51% | 2.01% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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Portfolio Managers: Stafford Southwick and Matthew Ferretti
Performance Summary
New Opportunities returned 8.89%* for the 12 months ended October 31, 2011, lagging the 11.91% return of its benchmark, the Russell 2500 Growth Index.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Price momentum and acceleration, two factors that the New Opportunities team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, security selection in the information technology sector was the leading source of underperformance relative to the benchmark by far. Holdings in the energy, materials, and consumer staples sectors also hurt relative results. Effective stock choices in the financials and consumer discretionary sectors partially offset those relative losses.
Information Technology Underperformed Benchmark
The information technology sector was New Opportunities’ largest source of underperformance relative to the benchmark. In the software industry group, an overweight stake in Motricity detracted significantly from returns versus the benchmark. The mobile internet service provider faced challenges in its North American carrier business, increased competition internationally, and delays in closing its acquisition of mobile marketing software firm Adenyo.
Energy, Materials Lagged
The energy sector was a source of underperformance relative to the benchmark. In the sector, several overweight positions hurt relative returns amid macroeconomic concerns and a corresponding decline in oil prices from a high above $100 per barrel earlier in the fiscal year.
In the materials sector, an overweight position in petrochemical company TPC Group, which provides products to chemical- and petroleum-based companies, detracted from performance versus the benchmark. We trimmed the position, but not before it detracted from relative results.
Consumer Staples Lagged, but Some Holdings Contributed
In the consumer staples sector, New Opportunities did not hold a position in Green Mountain Coffee Roasters, a decision that hurt relative results. The largest U.S. seller of single-serve brewers experienced robust share price gains as it continued to increase revenues through the success of its Keurig Single-Cup Brewing System.
Elsewhere in the sector, though, the portfolio derived significant gains from an overweight position in PriceSmart, an international membership warehouse retailer. The company, known as the Costco of Latin America, benefited from the trend toward more affordable goods and services, and delivered strong earnings during the year that surpassed analysts’ estimates.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Financials, Consumer Discretionary Contributed
In the financials sector, several overweight stakes in the consumer finance group, as well as positions among real estate investment trusts, contributed to outperformance relative to the benchmark.
The consumer discretionary sector generated significant gains for New Opportunities. In the household durables industry, the portfolio held a substantial position in Tempur-Pedic International. The maker of memory foam mattresses continued to gain market share from traditional mattress companies.
New Opportunities was rewarded for an overweight position in leisure equipment company Polaris Industries. The manufacturer of all-terrain vehicles and snowmobiles experienced gains in revenues and market share during the reporting period.
In the specialty retail industry group, the portfolio held a position in Lithia Motors, which is not a member of the benchmark. The retailer of new and used vehicles benefited from the improvement in auto sales as the economy recovered.
Industrials Delivered Mixed Results
Underlying the industrials sector’s slight contribution to relative outperformance for New Opportunities, a number of key individual contributors and detractors resided within the sector. The portfolio derived substantial relative gains from an overweight position in aerospace manufacturer Ladish, which agreed to be acquired by Allegheny Technologies.
New Opportunities maintained an overweight stake in mobile equipment manufacturer Sauer-Danfoss. The position contributed significantly to relative gains, although results were trimmed as expectations for economic growth weakened.
Not all holdings in the industrials sector helped performance, however. A position in United Continental Holdings represented the largest individual detractor from returns versus the benchmark. The airline suffered a decline due to higher oil prices and concerns about a slow economic environment.
Outlook
Our investment process focuses on small and mid-sized companies with accelerating earnings growth rates and share-price momentum. We believe that active investing in such companies will generate outperformance over time compared with the Russell 2500 Growth Index.
This process has faced unprecedented headwinds in recent reporting periods. Based on historical trends, we believe we will move past this environment of extreme underperformance for stocks exhibiting price momentum and acceleration and into a period where fundamentals, and specifically fundamental improvement, is recognized and rewarded by the market.
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| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Tempur-Pedic International, Inc. | 2.5% |
| Titan International, Inc. | 1.5% |
| Polaris Industries, Inc. | 1.4% |
| Lithia Motors, Inc., Class A | 1.3% |
| Triumph Group, Inc. | 1.3% |
| Iconix Brand Group, Inc. | 1.2% |
| PriceSmart, Inc. | 1.1% |
| Sauer-Danfoss, Inc. | 1.0% |
| Keynote Systems, Inc. | 1.0% |
| Kenexa Corp. | 1.0% |
| Top Five Industries | % of net assets |
| Machinery | 8.0% |
| Software | 7.8% |
| Internet Software and Services | 5.3% |
| Oil, Gas and Consumable Fuels | 5.3% |
| Specialty Retail | 4.7% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 99.4% |
| Temporary Cash Investments | 0.4% |
| Other Assets and Liabilities | 0.2% |
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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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 - 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $851.80 | $7.00 | 1.50% |
| Institutional Class | $1,000 | $853.10 | $6.07 | 1.30% |
| A Class | $1,000 | $851.30 | $8.17 | 1.75% |
| C Class | $1,000 | $847.60 | $11.64 | 2.50% |
| R Class | $1,000 | $849.60 | $9.32 | 2.00% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
| Institutional Class | $1,000 | $1,018.65 | $6.61 | 1.30% |
| A Class | $1,000 | $1,016.38 | $8.89 | 1.75% |
| C Class | $1,000 | $1,012.60 | $12.68 | 2.50% |
| R Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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OCTOBER 31, 2011
| Shares | Value |
| Common Stocks — 99.4% | ||||||||
| AEROSPACE AND DEFENSE — 2.2% | ||||||||
BE Aerospace, Inc.(1) | 17,244 | $650,616 | ||||||
TransDigm Group, Inc.(1) | 8,538 | 801,889 | ||||||
| Triumph Group, Inc. | 35,878 | 2,084,512 | ||||||
| 3,537,017 | ||||||||
| AIR FREIGHT AND LOGISTICS — 0.1% | ||||||||
| Forward Air Corp. | 5,677 | 185,922 | ||||||
| AUTO COMPONENTS — 1.2% | ||||||||
American Axle & Manufacturing Holdings, Inc.(1) | 108,561 | 1,051,956 | ||||||
Goodyear Tire & Rubber Co. (The)(1) | 35,268 | 506,449 | ||||||
Tenneco, Inc.(1) | 11,021 | 360,607 | ||||||
| 1,919,012 | ||||||||
| BEVERAGES — 0.4% | ||||||||
Hansen Natural Corp.(1) | 7,086 | 631,292 | ||||||
| BIOTECHNOLOGY — 3.0% | ||||||||
Acorda Therapeutics, Inc.(1) | 6,643 | 145,083 | ||||||
Alkermes plc(1) | 14,417 | 252,153 | ||||||
Amylin Pharmaceuticals, Inc.(1) | 19,893 | 229,167 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 14,782 | 504,214 | ||||||
Cepheid, Inc.(1) | 8,517 | 305,590 | ||||||
Cubist Pharmaceuticals, Inc.(1) | 8,629 | 326,263 | ||||||
Human Genome Sciences, Inc.(1) | 25,172 | 258,265 | ||||||
Incyte Corp. Ltd.(1) | 12,986 | 178,817 | ||||||
Myriad Genetics, Inc.(1) | 11,300 | 240,464 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 8,220 | 336,445 | ||||||
Pharmasset, Inc.(1) | 9,960 | 701,184 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 9,711 | 537,018 | ||||||
Seattle Genetics, Inc.(1) | 13,319 | 293,018 | ||||||
Theravance, Inc.(1) | 8,652 | 192,334 | ||||||
United Therapeutics Corp.(1) | 7,214 | 315,468 | ||||||
| 4,815,483 | ||||||||
| BUILDING PRODUCTS — 0.1% | ||||||||
| Apogee Enterprises, Inc. | 15,314 | 167,229 | ||||||
| CAPITAL MARKETS — 1.3% | ||||||||
| Eaton Vance Corp. | 15,185 | 399,214 | ||||||
| Lazard Ltd. Class A | 13,643 | 373,000 | ||||||
| SEI Investments Co. | 18,137 | 293,638 | ||||||
| Triangle Capital Corp. | 31,271 | 524,102 | ||||||
WisdomTree Investments, Inc.(1) | 53,701 | 400,609 | ||||||
| 1,990,563 | ||||||||
| CHEMICALS — 2.3% | ||||||||
| Airgas, Inc. | 11,120 | $766,724 | ||||||
| Albemarle Corp. | 15,138 | 806,704 | ||||||
| Balchem Corp. | 5,869 | 216,390 | ||||||
| H.B. Fuller Co. | 17,181 | 369,220 | ||||||
| International Flavors & Fragrances, Inc. | 10,030 | 607,417 | ||||||
Intrepid Potash, Inc.(1) | 9,271 | 258,012 | ||||||
| NewMarket Corp. | 2,571 | 499,134 | ||||||
TPC Group, Inc.(1) | 5,690 | 113,060 | ||||||
| 3,636,661 | ||||||||
| COMMERCIAL BANKS — 1.4% | ||||||||
| Banco Latinoamericano de Comercio Exterior SA E Shares | 24,224 | 393,640 | ||||||
| Cardinal Financial Corp. | 6,917 | 74,289 | ||||||
| Cathay General Bancorp. | 25,363 | 354,828 | ||||||
| Home Bancshares, Inc. | 19,663 | 461,097 | ||||||
Pinnacle Financial Partners, Inc.(1) | 8,678 | 130,257 | ||||||
Signature Bank(1) | 8,050 | 448,787 | ||||||
Texas Capital Bancshares, Inc.(1) | 13,634 | 381,752 | ||||||
West Coast Bancorp.(1) | 2 | 30 | ||||||
| 2,244,680 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 1.1% | ||||||||
| Brink’s Co. (The) | 11,366 | 315,861 | ||||||
| Deluxe Corp. | 21,938 | 518,175 | ||||||
| G&K Services, Inc., Class A | 15,000 | 455,400 | ||||||
| Steelcase, Inc., Class A | 10,787 | 79,932 | ||||||
Team, Inc.(1) | 11,900 | 297,619 | ||||||
| 1,666,987 | ||||||||
| COMMUNICATIONS EQUIPMENT — 2.5% | ||||||||
Acme Packet, Inc.(1) | 12,419 | 449,692 | ||||||
Aruba Networks, Inc.(1) | 24,370 | 577,325 | ||||||
| InterDigital, Inc. | 5,287 | 229,720 | ||||||
JDS Uniphase Corp.(1) | 35,037 | 420,444 | ||||||
Netgear, Inc.(1) | 16,711 | 592,572 | ||||||
Polycom, Inc.(1) | 20,362 | 336,584 | ||||||
Riverbed Technology, Inc.(1) | 19,500 | 537,810 | ||||||
| Sycamore Networks, Inc. | 22,156 | 425,838 | ||||||
Tekelec(1) | 31,297 | 307,337 | ||||||
| 3,877,322 | ||||||||
| CONSTRUCTION AND ENGINEERING — 0.2% | ||||||||
Dycom Industries, Inc.(1) | 17,382 | 337,732 | ||||||
| CONSUMER FINANCE — 0.9% | ||||||||
EZCORP, Inc., Class A(1) | 21,555 | 598,798 | ||||||
World Acceptance Corp.(1) | 13,196 | 892,709 | ||||||
| 1,491,507 | ||||||||
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| Shares | Value |
| CONTAINERS AND PACKAGING — 1.3% | ||||||||
| Ball Corp. | 22,073 | $763,063 | ||||||
Crown Holdings, Inc.(1) | 23,324 | 788,118 | ||||||
| Rock-Tenn Co., Class A | 9,004 | 532,947 | ||||||
| 2,084,128 | ||||||||
| DIVERSIFIED CONSUMER SERVICES — 1.6% | ||||||||
| DeVry, Inc. | 8,610 | 324,425 | ||||||
| Hillenbrand, Inc. | 7,979 | 168,437 | ||||||
ITT Educational Services, Inc.(1) | 4,518 | 279,935 | ||||||
| Sotheby’s | 22,629 | 796,993 | ||||||
Steiner Leisure, Ltd.(1) | 15,944 | 768,182 | ||||||
| Strayer Education, Inc. | 2,081 | 177,322 | ||||||
| 2,515,294 | ||||||||
| DIVERSIFIED FINANCIAL SERVICES — 1.0% | ||||||||
| MarketAxess Holdings, Inc. | 33,810 | 988,266 | ||||||
MSCI, Inc., Class A(1) | 15,609 | 521,185 | ||||||
| 1,509,451 | ||||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.2% | ||||||||
Premiere Global Services, Inc.(1) | 42,120 | 381,607 | ||||||
| ELECTRICAL EQUIPMENT — 0.7% | ||||||||
| AMETEK, Inc. | 21,966 | 868,096 | ||||||
| Franklin Electric Co., Inc. | 6,517 | 299,261 | ||||||
| 1,167,357 | ||||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.6% | ||||||||
| Cognex Corp. | 36,199 | 1,226,784 | ||||||
| FLIR Systems, Inc. | 14,579 | 383,428 | ||||||
KEMET Corp.(1) | 43,321 | 399,420 | ||||||
| Littelfuse, Inc. | 13,322 | 652,245 | ||||||
| MTS Systems Corp. | 750 | 27,502 | ||||||
OSI Systems, Inc.(1) | 7,238 | 320,643 | ||||||
Rogers Corp.(1) | 8,711 | 376,054 | ||||||
Trimble Navigation Ltd.(1) | 18,493 | 747,302 | ||||||
| 4,133,378 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 4.0% | ||||||||
Basic Energy Services, Inc.(1) | 50,379 | 923,951 | ||||||
Complete Production Services, Inc.(1) | 16,268 | 533,590 | ||||||
| Core Laboratories NV | 6,159 | 666,773 | ||||||
Dresser-Rand Group, Inc.(1) | 11,058 | 535,207 | ||||||
| Helmerich & Payne, Inc. | 13,880 | 738,139 | ||||||
Hornbeck Offshore Services, Inc.(1) | 23,602 | 775,090 | ||||||
Newpark Resources, Inc.(1) | 37,868 | 338,161 | ||||||
| Oceaneering International, Inc. | 18,229 | 762,519 | ||||||
Pioneer Drilling Co.(1) | 106,504 | 1,053,325 | ||||||
| 6,326,755 | ||||||||
| FOOD AND STAPLES RETAILING — 2.3% | ||||||||
| Andersons, Inc. (The) | 26,655 | $984,103 | ||||||
| Casey’s General Stores, Inc. | 3,775 | 187,051 | ||||||
| PriceSmart, Inc. | 22,938 | 1,744,205 | ||||||
Winn-Dixie Stores, Inc.(1) | 123,261 | 781,475 | ||||||
| 3,696,834 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 2.8% | ||||||||
Align Technology, Inc.(1) | 9,390 | 216,252 | ||||||
Gen-Probe, Inc.(1) | 6,581 | 395,518 | ||||||
Haemonetics Corp.(1) | 3,858 | 235,145 | ||||||
| Hill-Rom Holdings, Inc. | 8,446 | 284,377 | ||||||
IDEXX Laboratories, Inc.(1) | 7,674 | 552,451 | ||||||
Integra LifeSciences Holdings Corp.(1) | 3,105 | 99,546 | ||||||
| Masimo Corp. | 8,313 | 171,913 | ||||||
Mettler-Toledo International, Inc.(1) | 4,254 | 653,415 | ||||||
NuVasive, Inc.(1) | 6,443 | 95,485 | ||||||
ResMed, Inc.(1) | 20,016 | 566,453 | ||||||
Sirona Dental Systems, Inc.(1) | 6,998 | 335,204 | ||||||
| STERIS Corp. | 8,293 | 256,917 | ||||||
Thoratec Corp.(1) | 8,317 | 303,654 | ||||||
Volcano Corp.(1) | 7,715 | 192,335 | ||||||
| 4,358,665 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 2.3% | ||||||||
AMERIGROUP Corp.(1) | 4,434 | 246,663 | ||||||
Brookdale Senior Living, Inc.(1) | 12,432 | 206,123 | ||||||
Catalyst Health Solutions, Inc.(1) | 5,873 | 322,839 | ||||||
| Chemed Corp. | 3,213 | 190,724 | ||||||
Health Management Associates, Inc., Class A(1) | 35,683 | 312,583 | ||||||
HMS Holdings Corp.(1) | 11,018 | 269,280 | ||||||
| Lincare Holdings, Inc. | 13,510 | 318,160 | ||||||
Mednax, Inc.(1) | 6,584 | 433,227 | ||||||
| Owens & Minor, Inc. | 7,379 | 220,780 | ||||||
| Patterson Cos., Inc. | 6,504 | 204,681 | ||||||
PSS World Medical, Inc.(1) | 7,798 | 173,506 | ||||||
| Universal Health Services, Inc., Class B | 12,060 | 482,038 | ||||||
WellCare Health Plans, Inc.(1) | 6,247 | 306,165 | ||||||
| 3,686,769 | ||||||||
| HEALTH CARE TECHNOLOGY — 0.8% | ||||||||
Allscripts Healthcare Solutions, Inc.(1) | 21,098 | 404,027 | ||||||
athenahealth, Inc.(1) | 4,790 | 253,439 | ||||||
| Quality Systems, Inc. | 5,380 | 209,336 | ||||||
SXC Health Solutions Corp.(1) | 7,891 | 369,456 | ||||||
| 1,236,258 | ||||||||
13
| Shares | Value |
| HOTELS, RESTAURANTS AND LEISURE — 1.1% | ||||||||
| Ameristar Casinos, Inc. | 16,501 | $305,268 | ||||||
| Cedar Fair LP | 27,058 | 541,431 | ||||||
| Marcus Corp. | 29,111 | 347,003 | ||||||
Papa John’s International, Inc.(1) | 17,542 | 592,218 | ||||||
| 1,785,920 | ||||||||
| HOUSEHOLD DURABLES — 3.2% | ||||||||
Tempur-Pedic International, Inc.(1) | 58,990 | 4,014,859 | ||||||
| Tupperware Brands Corp. | 7,542 | 426,425 | ||||||
Zagg, Inc.(1) | 40,224 | 542,622 | ||||||
| 4,983,906 | ||||||||
| HOUSEHOLD PRODUCTS — 0.2% | ||||||||
| Church & Dwight Co., Inc. | 8,347 | 368,770 | ||||||
| INDUSTRIAL CONGLOMERATES — 1.1% | ||||||||
| Raven Industries, Inc. | 24,461 | 1,467,905 | ||||||
| Standex International Corp. | 7,309 | 282,200 | ||||||
| 1,750,105 | ||||||||
| INSURANCE — 1.1% | ||||||||
AMERISAFE, Inc.(1) | 21,106 | 454,834 | ||||||
| Amtrust Financial Services, Inc. | 34,015 | 863,301 | ||||||
| RLI Corp. | 5,704 | 401,219 | ||||||
| 1,719,354 | ||||||||
| INTERNET AND CATALOG RETAIL — 0.6% | ||||||||
priceline.com, Inc.(1) | 1,774 | 900,695 | ||||||
| INTERNET SOFTWARE AND SERVICES — 5.3% | ||||||||
Dice Holdings, Inc.(1) | 78,687 | 801,034 | ||||||
Equinix, Inc.(1) | 6,118 | 587,389 | ||||||
| j2 Global Communications, Inc. | 26,733 | 822,842 | ||||||
| Keynote Systems, Inc. | 67,958 | 1,622,157 | ||||||
KIT Digital, Inc.(1) | 26,883 | 241,947 | ||||||
Liquidity Services, Inc.(1) | 8,565 | 278,876 | ||||||
Rackspace Hosting, Inc.(1) | 11,943 | 494,321 | ||||||
SciQuest, Inc.(1) | 31,214 | 463,216 | ||||||
| Stamps.com, Inc. | 32,884 | 1,070,703 | ||||||
ValueClick, Inc.(1) | 70,759 | 1,245,358 | ||||||
Vocus, Inc.(1) | 40,962 | 834,806 | ||||||
| 8,462,649 | ||||||||
| IT SERVICES — 3.1% | ||||||||
Alliance Data Systems Corp.(1) | 9,183 | 940,707 | ||||||
| Broadridge Financial Solutions, Inc. | 16,850 | 374,912 | ||||||
Cardtronics, Inc.(1) | 26,753 | 666,952 | ||||||
ExlService Holdings, Inc.(1) | 12,876 | 335,806 | ||||||
| Global Payments, Inc. | 10,603 | $486,890 | ||||||
| Heartland Payment Systems, Inc. | 40,595 | 883,347 | ||||||
| MAXIMUS, Inc. | 14,917 | 601,752 | ||||||
VeriFone Systems, Inc.(1) | 13,874 | 585,622 | ||||||
| 4,875,988 | ||||||||
| LEISURE EQUIPMENT AND PRODUCTS — 1.7% | ||||||||
| Polaris Industries, Inc. | 35,706 | 2,261,618 | ||||||
| Sturm Ruger & Co., Inc. | 12,791 | 387,823 | ||||||
| 2,649,441 | ||||||||
| LIFE SCIENCES TOOLS AND SERVICES — 0.9% | ||||||||
Bruker Corp.(1) | 13,022 | 187,908 | ||||||
Charles River Laboratories International, Inc.(1) | 7,719 | 249,169 | ||||||
Covance, Inc.(1) | 8,207 | 416,341 | ||||||
PAREXEL International Corp.(1) | 8,211 | 180,888 | ||||||
| Techne Corp. | 5,098 | 350,743 | ||||||
| 1,385,049 | ||||||||
| MACHINERY — 8.0% | ||||||||
AGCO Corp.(1) | 16,539 | 724,904 | ||||||
Blount International, Inc.(1) | 36,780 | 571,193 | ||||||
| CLARCOR, Inc. | 23,867 | 1,157,072 | ||||||
| Donaldson Co., Inc. | 10,339 | 662,213 | ||||||
EnPro Industries, Inc.(1) | 7,093 | 244,283 | ||||||
| Gardner Denver, Inc. | 8,231 | 636,503 | ||||||
| Lindsay Corp. | 22,098 | 1,283,894 | ||||||
Middleby Corp.(1) | 6,540 | 551,191 | ||||||
| Pall Corp. | 16,428 | 840,621 | ||||||
| Robbins & Myers, Inc. | 27,873 | 1,245,644 | ||||||
Sauer-Danfoss, Inc.(1) | 42,165 | 1,632,629 | ||||||
| Titan International, Inc. | 104,250 | 2,345,625 | ||||||
| Twin Disc, Inc. | 8,275 | 321,898 | ||||||
WABCO Holdings, Inc.(1) | 9,822 | 493,163 | ||||||
| 12,710,833 | ||||||||
| MEDIA — 0.8% | ||||||||
| MDC Partners, Inc., Class A | 49,736 | 837,554 | ||||||
| Sinclair Broadcast Group, Inc., Class A | 51,015 | 488,724 | ||||||
| 1,326,278 | ||||||||
| METALS AND MINING — 1.7% | ||||||||
Allied Nevada Gold Corp.(1) | 13,434 | 510,223 | ||||||
| Compass Minerals International, Inc. | 5,145 | 391,380 | ||||||
| Globe Specialty Metals, Inc. | 30,132 | 502,301 | ||||||
| Haynes International, Inc. | 18,902 | 1,105,578 | ||||||
Materion Corp.(1) | 3,669 | 97,008 | ||||||
| 2,606,490 | ||||||||
14
| Shares | Value |
| OIL, GAS AND CONSUMABLE FUELS — 5.3% | ||||||||
| Berry Petroleum Co., Class A | 10,670 | $368,648 | ||||||
| Cabot Oil & Gas Corp. | 16,914 | 1,314,556 | ||||||
| Crosstex Energy LP | 35,922 | 574,034 | ||||||
CVR Energy, Inc.(1) | 35,084 | 868,680 | ||||||
Goodrich Petroleum Corp.(1) | 23,554 | 373,331 | ||||||
Gulfport Energy Corp.(1) | 31,893 | 993,148 | ||||||
Rosetta Resources, Inc.(1) | 24,355 | 1,079,901 | ||||||
SandRidge Energy, Inc.(1) | 57,114 | 437,493 | ||||||
Stone Energy Corp.(1) | 28,252 | 686,241 | ||||||
| Tesoro Logistics LP | 5,700 | 152,760 | ||||||
| W&T Offshore, Inc. | 19,761 | 389,094 | ||||||
Western Refining, Inc.(1) | 74,717 | 1,193,978 | ||||||
| 8,431,864 | ||||||||
| PAPER AND FOREST PRODUCTS — 0.4% | ||||||||
| Buckeye Technologies, Inc. | 21,843 | 660,532 | ||||||
| PERSONAL PRODUCTS — 0.9% | ||||||||
| Herbalife Ltd. | 15,149 | 944,692 | ||||||
| Nu Skin Enterprises, Inc., Class A | 4,609 | 232,893 | ||||||
Prestige Brands Holdings, Inc.(1) | 19,045 | 201,496 | ||||||
| 1,379,081 | ||||||||
| PHARMACEUTICALS — 0.8% | ||||||||
Endo Pharmaceuticals Holdings, Inc.(1) | 15,770 | 509,529 | ||||||
Impax Laboratories, Inc.(1) | 9,472 | 179,115 | ||||||
| Medicis Pharmaceutical Corp., Class A | 7,317 | 280,168 | ||||||
Salix Pharmaceuticals Ltd.(1) | 8,675 | 297,162 | ||||||
| 1,265,974 | ||||||||
| PROFESSIONAL SERVICES — 0.8% | ||||||||
Acacia Research - Acacia Technologies(1) | 10,455 | 416,527 | ||||||
Mistras Group, Inc.(1) | 12,871 | 280,588 | ||||||
| Robert Half International, Inc. | 22,465 | 593,750 | ||||||
| 1,290,865 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 2.3% | ||||||||
| Ashford Hospitality Trust, Inc. | 8,933 | 79,504 | ||||||
| Associated Estates Realty Corp. | 10,703 | 181,737 | ||||||
| Digital Realty Trust, Inc. | 12,615 | 786,293 | ||||||
| EastGroup Properties, Inc. | 3,365 | 146,748 | ||||||
| Education Realty Trust, Inc. | 8,940 | 82,695 | ||||||
| Federal Realty Investment Trust | 6,078 | 539,483 | ||||||
| Home Properties, Inc. | 2,789 | 164,272 | ||||||
| Medical Properties Trust, Inc. | 4,736 | 47,834 | ||||||
| Post Properties, Inc. | 13,404 | 550,636 | ||||||
| Rayonier, Inc. | 15,439 | $644,269 | ||||||
| Sovran Self Storage, Inc. | 10,424 | 460,741 | ||||||
| 3,684,212 | ||||||||
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.2% | ||||||||
| Jones Lang LaSalle, Inc. | 4,400 | 284,328 | ||||||
| ROAD AND RAIL — 1.2% | ||||||||
Hertz Global Holdings, Inc.(1) | 39,840 | 462,144 | ||||||
| J.B. Hunt Transport Services, Inc. | 11,972 | 506,535 | ||||||
Kansas City Southern(1) | 14,111 | 891,392 | ||||||
| 1,860,071 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.3% | ||||||||
Atmel Corp.(1) | 59,485 | 628,162 | ||||||
CEVA, Inc.(1) | 32,870 | 1,021,271 | ||||||
Cirrus Logic, Inc.(1) | 14,359 | 238,934 | ||||||
Cypress Semiconductor Corp.(1) | 23,173 | 442,836 | ||||||
Entegris, Inc.(1) | 42,980 | 385,101 | ||||||
GT Advanced Technologies, Inc.(1) | 80,645 | 661,289 | ||||||
ON Semiconductor Corp.(1) | 59,192 | 448,083 | ||||||
Photronics, Inc.(1) | 87,908 | 551,183 | ||||||
Semtech Corp.(1) | 22,531 | 550,207 | ||||||
Silicon Motion Technology Corp. ADR(1) | 21,940 | 368,373 | ||||||
Skyworks Solutions, Inc.(1) | 38,948 | 771,560 | ||||||
Ultratech, Inc.(1) | 33,332 | 726,637 | ||||||
| 6,793,636 | ||||||||
| SOFTWARE — 7.8% | ||||||||
ACI Worldwide, Inc.(1) | 21,306 | 653,455 | ||||||
Allot Communications Ltd.(1) | 29,531 | 394,829 | ||||||
ANSYS, Inc.(1) | 12,972 | 705,158 | ||||||
Ariba, Inc.(1) | 6,603 | 209,183 | ||||||
Bottomline Technologies, Inc.(1) | 13,625 | 330,951 | ||||||
BroadSoft, Inc.(1) | 9,519 | 342,684 | ||||||
| Clicksoftware Technologies Ltd. | 29,526 | 292,307 | ||||||
| FactSet Research Systems, Inc. | 5,336 | 530,505 | ||||||
Fortinet, Inc.(1) | 17,989 | 414,826 | ||||||
Informatica Corp.(1) | 14,621 | 665,256 | ||||||
Interactive Intelligence, Inc.(1) | 7,073 | 196,276 | ||||||
Kenexa Corp.(1) | 70,788 | 1,618,922 | ||||||
MICROS Systems, Inc.(1) | 10,682 | 525,768 | ||||||
NetScout Systems, Inc.(1) | 18,175 | 297,888 | ||||||
15
| Shares | Value |
Nuance Communications, Inc.(1) | 41,660 | $1,103,157 | ||||||
| Opnet Technologies, Inc. | 19,783 | 865,308 | ||||||
Perfect World Co., Ltd. ADR(1) | 18,412 | 239,540 | ||||||
PROS Holdings, Inc.(1) | 36,206 | 574,227 | ||||||
Rovi Corp.(1) | 12,509 | 619,696 | ||||||
| Solera Holdings, Inc. | 9,000 | 491,670 | ||||||
Taleo Corp., Class A(1) | 5,654 | 183,190 | ||||||
TIBCO Software, Inc.(1) | 20,974 | 605,939 | ||||||
Ultimate Software Group, Inc.(1) | 6,854 | 412,474 | ||||||
Websense, Inc.(1) | 2,715 | 48,436 | ||||||
| 12,321,645 | ||||||||
| SPECIALTY RETAIL — 4.7% | ||||||||
| Abercrombie & Fitch Co., Class A | 10,142 | 754,565 | ||||||
| Buckle, Inc. (The) | 6,233 | 277,742 | ||||||
CarMax, Inc.(1) | 21,178 | 636,611 | ||||||
| Cato Corp. (The), Class A | 6,258 | 160,392 | ||||||
| DSW, Inc., Class A | 7,740 | 405,112 | ||||||
Genesco, Inc.(1) | 13,848 | 816,201 | ||||||
| Lithia Motors, Inc., Class A | 101,566 | 2,089,213 | ||||||
| PetSmart, Inc. | 16,258 | 763,313 | ||||||
| Tractor Supply Co. | 18,865 | 1,338,283 | ||||||
Vitamin Shoppe, Inc.(1) | 6,885 | 259,633 | ||||||
| 7,501,065 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 3.1% | ||||||||
Crocs, Inc.(1) | 14,559 | 257,258 | ||||||
Deckers Outdoor Corp.(1) | 5,252 | 605,240 | ||||||
Fossil, Inc.(1) | 7,251 | 751,639 | ||||||
G-III Apparel Group Ltd.(1) | 17,959 | 506,264 | ||||||
Iconix Brand Group, Inc.(1) | 103,155 | 1,851,632 | ||||||
| Oxford Industries, Inc. | 14,448 | 570,696 | ||||||
True Religion Apparel, Inc.(1) | 9,066 | 307,519 | ||||||
| 4,850,248 | ||||||||
| TRADING COMPANIES AND DISTRIBUTORS — 2.0% | ||||||||
| Applied Industrial Technologies, Inc. | 13,295 | 446,978 | ||||||
DXP Enterprises, Inc.(1) | 8,444 | 210,931 | ||||||
Rush Enterprises, Inc., Class A(1) | 12,424 | 239,783 | ||||||
Titan Machinery, Inc.(1) | 56,884 | 1,327,104 | ||||||
United Rentals, Inc.(1) | 40,639 | 951,359 | ||||||
| 3,176,155 | ||||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.5% | ||||||||
MetroPCS Communications, Inc.(1) | 33,037 | $280,815 | ||||||
SBA Communications Corp., Class A(1) | 14,922 | 568,379 | ||||||
| 849,194 | ||||||||
TOTAL COMMON STOCKS (Cost $144,843,632) | 157,472,251 | |||||||
| Temporary Cash Investments — 0.4% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $221,880), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $217,208) | 217,208 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $222,603), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $217,208) | 217,208 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $221,340), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $217,208) | 217,208 | |||||||
| SSgA U.S. Government Money Market Fund | 18,975 | 18,975 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $670,599) | 670,599 | |||||||
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $145,514,231) | 158,142,850 | |||||||
| OTHER ASSETS AND LIABILITIES — 0.2% | 392,168 | |||||||
| TOTAL NET ASSETS — 100.0% | $158,535,018 | |||||||
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
16
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $145,514,231) | $158,142,850 | |||
| Receivable for investments sold | 1,917,564 | |||
| Receivable for capital shares sold | 10,773 | |||
| Dividends and interest receivable | 50,973 | |||
| 160,122,160 | ||||
| Liabilities | ||||
| Payable for investments purchased | 1,235,025 | |||
| Payable for capital shares redeemed | 163,249 | |||
| Accrued management fees | 188,757 | |||
| Distribution and service fees payable | 111 | |||
| 1,587,142 | ||||
| Net Assets | $158,535,018 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $187,808,772 | |||
| Accumulated net investment loss | (220,383 | ) | ||
| Accumulated net realized loss | (41,681,990 | ) | ||
| Net unrealized appreciation | 12,628,619 | |||
| $158,535,018 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $158,117,294 | 21,167,297 | $7.47 | |||||||||
| Institutional Class, $0.01 Par Value | $30,862 | 4,119 | $7.49 | |||||||||
| A Class, $0.01 Par Value | $282,091 | 37,919 | $7.44 | * | ||||||||
| C Class, $0.01 Par Value | $56,803 | 7,734 | $7.34 | |||||||||
| R Class, $0.01 Par Value | $47,968 | 6,478 | $7.40 | |||||||||
*Maximum offering price $7.89 (net asset value divided by 0.9425)
See Notes to Financial Statements.
17
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $4,855) | $910,752 | |||
| Interest | 1,419 | |||
| 912,171 | ||||
| Expenses: | ||||
| Management fees | 2,493,989 | |||
| Distribution and service fees: | ||||
| A Class | 531 | |||
| C Class | 518 | |||
| R Class | 171 | |||
| Directors’ fees and expenses | 6,641 | |||
| 2,501,850 | ||||
| Net investment income (loss) | (1,589,679 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on investment transactions | 24,987,553 | |||
| Change in net unrealized appreciation (depreciation) on investments | (10,838,613 | ) | ||
| Net realized and unrealized gain (loss) | 14,148,940 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $12,559,261 | |||
See Notes to Financial Statements.
18
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $(1,589,679 | ) | $(794,456 | ) | ||||
| Net realized gain (loss) | 24,987,553 | 28,645,395 | ||||||
| Change in net unrealized appreciation (depreciation) | (10,838,613 | ) | 12,832,897 | |||||
| Net increase (decrease) in net assets resulting from operations | 12,559,261 | 40,683,836 | ||||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | (1,032,579 | ) | (13,020,566 | ) | ||||
| Redemption Fees | ||||||||
| Increase in net assets from redemption fees | 42,568 | 15,637 | ||||||
| Net increase (decrease) in net assets | 11,569,250 | 27,678,907 | ||||||
| Net Assets | ||||||||
| Beginning of period | 146,965,768 | 119,286,861 | ||||||
| End of period | $158,535,018 | $146,965,768 | ||||||
| Accumulated net investment loss | $(220,383 | ) | — | |||||
See Notes to Financial Statements.
19
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. New Opportunities Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in common stocks of small- and mid-sized companies that management believes will increase in value.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. Sale of the Institutional Class, A Class, C Class and R Class commenced on March 1, 2010.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to:
a security has been declared in default; trading in a security has been halted during
20
the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Business Development Companies — The fund may invest in securities of closed-end investment companies that have elected to be treated as a business development company under the 1940 Act. A business development company operates similar to an exchange-traded fund and represents a portfolio of securities. The fund may purchase a business development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business development company generally reflect the risks of owning the underlying securities. Business development companies have expenses that reduce their value.
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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption — The fund may impose a 2.00% redemption fee on shares held less than 180 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Effective November 14, 2011, the redemption fee applies only to shares held less than 60 days.
21
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 1.10% to 1.50% for the Investor Class, A Class, C Class and R Class. The Institutional Class is 0.20% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.50% for the Investor Class, A Class, C Class and R Class and 1.30% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $177,641,729 and $176,012,494, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010(1) | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
| Sold | 2,261,585 | $17,909,206 | 1,028,023 | $6,286,589 | ||||||||||||
| Redeemed | (2,482,613 | ) | (19,139,301 | ) | (3,220,394 | ) | (19,503,133 | ) | ||||||||
| (221,028 | ) | (1,230,095 | ) | (2,192,371 | ) | (13,216,544 | ) | |||||||||
| Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | — | — | 4,119 | 25,000 | ||||||||||||
| A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | 27,185 | 214,828 | 19,550 | 120,712 | ||||||||||||
| Redeemed | (6,990 | ) | (48,162 | ) | (1,826 | ) | (11,798 | ) | ||||||||
| 20,195 | 166,666 | 17,724 | 108,914 | |||||||||||||
| C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | 2,299 | 18,257 | 5,845 | 36,000 | ||||||||||||
| Redeemed | (410 | ) | (3,383 | ) | — | — | ||||||||||
| 1,889 | 14,874 | 5,845 | 36,000 | |||||||||||||
| R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
| Sold | 2,191 | 15,976 | 4,287 | 26,064 | ||||||||||||
| Net increase (decrease) | (196,753 | ) | $(1,032,579 | ) | (2,160,396 | ) | $(13,020,566 | ) | ||||||||
(1) March 1, 2010 (commencement of sale) through October 31, 2010 for the Institutional Class, A Class, C Class and R Class.
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | ||||||||||
| Investment Securities | ||||||||||||
| Common Stocks | $157,472,251 | — | — | |||||||||
| Temporary Cash Investments | 18,975 | $651,624 | — | |||||||||
| Total Value of Investment Securities | $157,491,226 | $651,624 | — | |||||||||
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7. Risk Factors
The fund invests in common stocks of small companies. Because of this, it 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.
8. Federal Tax Information
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. There were no distributions paid by the fund during the years ended October 31, 2011 and October 31, 2010.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $145,957,406 | |||
| Gross tax appreciation of investments | $21,022,591 | |||
| Gross tax depreciation of investments | (8,837,147 | ) | ||
| Net tax appreciation (depreciation) of investments | $12,185,444 | |||
| Undistributed ordinary income | — | |||
| Accumulated capital losses | $(41,459,198 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(8,031,232) and $(33,427,966) expire in 2016 and 2017, respectively.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||
| Income From Investment Operations: | Net Asset Value, End of Period | Ratio to Average Net Assets of: | Portfolio Turnover Rate | ||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Total Return(1) | Operating Expenses(6) | Net Investment Income (Loss) | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
| Investor Class | |||||||||||||||||||||||||||||||
| 2011 | $6.86 | (0.07 | )(2) | 0.68 | 0.61 | $7.47 | 8.89 | % | 1.50 | % | (0.95 | )% | 107 | % | $158,117 | ||||||||||||||||
| 2010 | $5.06 | (0.04 | )(2) | 1.84 | 1.80 | $6.86 | 33.57 | % | 1.51 | % | (0.59 | )% | 181 | % | $146,747 | ||||||||||||||||
| 2009 | $5.12 | (0.02 | )(2) | (0.04 | ) | (0.06 | ) | $5.06 | (1.17 | )% | 1.50 | % | (0.51 | )% | 206 | % | $119,287 | ||||||||||||||
| 2008 | $8.58 | (0.05 | )(2) | (3.41 | ) | (3.46 | ) | $5.12 | (40.33 | )% | 1.50 | % | (0.66 | )% | 159 | % | $146,932 | ||||||||||||||
| 2007 | $6.44 | (0.07 | ) | 2.21 | 2.14 | $8.58 | 33.23 | % | 1.50 | % | (0.83 | )% | 201 | % | $270,428 | ||||||||||||||||
| Institutional Class | |||||||||||||||||||||||||||||||
| 2011 | $6.87 | (0.06 | )(2) | 0.68 | 0.62 | $7.49 | 9.02 | % | 1.30 | % | (0.75 | )% | 107 | % | $31 | ||||||||||||||||
2010(3) | $6.07 | (0.01 | )(2) | 0.81 | 0.80 | $6.87 | 13.18 | % | 1.31 | %(4) | (0.29 | )%(4) | 181 | %(5) | $28 | ||||||||||||||||
| A Class | |||||||||||||||||||||||||||||||
| 2011 | $6.85 | (0.09 | )(2) | 0.68 | 0.59 | $7.44 | 8.61 | % | 1.75 | % | (1.20 | )% | 107 | % | $282 | ||||||||||||||||
2010(3) | $6.07 | (0.03 | )(2) | 0.81 | 0.78 | $6.85 | 12.85 | % | 1.76 | %(4) | (0.67 | )%(4) | 181 | %(5) | $121 | ||||||||||||||||
| C Class | |||||||||||||||||||||||||||||||
| 2011 | $6.81 | (0.15 | )(2) | 0.68 | 0.53 | $7.34 | 7.78 | % | 2.50 | % | (1.95 | )% | 107 | % | $57 | ||||||||||||||||
2010(3) | $6.07 | (0.06 | )(2) | 0.80 | 0.74 | $6.81 | 12.19 | % | 2.51 | %(4) | (1.46 | )%(4) | 181 | %(5) | $40 | ||||||||||||||||
| R Class | |||||||||||||||||||||||||||||||
| 2011 | $6.84 | (0.11 | )(2) | 0.67 | 0.56 | $7.40 | 8.19 | % | 2.00 | % | (1.45 | )% | 107 | % | $48 | ||||||||||||||||
2010(3) | $6.07 | (0.04 | )(2) | 0.81 | 0.77 | $6.84 | 12.69 | % | 2.01 | %(4) | (0.99 | )%(4) | 181 | %(5) | $29 | ||||||||||||||||
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Notes to Financial Highlights
| (1) | 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. |
| (2) | Computed using average shares outstanding throughout the period. |
| (3) | March 1, 2010 (commencement of sale) through October 31, 2010. |
| (4) | Annualized. |
| (5) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2010. |
| (6) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of New Opportunities Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of New Opportunities Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||
| Independent Directors | ||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | |||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | |||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization)(2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | |||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | |||
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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 | ||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | |||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | |||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | |||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | |||
| Interested Director | ||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | |||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
| Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
| Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
| David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
| Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks
32
and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
33
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
34
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
35
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
36
| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73909 1112
ANNUAL REPORT OCTOBER 31, 2011
| Heritage Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 24 |
| Report of Independent Registered Public Accounting Firm | 27 |
| Management | 28 |
| Approval of Management Agreement | 31 |
| Additional Information | 36 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity—
Mid & Small Cap
The U.S. stock market overcame major swings in investor sentiment to post positive results for the 12 months ended October 31, 2011. The reporting period began on a positive note as solid corporate earnings growth and improving economic conditions—fueled by a second round of quantitative easing by the Federal Reserve and an extension of expiring federal tax breaks—sparked a sharp rally in the equity market. Stocks remained on an upward trajectory through the first four months of 2011 despite unrest in the Middle East and North Africa, as well as a devastating earthquake and tsunami in Japan.
Market sentiment shifted dramatically during the last half of the period as investors reacted to a worsening sovereign debt crisis in Europe, including a bailout package for Portugal, further credit deterioration and a potential debt restructuring in Greece, and concerns about the negative impact of the crisis on the European banking system. In addition, the economic outlook grew increasingly uncertain amid evidence of a slowdown in economic activity. The end result was a reversal in the stock market that accelerated between July and September, erasing all of the market’s gains from earlier in the period.
Stocks rebounded in October as better economic data eased recession fears, enabling the market to produce a positive overall return for the 12-month period. Although mid- and small-cap stocks led the market’s advance in the first half of the period, they lagged during the market decline and underperformed large-cap stocks for the full 12-month period (see the table below).
However, growth stocks outperformed value shares throughout the period. Despite the increasingly uncertain economic outlook, we have not seen a broad deterioration in business fundamentals. Many companies continued to report better-than-expected earnings, even during the height of the market volatility in July and August. Companies that benefit from enduring, secular growth trends resulting from new technologies or products can succeed and show improvement under even challenging economic conditions. Furthermore, an economic slowdown often causes changes in consumer behavior that present investment opportunities.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWHIX | 6.77% | 8.33% | 8.72% | 11.32% | 11/10/87 |
| Russell Midcap Growth Index | — | 10.08% | 3.46% | 6.98% | 10.36%(1) | — |
| Russell Midcap Index | — | 7.85% | 2.26% | 8.35% | 11.54%(1) | — |
| Institutional Class | ATHIX | 6.98% | 8.53% | 8.93% | 8.21% | 6/16/97 |
A Class(2) No sales charge* With sales charge* | ATHAX | 6.58% 0.45% | 8.07% 6.80% | 8.45% 7.81% | 7.41% 6.97% | 7/11/97 |
B Class No sales charge* With sales charge* | ATHBX | 5.74% 1.74% | — — | — — | -0.70% -1.21% | 9/28/07 |
| C Class | AHGCX | 5.75% | 7.27% | 7.64% | 5.25% | 6/26/01 |
| R Class | ATHWX | 6.26% | — | — | -0.20% | 9/28/07 |
* Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
| (1) | Since 10/31/87, the date nearest the Investor Class’s inception for which data are available. |
| (2) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | |||||
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 1.01% | 0.81% | 1.26% | 2.01% | 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. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
6
Portfolio Managers: David Hollond and Greg Walsh
Performance Summary
Heritage returned 6.77%* for the 12 months ended October 31, 2011, lagging the 10.08% return of the portfolio’s benchmark, the Russell Midcap Growth Index. Despite underperforming for the fiscal year, the portfolio’s longer-term returns continue to exceed those of the benchmark (see page 5).
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of a weak global economic recovery, ongoing sovereign debt concerns in Europe, and Treasury debt downgrade. Price momentum and acceleration, two factors that the Heritage team looks for in portfolio holdings, were not rewarded consistently during the reporting period.
Within the portfolio, stock decisions in the consumer discretionary and information technology sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the consumer staples and health care sectors partially offset those relative losses.
Consumer Discretionary Lagged, but Some Holdings Contributed
The consumer discretionary sector represented the largest source of underperformance, and was home to two positions that detracted significantly from relative returns. Netflix stumbled when it raised prices 60% for its mail-order DVD rental service, and then announced that it would separate its video-streaming business from its DVD offering. Both moves alienated customers, and, although the company lowered guidance for its subscriber base, subscription levels fell below that revised level.
Also within the consumer discretionary sector, Heritage maintained an overweight stake in cruise line Royal Caribbean, which was a key detractor from relative performance. The company, which has exposure to Europe, experienced sluggish European demand for its Mediterranean cruises in part due to concerns about unrest in the Middle East.
An overweight position in Lululemon Athletica, though, was the largest individual contributor to relative performance as the maker of yoga and athletic wear executed well, demonstrating strong same-store sales.
Information Technology Underperformed Benchmark, but Some Holdings Helped
The information technology sector was a key source of underperformance relative to the benchmark. In the communications equipment industry, two overweight positions significantly trimmed relative results. A stake in F5 Networks, whose products help optimize the performance of applications over IT networks, represented the largest individual detractor versus the benchmark. Video and teleconferencing equipment maker Polycom experienced a sell-off in its shares as investors feared that competition and cuts in corporate spending would hurt revenues.
7
Elsewhere in the information technology sector, overweight positions in the internet software and services industry group also trimmed relative results.
A stake in Chinese online search engine Baidu, though, helped relative performance. The company continued to benefit from a continuing secular shift to online advertising.
Consumer Staples Gained, but Some Holdings Lagged
Heritage benefited from ownership of two key holdings in the consumer staples sector: specialty grocery chain Whole Foods Market and membership discount retailer Costco Wholesale. Whole Foods, which represented the largest individual contributor to relative returns by far, continued to perform well amid a trend towards natural and organic foods. The company’s strong execution resulted in continued growth in sales and margin improvement. Costco benefited from consumers’ desire to stretch their dollars in the weak environment. By offering a compelling assortment of products at attractive prices, Costco improved its sales growth rate.
Elsewhere in the sector, though, an underweight position in Green Mountain Coffee Roasters detracted from relative results. The largest U.S. seller of single-serve brewers experienced robust share price gains as it continued to increase revenues through the success of its Keurig Single-Cup Brewing System. The portfolio had some exposure to Green Mountain, but less than the benchmark.
Health Care Helped
An overweight position in Alexion Pharmaceuticals accounted for the bulk of Heritage’s relative outperformance in the health care sector. The biotechnology company received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders. Effective stock selection in the pharmaceuticals industry group also benefited relative returns. In the industry, Heritage held one outperforming position that was not represented in the benchmark, while successfully sidestepping some benchmark laggards.
Outlook
Heritage’s investment process focuses on mid-capitalization and smaller companies with improving business fundamentals as evidenced by accelerating rates of growth and positive relative strength. We believe that active investing in such companies will generate attractive absolute and relative investment performance over time. This process, which has historically added value, has faced unprecedented headwinds in recent reporting periods. Despite this challenge, Heritage provided positive absolute returns during the reporting period as growth stocks were rewarded by the market in a challenging macroeconomic environment.
8
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| National Oilwell Varco, Inc. | 3.0% |
| O’Reilly Automotive, Inc. | 2.5% |
| Teradata Corp. | 2.4% |
| Apple, Inc. | 2.3% |
| Whole Foods Market, Inc. | 2.1% |
| Alliance Data Systems Corp. | 2.0% |
| Joy Global, Inc. | 1.9% |
| SXC Health Solutions Corp. | 1.8% |
| Fastenal Co. | 1.7% |
| BE Aerospace, Inc. | 1.7% |
| Top Five Industries | % of net assets |
| Specialty Retail | 8.3% |
| Software | 6.9% |
| Oil, Gas and Consumable Fuels | 5.1% |
| IT Services | 5.1% |
| Energy Equipment and Services | 4.7% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 86.2% |
| Foreign Common Stocks* | 12.1% |
| Total Common Stocks | 98.3% |
| Temporary Cash Investments | 2.4% |
| Other Assets and Liabilities | (0.7)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 - 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $886.30 | $4.80 | 1.01% |
| Institutional Class | $1,000 | $887.20 | $3.85 | 0.81% |
| A Class | $1,000 | $885.40 | $5.99 | 1.26% |
| B Class | $1,000 | $882.00 | $9.53 | 2.01% |
| C Class | $1,000 | $882.10 | $9.54 | 2.01% |
| R Class | $1,000 | $884.00 | $7.17 | 1.51% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.11 | $5.14 | 1.01% |
| Institutional Class | $1,000 | $1,021.12 | $4.13 | 0.81% |
| A Class | $1,000 | $1,018.85 | $6.41 | 1.26% |
| B Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
| C Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
| R Class | $1,000 | $1,017.59 | $7.68 | 1.51% |
| (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. |
11
OCTOBER 31, 2011
| Shares | Value |
| Common Stocks — 98.3% | ||||||||
| AEROSPACE AND DEFENSE — 3.6% | ||||||||
BE Aerospace, Inc.(1) | 1,612,084 | $60,823,929 | ||||||
| Precision Castparts Corp. | 116,900 | 19,072,235 | ||||||
TransDigm Group, Inc.(1) | 575,400 | 54,041,568 | ||||||
| 133,937,732 | ||||||||
| AUTO COMPONENTS — 1.4% | ||||||||
BorgWarner, Inc.(1) | 695,537 | 53,201,625 | ||||||
| AUTOMOBILES — 0.4% | ||||||||
| Harley-Davidson, Inc. | 414,800 | 16,135,720 | ||||||
| BEVERAGES — 0.5% | ||||||||
Hansen Natural Corp.(1) | 210,800 | 18,780,172 | ||||||
| BIOTECHNOLOGY — 3.1% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 877,000 | 59,206,270 | ||||||
Cepheid, Inc.(1) | 205,700 | 7,380,516 | ||||||
Grifols SA(1) | 1,648,400 | 30,650,439 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 386,600 | 15,305,494 | ||||||
| 112,542,719 | ||||||||
| CAPITAL MARKETS — 2.1% | ||||||||
| KKR & Co. LP | 1,580,900 | 21,310,532 | ||||||
| Lazard Ltd. Class A | 1,175,061 | 32,126,168 | ||||||
| Raymond James Financial, Inc. | 753,300 | 22,877,721 | ||||||
| 76,314,421 | ||||||||
| CHEMICALS — 2.6% | ||||||||
| Airgas, Inc. | 489,200 | 33,730,340 | ||||||
| Albemarle Corp. | 712,800 | 37,985,112 | ||||||
Rockwood Holdings, Inc.(1) | 533,700 | 24,571,548 | ||||||
| 96,287,000 | ||||||||
| COMMERCIAL BANKS — 1.1% | ||||||||
| East West Bancorp., Inc. | 939,102 | 18,284,316 | ||||||
SVB Financial Group(1) | 482,000 | 22,143,080 | ||||||
| 40,427,396 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 1.6% | ||||||||
Clean Harbors, Inc.(1) | 334,100 | 19,468,007 | ||||||
Stericycle, Inc.(1) | 453,200 | 37,878,456 | ||||||
| 57,346,463 | ||||||||
| COMMUNICATIONS EQUIPMENT — 0.7% | ||||||||
Aruba Networks, Inc.(1) | 748,100 | 17,722,489 | ||||||
Polycom, Inc.(1) | 384,000 | 6,347,520 | ||||||
| 24,070,009 | ||||||||
| COMPUTERS AND PERIPHERALS — 2.3% | ||||||||
Apple, Inc.(1) | 206,127 | $83,436,087 | ||||||
| CONSTRUCTION AND ENGINEERING — 1.0% | ||||||||
| Chicago Bridge & Iron Co. NV New York Shares | 757,500 | 27,709,350 | ||||||
| KBR, Inc. | 274,200 | 7,652,922 | ||||||
| 35,362,272 | ||||||||
| CONSUMER FINANCE — 1.0% | ||||||||
| Discover Financial Services | 1,483,604 | 34,953,710 | ||||||
| CONTAINERS AND PACKAGING — 1.7% | ||||||||
Crown Holdings, Inc.(1) | 1,068,800 | 36,114,752 | ||||||
| Rock-Tenn Co., Class A | 465,800 | 27,570,702 | ||||||
| 63,685,454 | ||||||||
| DIVERSIFIED CONSUMER SERVICES — 1.1% | ||||||||
| Weight Watchers International, Inc. | 551,266 | 41,135,469 | ||||||
| ELECTRICAL EQUIPMENT — 1.5% | ||||||||
Polypore International, Inc.(1) | 712,359 | 37,363,230 | ||||||
Sensata Technologies Holding NV(1) | 629,500 | 18,847,230 | ||||||
| 56,210,460 | ||||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.1% | ||||||||
IPG Photonics Corp.(1) | 337,200 | 17,824,392 | ||||||
| Jabil Circuit, Inc. | 2,804,300 | 57,656,408 | ||||||
| 75,480,800 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 4.7% | ||||||||
Atwood Oceanics, Inc.(1) | 490,200 | 20,951,148 | ||||||
| National Oilwell Varco, Inc. | 1,562,500 | 111,453,125 | ||||||
Oil States International, Inc.(1) | 596,700 | 41,536,287 | ||||||
| 173,940,560 | ||||||||
| FOOD AND STAPLES RETAILING — 3.7% | ||||||||
| Costco Wholesale Corp. | 462,800 | 38,528,100 | ||||||
Fresh Market, Inc. (The)(1) | 451,100 | 18,044,000 | ||||||
| Whole Foods Market, Inc. | 1,084,500 | 78,214,140 | ||||||
| 134,786,240 | ||||||||
| FOOD PRODUCTS — 2.7% | ||||||||
Green Mountain Coffee Roasters, Inc.(1) | 335,300 | 21,801,206 | ||||||
| J.M. Smucker Co. (The) | 363,600 | 28,004,472 | ||||||
| Mead Johnson Nutrition Co. | 673,700 | 48,405,345 | ||||||
| 98,211,023 | ||||||||
| GAS UTILITIES — 0.9% | ||||||||
| National Fuel Gas Co. | 559,000 | 34,261,110 | ||||||
12
| Shares | Value |
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.2% | ||||||||
| Cooper Cos., Inc. (The) | 583,200 | $40,415,760 | ||||||
Intuitive Surgical, Inc.(1) | 59,600 | 25,858,056 | ||||||
MAKO Surgical Corp.(1) | 752,600 | 28,937,470 | ||||||
Sirona Dental Systems, Inc.(1) | 507,100 | 24,290,090 | ||||||
| 119,501,376 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 0.9% | ||||||||
Catalyst Health Solutions, Inc.(1) | 631,100 | 34,691,567 | ||||||
| HEALTH CARE TECHNOLOGY — 2.5% | ||||||||
Allscripts Healthcare Solutions, Inc.(1) | 1,229,400 | 23,543,010 | ||||||
SXC Health Solutions Corp.(1) | 1,425,877 | 66,759,561 | ||||||
| 90,302,571 | ||||||||
| HOTELS, RESTAURANTS AND LEISURE — 3.2% | ||||||||
| Arcos Dorados Holdings, Inc., Class A | 1,350,234 | 31,595,475 | ||||||
Chipotle Mexican Grill, Inc.(1) | 176,700 | 59,392,404 | ||||||
Panera Bread Co., Class A(1) | 186,372 | 24,916,073 | ||||||
| 115,903,952 | ||||||||
| HOUSEHOLD PRODUCTS — 0.9% | ||||||||
| Church & Dwight Co., Inc. | 740,300 | 32,706,454 | ||||||
| INTERNET AND CATALOG RETAIL — 1.4% | ||||||||
priceline.com, Inc.(1) | 102,511 | 52,046,885 | ||||||
| INTERNET SOFTWARE AND SERVICES — 2.0% | ||||||||
Baidu, Inc. ADR(1) | 390,800 | 54,782,344 | ||||||
LinkedIn Corp. Class A(1) | 216,629 | 19,474,947 | ||||||
| 74,257,291 | ||||||||
| IT SERVICES — 5.1% | ||||||||
Alliance Data Systems Corp.(1) | 725,600 | 74,330,464 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 376,300 | 27,375,825 | ||||||
Teradata Corp.(1) | 1,456,900 | 86,918,654 | ||||||
| 188,624,943 | ||||||||
| MACHINERY — 3.8% | ||||||||
Chart Industries, Inc.(1) | 538,000 | 30,402,380 | ||||||
| Cummins, Inc. | 183,500 | 18,245,405 | ||||||
| Joy Global, Inc. | 784,600 | 68,417,120 | ||||||
| Titan International, Inc. | 1,010,200 | 22,729,500 | ||||||
| 139,794,405 | ||||||||
| MEDIA — 1.5% | ||||||||
| CBS Corp., Class B | 902,600 | 23,296,106 | ||||||
Focus Media Holding Ltd. ADR(1) | 1,205,300 | 32,760,054 | ||||||
| 56,056,160 | ||||||||
| METALS AND MINING — 1.1% | ||||||||
| Cliffs Natural Resources, Inc. | 577,900 | 39,424,338 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 5.1% | ||||||||
| Cabot Oil & Gas Corp. | 527,700 | $41,012,844 | ||||||
Concho Resources, Inc.(1) | 626,500 | 59,342,080 | ||||||
| Linn Energy LLC | 994,900 | 38,522,528 | ||||||
SandRidge Energy, Inc.(1) | 5,322,430 | 40,769,814 | ||||||
| SM Energy Co. | 114,800 | 9,518,068 | ||||||
| 189,165,334 | ||||||||
| PHARMACEUTICALS — 2.6% | ||||||||
Elan Corp. plc ADR(1) | 1,679,000 | 20,131,210 | ||||||
Questcor Pharmaceuticals, Inc.(1) | 1,097,900 | 44,585,719 | ||||||
| Shire plc ADR | 318,300 | 30,015,690 | ||||||
| 94,732,619 | ||||||||
| ROAD AND RAIL — 1.3% | ||||||||
Kansas City Southern(1) | 754,900 | 47,687,033 | ||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.0% | ||||||||
| ARM Holdings plc | 2,530,900 | 23,708,401 | ||||||
| Avago Technologies Ltd. | 908,000 | 30,663,160 | ||||||
Cypress Semiconductor Corp.(1) | 1,218,726 | 23,289,854 | ||||||
| Xilinx, Inc. | 931,400 | 31,164,644 | ||||||
| 108,826,059 | ||||||||
| SOFTWARE — 6.9% | ||||||||
Cerner Corp.(1) | 542,000 | 34,379,060 | ||||||
Check Point Software Technologies Ltd.(1) | 1,009,200 | 58,160,196 | ||||||
CommVault Systems, Inc.(1) | 610,100 | 25,978,058 | ||||||
Informatica Corp.(1) | 644,800 | 29,338,400 | ||||||
NetSuite, Inc.(1) | 1,042,619 | 39,661,227 | ||||||
Salesforce.com, Inc.(1) | 278,100 | 37,034,577 | ||||||
| Solera Holdings, Inc. | 533,310 | 29,134,725 | ||||||
| 253,686,243 | ||||||||
| SPECIALTY RETAIL — 8.3% | ||||||||
| Abercrombie & Fitch Co., Class A | 476,600 | 35,459,040 | ||||||
O’Reilly Automotive, Inc.(1) | 1,229,000 | 93,465,450 | ||||||
| PetSmart, Inc. | 1,109,900 | 52,109,805 | ||||||
| Tiffany & Co. | 250,300 | 19,956,419 | ||||||
| Tractor Supply Co. | 394,700 | 28,000,018 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 850,200 | 57,209,958 | ||||||
| Williams-Sonoma, Inc. | 547,900 | 20,568,166 | ||||||
| 306,768,856 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 2.8% | ||||||||
Deckers Outdoor Corp.(1) | 226,200 | 26,067,288 | ||||||
Fossil, Inc.(1) | 387,400 | 40,157,884 | ||||||
Lululemon Athletica, Inc.(1) | 663,900 | 37,497,072 | ||||||
| 103,722,244 | ||||||||
13
| Shares | Value |
| TRADING COMPANIES AND DISTRIBUTORS — 1.7% | ||||||||
| Fastenal Co. | 1,626,300 | $61,945,767 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 1.2% | ||||||||
SBA Communications Corp., Class A(1) | 795,432 | 30,298,005 | ||||||
| Tim Participacoes SA ADR | 593,500 | 15,454,740 | ||||||
| 45,752,745 | ||||||||
TOTAL COMMON STOCKS (Cost $2,918,836,539) | 3,616,103,284 | |||||||
| Temporary Cash Investments — 2.4% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury Obligations, 0.50%, 10/15/14, valued at $29,222,288), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery Value $28,607,092) | 28,607,044 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury Obligations, 4.50%, 5/15/38, valued at $29,317,533), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery Value $28,607,068) | 28,607,044 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury Obligations, 3.875%, 8/15/40, valued at $29,151,244), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery Value $28,607,075) | $28,607,043 | |||||||
| SSgA U.S. Government Money Market Fund | 2,498,318 | 2,498,318 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $88,319,449) | 88,319,449 | |||||||
TOTAL INVESTMENT SECURITIES — 100.7% (Cost $3,007,155,988) | 3,704,422,733 | |||||||
| OTHER ASSETS AND LIABILITIES — (0.7)% | (27,571,050 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $3,676,851,683 | |||||||
| Forward Foreign Currency Exchange Contracts | ||||||||||||
| Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | ||||||||
| 16,591,146 | EUR for USD | UBS AG | 11/30/11 | $22,950,665 | $101,239 | |||||||
| 11,512,432 | GBP for USD | Credit Suisse AG | 11/30/11 | 18,505,687 | (150,259 | ) | ||||||
| $41,456,352 | $(49,020 | ) | ||||||||||
(Value on Settlement Date $41,407,332)
| Geographic Diversification | |
| (as a % of net assets) | |
| United States | 86.2% |
| People’s Republic of China | 2.4% |
| Israel | 1.6% |
| Ireland | 1.4% |
| Netherlands | 1.3% |
| Canada | 1.0% |
| Bermuda | 0.9% |
| Argentina | 0.9% |
| Spain | 0.8% |
| Singapore | 0.8% |
| United Kingdom | 0.6% |
| Brazil | 0.4% |
| Cash and Equivalents* | 1.7% |
*Includes temporary cash investments and other assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
14
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $3,007,155,988) | $3,704,422,733 | |||
| Receivable for investments sold | 50,342,033 | |||
| Receivable for capital shares sold | 3,903,431 | |||
| Unrealized gain on forward foreign currency exchange contracts | 101,239 | |||
| Dividends and interest receivable | 494,107 | |||
| 3,759,263,543 | ||||
| Liabilities | ||||
| Payable for investments purchased | 72,501,459 | |||
| Payable for capital shares redeemed | 6,508,845 | |||
| Unrealized loss on forward foreign currency exchange contracts | 150,259 | |||
| Accrued management fees | 2,946,114 | |||
| Distribution and service fees payable | 305,183 | |||
| 82,411,860 | ||||
| Net Assets | $3,676,851,683 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $3,014,941,704 | |||
| Undistributed net investment income | 49,020 | |||
| Accumulated net realized loss | (35,356,707 | ) | ||
| Net unrealized appreciation | 697,217,666 | |||
| $3,676,851,683 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $2,395,881,352 | 116,799,405 | $20.51 | |||||||||
| Institutional Class, $0.01 Par Value | $156,680,758 | 7,463,555 | $20.99 | |||||||||
| A Class, $0.01 Par Value | $973,051,284 | 48,836,167 | $19.92 | * | ||||||||
| B Class, $0.01 Par Value | $3,573,586 | 179,653 | $19.89 | |||||||||
| C Class, $0.01 Par Value | $115,641,350 | 6,232,513 | $18.55 | |||||||||
| R Class, $0.01 Par Value | $32,023,353 | 1,585,423 | $20.20 | |||||||||
*Maximum offering price $21.14 (net asset value divided by 0.9425)
See Notes to Financial Statements.
15
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $8,487) | $24,268,772 | |||
| Interest | 23,181 | |||
| 24,291,953 | ||||
| Expenses: | ||||
| Management fees | 36,523,882 | |||
| Distribution and service fees: | ||||
| A Class | 2,465,362 | |||
| B Class | 41,261 | |||
| C Class | 1,113,864 | |||
| R Class | 140,615 | |||
| Directors’ fees and expenses | 193,228 | |||
| Other expenses | 150 | |||
| 40,478,362 | ||||
| Net investment income (loss) | (16,186,409 | ) | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 237,541,446 | |||
| Foreign currency transactions | 163,713 | |||
| 237,705,159 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (78,189,863 | ) | ||
| Translation of assets and liabilities in foreign currencies | 251,141 | |||
| (77,938,722 | ) | |||
| Net realized and unrealized gain (loss) | 159,766,437 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $143,580,028 | |||
See Notes to Financial Statements.
16
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $(16,186,409 | ) | $(13,068,160 | ) | ||||
| Net realized gain (loss) | 237,705,159 | 209,252,754 | ||||||
| Change in net unrealized appreciation (depreciation) | (77,938,722 | ) | 502,214,585 | |||||
| Net increase (decrease) in net assets resulting from operations | 143,580,028 | 698,399,179 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Institutional Class | — | (45,786 | ) | |||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | 620,667,351 | 200,776,280 | ||||||
| Net increase (decrease) in net assets | 764,247,379 | 899,129,673 | ||||||
| Net Assets | ||||||||
| Beginning of period | 2,912,604,304 | 2,013,474,631 | ||||||
| End of period | $3,676,851,683 | $2,912,604,304 | ||||||
| Undistributed net investment income | $49,020 | $300,264 | ||||||
See Notes to Financial Statements.
17
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Heritage Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing in companies that are medium-sized and smaller at the time of purchase that management believes will increase in value over time.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
18
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
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 capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. Additionally, non-U.S. tax returns filed by the fund due to investments in certain foreign securities remain subject to examination by the relevant taxing authority for seven years from the date of filing. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
19
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The annual management fee is 1.000% for the Investor Class, A Class, B Class, C Class and R Class and 0.800% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMorgan Chase Bank (JPMCB) was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $4,084,355,545 and $3,467,826,879, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Investor Class/Shares Authorized | 400,000,000 | 400,000,000 | ||||||||||||||
| Sold | 48,523,754 | $1,050,372,668 | 24,446,309 | $416,217,265 | ||||||||||||
| Redeemed | (29,959,321 | ) | (630,455,954 | ) | (19,973,254 | ) | (330,354,418 | ) | ||||||||
| 18,564,433 | 419,916,714 | 4,473,055 | 85,862,847 | |||||||||||||
| Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||||||
| Sold | 3,643,181 | 79,017,867 | 1,592,345 | 27,658,160 | ||||||||||||
| Issued in reinvestment of distributions | — | — | 2,804 | 45,786 | ||||||||||||
| Redeemed | (2,055,324 | ) | (44,025,654 | ) | (2,044,059 | ) | (34,815,396 | ) | ||||||||
| 1,587,857 | 34,992,213 | (448,910 | ) | (7,111,450 | ) | |||||||||||
| A Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
| Sold | 19,843,309 | 411,532,985 | 16,547,628 | 270,449,421 | ||||||||||||
| Redeemed | (13,979,401 | ) | (286,376,262 | ) | (10,692,346 | ) | (173,010,082 | ) | ||||||||
| 5,863,908 | 125,156,723 | 5,855,282 | 97,439,339 | |||||||||||||
| B Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||||||
| Sold | 16,596 | 339,707 | 17,058 | 265,517 | ||||||||||||
| Redeemed | (49,419 | ) | (1,021,747 | ) | (46,411 | ) | (756,266 | ) | ||||||||
| (32,823 | ) | (682,040 | ) | (29,353 | ) | (490,749 | ) | |||||||||
| C Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||||||
| Sold | 2,703,485 | 52,590,539 | 2,174,035 | 33,791,342 | ||||||||||||
| Redeemed | (1,336,721 | ) | (25,564,825 | ) | (1,225,116 | ) | (18,799,544 | ) | ||||||||
| 1,366,764 | 27,025,714 | 948,919 | 14,991,798 | |||||||||||||
| R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||||||||
| Sold | 1,116,361 | 23,766,845 | 873,774 | 14,881,532 | ||||||||||||
| Redeemed | (453,977 | ) | (9,508,818 | ) | (286,027 | ) | (4,797,037 | ) | ||||||||
| 662,384 | 14,258,027 | 587,747 | 10,084,495 | |||||||||||||
| Net increase (decrease) | 28,012,523 | $620,667,351 | 11,386,740 | $200,776,280 | ||||||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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.
21
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 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $3,172,001,755 | — | — | |||||||||
| Foreign Common Stocks | 389,742,689 | $54,358,840 | — | |||||||||
| Temporary Cash Investments | 2,498,318 | 85,821,131 | — | |||||||||
| Total Value of Investment Securities | $3,564,242,762 | $140,179,971 | — | |||||||||
| Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(49,020 | ) | — | ||||||||
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The foreign currency risk derivative instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume during the period.
The value of foreign currency risk derivative instruments as of October 31, 2011, is disclosed on the Statement of Assets and Liabilities as an asset of $101,239 in unrealized gain on forward foreign currency exchange contracts and as a liability of $150,259 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $159,071 in net realized gain (loss) on foreign currency transactions and $251,244 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
The fund invests in common stocks of small companies. Because of this, it may be subject to greater risk and market fluctuations than a fund investing in larger, more established companies.
22
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | — | $45,786 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $3,027,688,995 | |||
| Gross tax appreciation of investments | $768,690,153 | |||
| Gross tax depreciation of investments | (91,956,415 | ) | ||
| Net tax appreciation (depreciation) of investments | $676,733,738 | |||
| Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(59 | ) | ||
| Net tax appreciation (depreciation) | $676,733,679 | |||
| Undistributed ordinary income | — | |||
| Accumulated capital losses | $(14,823,700 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain forward foreign currency exchange contracts.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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 | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $19.21 | (0.07 | ) | 1.37 | 1.30 | — | — | — | $20.51 | 6.77 | % | 1.01 | % | (0.35 | )% | 95 | % | $2,395,881 | ||||||||||||||||||||||
| 2010 | $14.32 | (0.07 | ) | 4.96 | 4.89 | — | — | — | $19.21 | 34.15 | % | 1.01 | % | (0.45 | )% | 114 | % | $1,886,729 | ||||||||||||||||||||||
| 2009 | $13.15 | (0.02 | ) | 1.32 | 1.30 | (0.13 | ) | — | (0.13 | ) | $14.32 | 10.16 | % | 1.01 | % | (0.19 | )% | 155 | % | $1,342,418 | ||||||||||||||||||||
| 2008 | $22.83 | (0.09 | ) | (8.53 | ) | (8.62 | ) | — | (1.06 | ) | (1.06 | ) | $13.15 | (39.54 | )% | 1.00 | % | (0.47 | )% | 172 | % | $1,261,784 | ||||||||||||||||||
| 2007 | $15.58 | (0.10 | ) | 8.42 | 8.32 | — | (1.07 | ) | (1.07 | ) | $22.83 | 56.41 | % | 1.00 | % | (0.56 | )% | 128 | % | $2,478,452 | ||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $19.62 | (0.03 | ) | 1.40 | 1.37 | — | — | — | $20.99 | 6.98 | % | 0.81 | % | (0.15 | )% | 95 | % | $156,681 | ||||||||||||||||||||||
| 2010 | $14.60 | (0.04 | ) | 5.07 | 5.03 | (0.01 | ) | — | (0.01 | ) | $19.62 | 34.44 | % | 0.81 | % | (0.25 | )% | 114 | % | $115,261 | ||||||||||||||||||||
| 2009 | $13.41 | — | (3) | 1.34 | 1.34 | (0.15 | ) | — | (0.15 | ) | $14.60 | 10.33 | % | 0.81 | % | 0.01 | % | 155 | % | $92,343 | ||||||||||||||||||||
| 2008 | $23.21 | (0.05 | ) | (8.69 | ) | (8.74 | ) | — | (1.06 | ) | (1.06 | ) | $13.41 | (39.41 | )% | 0.80 | % | (0.27 | )% | 172 | % | $86,835 | ||||||||||||||||||
| 2007 | $15.80 | (0.07 | ) | 8.55 | 8.48 | — | (1.07 | ) | (1.07 | ) | $23.21 | 56.66 | % | 0.80 | % | (0.36 | )% | 128 | % | $155,885 | ||||||||||||||||||||
A Class(4) | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $18.70 | (0.12 | ) | 1.34 | 1.22 | — | — | — | $19.92 | 6.58 | % | 1.26 | % | (0.60 | )% | 95 | % | $973,051 | ||||||||||||||||||||||
| 2010 | $13.98 | (0.11 | ) | 4.83 | 4.72 | — | — | — | $18.70 | 33.76 | % | 1.26 | % | (0.70 | )% | 114 | % | $803,692 | ||||||||||||||||||||||
| 2009 | $12.84 | (0.06 | ) | 1.30 | 1.24 | (0.10 | ) | — | (0.10 | ) | $13.98 | 9.89 | % | 1.26 | % | (0.44 | )% | 155 | % | $518,768 | ||||||||||||||||||||
| 2008 | $22.37 | (0.13 | ) | (8.34 | ) | (8.47 | ) | — | (1.06 | ) | (1.06 | ) | $12.84 | (39.69 | )% | 1.25 | % | (0.72 | )% | 172 | % | $351,962 | ||||||||||||||||||
| 2007 | $15.32 | (0.15 | ) | 8.27 | 8.12 | — | (1.07 | ) | (1.07 | ) | $22.37 | 56.05 | % | 1.25 | % | (0.81 | )% | 128 | % | $291,674 | ||||||||||||||||||||
24
| 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) | ||||||||||||||||||||||||||||
| B Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $18.81 | (0.28 | ) | 1.36 | 1.08 | — | — | — | $19.89 | 5.74 | % | 2.01 | % | (1.35 | )% | 95 | % | $3,574 | ||||||||||||||||||||||
| 2010 | $14.16 | (0.24 | ) | 4.89 | 4.65 | — | — | — | $18.81 | 32.84 | % | 2.01 | % | (1.45 | )% | 114 | % | $3,997 | ||||||||||||||||||||||
| 2009 | $13.01 | (0.16 | ) | 1.33 | 1.17 | (0.02 | ) | — | (0.02 | ) | $14.16 | 8.99 | % | 2.01 | % | (1.19 | )% | 155 | % | $3,425 | ||||||||||||||||||||
| 2008 | $22.82 | (0.26 | ) | (8.49 | ) | (8.75 | ) | — | (1.06 | ) | (1.06 | ) | $13.01 | (40.16 | )% | 2.00 | % | (1.47 | )% | 172 | % | $1,770 | ||||||||||||||||||
2007(5) | $21.52 | (0.03 | ) | 1.33 | 1.30 | — | — | — | $22.82 | 6.04 | % | 2.00 | %(6) | (1.81 | )%(6) | 128 | %(7) | $83 | ||||||||||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $17.55 | (0.26 | ) | 1.26 | 1.00 | — | — | — | $18.55 | 5.75 | % | 2.01 | % | (1.35 | )% | 95 | % | $115,641 | ||||||||||||||||||||||
| 2010 | $13.21 | (0.22 | ) | 4.56 | 4.34 | — | — | — | $17.55 | 32.85 | % | 2.01 | % | (1.45 | )% | 114 | % | $85,381 | ||||||||||||||||||||||
| 2009 | $12.13 | (0.14 | ) | 1.24 | 1.10 | (0.02 | ) | — | (0.02 | ) | $13.21 | 9.07 | % | 2.01 | % | (1.19 | )% | 155 | % | $51,745 | ||||||||||||||||||||
| 2008 | $21.35 | (0.26 | ) | (7.90 | ) | (8.16 | ) | – | (1.06 | ) | (1.06 | ) | $12.13 | (40.16 | )% | 2.00 | % | (1.47 | )% | 172 | % | $32,812 | ||||||||||||||||||
| 2007 | $14.77 | (0.29 | ) | 7.94 | 7.65 | – | (1.07 | ) | (1.07 | ) | $21.35 | 54.88 | % | 2.00 | % | (1.56 | )% | 128 | % | $21,692 | ||||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $19.01 | (0.18 | ) | 1.37 | 1.19 | — | — | — | $20.20 | 6.26 | % | 1.51 | % | (0.85 | )% | 95 | % | $32,023 | ||||||||||||||||||||||
| 2010 | $14.24 | (0.16 | ) | 4.93 | 4.77 | — | — | — | $19.01 | 33.50 | % | 1.51 | % | (0.95 | )% | 114 | % | $17,544 | ||||||||||||||||||||||
| 2009 | $13.08 | (0.11 | ) | 1.34 | 1.23 | (0.07 | ) | — | (0.07 | ) | $14.24 | 9.58 | % | 1.51 | % | (0.69 | )% | 155 | % | $4,775 | ||||||||||||||||||||
| 2008 | $22.83 | (0.17 | ) | (8.52 | ) | (8.69 | ) | — | (1.06 | ) | (1.06 | ) | $13.08 | (39.86 | )% | 1.50 | % | (0.97 | )% | 172 | % | $496 | ||||||||||||||||||
2007(5) | $21.52 | (0.02 | ) | 1.33 | 1.31 | — | — | — | $22.83 | 6.09 | % | 1.50 | %(6) | (1.22 | )%(6) | 128 | %(7) | $27 | ||||||||||||||||||||||
25
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) | Prior to September 4, 2007, the A Class was referred to as the Advisor Class. |
| (5) | September 28, 2007 (commencement of sale) through October 31, 2007. |
| (6) | Annualized. |
| (7) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2007. |
See Notes to Financial Statements.
26
| Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Heritage Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Heritage Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
27
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | ||||
| Independent Directors | |||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | ||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | ||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization)(2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | ||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | ||||
28
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 | |||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | ||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | ||||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | ||||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | ||||
| Interested Director | |||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | ||||
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 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
31
Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks
32
and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
33
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
34
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
35
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
| Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
| Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73913 1112
ANNUAL REPORT OCTOBER 31, 2011
| Focused Growth Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 14 |
| Statement of Operations | 15 |
| Statement of Changes in Net Assets | 16 |
| Notes to Financial Statements | 17 |
| Financial Highlights | 23 |
| Report of Independent Registered Public Accounting Firm | 25 |
| Management | 26 |
| Approval of Management Agreement | 29 |
| Additional Information | 34 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By Greg Woodhams,
Chief Investment Officer,
U.S. Growth Equity—Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | |||||
| Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
| Investor Class | AFSIX | 5.76% | 1.94% | 3.59% | 2/28/05 |
| Russell 1000 Growth Index | — | 9.92% | 3.04% | 4.42% | — |
| Institutional Class | AFGNX | 5.98% | — | -0.40% | 9/28/07 |
A Class No sales charge* With sales charge* | AFGAX | 5.51% -0.57% | — — | -0.84% -2.27% | 9/28/07 |
| C Class | AFGCX | 4.68% | — | -1.58% | 9/28/07 |
| R Class | AFGRX | 5.26% | — | -1.10% | 9/28/07 |
* | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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| Growth of $10,000 Over Life of Class |
| $10,000 investment made February 28, 2005 |
*From 2/28/05, the Investor Class’s inception date. Not annualized.
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional Class | A Class | C Class | R Class |
| 1.02% | 0.82% | 1.27% | 2.02% | 1.52% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Portfolio Managers: Greg Woodhams and Joe Reiland
Performance Summary
Focused Growth gained 5.76%* in the 12 months ended October 31, 2011. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 9.92%. See pages 5-6 for additional performance comparisons.
In terms of Focused Growth’s absolute returns for the fiscal year, information technology shares contributed most to performance. Materials and financials detracted fractionally from absolute results. Relative to the benchmark, stock selection in the consumer discretionary sector detracted most; information technology shares were the leading contributors to relative performance.
Leading Detractors
In the consumer discretionary space, positioning in the multiline retail; hotels, restaurant, and leisure; and textiles, apparel, and luxury goods industry segments detracted most. Specialty retailer OfficeMax and media company Scripps Networks Interactive were the leading individual detractors in the sector, followed by stakes in multiline retailers Kohl’s and Target. We eliminated these positions.
In the energy sector, positioning among oil, gas, and consumable fuels companies detracted most, as it hurt to be underrepresented in shares of Exxon Mobil. In the materials sector, Focused Growth’s holdings were affected by investor uncertainty around corporate earnings growth and pricing power resulting from worries about a slowdown in the global economy. A good example is iron ore miner Cliffs Natural Resources, which reported no issues with iron ore pricing, but nevertheless suffered multiple compression and underperformed because of worries about the economic outlook. Among financial shares, stock selection meant holdings in the insurance industry segment detracted. Insurance provider AFLAC, which has large exposure to the Japanese market, declined amid concerns of an economic slowdown in the aftermath of the earthquake.
Despite the overall positive contribution of technology shares to relative returns, a number of the leading individual detractors were in this sector. Specifically, it hurt to have no exposure IBM, whose stock benefited from being perceived as somewhat of a “safe-haven” within the technology sector during the market downturn. We believe IBM is trading at an historically high relative valuation given the company’s growth rate and impending slowdown in their mainframe computer business. It also hurt to hold a stake in storage hardware provider Network Appliance, which reported inline results but lowered its forward outlook because of a slowdown in the financial and government sectors. We reduced the position, but still believe Network Appliance will continue to gain market share from competitors Hewlett-Packard, Hitachi, and IBM.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Leading Contributors
Looking at positive contributors to relative results, stock selection drove outperformance in the information technology sector. In part it helped to be underrepresented in shares of poor-performing stocks, such as those of Cisco Systems, Google, and Hewlett-Packard. HP, for example, underperformed as its personal computer business struggled, services costs rose, and margins declined, while management continued to struggle to turn around the company.
Other notable contributors in the space were IT services companies Accenture and MasterCard. Accenture, which provides technology consulting and services, benefited from rising demand for its business consulting services, as customers focused on both cost-cutting and revenue enhancements. Electronic payment processor MasterCard benefited from a final regulatory ruling on fees for debit card transactions that turned out better than some investors had feared.
Among other leading individual contributors was auto parts manufacturer BorgWarner, which benefited from the rebound in the auto industry and demand for new turbo-diesel and gasoline direct-injection engines. Specialty retailer Limited Brands enjoyed solid international growth and saw continued strength in its Victoria’s Secret product line. It also helped to hold a stake in biotechnology firm Alexion Pharmaceutical, which received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders.
Current Positioning
We understand that investors use the Focused Growth portfolio as a building block in their larger investment strategy. Maintaining low cash balances and avoiding style drift provides our clients with confidence that the Focused Growth portfolio is providing the large-cap growth representation that they seek.
In our opinion, stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result of this approach, the portfolio’s sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2011, the information technology sector was the portfolio’s largest overweight position relative to the benchmark. The most notable sector underweight position was in consumer staple shares.
8
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 6.6% |
| Exxon Mobil Corp. | 5.3% |
| Coca-Cola Co. (The) | 4.4% |
| Schlumberger Ltd. | 3.9% |
| Accenture plc, Class A | 3.4% |
| EMC Corp. | 3.3% |
| MasterCard, Inc., Class A | 3.0% |
| QUALCOMM, Inc. | 3.0% |
| BorgWarner, Inc. | 2.8% |
| Home Depot, Inc. (The) | 2.7% |
| Top Five Industries | % of net assets |
| Computers and Peripherals | 11.2% |
| Oil, Gas and Consumable Fuels | 7.2% |
| IT Services | 6.4% |
| Software | 4.8% |
| Beverages | 4.4% |
| Types of Investments in Portfolio | % of net assets |
| Domestic Common Stocks | 89.4% |
| Foreign Common Stocks* | 7.9% |
| Exchange-Traded Funds | 0.7% |
| Total Equity Exposure | 98.0% |
| Temporary Cash Investments | 1.9% |
| Other Assets and Liabilities | 0.1% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $917.70 | $4.83 | 1.00% |
| Institutional Class | $1,000 | $918.50 | $3.87 | 0.80% |
| A Class | $1,000 | $916.00 | $6.04 | 1.25% |
| C Class | $1,000 | $912.40 | $9.64 | 2.00% |
| R Class | $1,000 | $914.90 | $7.24 | 1.50% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
| Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
| A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
| C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
| R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
11
| Shares | Value | |||||||
| Common Stocks — 97.3% | ||||||||
| AEROSPACE AND DEFENSE — 2.5% | ||||||||
| Honeywell International, Inc. | 2,837 | $148,659 | ||||||
| Textron, Inc. | 7,777 | 151,029 | ||||||
| United Technologies Corp. | 1,323 | 103,168 | ||||||
| 402,856 | ||||||||
| AIR FREIGHT AND LOGISTICS — 2.6% | ||||||||
| United Parcel Service, Inc., Class B | 5,890 | 413,714 | ||||||
| AUTO COMPONENTS — 2.8% | ||||||||
BorgWarner, Inc.(1) | 6,004 | 459,246 | ||||||
| AUTOMOBILES — 1.2% | ||||||||
| Harley-Davidson, Inc. | 5,068 | 197,145 | ||||||
| BEVERAGES — 4.4% | ||||||||
| Coca-Cola Co. (The) | 10,408 | 711,075 | ||||||
| BIOTECHNOLOGY — 3.2% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 1,686 | 113,822 | ||||||
| Amgen, Inc. | 6,969 | 399,115 | ||||||
| 512,937 | ||||||||
| CAPITAL MARKETS — 1.7% | ||||||||
| BlackRock, Inc. | 1,784 | 281,497 | ||||||
| CHEMICALS — 2.5% | ||||||||
| E.I. du Pont de Nemours & Co. | 8,512 | 409,172 | ||||||
| COMMUNICATIONS EQUIPMENT — 3.7% | ||||||||
| Cisco Systems, Inc. | 6,016 | 111,476 | ||||||
| QUALCOMM, Inc. | 9,526 | 491,542 | ||||||
| 603,018 | ||||||||
| COMPUTERS AND PERIPHERALS — 11.2% | ||||||||
Apple, Inc.(1) | 2,632 | 1,065,381 | ||||||
EMC Corp.(1) | 21,776 | 533,730 | ||||||
NetApp, Inc.(1) | 5,201 | 213,033 | ||||||
| 1,812,144 | ||||||||
| CONSUMER FINANCE — 2.3% | ||||||||
| American Express Co. | 7,371 | 373,120 | ||||||
| ELECTRICAL EQUIPMENT — 2.2% | ||||||||
| Rockwell Automation, Inc. | 5,349 | 361,860 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.9% | ||||||||
| Jabil Circuit, Inc. | 15,333 | 315,246 | ||||||
| ENERGY EQUIPMENT AND SERVICES — 3.9% | ||||||||
| Schlumberger Ltd. | 8,558 | 628,756 | ||||||
| FOOD PRODUCTS — 1.7% | ||||||||
| Hershey Co. (The) | 2,237 | 128,023 | ||||||
| Kellogg Co. | 2,857 | 154,878 | ||||||
| 282,901 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 2.3% | ||||||||
| Covidien plc | 6,281 | 295,458 | ||||||
Edwards Lifesciences Corp.(1) | 933 | 70,367 | ||||||
| 365,825 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 2.6% | ||||||||
Express Scripts, Inc.(1) | 9,107 | 416,463 | ||||||
| HOTELS, RESTAURANTS AND LEISURE — 3.7% | ||||||||
Chipotle Mexican Grill, Inc.(1) | 219 | 73,610 | ||||||
| McDonald’s Corp. | 2,872 | 266,665 | ||||||
| Starbucks Corp. | 855 | 36,201 | ||||||
| Starwood Hotels & Resorts Worldwide, Inc. | 4,541 | 227,550 | ||||||
| 604,026 | ||||||||
| HOUSEHOLD PRODUCTS — 2.4% | ||||||||
| Colgate-Palmolive Co. | 4,237 | 382,898 | ||||||
| INTERNET SOFTWARE AND SERVICES — 0.9% | ||||||||
Google, Inc., Class A(1) | 233 | 138,085 | ||||||
| IT SERVICES — 6.4% | ||||||||
| Accenture plc, Class A | 9,058 | 545,835 | ||||||
| MasterCard, Inc., Class A | 1,417 | 492,039 | ||||||
| 1,037,874 | ||||||||
| MACHINERY — 0.3% | ||||||||
| Joy Global, Inc. | 578 | 50,402 | ||||||
| MEDIA — 1.3% | ||||||||
| CBS Corp., Class B | 8,208 | 211,848 | ||||||
| METALS AND MINING — 1.8% | ||||||||
| Cliffs Natural Resources, Inc. | 2,962 | 202,068 | ||||||
| Freeport-McMoRan Copper & Gold, Inc. | 2,266 | 91,229 | ||||||
| 293,297 | ||||||||
| MULTILINE RETAIL — 1.3% | ||||||||
| Macy’s, Inc. | 7,001 | 213,741 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 7.2% | ||||||||
| Exxon Mobil Corp. | 10,852 | 847,433 | ||||||
| Occidental Petroleum Corp. | 2,996 | 278,448 | ||||||
Southwestern Energy Co.(1) | 838 | 35,229 | ||||||
| 1,161,110 | ||||||||
| PHARMACEUTICALS — 2.2% | ||||||||
| Abbott Laboratories | 6,630 | 357,158 | ||||||
| ROAD AND RAIL — 1.6% | ||||||||
| Union Pacific Corp. | 2,688 | 267,644 | ||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.1% | ||||||||
Broadcom Corp., Class A(1) | 797 | 28,764 | ||||||
| Linear Technology Corp. | 12,265 | 396,282 | ||||||
| Xilinx, Inc. | 7,270 | 243,254 | ||||||
| 668,300 | ||||||||
12
| Shares | Value | |||||||
| SOFTWARE — 4.8% | ||||||||
Check Point Software Technologies Ltd.(1) | 7,527 | $433,781 | ||||||
Electronic Arts, Inc.(1) | 6,442 | 150,421 | ||||||
| Oracle Corp. | 5,973 | 195,735 | ||||||
| 779,937 | ||||||||
| SPECIALTY RETAIL — 3.9% | ||||||||
| Home Depot, Inc. (The) | 12,442 | 445,423 | ||||||
| Limited Brands, Inc. | 4,249 | 181,475 | ||||||
O’Reilly Automotive, Inc.(1) | 174 | 13,233 | ||||||
| 640,131 | ||||||||
| WIRELESS TELECOMMUNICATION SERVICES — 2.7% | ||||||||
Crown Castle International Corp.(1) | 10,439 | 431,757 | ||||||
TOTAL COMMON STOCKS (Cost $13,195,987) | 15,785,183 | |||||||
| Exchange-Traded Funds — 0.7% | ||||||||
iShares Russell 1000 Growth Index Fund (Cost $98,304) | 1,839 | 107,232 | ||||||
| Temporary Cash Investments — 1.9% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $103,243), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $101,069) | 101,069 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $103,579), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $101,069) | 101,069 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $102,992), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $101,069) | 101,069 | |||||||
| SSgA U.S. Government Money Market Fund | 8,829 | 8,829 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $312,036) | 312,036 | |||||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $13,606,327) | 16,204,451 | |||||||
| OTHER ASSETS AND LIABILITIES — 0.1% | 22,251 | |||||||
| TOTAL NET ASSETS — 100.0% | $16,226,702 | |||||||
Notes to Schedule of Investments
| (1) | Non-income producing. |
See Notes to Financial Statements.
13
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $13,606,327) | $16,204,451 | |||
| Foreign currency holdings, at value (cost of $1,027) | 1,076 | |||
| Receivable for investments sold | 15,168 | |||
| Receivable for capital shares sold | 24,198 | |||
| Dividends and interest receivable | 15,631 | |||
| 16,260,524 | ||||
| Liabilities | ||||
| Payable for capital shares redeemed | 19,966 | |||
| Accrued management fees | 13,177 | |||
| Distribution and service fees payable | 679 | |||
| 33,822 | ||||
| Net Assets | $16,226,702 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $15,095,606 | |||
| Undistributed net investment income | 48,583 | |||
| Accumulated net realized loss | (1,515,660 | ) | ||
| Net unrealized appreciation | 2,598,173 | |||
| $16,226,702 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $14,335,177 | 1,340,021 | $10.70 | |||||||||
| Institutional Class, $0.01 Par Value | $24,592 | 2,299 | $10.70 | |||||||||
| A Class, $0.01 Par Value | $1,040,409 | 97,408 | $10.68 | * | ||||||||
| C Class, $0.01 Par Value | $346,249 | 32,919 | $10.52 | |||||||||
| R Class, $0.01 Par Value | $480,275 | 45,092 | $10.65 | |||||||||
*Maximum offering price $11.33 (net asset value divided by 0.9425)
See Notes to Financial Statements.
14
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $1,269) | $273,396 | |||
| Interest | 224 | |||
| 273,620 | ||||
| Expenses: | ||||
| Management fees | 177,100 | |||
| Distribution and service fees: | ||||
| A Class | 3,880 | |||
| B Class | 498 | |||
| C Class | 3,105 | |||
| R Class | 2,142 | |||
| Directors’ fees and expenses | 800 | |||
| 187,525 | ||||
| Net investment income (loss) | 86,095 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 525,519 | |||
| Foreign currency transactions | (14,612 | ) | ||
| 510,907 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (88,070 | ) | ||
| Translation of assets and liabilities in foreign currencies | 573 | |||
| (87,497 | ) | |||
| Net realized and unrealized gain (loss) | 423,410 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $509,505 | |||
See Notes to Financial Statements.
15
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | ||||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | ||||||
| Operations | ||||||||
| Net investment income (loss) | $86,095 | $47,814 | ||||||
| Net realized gain (loss) | 510,907 | 505,068 | ||||||
| Change in net unrealized appreciation (depreciation) | (87,497 | ) | 1,440,996 | |||||
| Net increase (decrease) in net assets resulting from operations | 509,505 | 1,993,878 | ||||||
| Distributions to Shareholders | ||||||||
| From net investment income: | ||||||||
| Investor Class | (72,511 | ) | (5,153 | ) | ||||
| Institutional Class | (180 | ) | (52 | ) | ||||
| A Class | (1,550 | ) | — | |||||
| R Class | (89 | ) | — | |||||
| Decrease in net assets from distributions | (74,330 | ) | (5,205 | ) | ||||
| Capital Share Transactions | ||||||||
| Net increase (decrease) in net assets from capital share transactions | 2,319,045 | (1,608,018 | ) | |||||
| Net increase (decrease) in net assets | 2,754,220 | 380,655 | ||||||
| Net Assets | ||||||||
| Beginning of period | 13,472,482 | 13,091,827 | ||||||
| End of period | $16,226,702 | $13,472,482 | ||||||
| Undistributed net investment income | $48,583 | $58,170 | ||||||
See Notes to Financial Statements.
16
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Focused Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by purchasing stocks of larger-sized companies that management believes will increase in value.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued issuance of the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
17
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 1.000% for the Investor Class, A Class, B Class, C Class and R Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.00% for the Investor Class, A Class, C Class and R Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $17,867,103 and $15,625,290, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | ||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||
| Investor Class/Shares Authorized | 50,000,000 | 50,000,000 | |||||||||||||
| Sold | 499,144 | $5,526,676 | 288,170 | $2,753,240 | |||||||||||
| Issued in reinvestment of distributions | 6,447 | 70,211 | 526 | 5,016 | |||||||||||
| Redeemed | (418,174 | ) | (4,547,799 | ) | (472,403 | ) | (4,453,387 | ) | |||||||
| 87,417 | 1,049,088 | (183,707 | ) | (1,695,131 | ) | ||||||||||
| Institutional Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Issued in reinvestment of distributions | 17 | 180 | 5 | 52 | |||||||||||
| A Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Sold | 288,494 | 3,258,421 | 16,805 | 159,354 | |||||||||||
| Issued in reinvestment of distributions | 141 | 1,540 | — | — | |||||||||||
| Redeemed | (240,611 | ) | (2,597,762 | ) | (10,141 | ) | (97,426 | ) | |||||||
| 48,024 | 662,199 | 6,664 | 61,928 | ||||||||||||
| B Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Redeemed | (5,355 | ) | (55,166 | ) | (94 | ) | (854 | ) | |||||||
| C Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Sold | 32,076 | 362,261 | 6,726 | 62,733 | |||||||||||
| Redeemed | (12,217 | ) | (133,745 | ) | (4,044 | ) | (37,545 | ) | |||||||
| 19,859 | 228,516 | 2,682 | 25,188 | ||||||||||||
| R Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Sold | 42,927 | 435,823 | 98 | 938 | |||||||||||
| Issued in reinvestment of distributions | 8 | 89 | — | — | |||||||||||
| Redeemed | (170 | ) | (1,684 | ) | (14 | ) | (139 | ) | |||||||
| 42,765 | 434,228 | 84 | 799 | ||||||||||||
| Net increase (decrease) | 192,727 | $2,319,045 | (174,366 | ) | $(1,608,018 | ) | |||||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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.
20
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
| Level 1 | Level 2 | Level 3 | ||||||||||
| Investment Securities | ||||||||||||
| Domestic Common Stocks | $14,510,109 | — | — | |||||||||
| Foreign Common Stocks | 1,275,074 | — | — | |||||||||
| Exchange-Traded Funds | 107,232 | — | — | |||||||||
| Temporary Cash Investments | 8,829 | $303,207 | — | |||||||||
| Total Value of Investment Securities | $15,901,244 | $303,207 | — | |||||||||
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The fund participated in foreign currency risk derivative instruments during the first eight months of the period consistent with its exposure to foreign denominated securities.
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(14,601) in net realized gain (loss) on foreign currency transactions and $644 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Risk Factors
There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political, social and economic developments, fluctuations in currency exchange rates, the possible imposition of exchange controls, and other foreign laws or restrictions.
21
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $74,330 | $5,205 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $13,684,006 | |||
| Gross tax appreciation of investments | $2,769,867 | |||
| Gross tax depreciation of investments | (249,422 | ) | ||
| Net tax appreciation (depreciation) of investments | $2,520,445 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $49 | |||
| Net tax appreciation (depreciation) | $2,520,494 | |||
| Undistributed ordinary income | $48,583 | |||
| Accumulated capital losses | $(1,437,981 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
22
| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $10.17 | 0.06 | 0.53 | 0.59 | (0.06 | ) | — | (0.06 | ) | $10.70 | 5.76 | % | 1.00 | % | 0.54 | % | 91 | % | $14,335 | |||||||||||||||||||||
| 2010 | $8.73 | 0.04 | 1.40 | 1.44 | — | (3) | — | — | (3) | $10.17 | 16.54 | % | 1.02 | % | 0.38 | % | 66 | % | $12,739 | |||||||||||||||||||||
| 2009 | $7.73 | 0.04 | 1.01 | 1.05 | (0.05 | ) | — | (0.05 | ) | $8.73 | 13.77 | % | 1.00 | % | 0.50 | % | 125 | % | $12,541 | |||||||||||||||||||||
| 2008 | $12.92 | 0.02 | (3.74 | ) | (3.72 | ) | (0.01 | ) | (1.46 | ) | (1.47 | ) | $7.73 | (32.19 | )% | 1.00 | % | 0.22 | % | 130 | % | $8,814 | ||||||||||||||||||
| 2007 | $11.42 | 0.04 | 1.73 | 1.77 | (0.04 | ) | (0.23 | ) | (0.27 | ) | $12.92 | 15.78 | % | 1.00 | % | 0.33 | % | 275 | % | $13,381 | ||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $10.17 | 0.08 | 0.53 | 0.61 | (0.08 | ) | — | (0.08 | ) | $10.70 | 5.98 | % | 0.80 | % | 0.74 | % | 91 | % | $25 | |||||||||||||||||||||
| 2010 | $8.73 | 0.05 | 1.41 | 1.46 | (0.02 | ) | — | (0.02 | ) | $10.17 | 16.77 | % | 0.82 | % | 0.58 | % | 66 | % | $23 | |||||||||||||||||||||
| 2009 | $7.73 | 0.05 | 1.01 | 1.06 | (0.06 | ) | — | (0.06 | ) | $8.73 | 14.00 | % | 0.80 | % | 0.70 | % | 125 | % | $20 | |||||||||||||||||||||
| 2008 | $12.93 | 0.04 | (3.75 | ) | (3.71 | ) | (0.03 | ) | (1.46 | ) | (1.49 | ) | $7.73 | (32.09 | )% | 0.80 | % | 0.42 | % | 130 | % | $17 | ||||||||||||||||||
2007(4) | $12.59 | — | (3) | 0.34 | 0.34 | — | — | — | $12.93 | 2.70 | % | 0.80 | %(5) | (0.40 | )%(5) | 275 | %(6) | $26 | ||||||||||||||||||||||
| A Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $10.15 | 0.04 | 0.52 | 0.56 | (0.03 | ) | — | (0.03 | ) | $10.68 | 5.51 | % | 1.25 | % | 0.29 | % | 91 | % | $1,040 | |||||||||||||||||||||
| 2010 | $8.74 | 0.01 | 1.40 | 1.41 | — | — | — | $10.15 | 16.27 | % | 1.27 | % | 0.13 | % | 66 | % | $501 | |||||||||||||||||||||||
| 2009 | $7.73 | 0.02 | 1.02 | 1.04 | (0.03 | ) | — | (0.03 | ) | $8.74 | 13.48 | % | 1.25 | % | 0.25 | % | 125 | % | $373 | |||||||||||||||||||||
| 2008 | $12.92 | — | (3) | (3.75 | ) | (3.75 | ) | — | (1.44 | ) | (1.44 | ) | $7.73 | (32.37 | )% | 1.25 | % | (0.03 | )% | 130 | % | $241 | ||||||||||||||||||
2007(4) | $12.59 | (0.01 | ) | 0.34 | 0.33 | — | — | — | $12.92 | 2.62 | % | 1.25 | %(5) | (0.85 | )%(5) | 275 | %(6) | $26 | ||||||||||||||||||||||
23
| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||
| Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $10.05 | (0.05 | ) | 0.52 | 0.47 | — | — | — | $10.52 | 4.68 | % | 2.00 | % | (0.46 | )% | 91 | % | $346 | ||||||||||||||||||||||
| 2010 | $8.71 | (0.06 | ) | 1.40 | 1.34 | — | — | — | $10.05 | 15.38 | % | 2.02 | % | (0.62 | )% | 66 | % | $131 | ||||||||||||||||||||||
| 2009 | $7.73 | (0.04 | ) | 1.02 | 0.98 | — | — | — | $8.71 | 12.68 | % | 2.00 | % | (0.50 | )% | 125 | % | $90 | ||||||||||||||||||||||
| 2008 | $12.91 | (0.08 | ) | (3.75 | ) | (3.83 | ) | — | (1.35 | ) | (1.35 | ) | $7.73 | (32.87 | )% | 2.00 | % | (0.78 | )% | 130 | % | $73 | ||||||||||||||||||
2007(4) | $12.59 | (0.02 | ) | 0.34 | 0.32 | — | — | — | $12.91 | 2.54 | % | 2.00 | %(5) | (1.52 | )%(5) | 275 | %(6) | $76 | ||||||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $10.12 | 0.01 | 0.52 | 0.53 | — | (3) | — | — | (3) | $10.65 | 5.26 | % | 1.50 | % | 0.04 | % | 91 | % | $480 | |||||||||||||||||||||
| 2010 | $8.73 | (0.01 | ) | 1.40 | 1.39 | — | — | — | $10.12 | 15.92 | % | 1.52 | % | (0.12 | )% | 66 | % | $24 | ||||||||||||||||||||||
| 2009 | $7.73 | — | (3) | 1.02 | 1.02 | (0.02 | ) | — | (0.02 | ) | $8.73 | 13.19 | % | 1.50 | % | 0.00 | %(7) | 125 | % | $20 | ||||||||||||||||||||
| 2008 | $12.92 | (0.02 | ) | (3.76 | ) | (3.78 | ) | — | (1.41 | ) | (1.41 | ) | $7.73 | (32.56 | )% | 1.50 | % | (0.28 | )% | 130 | % | $17 | ||||||||||||||||||
2007(4) | $12.59 | (0.01 | ) | 0.34 | 0.33 | — | — | — | $12.92 | 2.62 | % | 1.50 | %(5) | (1.10 | )%(5) | 275 | %(6) | $26 | ||||||||||||||||||||||
Notes to Financial Highlights
| (1) | Computed using average shares outstanding throughout the period. |
| (2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
| (3) | Per-share amount was less than $0.005. |
| (4) | September 28, 2007 (commencement of sale) through October 31, 2007. |
| (5) | Annualized. |
| (6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2007. |
| (7) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
24
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Focused Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Focused Growth Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
25
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | ||||
| Independent Directors | |||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | ||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | ||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | ||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | ||||
26
| (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 | |||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | ||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | ||||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | ||||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | ||||
| Interested Director | |||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | ||||
27
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
29
Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
| • | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons.
30
The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
31
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
32
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
33
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $74,330, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73907 1112
ANNUAL REPORT OCTOBER 31, 2011
| Fundamental Equity Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 16 |
| Statement of Operations | 17 |
| Statement of Changes in Net Assets | 18 |
| Notes to Financial Statements | 19 |
| Financial Highlights | 25 |
| Report of Independent Registered Public Accounting Firm | 28 |
| Management | 29 |
| Approval of Management Agreement | 32 |
| Additional Information | 37 |
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.
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance, particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By Greg Woodhams,
Chief Investment Officer,
U.S. Growth Equity—Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | |||||
| Average Annual Returns | |||||
| Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
A Class No sales charge* With sales charge* | AFDAX | 9.38% 3.07% | 1.73% 0.54% | 5.45% 4.55% | 11/30/04 |
| S&P 500 Index | — | 8.09% | 0.25% | 3.05% | — |
| Investor Class | AFDIX | 9.72% | 2.00% | 4.89% | 7/29/05 |
| Institutional Class | AFEIX | 10.02% | 2.20% | 5.10% | 7/29/05 |
B Class No sales charge* With sales charge* | AFDBX | 8.59% 4.59% | 0.98% 0.79% | 4.65% 4.65% | 11/30/04 |
| C Class | AFDCX | 8.68% | 0.98% | 4.66% | 11/30/04 |
| R Class | AFDRX | 9.14% | 1.48% | 4.35% | 7/29/05 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects A Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
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| Growth of $10,000 Over Life of Class |
| $10,000 investment made November 30, 2004 |
* From 11/30/04, the A Class’s inception date. Not annualized. The A Class’s initial investment is $9,425 to reflect the maximum 5.75% initial sales charge.
| Total Annual Fund Operating Expenses | |||||
| Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
| 1.02% | 0.82% | 1.27% | 2.02% | 2.02% | 1.52% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects A Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Portfolio Managers: Greg Woodhams, Prescott LeGard, Justin Brown, and Joe Reiland
Performance Summary
Fundamental Equity returned 9.38%* for the 12 months ended October 31, 2011 outpacing its benchmark, the S&P 500 Index, which returned 8.09%.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they struggled with the challenges of political unrest in the Middle East, the tragic earthquake and nuclear crisis in Japan, ongoing sovereign debt concerns in Europe, and U.S. budgetary issues. In this environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell Indexes. In terms of returns by size, large-capitalization stocks outpaced those of mid- and small-cap companies.
Within the portfolio, Fundamental Equity derived positive absolute returns from every sector in which it invested. Relative to the benchmark, security selection in the financials and information technology sectors accounted for the bulk of outperformance. Stock decisions in the health care sector also contributed to gains versus the benchmark. Holdings in the consumer discretionary and energy sectors partially trimmed those relative results.
Financials Led Outperformance
The financials sector was the largest source of Fundamental Equity’s outperformance relative to its benchmark. Within the sector, an underweight stake in Bank of America represented the largest individual contributor to gains versus the benchmark. Bank of America’s share price fell amid mortgage-related lawsuits and concerns surrounding the sovereign debt crisis in Europe. Although Fundamental Equity did have exposure to the stock, it was less than the benchmark weighting.
A beneficial underweight allocation to the capital markets group included completely avoiding Goldman Sachs and Morgan Stanley. Both companies continued to come under pressure amid legislation designed to limit proprietary trading.
Elsewhere in the financials sector, effective stock decisions among insurers contributed to relative gains as Fundamental Equity avoided several benchmark laggards.
Information Technology, Health Care Gained, but Some Holdings Detracted
The information technology sector was a source of relative outperformance for Fundamental Equity. Within the computers and peripherals industry group, an underweight stake in Hewlett-Packard helped relative results as the stock lagged in the benchmark. An overweight position in personal electronic device maker Apple also benefited relative returns. The company experienced acceleration in revenues and earnings, added new carriers, and gained penetration with existing carriers, while increasing market share.
*All fund returns referenced in this commentary are for A Class shares and are not reduced by sales charges. A Class shares are subject to a maximum sales charge of 5.75%. Had the sales charge been applied, returns would be lower than those shown.
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Also in the information technology sector, the portfolio held an overweight position in IBM. This decision helped absolute and relative results as the company’s stock benefited from being perceived as somewhat of a “safe haven” within the technology sector during the market downturn.
Although returns from the portfolio’s information technology holdings outpaced those of the benchmark, some positions underperformed. A stake in Marvell Technology Group, which is not represented in the benchmark, proved detrimental. The semiconductor company’s share price fell as it experienced declining sales during the reporting period.
The health care sector also contributed meaningfully to performance relative to the benchmark. Here, Fundamental Equity derived relative gains from a handful of overweight positions among health care providers.
An overweight position in medical supplier Hospira, though, hurt relative results. The company’s earnings fell below expectations from actions taken in response to an FDA investigation of one of Hospira’s plants.
Consumer Discretionary, Energy Gained, but Lagged Benchmark
Fundamental Equity realized solid absolute gains from the consumer discretionary sector, although positions in the sector collectively lagged benchmark returns for the sector. In the internet and catalog retail group, the portfolio held a significant underweight position in Amazon.com, which delivered solid results in the benchmark. The company benefited from strong results and market share gains, while investors looked ahead to margin improvement in future years.
In the energy sector, Fundamental Equity held a stake in HollyFrontier, formed during the reporting period as the result of a merger between Holly Corporation and Frontier Oil. The petroleum refiner experienced a sharp rise in revenues following the merger, due to higher refinery gross margins. However, during the time it was held in the portfolio, the company’s share price declined.
Outlook
Fundamental Equity generally invests in larger-sized companies, although it may invest in companies of any size. The managers use a quantitative model that combines fundamental measures of a stock’s value and growth potential. The fund seeks to provide better returns than, and a dividend yield comparable to, its benchmark, the S&P 500 Index, without taking on significant additional risk. Regardless of market environment, we will remain focused on our methodology of identifying attractively valued companies.
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| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Exxon Mobil Corp. | 4.5% |
| Apple, Inc. | 4.2% |
| International Business Machines Corp. | 3.2% |
| Chevron Corp. | 2.3% |
| Microsoft Corp. | 2.2% |
| Wells Fargo & Co. | 2.1% |
| Procter & Gamble Co. (The) | 2.1% |
| Amgen, Inc. | 1.7% |
| JPMorgan Chase & Co. | 1.7% |
| Johnson & Johnson | 1.6% |
| Top Five Industries | % of net assets |
| Oil, Gas and Consumable Fuels | 11.4% |
| Computers and Peripherals | 6.1% |
| Insurance | 5.4% |
| Pharmaceuticals | 5.3% |
| Health Care Providers and Services | 5.1% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 98.6% |
| Exchange-Traded Funds | 0.4% |
| Total Equity Exposure | 99.0% |
| Temporary Cash Investments | 0.6% |
| Other Assets and Liabilities | 0.4% |
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 - 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $934.40 | $4.92 | 1.01% |
| Institutional Class | $1,000 | $935.20 | $3.95 | 0.81% |
| A Class | $1,000 | $932.30 | $6.14 | 1.26% |
| B Class | $1,000 | $929.40 | $9.77 | 2.01% |
| C Class | $1,000 | $929.50 | $9.78 | 2.01% |
| R Class | $1,000 | $931.40 | $7.35 | 1.51% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.11 | $5.14 | 1.01% |
| Institutional Class | $1,000 | $1,021.12 | $4.13 | 0.81% |
| A Class | $1,000 | $1,018.85 | $6.41 | 1.26% |
| B Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
| C Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
| R Class | $1,000 | $1,017.59 | $7.68 | 1.51% |
| (1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
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| Shares | Value | |||||||
| Common Stocks — 98.6% | ||||||||
| AEROSPACE AND DEFENSE — 2.9% | ||||||||
| General Dynamics Corp. | 20,039 | $1,286,303 | ||||||
| Honeywell International, Inc. | 52,290 | 2,739,996 | ||||||
| United Technologies Corp. | 13,019 | 1,015,222 | ||||||
| 5,041,521 | ||||||||
| AIR FREIGHT AND LOGISTICS — 0.8% | ||||||||
| United Parcel Service, Inc., Class B | 20,330 | 1,427,979 | ||||||
| AIRLINES — 0.1% | ||||||||
Allegiant Travel Co.(1) | 4,753 | 246,966 | ||||||
| AUTO COMPONENTS — 0.1% | ||||||||
American Axle & Manufacturing Holdings, Inc.(1) | 9,059 | 87,782 | ||||||
| AUTOMOBILES — 0.7% | ||||||||
Ford Motor Co.(1) | 99,365 | 1,160,583 | ||||||
| BEVERAGES — 0.8% | ||||||||
| Dr Pepper Snapple Group, Inc. | 34,822 | 1,304,084 | ||||||
| BIOTECHNOLOGY — 1.8% | ||||||||
| Amgen, Inc. | 52,511 | 3,007,305 | ||||||
Gilead Sciences, Inc.(1) | 3,949 | 164,515 | ||||||
| 3,171,820 | ||||||||
| CAPITAL MARKETS — 0.4% | ||||||||
| Ameriprise Financial, Inc. | 4,095 | 191,155 | ||||||
| Legg Mason, Inc. | 20,248 | 556,820 | ||||||
| 747,975 | ||||||||
| CHEMICALS — 0.9% | ||||||||
| Ashland, Inc. | 4,543 | 240,597 | ||||||
| CF Industries Holdings, Inc. | 1,099 | 178,335 | ||||||
| E.I. du Pont de Nemours & Co. | 7,972 | 383,214 | ||||||
| Eastman Chemical Co. | 2,194 | 86,202 | ||||||
| LyondellBasell Industries NV, Class A | 20,157 | 662,359 | ||||||
| 1,550,707 | ||||||||
| COMMERCIAL BANKS — 3.0% | ||||||||
| Bank of Hawaii Corp. | 11,994 | 506,507 | ||||||
| PNC Financial Services Group, Inc. | 18,023 | 968,015 | ||||||
| Wells Fargo & Co. | 142,702 | 3,697,409 | ||||||
| 5,171,931 | ||||||||
| COMMERCIAL SERVICES AND SUPPLIES — 0.2% | ||||||||
| Knoll, Inc. | 21,501 | 327,890 | ||||||
| COMMUNICATIONS EQUIPMENT — 1.1% | ||||||||
| Cisco Systems, Inc. | 52,042 | 964,338 | ||||||
| Motorola Solutions, Inc. | 3,712 | 174,130 | ||||||
| QUALCOMM, Inc. | 13,823 | 713,267 | ||||||
| 1,851,735 | ||||||||
| COMPUTERS AND PERIPHERALS — 6.1% | ||||||||
Apple, Inc.(1) | 17,925 | 7,255,682 | ||||||
EMC Corp.(1) | 77,561 | 1,901,020 | ||||||
| Hewlett-Packard Co. | 13,603 | 361,976 | ||||||
SanDisk Corp.(1) | 19,584 | 992,321 | ||||||
| 10,510,999 | ||||||||
| CONSTRUCTION AND ENGINEERING — 0.2% | ||||||||
| EMCOR Group, Inc. | 9,069 | 227,360 | ||||||
| Fluor Corp. | 2,501 | 142,182 | ||||||
Foster Wheeler AG(1) | 1,827 | 38,951 | ||||||
| 408,493 | ||||||||
| CONSUMER FINANCE — 1.8% | ||||||||
| American Express Co. | 21,063 | 1,066,209 | ||||||
| Capital One Financial Corp. | 31,758 | 1,450,070 | ||||||
| Discover Financial Services | 24,084 | 567,419 | ||||||
| 3,083,698 | ||||||||
| CONTAINERS AND PACKAGING — 0.1% | ||||||||
| Sealed Air Corp. | 11,921 | 212,194 | ||||||
| DIVERSIFIED CONSUMER SERVICES — 0.2% | ||||||||
| Sotheby’s | 9,558 | 336,633 | ||||||
| DIVERSIFIED FINANCIAL SERVICES — 2.3% | ||||||||
| Citigroup, Inc. | 32,771 | 1,035,236 | ||||||
| JPMorgan Chase & Co. | 82,688 | 2,874,235 | ||||||
| 3,909,471 | ||||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 1.9% | ||||||||
| AT&T, Inc. | 89,955 | 2,636,581 | ||||||
| Verizon Communications, Inc. | 15,741 | 582,102 | ||||||
| 3,218,683 | ||||||||
| ELECTRIC UTILITIES — 0.5% | ||||||||
| FirstEnergy Corp. | 20,683 | 929,908 | ||||||
| ELECTRICAL EQUIPMENT — 1.2% | ||||||||
| Belden, Inc. | 11,190 | 361,213 | ||||||
| Emerson Electric Co. | 35,836 | 1,724,428 | ||||||
| 2,085,641 | ||||||||
| ENERGY EQUIPMENT AND SERVICES — 1.3% | ||||||||
Nabors Industries Ltd.(1) | 40,079 | 734,648 | ||||||
| National Oilwell Varco, Inc. | 13,506 | 963,383 | ||||||
| Patterson-UTI Energy, Inc. | 24,467 | 497,169 | ||||||
| 2,195,200 | ||||||||
12
| Shares | Value | |||||||
| FOOD AND STAPLES RETAILING — 2.1% | ||||||||
| Kroger Co. (The) | 2,477 | $57,417 | ||||||
| Safeway, Inc. | 12,140 | 235,152 | ||||||
| SYSCO Corp. | 8,996 | 249,369 | ||||||
| Wal-Mart Stores, Inc. | 40,766 | 2,312,248 | ||||||
| Walgreen Co. | 21,907 | 727,312 | ||||||
| 3,581,498 | ||||||||
| FOOD PRODUCTS — 2.8% | ||||||||
| ConAgra Foods, Inc. | 6,602 | 167,229 | ||||||
| H.J. Heinz Co. | 40,150 | 2,145,616 | ||||||
| Kraft Foods, Inc., Class A | 4,736 | 166,612 | ||||||
| Sara Lee Corp. | 9,376 | 166,893 | ||||||
Smithfield Foods, Inc.(1) | 30,591 | 699,310 | ||||||
| Tyson Foods, Inc., Class A | 78,227 | 1,509,781 | ||||||
| 4,855,441 | ||||||||
| GAS UTILITIES — 0.1% | ||||||||
| Questar Corp. | 10,173 | 196,034 | ||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 0.3% | ||||||||
| Baxter International, Inc. | 962 | 52,891 | ||||||
| Covidien plc | 1,536 | 72,253 | ||||||
| Medtronic, Inc. | 4,609 | 160,117 | ||||||
| Stryker Corp. | 5,696 | 272,895 | ||||||
| 558,156 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 5.1% | ||||||||
| Aetna, Inc. | 22,159 | 881,042 | ||||||
| AmerisourceBergen Corp. | 56,484 | 2,304,547 | ||||||
| Cardinal Health, Inc. | 45,678 | 2,022,165 | ||||||
| Humana, Inc. | 12,732 | 1,080,820 | ||||||
Medco Health Solutions, Inc.(1) | 6,574 | 360,650 | ||||||
| UnitedHealth Group, Inc. | 43,060 | 2,066,449 | ||||||
| 8,715,673 | ||||||||
| HOTELS, RESTAURANTS AND LEISURE — 1.6% | ||||||||
Bally Technologies, Inc.(1) | 4,241 | 153,821 | ||||||
Cheesecake Factory, Inc. (The)(1) | 3,144 | 88,000 | ||||||
| Starbucks Corp. | 22,570 | 955,614 | ||||||
| Wyndham Worldwide Corp. | 19,978 | 672,659 | ||||||
| Wynn Resorts Ltd. | 6,131 | 814,197 | ||||||
| 2,684,291 | ||||||||
| HOUSEHOLD DURABLES — 0.4% | ||||||||
Tempur-Pedic International, Inc.(1) | 3,467 | 235,964 | ||||||
| Tupperware Brands Corp. | 4,309 | 243,631 | ||||||
| Whirlpool Corp. | 5,285 | 268,531 | ||||||
| 748,126 | ||||||||
| HOUSEHOLD PRODUCTS — 2.5% | ||||||||
| Colgate-Palmolive Co. | 1,927 | 174,143 | ||||||
| Kimberly-Clark Corp. | 7,168 | 499,681 | ||||||
| Procter & Gamble Co. (The) | 57,538 | 3,681,857 | ||||||
| 4,355,681 | ||||||||
| INDUSTRIAL CONGLOMERATES — 1.5% | ||||||||
| General Electric Co. | 150,220 | 2,510,176 | ||||||
| INSURANCE — 5.4% | ||||||||
| ACE Ltd. | 11,484 | 828,571 | ||||||
| Aflac, Inc. | 12,019 | 541,937 | ||||||
| American Financial Group, Inc. | 5,849 | 209,570 | ||||||
| Assurant, Inc. | 11,556 | 445,368 | ||||||
| Chubb Corp. (The) | 6,949 | 465,930 | ||||||
| Principal Financial Group, Inc. | 17,799 | 458,858 | ||||||
| Prudential Financial, Inc. | 48,782 | 2,643,984 | ||||||
| Travelers Cos., Inc. (The) | 36,277 | 2,116,763 | ||||||
| Unum Group | 67,721 | 1,614,469 | ||||||
| 9,325,450 | ||||||||
| INTERNET AND CATALOG RETAIL — 0.7% | ||||||||
Amazon.com, Inc.(1) | 3,821 | 815,822 | ||||||
| Expedia, Inc. | 7,466 | 196,057 | ||||||
priceline.com, Inc.(1) | 211 | 107,129 | ||||||
| 1,119,008 | ||||||||
| INTERNET SOFTWARE AND SERVICES — 1.6% | ||||||||
AOL, Inc.(1) | 4,973 | 70,219 | ||||||
eBay, Inc.(1) | 7,168 | 228,158 | ||||||
Google, Inc., Class A(1) | 4,224 | 2,503,311 | ||||||
| 2,801,688 | ||||||||
| IT SERVICES — 4.6% | ||||||||
| Accenture plc, Class A | 19,819 | 1,194,293 | ||||||
| International Business Machines Corp. | 29,682 | 5,480,188 | ||||||
| Western Union Co. (The) | 67,437 | 1,178,124 | ||||||
| 7,852,605 | ||||||||
| LEISURE EQUIPMENT AND PRODUCTS — 0.3% | ||||||||
| Hasbro, Inc. | 15,286 | 581,785 | ||||||
| LIFE SCIENCES TOOLS AND SERVICES — 0.1% | ||||||||
Thermo Fisher Scientific, Inc.(1) | 2,999 | 150,760 | ||||||
| MACHINERY — 1.9% | ||||||||
| Caterpillar, Inc. | 10,592 | 1,000,520 | ||||||
| Dover Corp. | 32,619 | 1,811,333 | ||||||
Oshkosh Corp.(1) | 1,724 | 35,963 | ||||||
| Wabtec Corp. | 5,485 | 368,482 | ||||||
| 3,216,298 | ||||||||
13
| Shares | Value | |||||||
| MEDIA — 4.1% | ||||||||
| CBS Corp., Class B | 46,667 | $1,204,475 | ||||||
| Comcast Corp., Class A | 102,243 | 2,397,598 | ||||||
DirecTV, Class A(1) | 1,878 | 85,374 | ||||||
| Gannett Co., Inc. | 5,231 | 61,150 | ||||||
| Omnicom Group, Inc. | 5,447 | 242,283 | ||||||
| Time Warner Cable, Inc. | 13,823 | 880,387 | ||||||
| Time Warner, Inc. | 54,853 | 1,919,307 | ||||||
| Viacom, Inc., Class B | 7,679 | 336,724 | ||||||
| 7,127,298 | ||||||||
| METALS AND MINING — 1.6% | ||||||||
| Cliffs Natural Resources, Inc. | 10,132 | 691,205 | ||||||
| Freeport-McMoRan Copper & Gold, Inc. | 44,504 | 1,791,731 | ||||||
| Reliance Steel & Aluminum Co. | 4,534 | 200,358 | ||||||
| 2,683,294 | ||||||||
| MULTI-UTILITIES — 3.1% | ||||||||
| CenterPoint Energy, Inc. | 63,700 | 1,327,508 | ||||||
| DTE Energy Co. | 18,181 | 947,412 | ||||||
| NSTAR | 33,130 | 1,493,831 | ||||||
| Public Service Enterprise Group, Inc. | 2,411 | 81,251 | ||||||
| Xcel Energy, Inc. | 55,982 | 1,447,135 | ||||||
| 5,297,137 | ||||||||
| MULTILINE RETAIL — 0.1% | ||||||||
| Dillard’s, Inc., Class A | 3,312 | 170,667 | ||||||
| OIL, GAS AND CONSUMABLE FUELS — 11.4% | ||||||||
| Anadarko Petroleum Corp. | 4,544 | 356,704 | ||||||
| Chevron Corp. | 37,420 | 3,930,971 | ||||||
| ConocoPhillips | 40,263 | 2,804,318 | ||||||
| Exxon Mobil Corp. | 98,641 | 7,702,876 | ||||||
| Hess Corp. | 6,524 | 408,142 | ||||||
| HollyFrontier Corp. | 31,093 | 954,244 | ||||||
| Murphy Oil Corp. | 9,581 | 530,500 | ||||||
| Occidental Petroleum Corp. | 20,584 | 1,913,077 | ||||||
| Peabody Energy Corp. | 11,263 | 488,476 | ||||||
| Valero Energy Corp. | 8,849 | 217,685 | ||||||
| Williams Cos., Inc. (The) | 8,191 | 246,631 | ||||||
| 19,553,624 | ||||||||
| PAPER AND FOREST PRODUCTS — 0.8% | ||||||||
| International Paper Co. | 46,849 | 1,297,717 | ||||||
| PHARMACEUTICALS — 5.3% | ||||||||
| Abbott Laboratories | 48,343 | 2,604,238 | ||||||
| Bristol-Myers Squibb Co. | 81,143 | 2,563,307 | ||||||
Hospira, Inc.(1) | 9,667 | 304,027 | ||||||
| Johnson & Johnson | 43,820 | 2,821,570 | ||||||
| Merck & Co., Inc. | 3,252 | 112,194 | ||||||
| Pfizer, Inc. | 33,904 | 652,991 | ||||||
| 9,058,327 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.9% | ||||||||
| Annaly Capital Management, Inc. | 42,816 | 721,450 | ||||||
| Public Storage | 6,800 | 877,540 | ||||||
| 1,598,990 | ||||||||
| ROAD AND RAIL — 1.3% | ||||||||
Avis Budget Group, Inc.(1) | 1,382 | 19,486 | ||||||
| CSX Corp. | 9,377 | 208,263 | ||||||
| Ryder System, Inc. | 18,503 | 942,543 | ||||||
| Union Pacific Corp. | 10,313 | 1,026,866 | ||||||
| 2,197,158 | ||||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.6% | ||||||||
| Altera Corp. | 35,030 | 1,328,338 | ||||||
| Intel Corp. | 66,516 | 1,632,303 | ||||||
Marvell Technology Group Ltd.(1) | 50,462 | 705,963 | ||||||
Micron Technology, Inc.(1) | 23,663 | 132,276 | ||||||
| Texas Instruments, Inc. | 20,504 | 630,088 | ||||||
| 4,428,968 | ||||||||
| SOFTWARE — 3.2% | ||||||||
| Microsoft Corp. | 139,377 | 3,711,610 | ||||||
| Oracle Corp. | 31,999 | 1,048,607 | ||||||
Red Hat, Inc.(1) | 871 | 43,245 | ||||||
Symantec Corp.(1) | 40,150 | 682,951 | ||||||
| 5,486,413 | ||||||||
| SPECIALTY RETAIL — 1.8% | ||||||||
AutoZone, Inc.(1) | 868 | 280,876 | ||||||
| Chico’s FAS, Inc. | 14,968 | 185,004 | ||||||
| Gap, Inc. (The) | 31,065 | 587,129 | ||||||
| Home Depot, Inc. (The) | 22,159 | 793,292 | ||||||
| Limited Brands, Inc. | 2,876 | 122,834 | ||||||
| Lowe’s Cos., Inc. | 19,893 | 418,151 | ||||||
Pier 1 Imports, Inc.(1) | 59,238 | 741,067 | ||||||
| 3,128,353 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 0.3% | ||||||||
| Coach, Inc. | 8,558 | 556,869 | �� | |||||
| TOBACCO — 1.4% | ||||||||
| Altria Group, Inc. | 9,741 | 268,365 | ||||||
| Lorillard, Inc. | 2,031 | 224,750 | ||||||
| Philip Morris International, Inc. | 26,467 | 1,849,249 | ||||||
| 2,342,364 | ||||||||
| TRADING COMPANIES AND DISTRIBUTORS — 0.5% | ||||||||
United Rentals, Inc.(1) | 33,691 | 788,706 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 0.8% | ||||||||
American Tower Corp., Class A(1) | 25,890 | 1,426,539 | ||||||
TOTAL COMMON STOCKS (Cost $131,042,085) | 169,376,987 | |||||||
14
| Shares | Value | |||||||
| Exchange-Traded Funds — 0.4% | ||||||||
SPDR S&P 500 ETF Trust (Cost $675,752) | 5,963 | $748,058 | ||||||
| Temporary Cash Investments — 0.6% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $351,757), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $344,352) | 344,351 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $352,903), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $344,351) | 344,351 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $350,902), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $344,351) | 344,351 | |||||||
| SSgA U.S. Government Money Market Fund | 30,082 | $30,082 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,063,135) | 1,063,135 | |||||||
TOTAL INVESTMENT SECURITIES — 99.6% (Cost $132,780,972) | 171,188,180 | |||||||
| OTHER ASSETS AND LIABILITIES — 0.4% | 642,816 | |||||||
| TOTAL NET ASSETS — 100.0% | $171,830,996 | |||||||
Notes to Schedule of Investments
ETF= Exchange-Traded Fund
SPDR = Standard & Poor’s Depositary Receipts
(1)Non-income producing.
See Notes to Financial Statements.
15
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $132,780,972) | $171,188,180 | |||
| Receivable for investments sold | 592,132 | |||
| Receivable for capital shares sold | 218,964 | |||
| Dividends and interest receivable | 242,290 | |||
| 172,241,566 | ||||
| Liabilities | ||||
| Payable for capital shares redeemed | 232,666 | |||
| Accrued management fees | 140,901 | |||
| Distribution and service fees payable | 37,003 | |||
| 410,570 | ||||
| Net Assets | $171,830,996 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $248,461,339 | |||
| Undistributed net investment income | 1,058,401 | |||
| Accumulated net realized loss | (116,095,952 | ) | ||
| Net unrealized appreciation | 38,407,208 | |||
| $171,830,996 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $45,991,334 | 3,546,851 | $12.97 | |||||||||
| Institutional Class, $0.01 Par Value | $102,647 | 7,904 | $12.99 | |||||||||
| A Class, $0.01 Par Value | $106,158,717 | 8,201,134 | $12.94 | * | ||||||||
| B Class, $0.01 Par Value | $3,132,726 | 245,235 | $12.77 | |||||||||
| C Class, $0.01 Par Value | $13,989,527 | 1,094,754 | $12.78 | |||||||||
| R Class, $0.01 Par Value | $2,456,045 | 190,381 | $12.90 | |||||||||
*Maximum offering price $13.73 (net asset value divided by 0.9425)
See Notes to Financial Statements.
16
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends | $3,976,536 | |||
| Interest | 2,606 | |||
| 3,979,142 | ||||
| Expenses: | ||||
| Management fees | 1,879,996 | |||
| Distribution and service fees: | ||||
| A Class | 302,362 | |||
| B Class | 36,789 | |||
| C Class | 148,136 | |||
| R Class | 14,222 | |||
| Directors’ fees and expenses | 14,014 | |||
| 2,395,519 | ||||
| Net investment income (loss) | 1,583,623 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 10,165,039 | |||
| Futures contract transactions | (87,401 | ) | ||
| 10,077,638 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | 6,431,283 | |||
| Futures contracts | (12,132 | ) | ||
| 6,419,151 | ||||
| Net realized and unrealized gain (loss) | 16,496,789 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $18,080,412 | |||
See Notes to Financial Statements.
17
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | |||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | |||||
| Operations | |||||||
| Net investment income (loss) | $1,583,623 | $1,642,996 | |||||
| Net realized gain (loss) | 10,077,638 | 4,940,106 | |||||
| Change in net unrealized appreciation (depreciation) | 6,419,151 | 21,008,718 | |||||
| Net increase (decrease) in net assets resulting from operations | 18,080,412 | 27,591,820 | |||||
| Distributions to Shareholders | |||||||
| From net investment income: | |||||||
| Investor Class | (476,248 | ) | (497,306 | ) | |||
| Institutional Class | (1,525 | ) | (3,938 | ) | |||
| A Class | (1,090,905 | ) | (1,609,202 | ) | |||
| B Class | (3,497 | ) | (10,268 | ) | |||
| C Class | (13,721 | ) | (38,972 | ) | |||
| R Class | (16,038 | ) | (20,874 | ) | |||
| Decrease in net assets from distributions | (1,601,934 | ) | (2,180,560 | ) | |||
| Capital Share Transactions | |||||||
| Net increase (decrease) in net assets from capital share transactions | (37,702,737 | ) | (52,512,098 | ) | |||
| Net increase (decrease) in net assets | (21,224,259 | ) | (27,100,838 | ) | |||
| Net Assets | |||||||
| Beginning of period | 193,055,255 | 220,156,093 | |||||
| End of period | $171,830,996 | $193,055,255 | |||||
| Undistributed net investment income | $1,058,401 | $1,109,077 | |||||
See Notes to Financial Statements.
18
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Fundamental Equity Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective. The fund pursues its objectives using a quantitative model that combines fundamental measures of a stock’s value and growth potential. The fund generally invests in larger-sized companies, although it may invest in companies of any size.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Exchange-traded futures contracts are valued at the settlement price as provided by the appropriate clearing corporation.
19
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that 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. The fund is no longer subject to examination by tax authorities for years prior to 2008. Additionally, non-U.S. tax returns filed by the fund due to investments in certain foreign securities remain subject to examination by the relevant taxing authority for seven years from the date of filing. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
20
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 1.000% for the Investor Class, A Class,
B Class, C Class and R Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 1.00% for the Investor Class, A Class, B Class, C Class and R Class and 0.80% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and C Class will each pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $32,346,354 and $65,142,773, respectively.
21
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010 | ||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||
| Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | |||||||||||||
| Sold | 1,087,184 | $13,925,436 | 795,645 | $9,031,346 | |||||||||||
| Issued in reinvestment of distributions | 36,152 | 451,179 | 41,430 | 466,086 | |||||||||||
| Redeemed | (1,067,200 | ) | (13,854,962 | ) | (932,491 | ) | (10,516,363 | ) | |||||||
| 56,136 | 521,653 | (95,416 | ) | (1,018,931 | ) | ||||||||||
| Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | |||||||||||||
| Sold | 1,571 | 20,636 | — | — | |||||||||||
| Issued in reinvestment of distributions | 122 | 1,525 | 261 | 2,933 | |||||||||||
| Redeemed | (3,787 | ) | (50,840 | ) | (16,120 | ) | (182,316 | ) | |||||||
| (2,094 | ) | (28,679 | ) | (15,859 | ) | (179,383 | ) | ||||||||
| A Class/Shares Authorized | 150,000,000 | 150,000,000 | |||||||||||||
| Sold | 1,054,724 | 13,579,202 | 1,427,524 | 16,144,781 | |||||||||||
| Issued in reinvestment of distributions | 84,114 | 1,049,738 | 138,149 | 1,555,561 | |||||||||||
| Redeemed | (3,834,225 | ) | (49,366,679 | ) | (5,821,242 | ) | (65,672,758 | ) | |||||||
| (2,695,387 | ) | (34,737,739 | ) | (4,255,569 | ) | (47,972,416 | ) | ||||||||
| B Class/Shares Authorized | 25,000,000 | 25,000,000 | |||||||||||||
| Sold | 2,834 | 36,606 | 1,365 | 15,388 | |||||||||||
| Issued in reinvestment of distributions | 262 | 3,246 | 787 | 8,796 | |||||||||||
| Redeemed | (83,929 | ) | (1,056,396 | ) | (64,186 | ) | (716,061 | ) | |||||||
| (80,833 | ) | (1,016,544 | ) | (62,034 | ) | (691,877 | ) | ||||||||
| C Class/Shares Authorized | 50,000,000 | 50,000,000 | |||||||||||||
| Sold | 171,419 | 2,193,034 | 296,361 | 3,339,002 | |||||||||||
| Issued in reinvestment of distributions | 729 | 9,037 | 2,442 | 27,326 | |||||||||||
| Redeemed | (335,718 | ) | (4,280,843 | ) | (509,599 | ) | (5,682,924 | ) | |||||||
| (163,570 | ) | (2,078,772 | ) | (210,796 | ) | (2,316,596 | ) | ||||||||
| R Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
| Sold | 36,394 | 467,960 | 61,556 | 693,221 | |||||||||||
| Issued in reinvestment of distributions | 1,286 | 16,038 | 1,856 | 20,874 | |||||||||||
| Redeemed | (68,028 | ) | (846,654 | ) | (94,557 | ) | (1,046,990 | ) | |||||||
| (30,348 | ) | (362,656 | ) | (31,145 | ) | (332,895 | ) | ||||||||
| Net increase (decrease) | (2,916,096 | ) | $(37,702,737 | ) | (4,670,819 | ) | $(52,512,098 | ) | |||||||
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
22
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 | |||||||||
| Investment Securities | |||||||||||
| Common Stocks | $169,376,987 | — | — | ||||||||
| Exchange-Traded Funds | 748,058 | — | — | ||||||||
| Temporary Cash Investments | 30,082 | $1,033,053 | — | ||||||||
| Total Value of Investment Securities | $170,155,127 | $1,033,053 | — | ||||||||
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 regularly held equity price risk derivative instruments though none were held at period end.
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities. For the year ended October 31, 2011, the effect of equity price risk derivative instruments on the Statement of Operations was $(87,401) in net realized gain (loss) on futures contract transactions and $(12,132) in change in net unrealized appreciation (depreciation) on futures contracts.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $1,601,934 | $2,180,560 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $136,660,564 | |||
| Gross tax appreciation of investments | $38,850,905 | |||
| Gross tax depreciation of investments | (4,323,289 | ) | ||
| Net tax appreciation (depreciation) of investments | $34,527,616 | |||
| Net tax appreciation (depreciation) on derivatives | — | |||
| Net tax appreciation (depreciation) | $34,527,616 | |||
| Undistributed ordinary income | $1,058,401 | |||
| Accumulated capital losses | $(112,216,360 | ) |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
The accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(38,585,133) and $(73,631,227) expire in 2016 and 2017, respectively.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused.
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| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.95 | 0.14 | 1.02 | 1.16 | (0.14 | ) | — | (0.14 | ) | $12.97 | 9.72 | % | 1.01 | % | 1.11 | % | 18 | % | $45,991 | |||||||||||||||||||||
| 2010 | $10.57 | 0.12 | 1.40 | 1.52 | (0.14 | ) | — | (0.14 | ) | $11.95 | 14.47 | % | 1.02 | % | 1.06 | % | 29 | % | $41,698 | |||||||||||||||||||||
| 2009 | $9.93 | 0.12 | 0.66 | 0.78 | (0.14 | ) | — | (0.14 | ) | $10.57 | 8.16 | % | 1.01 | % | 1.37 | % | 64 | % | $37,918 | |||||||||||||||||||||
| 2008 | $15.68 | 0.15 | (5.42 | ) | (5.27 | ) | (0.12 | ) | (0.36 | ) | (0.48 | ) | $9.93 | (34.56 | )% | 1.01 | % | 1.15 | % | 97 | % | $37,535 | ||||||||||||||||||
| 2007 | $12.88 | 0.14 | 2.93 | 3.07 | (0.08 | ) | (0.19 | ) | (0.27 | ) | $15.68 | 24.18 | % | 1.00 | % | 0.99 | % | 82 | % | $53,908 | ||||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.96 | 0.17 | 1.02 | 1.19 | (0.16 | ) | — | (0.16 | ) | $12.99 | 10.02 | % | 0.81 | % | 1.31 | % | 18 | % | $103 | |||||||||||||||||||||
| 2010 | $10.59 | 0.15 | 1.38 | 1.53 | (0.16 | ) | — | (0.16 | ) | $11.96 | 14.57 | % | 0.82 | % | 1.26 | % | 29 | % | $120 | |||||||||||||||||||||
| 2009 | $9.94 | 0.16 | 0.65 | 0.81 | (0.16 | ) | — | (0.16 | ) | $10.59 | 8.47 | % | 0.81 | % | 1.57 | % | 64 | % | $274 | |||||||||||||||||||||
| 2008 | $15.70 | 0.19 | (5.44 | ) | (5.25 | ) | (0.15 | ) | (0.36 | ) | (0.51 | ) | $9.94 | (34.45 | )% | 0.81 | % | 1.35 | % | 97 | % | $589 | ||||||||||||||||||
| 2007 | $12.90 | 0.19 | 2.91 | 3.10 | (0.11 | ) | (0.19 | ) | (0.30 | ) | $15.70 | 24.43 | % | 0.80 | % | 1.19 | % | 82 | % | $286 | ||||||||||||||||||||
| A Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.93 | 0.11 | 1.01 | 1.12 | (0.11 | ) | — | (0.11 | ) | $12.94 | 9.38 | % | 1.26 | % | 0.86 | % | 18 | % | $106,159 | |||||||||||||||||||||
| 2010 | $10.56 | 0.09 | 1.39 | 1.48 | (0.11 | ) | — | (0.11 | ) | $11.93 | 14.10 | % | 1.27 | % | 0.81 | % | 29 | % | $129,960 | |||||||||||||||||||||
| 2009 | $9.91 | 0.11 | 0.66 | 0.77 | (0.12 | ) | — | (0.12 | ) | $10.56 | 8.00 | % | 1.26 | % | 1.12 | % | 64 | % | $159,959 | |||||||||||||||||||||
| 2008 | $15.65 | 0.12 | (5.41 | ) | (5.29 | ) | (0.09 | ) | (0.36 | ) | (0.45 | ) | $9.91 | (34.73 | )% | 1.26 | % | 0.90 | % | 97 | % | $218,469 | ||||||||||||||||||
| 2007 | $12.85 | 0.11 | 2.92 | 3.03 | (0.04 | ) | (0.19 | ) | (0.23 | ) | $15.65 | 23.88 | % | 1.25 | % | 0.74 | % | 82 | % | $246,322 | ||||||||||||||||||||
25
xxxxx
| 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) | ||||||||||||||||||||||||||||
| B Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.77 | 0.01 | 1.00 | 1.01 | (0.01 | ) | — | (0.01 | ) | $12.77 | 8.59 | % | 2.01 | % | 0.11 | % | 18 | % | $3,133 | |||||||||||||||||||||
| 2010 | $10.42 | 0.01 | 1.37 | 1.38 | (0.03 | ) | — | (0.03 | ) | $11.77 | 13.23 | % | 2.02 | % | 0.06 | % | 29 | % | $3,838 | |||||||||||||||||||||
| 2009 | $9.78 | 0.03 | 0.66 | 0.69 | (0.05 | ) | — | (0.05 | ) | $10.42 | 7.17 | % | 2.01 | % | 0.37 | % | 64 | % | $4,043 | |||||||||||||||||||||
| 2008 | $15.45 | 0.02 | (5.36 | ) | (5.34 | ) | — | (0.33 | ) | (0.33 | ) | $9.78 | (35.23 | )% | 2.01 | % | 0.15 | % | 97 | % | $4,195 | |||||||||||||||||||
| 2007 | $12.74 | 0.01 | 2.89 | 2.90 | — | (0.19 | ) | (0.19 | ) | $15.45 | 23.01 | % | 2.00 | % | (0.01 | )% | 82 | % | $4,889 | |||||||||||||||||||||
| C Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.77 | 0.01 | 1.01 | 1.02 | (0.01 | ) | — | (0.01 | ) | $12.78 | 8.68 | % | 2.01 | % | 0.11 | % | 18 | % | $13,990 | |||||||||||||||||||||
| 2010 | $10.42 | 0.01 | 1.37 | 1.38 | (0.03 | ) | — | (0.03 | ) | $11.77 | 13.23 | % | 2.02 | % | 0.06 | % | 29 | % | $14,816 | |||||||||||||||||||||
| 2009 | $9.79 | 0.03 | 0.65 | 0.68 | (0.05 | ) | — | (0.05 | ) | $10.42 | 7.06 | % | 2.01 | % | 0.37 | % | 64 | % | $15,311 | |||||||||||||||||||||
| 2008 | $15.46 | 0.02 | (5.36 | ) | (5.34 | ) | — | (0.33 | ) | (0.33 | ) | $9.79 | (35.20 | )% | 2.01 | % | 0.15 | % | 97 | % | $18,919 | |||||||||||||||||||
| 2007 | $12.75 | — | (3) | 2.90 | 2.90 | — | (0.19 | ) | (0.19 | ) | $15.46 | 22.99 | % | 2.00 | % | (0.01 | )% | 82 | % | $24,544 | ||||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||||||||
| 2011 | $11.89 | 0.08 | 1.00 | 1.08 | (0.07 | ) | — | (0.07 | ) | $12.90 | 9.14 | % | 1.51 | % | 0.61 | % | 18 | % | $2,456 | |||||||||||||||||||||
| 2010 | $10.52 | 0.06 | 1.39 | 1.45 | (0.08 | ) | — | (0.08 | ) | $11.89 | 13.86 | % | 1.52 | % | 0.56 | % | 29 | % | $2,624 | |||||||||||||||||||||
| 2009 | $9.88 | 0.06 | 0.68 | 0.74 | (0.10 | ) | — | (0.10 | ) | $10.52 | 7.64 | % | 1.51 | % | 0.87 | % | 64 | % | $2,650 | |||||||||||||||||||||
| 2008 | $15.61 | 0.09 | (5.41 | ) | (5.32 | ) | (0.05 | ) | (0.36 | ) | (0.41 | ) | $9.88 | (34.92 | )% | 1.51 | % | 0.65 | % | 97 | % | $364 | ||||||||||||||||||
| 2007 | $12.81 | 0.09 | 2.90 | 2.99 | — | (3) | (0.19 | ) | (0.19 | ) | $15.61 | 23.60 | % | 1.50 | % | 0.49 | % | 82 | % | $438 | ||||||||||||||||||||
26
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.
27
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Fundamental Equity Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fundamental Equity Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
28
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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | ||||
| Independent Directors | |||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | ||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | ||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization)(2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | ||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | ||||
29
| (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 | |||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | ||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | ||||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | ||||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | ||||
| Interested Director | |||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | ||||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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.
31
At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services - Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
| • | constructing and designing the Fund |
| • | portfolio research and security selection |
| • | initial capitalization/funding |
| • | securities trading |
| • | Fund administration |
| • | custody of Fund assets |
| • | daily valuation of the Fund’s portfolio |
| • | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
| • | regulatory and portfolio compliance |
| • | financial reporting |
| • | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks
33
and/or peer groups of similarly-managed funds, over different time horizons. The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
34
Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
35
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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
36
Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $1,601,934, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
38
39
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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 Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73906 1112
ANNUAL REPORT OCTOBER 31, 2011
| Growth Fund |
| President’s Letter | 2 |
| Independent Chairman’s Letter | 3 |
| Market Perspective | 4 |
| Performance | 5 |
| Portfolio Commentary | 7 |
| Fund Characteristics | 9 |
| Shareholder Fee Example | 10 |
| Schedule of Investments | 12 |
| Statement of Assets and Liabilities | 15 |
| Statement of Operations | 16 |
| Statement of Changes in Net Assets | 17 |
| Notes to Financial Statements | 18 |
| Financial Highlights | 25 |
| Report of Independent Registered Public Accounting Firm | 27 |
| Management | 28 |
| Approval of Management Agreement | 31 |
| Additional Information | 36 |
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.
Dear Investor:
Thank you for reviewing this annual report for the period ended October 31, 2011. Our report offers investment performance and portfolio information, presented with the expert perspective of our portfolio management team.
This report remains one of our most important vehicles for conveying information about investment performance, as well as market factors and strategies that affected fund returns. For additional, updated information, we encourage you to visit our website, americancentury.com. Click on the “Fund Performance” and “Insights & News” headings at the top of our Individual Investors site.
Volatile Period Produces Moderate U.S. Stock Returns
Broad U.S. stock market indices returned roughly 7–10% during the 12 months ended October 31, 2011. That’s a moderate level of equity performance compared with the shorter-term volatility we experienced during the period.
For example, from October 31, 2010, to April 29, 2011, the S&P 500 Index gained over 15%. That upturn was the latter part of an approximately 30% rally (extending back to late August 2010) that began in expectation of the Federal Reserve’s second round of quantitative easing (government securities purchases intended to stimulate economic growth and investment risk-taking), which started during the fourth quarter of 2010.
Economic optimism and increased risk-taking governed market performance from the third quarter of 2010 until the end of April 2011. That optimism eroded, however, and investors’ risk tolerance reversed as high fuel prices, further U.S. home value declines, elevated U.S. unemployment rates, natural disasters, a near-default on U.S. government debt, a U.S. debt rating downgrade, and a resurgence of the European sovereign debt crisis ebbed the economic tide.
In response, the S&P 500 Index declined over 15% from the end of April to early October 2011. And the roller coaster wasn’t over—the S&P 500 Index rebounded over 14% during a stretch in October on better economic news and European efforts to ease the debt crisis.
Unfortunately, further volatility appears likely in 2012 as the markets wrestle with uncertainties regarding European debt, economic strength, government budget deficits, and the U.S. presidential election. We believe strongly in adhering to a disciplined, diversified, long-term investment approach during volatile periods, and we appreciate your continued trust in us during these unsettled times.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board of directors of the fund was pleased at the announcement of a new strategic partner for the investment advisor to the American Century Investments funds. Canadian Imperial Bank of Commerce (CIBC), a leading Canadian financial institution, purchased the 41 percent economic interest in American Century Companies, the parent corporation of the advisor, previously held by JPMorgan Chase & Co. Based in Toronto, CIBC provides a full range of retail and wholesale banking services to almost 11 million clients through approximately 1,100 branches and offices in Canada, the U.S. and around the world. This transaction will benefit fund shareholders by bolstering the financial strength of the advisor and providing a strategic partner to help support its growth initiative to broaden non-U.S. distribution of its products and services.
The board also has been briefed throughout the year on the impact on fund performance of the European banking crisis, the U.S. deficit reduction debates, and the pace of economic growth. While the performance of all funds has been affected, the majority of American Century Investments funds overseen by the board are exceeding their benchmarks for the one-, three-, five-, and ten-year periods ended September 30, 2011. This is commendable performance,
particularly in these challenging market conditions.
We are completing another year of board oversight on your behalf. We appreciate any comments you would like to share with the board. Send them to me at dhpratt@fundboardchair.com. Thank you for your continued investment in American Century Investments funds.
Best regards,
Don Pratt
3
By Greg Woodhams,
Chief Investment Officer,
U.S. Growth Equity—Large Cap
Stocks Advanced in a Volatile Year
U.S. equities managed positive returns during a volatile 12 months ended October 31, 2011. Action in stocks in some respects mirrored changes in the pace of economic growth—U.S. gross domestic product expanded at a 2.3% annual rate in the fourth quarter of 2010, but dipped to 0.4% and 1.3% in the first and second quarters of 2011, respectively, before returning to 2.0% growth in the third quarter of the year.
Similarly, stocks began the period with gains, buoyed by robust corporate earnings growth; the Federal Reserve’s second round of quantitative easing; and the extension of unemployment benefits and Bush-era tax cuts. But uncertainty generated by a series of events—including political unrest in the Middle East, the tragic earthquake and nuclear disaster in Japan, and concerns around the resolution of European sovereign debt and U.S. budgetary issues—served to compress price/earnings multiples. Equity markets finished the fiscal year with a sharp rebound in October after the economic data turned out to be not as bad as feared.
Growth Outperformed Value
In that environment, growth-oriented shares outperformed value across all capitalization ranges as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, large-capitalization stocks did better than those of mid- and small-cap companies.
Looking at the major sectors in the Russell 1000 Growth Index, performance was widely dispersed, reflecting the volatile nature of the reporting period. For example, both consumer staples and consumer discretionary stocks were among the best-performing segments within the index. It was a similar story when looking at many economically sensitive sectors—energy was the top performer, while materials and industrials were among the lagging sectors. Financials also underperformed, partly as a result of worry about exposure to Europe and the slowing economy. Information technology stocks fared reasonably well overall, though performance varied widely within the sector.
| U.S. Stock Index Returns | ||||
| For the 12 months ended October 31, 2011 | ||||
| Russell 1000 Index (Large-Cap) | 8.01% | Russell 2000 Index (Small-Cap) | 6.71% | |
| Russell 1000 Growth Index | 9.92% | Russell 2000 Growth Index | 9.84% | |
| Russell 1000 Value Index | 6.16% | Russell 2000 Value Index | 3.54% | |
| Russell Midcap Index | 7.85% | |||
| Russell Midcap Growth Index | 10.08% | |||
| Russell Midcap Value Index | 5.83% | |||
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| Total Returns as of October 31, 2011 | ||||||
| Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
| Investor Class | TWCGX | 8.20% | 3.58% | 3.97% | 13.27% | 6/30/71(1) |
| Russell 1000 Growth Index | — | 9.92% | 3.04% | 3.56% | N/A(2) | — |
| Institutional Class | TWGIX | 8.42% | 3.80% | 4.18% | 4.76% | 6/16/97 |
A Class(3) No sales charge* With sales charge* | TCRAX | 7.93% 1.73% | 3.33% 2.12% | 3.71% 3.10% | 4.66% 4.23% | 6/4/97 |
| C Class | TWRCX | 7.13% | — | — | 9.08% | 3/1/10 |
| R Class | AGWRX | 7.62% | 3.07% | — | 5.31% | 8/29/03 |
| * | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
| (1) | Although the fund’s actual inception date was 10/31/58, this inception date corresponds with the investment advisor’s implementation of its current investment philosophy and practices. |
| (2) | Index data not available prior to 12/29/78. |
| (3) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
5
| Growth of $10,000 Over 10 Years |
| $10,000 investment made October 31, 2001 |
| Total Annual Fund Operating Expenses | ||||
| Investor Class | Institutional Class | A Class | C Class | R Class |
| 1.00% | 0.80% | 1.25% | 2.00% | 1.50% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
6
Performance Summary
Growth gained 8.20%* in the 12 months ended October 31, 2011. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 9.92%. The portfolio continued to outperform its benchmark for the five- and 10-year periods ended in October (see page 5).
In terms of the Growth fund’s absolute returns for the fiscal year, information technology shares contributed most to performance. Financials led a handful of sectors that detracted fractionally from absolute results. Relative to the benchmark, stock selection made the consumer discretionary and financials sectors the leading detractors. Stock choices in the industrials and health care sectors contributed most to relative performance.
Leading Detractors
In the consumer discretionary space, positioning in the multiline retail; media; and textiles, apparel, and luxury goods industry segments detracted most. Specialty retailer OfficeMax, auto parts maker Autoliv, and media company Scripps Networks Interactive were the leading individual detractors. We eliminated our holdings in OfficeMax and Scripps. Autoliv’s stock suffered from uncertainty as a result of an EU investigation relating to price fixing. The nature of the investigation means that the company can say little to investors other than that they will take a charge as a result. We continued to hold the stock because the firm’s active safety business has a positive outlook for the next few years.
Among financial shares, stock selection meant holdings in the insurance industry segment detracted. It also hurt to be underrepresented in shares of real estate investment trusts. In the energy sector, positioning among oil, gas, and consumable fuels companies detracted most, while in the materials segment chemicals firms were responsible for the underperformance. Dutch chemical firm LyondellBasell Industries suffered from weakness in the end-market for its products. Nevertheless, we continue to hold the stock because of its competitive advantage in terms of using onshore natural gas as opposed to oil as an input in its production process.
A number of the leading individual detractors were in the technology sector. It hurt to hold an underweight position in IBM, whose stock benefited from being perceived as somewhat of a “safe-haven” within the technology sector during the market downturn. We believe IBM is trading at an historically high relative valuation given the company’s growth rate and impending slowdown in their mainframe computer business. It also hurt to hold a stake in storage hardware provider Network Appliance, which reported inline results but lowered its forward outlook because of a slowdown in the financial and government sectors. We reduced the position, but still believe Network Appliance will continue to gain market share from competitors Hewlett-Packard, Hitachi, and IBM.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Leading Contributors
Looking at positive contributors to relative results, stock selection drove outperformance in the industrials and health care sectors. In the industrial space, the leading contribution to performance came from a stake in aerospace and defense firm Goodrich. The company was acquired during the period by United Technologies at a significant premium. Holdings in the machinery and electrical equipment industries also helped relative performance. In addition, it was beneficial to have no exposure to the poor-performing airlines segment.
Among health care shares, positioning among health care equipment and pharmaceutical stocks helped performance compared with the benchmark. The largest individual contributor was biotechnology firm Alexion Pharmaceutical. The company received U.S. and European approval of a second indication for Soliris, a leading drug for the treatment of rare blood disorders. Other notable contributors in this space were Covidien, Intuitive Surgical, and Allergan, among others.
In terms of individual contributors, it was beneficial to have no exposure to shares of Hewlett-Packard. The technology giant underperformed as its personal computer business struggled, services costs rose, and margins declined, while management continued to struggle to turn around the company. Another notable contributor was Accenture, which provides technology consulting and services. The company benefited from rising demand for its business consulting services, as customers focused on both cost-cutting and revenue enhancements.
Current Positioning
We understand that investors use the Growth portfolio as a building block in their larger investment strategy. Maintaining low cash balances and avoiding style drift provides our clients with confidence that the Growth portfolio is providing the large-cap growth representation that they seek.
In our opinion, stock selection—rather than sector allocation or market timing via the use of cash—is the most efficient means of generating superior risk-adjusted returns. As a result of this approach, the portfolio’s sector and industry selection as well as capitalization range allocations are primarily a result of identifying what the managers believe to be superior individual securities. As of October 31, 2011, the information technology and consumer discretionary sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight position was in industrial shares.
8
| OCTOBER 31, 2011 | |
| Top Ten Holdings | % of net assets |
| Apple, Inc. | 6.0% |
| Exxon Mobil Corp. | 3.8% |
| Google, Inc., Class A | 2.8% |
| Schlumberger Ltd. | 2.6% |
| Oracle Corp. | 2.5% |
| Coca-Cola Co. (The) | 2.2% |
| United Technologies Corp. | 1.7% |
| McDonald’s Corp. | 1.7% |
| Philip Morris International, Inc. | 1.7% |
| Microsoft Corp. | 1.7% |
| Top Five Industries | % of net assets |
| Software | 7.9% |
| Computers and Peripherals | 7.8% |
| Oil, Gas and Consumable Fuels | 7.3% |
| Aerospace and Defense | 4.5% |
| Hotels, Restaurants and Leisure | 4.3% |
| Types of Investments in Portfolio | % of net assets |
| Common Stocks | 98.5% |
| Temporary Cash Investments | 1.5% |
| Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets.
9
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, 2011 to October 31, 2011.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
10
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 5/1/11 | Ending Account Value 10/31/11 | Expenses Paid During Period(1) 5/1/11 – 10/31/11 | Annualized Expense Ratio(1) | |
| Actual | ||||
| Investor Class | $1,000 | $924.30 | $4.75 | 0.98% |
| Institutional Class | $1,000 | $925.30 | $3.79 | 0.78% |
| A Class | $1,000 | $923.10 | $5.96 | 1.23% |
| C Class | $1,000 | $919.70 | $9.58 | 1.98% |
| R Class | $1,000 | $921.60 | $7.17 | 1.48% |
| Hypothetical | ||||
| Investor Class | $1,000 | $1,020.27 | $4.99 | 0.98% |
| Institutional Class | $1,000 | $1,021.27 | $3.97 | 0.78% |
| A Class | $1,000 | $1,019.01 | $6.26 | 1.23% |
| C Class | $1,000 | $1,015.22 | $10.06 | 1.98% |
| R Class | $1,000 | $1,017.75 | $7.53 | 1.48% |
| (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. |
11
OCTOBER 31, 2011
| Shares | Value | |||||||
| Common Stocks — 98.5% | ||||||||
| AEROSPACE AND DEFENSE — 4.5% | ||||||||
Hexcel Corp.(1) | 1,021,500 | $25,241,265 | ||||||
| Honeywell International, Inc. | 2,047,700 | 107,299,480 | ||||||
| Precision Castparts Corp. | 429,000 | 69,991,350 | ||||||
| Textron, Inc. | 1,307,900 | 25,399,418 | ||||||
| United Technologies Corp. | 1,810,400 | 141,174,992 | ||||||
| 369,106,505 | ||||||||
| AIR FREIGHT AND LOGISTICS — 1.5% | ||||||||
| United Parcel Service, Inc., Class B | 1,800,200 | 126,446,048 | ||||||
| AUTO COMPONENTS — 1.8% | ||||||||
| Autoliv, Inc. | 915,100 | 52,865,327 | ||||||
BorgWarner, Inc.(1) | 1,206,900 | 92,315,781 | ||||||
| 145,181,108 | ||||||||
| AUTOMOBILES — 0.7% | ||||||||
| Harley-Davidson, Inc. | 1,414,000 | 55,004,600 | ||||||
| BEVERAGES — 4.3% | ||||||||
Boston Beer Co., Inc., Class A(1) | 119,200 | 10,546,816 | ||||||
| Coca-Cola Co. (The) | 2,649,900 | 181,041,168 | ||||||
Hansen Natural Corp.(1) | 281,100 | 25,043,199 | ||||||
| PepsiCo, Inc. | 2,091,400 | 131,653,630 | ||||||
| 348,284,813 | ||||||||
| BIOTECHNOLOGY — 1.6% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 500,600 | 33,795,506 | ||||||
| Amgen, Inc. | 681,500 | 39,029,505 | ||||||
Gilead Sciences, Inc.(1) | 1,472,200 | 61,331,852 | ||||||
| 134,156,863 | ||||||||
| CAPITAL MARKETS — 0.6% | ||||||||
| BlackRock, Inc. | 309,500 | 48,836,005 | ||||||
| CHEMICALS — 2.8% | ||||||||
| E.I. du Pont de Nemours & Co. | 2,133,100 | 102,538,117 | ||||||
| Monsanto Co. | 1,066,100 | 77,558,775 | ||||||
Rockwood Holdings, Inc.(1) | 1,143,600 | 52,651,344 | ||||||
| 232,748,236 | ||||||||
| COMMUNICATIONS EQUIPMENT — 3.3% | ||||||||
| Cisco Systems, Inc. | 4,572,600 | 84,730,278 | ||||||
F5 Networks, Inc.(1) | 424,800 | 44,157,960 | ||||||
Polycom, Inc.(1) | 1,166,332 | 19,279,468 | ||||||
| QUALCOMM, Inc. | 2,315,400 | 119,474,640 | ||||||
| 267,642,346 | ||||||||
| COMPUTERS AND PERIPHERALS — 7.8% | ||||||||
Apple, Inc.(1) | 1,203,200 | 487,031,296 | ||||||
EMC Corp.(1) | 4,374,700 | 107,223,897 | ||||||
NetApp, Inc.(1) | 1,017,400 | 41,672,704 | ||||||
| 635,927,897 | ||||||||
| CONSUMER FINANCE — 0.7% | ||||||||
| American Express Co. | 1,221,600 | 61,837,392 | ||||||
| DIVERSIFIED TELECOMMUNICATION SERVICES — 0.2% | ||||||||
| Windstream Corp. | 1,723,900 | 20,979,863 | ||||||
| ELECTRICAL EQUIPMENT — 0.7% | ||||||||
| Rockwell Automation, Inc. | 822,000 | 55,608,300 | ||||||
| ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.7% | ||||||||
| Jabil Circuit, Inc. | 2,659,600 | 54,681,376 | ||||||
| ENERGY EQUIPMENT AND SERVICES — 3.8% | ||||||||
| Core Laboratories NV | 342,100 | 37,035,746 | ||||||
Hornbeck Offshore Services, Inc.(1) | 424,600 | 13,943,864 | ||||||
| Oceaneering International, Inc. | 1,082,100 | 45,264,243 | ||||||
| Schlumberger Ltd. | 2,874,500 | 211,189,515 | ||||||
| 307,433,368 | ||||||||
| FOOD AND STAPLES RETAILING — 1.5% | ||||||||
| Costco Wholesale Corp. | 994,900 | 82,825,425 | ||||||
| Whole Foods Market, Inc. | 506,100 | 36,499,932 | ||||||
| 119,325,357 | ||||||||
| FOOD PRODUCTS — 1.5% | ||||||||
| Hershey Co. (The) | 760,500 | 43,523,415 | ||||||
| Kellogg Co. | 903,700 | 48,989,577 | ||||||
| Mead Johnson Nutrition Co. | 413,800 | 29,731,530 | ||||||
| 122,244,522 | ||||||||
| HEALTH CARE EQUIPMENT AND SUPPLIES — 3.6% | ||||||||
| Becton, Dickinson and Co. | 408,900 | 31,988,247 | ||||||
| Cooper Cos., Inc. (The) | 321,400 | 22,273,020 | ||||||
| Covidien plc | 1,538,400 | 72,366,336 | ||||||
| DENTSPLY International, Inc. | 859,900 | 31,781,904 | ||||||
Edwards Lifesciences Corp.(1) | 438,000 | 33,033,960 | ||||||
| Hill-Rom Holdings, Inc. | 554,900 | 18,683,483 | ||||||
IDEXX Laboratories, Inc.(1) | 291,100 | 20,956,289 | ||||||
Intuitive Surgical, Inc.(1) | 87,500 | 37,962,750 | ||||||
Zimmer Holdings, Inc.(1) | 478,100 | 25,162,403 | ||||||
| 294,208,392 | ||||||||
| HEALTH CARE PROVIDERS AND SERVICES — 1.5% | ||||||||
Express Scripts, Inc.(1) | 2,179,800 | 99,682,254 | ||||||
| UnitedHealth Group, Inc. | 428,100 | 20,544,519 | ||||||
| 120,226,773 | ||||||||
12
| Shares | Value | |||||||
| HOTELS, RESTAURANTS AND LEISURE — 4.3% | ||||||||
Chipotle Mexican Grill, Inc.(1) | 109,600 | $36,838,752 | ||||||
| McDonald’s Corp. | 1,506,800 | 139,906,380 | ||||||
| Starbucks Corp. | 2,361,300 | 99,977,442 | ||||||
| Starwood Hotels & Resorts Worldwide, Inc. | 1,488,600 | 74,593,746 | ||||||
| 351,316,320 | ||||||||
| HOUSEHOLD DURABLES — 0.6% | ||||||||
Tempur-Pedic International, Inc.(1) | 676,000 | 46,008,560 | ||||||
| HOUSEHOLD PRODUCTS — 1.3% | ||||||||
| Church & Dwight Co., Inc. | 454,900 | 20,097,482 | ||||||
| Colgate-Palmolive Co. | 939,800 | 84,929,726 | ||||||
| 105,027,208 | ||||||||
| INSURANCE — 0.2% | ||||||||
| Brown & Brown, Inc. | 923,100 | 20,382,048 | ||||||
| INTERNET AND CATALOG RETAIL — 1.6% | ||||||||
Amazon.com, Inc.(1) | 620,400 | 132,461,604 | ||||||
| INTERNET SOFTWARE AND SERVICES — 2.8% | ||||||||
Google, Inc., Class A(1) | 394,400 | 233,737,216 | ||||||
| IT SERVICES — 4.0% | ||||||||
| Accenture plc, Class A | 1,712,600 | 103,201,276 | ||||||
| International Business Machines Corp. | 631,400 | 116,575,382 | ||||||
| MasterCard, Inc., Class A | 300,600 | 104,380,344 | ||||||
| 324,157,002 | ||||||||
| LIFE SCIENCES TOOLS AND SERVICES — 1.0% | ||||||||
Agilent Technologies, Inc.(1) | 1,042,800 | 38,656,596 | ||||||
Illumina, Inc.(1) | 492,300 | 15,074,226 | ||||||
Thermo Fisher Scientific, Inc.(1) | 600,500 | 30,187,135 | ||||||
| 83,917,957 | ||||||||
| MACHINERY — 3.2% | ||||||||
| Cummins, Inc. | 494,400 | 49,158,192 | ||||||
| Deere & Co. | 873,900 | 66,329,010 | ||||||
| Gardner Denver, Inc. | 381,100 | 29,470,463 | ||||||
| Illinois Tool Works, Inc. | 525,600 | 25,559,928 | ||||||
| Joy Global, Inc. | 1,065,500 | 92,911,600 | ||||||
| 263,429,193 | ||||||||
| MARINE — 0.3% | ||||||||
Kirby Corp.(1) | 383,200 | 23,582,128 | ||||||
| MEDIA — 2.0% | ||||||||
| CBS Corp., Class B | 1,323,900 | 34,169,859 | ||||||
DirecTV, Class A(1) | 1,560,600 | 70,944,876 | ||||||
| Viacom, Inc., Class B | 1,392,900 | 61,078,665 | ||||||
| 166,193,400 | ||||||||
| METALS AND MINING — 1.6% | ||||||||
| Cliffs Natural Resources, Inc. | 1,003,100 | 68,431,482 | ||||||
| Freeport-McMoRan Copper & Gold, Inc. | 1,536,000 | 61,839,360 | ||||||
| 130,270,842 | ||||||||
| MULTILINE RETAIL — 1.4% | ||||||||
Dollar General Corp.(1) | 1,137,100 | 45,097,386 | ||||||
| Macy’s, Inc. | 2,320,000 | 70,829,600 | ||||||
| 115,926,986 | ||||||||
| OIL, GAS AND CONSUMABLE FUELS — 7.3% | ||||||||
| Devon Energy Corp. | 674,700 | 43,821,765 | ||||||
| EOG Resources, Inc. | 568,700 | 50,858,841 | ||||||
| Exxon Mobil Corp. | 3,967,900 | 309,853,311 | ||||||
| Noble Energy, Inc. | 698,900 | 62,439,726 | ||||||
| Occidental Petroleum Corp. | 1,054,400 | 97,995,936 | ||||||
Southwestern Energy Co.(1) | 737,900 | 31,021,316 | ||||||
| 595,990,895 | ||||||||
| PERSONAL PRODUCTS — 0.8% | ||||||||
| Estee Lauder Cos., Inc. (The), Class A | 643,400 | 63,342,730 | ||||||
| PHARMACEUTICALS — 2.5% | ||||||||
| Abbott Laboratories | 2,362,600 | 127,273,262 | ||||||
| Allergan, Inc. | 639,600 | 53,803,152 | ||||||
| Perrigo Co. | 288,200 | 26,018,696 | ||||||
| 207,095,110 | ||||||||
| REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.0% | ||||||||
| AvalonBay Communities, Inc. | 319,700 | 42,740,693 | ||||||
| Simon Property Group, Inc. | 337,100 | 43,297,124 | ||||||
| 86,037,817 | ||||||||
| REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.5% | ||||||||
CBRE Group, Inc.(1) | 2,265,600 | 40,282,368 | ||||||
| ROAD AND RAIL — 0.9% | ||||||||
| Union Pacific Corp. | 726,300 | 72,317,691 | ||||||
| SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.1% | ||||||||
| Avago Technologies Ltd. | 1,175,800 | 39,706,766 | ||||||
Broadcom Corp., Class A(1) | 2,913,200 | 105,137,388 | ||||||
Cree, Inc.(1) | 722,900 | 19,258,056 | ||||||
| KLA-Tencor Corp. | 797,300 | 37,544,857 | ||||||
| Linear Technology Corp. | 1,699,000 | 54,894,690 | ||||||
| Xilinx, Inc. | 2,263,400 | 75,733,364 | ||||||
| 332,275,121 | ||||||||
| SOFTWARE — 7.9% | ||||||||
Cerner Corp.(1) | 445,700 | 28,270,751 | ||||||
Check Point Software Technologies Ltd.(1) | 1,005,200 | 57,929,676 | ||||||
13
| Shares | Value | |||||||
Electronic Arts, Inc.(1) | 1,982,400 | $46,289,040 | ||||||
Fortinet, Inc.(1) | 1,364,900 | 31,474,594 | ||||||
| Microsoft Corp. | 5,184,900 | 138,073,887 | ||||||
| Oracle Corp. | 6,160,900 | 201,892,693 | ||||||
QLIK Technologies, Inc.(1) | 900,600 | 25,730,142 | ||||||
Red Hat, Inc.(1) | 1,311,000 | 65,091,150 | ||||||
Salesforce.com, Inc.(1) | 398,000 | 53,001,660 | ||||||
| 647,753,593 | ||||||||
| SPECIALTY RETAIL — 2.3% | ||||||||
| Home Depot, Inc. (The) | 1,957,900 | 70,092,820 | ||||||
| Limited Brands, Inc. | 1,118,300 | 47,762,593 | ||||||
O’Reilly Automotive, Inc.(1) | 654,100 | 49,744,305 | ||||||
| Tractor Supply Co. | 321,200 | 22,785,928 | ||||||
| 190,385,646 | ||||||||
| TEXTILES, APPAREL AND LUXURY GOODS — 1.0% | ||||||||
| Coach, Inc. | 1,022,700 | 66,547,089 | ||||||
Lululemon Athletica, Inc.(1) | 229,000 | 12,933,920 | ||||||
| 79,481,009 | ||||||||
| TOBACCO — 1.7% | ||||||||
| Philip Morris International, Inc. | 1,997,800 | 139,586,286 | ||||||
| WIRELESS TELECOMMUNICATION SERVICES — 1.1% | ||||||||
Crown Castle International Corp.(1) | 2,125,500 | 87,910,680 | ||||||
TOTAL COMMON STOCKS (Cost $7,463,334,016) | 8,058,749,174 | |||||||
| Temporary Cash Investments — 1.5% | ||||||||
Repurchase Agreement, Bank America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 0.50%, 10/15/14, valued at $40,827,186), in a joint trading account at 0.06%, dated 10/31/11, due 11/1/11 (Delivery value $39,967,680) | 39,967,613 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 4.50%, 5/15/38, valued at $40,960,256), in a joint trading account at 0.03%, dated 10/31/11, due 11/1/11 (Delivery value $39,967,646) | 39,967,613 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 3.875%, 8/15/40, valued at $40,727,930), in a joint trading account at 0.04%, dated 10/31/11, due 11/1/11 (Delivery value $39,967,657) | 39,967,613 | |||||||
| SSgA U.S. Government Money Market Fund | 3,459,801 | 3,459,801 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $123,362,640) | 123,362,640 | |||||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $7,586,696,656) | 8,182,111,814 | |||||||
OTHER ASSETS AND LIABILITIES† | (1,284,643 | ) | ||||||
| TOTAL NET ASSETS — 100.0% | $8,180,827,171 | |||||||
Notes to Schedule of Investments
†Category is less than 0.05% of total net assets.
(1) Non-income producing.
See Notes to Financial Statements.
14
| OCTOBER 31, 2011 | ||||
| Assets | ||||
| Investment securities, at value (cost of $7,586,696,656) | $8,182,111,814 | |||
| Foreign currency holdings, at value (cost of $464,246) | 445,896 | |||
| Receivable for investments sold | 46,907,109 | |||
| Receivable for capital shares sold | 12,510,491 | |||
| Dividends and interest receivable | 4,794,337 | |||
| 8,246,769,647 | ||||
| Liabilities | ||||
| Payable for investments purchased | 50,340,661 | |||
| Payable for capital shares redeemed | 9,316,941 | |||
| Accrued management fees | 6,115,871 | |||
| Distribution and service fees payable | 169,003 | |||
| 65,942,476 | ||||
| Net Assets | $8,180,827,171 | |||
| Net Assets Consist of: | ||||
| Capital (par value and paid-in surplus) | $7,262,466,727 | |||
| Undistributed net investment income | 42,917,624 | |||
| Undistributed net realized gain | 280,045,902 | |||
| Net unrealized appreciation | 595,396,918 | |||
| $8,180,827,171 | ||||
| Net assets | Shares outstanding | Net asset value per share | ||||||||||
| Investor Class, $0.01 Par Value | $5,377,431,236 | 207,755,948 | $25.88 | |||||||||
| Institutional Class, $0.01 Par Value | $2,080,462,925 | 79,628,027 | $26.13 | |||||||||
| A Class, $0.01 Par Value | $628,634,353 | 24,698,177 | $25.45 | * | ||||||||
| C Class, $0.01 Par Value | $14,729,600 | 576,565 | $25.55 | |||||||||
| R Class, $0.01 Par Value | $79,569,057 | 3,146,910 | $25.28 | |||||||||
*Maximum offering price $27.00 (net asset value divided by 0.9425)
See Notes to Financial Statements.
15
| YEAR ENDED OCTOBER 31, 2011 | ||||
| Investment Income (Loss) | ||||
| Income: | ||||
| Dividends (net of foreign taxes withheld of $203,453) | $116,014,202 | |||
| Interest | 51,498 | |||
| 116,065,700 | ||||
| Expenses: | ||||
| Management fees | 68,869,827 | |||
| Distribution and service fees: | ||||
| A Class | 1,196,365 | |||
| C Class | 114,299 | |||
| R Class | 230,601 | |||
| Directors’ fees and expenses | 300,311 | |||
| 70,711,403 | ||||
| Net investment income (loss) | 45,354,297 | |||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) on: | ||||
| Investment transactions | 517,339,705 | |||
| Foreign currency transactions | (1,016,857 | ) | ||
| 516,322,848 | ||||
| Change in net unrealized appreciation (depreciation) on: | ||||
| Investments | (116,265,528 | ) | ||
| Translation of assets and liabilities in foreign currencies | 32,182 | |||
| (116,233,346 | ) | |||
| Net realized and unrealized gain (loss) | 400,089,502 | |||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $445,443,799 | |||
See Notes to Financial Statements.
16
| YEARS ENDED OCTOBER 31, 2011 AND OCTOBER 31, 2010 | |||||||
| Increase (Decrease) in Net Assets | 2011 | 2010 | |||||
| Operations | |||||||
| Net investment income (loss) | $45,354,297 | $21,711,027 | |||||
| Net realized gain (loss) | 516,322,848 | 481,896,410 | |||||
| Change in net unrealized appreciation (depreciation) | (116,233,346 | ) | 323,115,779 | ||||
| Net increase (decrease) in net assets resulting from operations | 445,443,799 | 826,723,216 | |||||
| Distributions to Shareholders | |||||||
| From net investment income: | |||||||
| Investor Class | (16,085,104 | ) | (9,474,213 | ) | |||
| Institutional Class | (6,371,247 | ) | (2,809,220 | ) | |||
| A Class | (354,453 | ) | (22,537 | ) | |||
| Decrease in net assets from distributions | (22,810,804 | ) | (12,305,970 | ) | |||
| Capital Share Transactions | |||||||
| Net increase (decrease) in net assets from capital share transactions | 1,815,608,193 | 984,370,677 | |||||
| Net increase (decrease) in net assets | 2,238,241,188 | 1,798,787,923 | |||||
| Net Assets | |||||||
| Beginning of period | 5,942,585,983 | 4,143,798,060 | |||||
| End of period | $8,180,827,171 | $5,942,585,983 | |||||
| Undistributed net investment income | $42,917,624 | $22,778,091 | |||||
See Notes to Financial Statements.
17
OCTOBER 31, 2011
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing primarily in equity securities of larger-sized companies that management believes will increase in value over time.
The fund is authorized to issue the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. Sale of the C Class commenced on March 1, 2010.
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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of 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.
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 typically valued at the closing price on the exchange where primarily traded or as of 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 is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost. Forward foreign currency exchange contracts are valued at the mean of the latest bid and asked prices of the forward currency rates as provided by an independent pricing service.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
18
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during the trading day; there is a foreign market holiday and no trading occurred; or an event occurred between the close of a foreign exchange and the NYSE that may affect the value of a security.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
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. The fund is no longer subject to examination by tax authorities for years prior to 2008. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Accordingly, no provision has been made for federal or state income taxes.
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.
19
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
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The strategy assets of the fund include the assets of NT Growth Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.800% to 1.000% for the Investor Class, A Class, C Class and R Class. The Institutional Class is 0.200% less at each point within the range. The effective annual management fee for each class for the year ended October 31, 2011 was 0.97% for the Investor Class, A Class, C Class and R Class and 0.77% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the C Class will pay ACIS an annual distribution and service fee of 1.00%, of which 0.25% is paid for individual shareholder services and 0.75% is paid for distribution services. The plans provide that the R Class will pay ACIS an annual distribution and service fee of 0.50%. The fees are computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The fees are used to pay financial intermediaries for distribution and individual shareholder services. Fees incurred under the plans during the year ended October 31, 2011 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC), the parent of the corporation’s investment advisor, ACIM, the distributor of the corporation, ACIS, and the corporation’s transfer agent, American Century Services, LLC.
The fund was eligible to invest in a money market fund for temporary purposes, which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). The fund had a securities lending agreement with JPMorgan Chase Bank (JPMCB) and a mutual funds services agreement with J.P. Morgan Investor Services Co. (JPMIS). JPMCB was a custodian of the fund. JPMIM, JPMIS and JPMCB are wholly owned subsidiaries of JPMorgan Chase & Co. (JPM). Prior to August 31, 2011, JPM was an equity investor in ACC. The services provided to the fund by JPMIM, JPMIS and JPMCB terminated on July 31, 2011.
20
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2011 were $7,582,274,791 and $5,799,947,752, respectively.
For the year ended October 31, 2011, the fund incurred net realized gains of $4,358,025 from redemptions in kind. A redemption in kind occurs when a fund delivers securities from its portfolio in lieu of cash as payment to a redeeming shareholder.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
| Year ended October 31, 2011 | Year ended October 31, 2010(1) | ||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||
| Investor Class/Shares Authorized | 800,000,000 | 800,000,000 | |||||||||||||
| Sold | 57,583,802 | $1,507,849,223 | 42,868,834 | $951,268,051 | |||||||||||
| Issued in connection with reorganization (Note 9) | — | — | 1,023,911 | 24,573,857 | |||||||||||
| Issued in reinvestment of distributions | 592,046 | 15,180,062 | 384,127 | 8,458,476 | |||||||||||
| Redeemed | (35,393,701 | ) | (920,453,919 | ) | (25,562,853 | ) | (568,903,119 | ) | |||||||
| 22,782,147 | 602,575,366 | 18,714,019 | 415,397,265 | ||||||||||||
| Institutional Class/Shares Authorized | 250,000,000 | 150,000,000 | |||||||||||||
| Sold | 47,037,732 | 1,238,818,648 | 25,469,004 | 591,790,668 | |||||||||||
| Issued in connection with reorganization (Note 9) | — | — | 53,875 | 1,305,390 | |||||||||||
| Issued in reinvestment of distributions | 238,680 | 6,165,100 | 122,616 | 2,720,853 | |||||||||||
| Redeemed | (13,327,125 | ) | (338,969,351 | ) | (6,807,256 | ) | (152,879,506 | ) | |||||||
| 33,949,287 | 906,014,397 | 18,838,239 | 442,937,405 | ||||||||||||
| A Class/Shares Authorized | 310,000,000 | 310,000,000 | |||||||||||||
| Sold | 18,959,093 | 495,200,696 | 5,917,194 | 128,488,284 | |||||||||||
| Issued in connection with reorganization (Note 9) | — | — | 1,719,102 | 40,570,799 | |||||||||||
| Issued in reinvestment of distributions | 12,885 | 325,465 | 964 | 20,921 | |||||||||||
| Redeemed | (9,913,957 | ) | (255,065,676 | ) | (2,746,133 | ) | (59,876,656 | ) | |||||||
| 9,058,021 | 240,460,485 | 4,891,127 | 109,203,348 | ||||||||||||
| C Class/Shares Authorized | 20,000,000 | 20,000,000 | |||||||||||||
| Sold | 422,812 | 11,102,799 | 56,605 | 1,279,112 | |||||||||||
| Issued in connection with reorganization (Note 9) | — | — | 204,997 | 4,889,189 | |||||||||||
| Redeemed | (107,008 | ) | (2,723,977 | ) | (841 | ) | (17,696 | ) | |||||||
| 315,804 | 8,378,822 | 260,761 | 6,150,605 | ||||||||||||
| R Class/Shares Authorized | 30,000,000 | 30,000,000 | |||||||||||||
| Sold | 3,010,975 | 76,296,991 | 559,790 | 12,252,871 | |||||||||||
| Issued in connection with reorganization (Note 9) | — | — | 92,918 | 2,182,649 | |||||||||||
| Redeemed | (729,423 | ) | (18,117,868 | ) | (172,171 | ) | (3,753,466 | ) | |||||||
| 2,281,552 | 58,179,123 | 480,537 | 10,682,054 | ||||||||||||
| Net increase (decrease) | 68,386,811 | $1,815,608,193 | 43,184,683 | $984,370,677 | |||||||||||
| (1) | March 1, 2010 (commencement of sale) through October 31, 2010 for the C Class. |
21
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions 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 as follows:
| • | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
| • | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
| • | 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 | |||||||||
| Investment Securities | |||||||||||
| Common Stocks | $8,058,749,174 | — | — | ||||||||
| Temporary Cash Investments | 3,459,801 | $119,902,839 | — | ||||||||
| Total Value of Investment Securities | $8,062,208,975 | $119,902,839 | — | ||||||||
7. Derivative Instruments
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on foreign currency transactions and change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies, respectively. A fund bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms. The risk of loss from non-performance by the counterparty may be reduced by the use of master netting agreements. The fund participated in foreign currency risk derivative instruments during the first eight months of the period consistent with its exposure to foreign denominated securities.
At period end, the fund did not have any derivative instruments disclosed on the Statement of Assets and Liabilities. For the year ended October 31, 2011, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(1,017,664) in net realized gain (loss) on foreign currency transactions and $50,522 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
22
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2011 and October 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions Paid From | ||||||||
| Ordinary income | $22,810,804 | $12,305,970 | ||||||
| Long-term capital gains | — | — | ||||||
The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
As of October 31, 2011, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
| Federal tax cost of investments | $7,597,819,030 | |||
| Gross tax appreciation of investments | $771,936,886 | |||
| Gross tax depreciation of investments | (187,644,102 | ) | ||
| Net tax appreciation (depreciation) of investments | $584,292,784 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(18,240 | ) | ||
| Net tax appreciation (depreciation) | $584,274,544 | |||
| Undistributed ordinary income | $42,917,624 | |||
| Accumulated long-term gains | $291,168,276 |
The difference between book-basis and tax-basis cost and unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period.
23
9. Reorganization Plan
On June 10, 2010, the Board of Directors approved a plan of reorganization (the reorganization), pursuant to which Growth acquired all of the assets of Capital Growth Fund (Capital Growth), a fund in a series issued by the corporation, in exchange for shares of equal value of Growth and assumption by Growth of certain ordinary course liabilities of Capital Growth. The financial statements and performance history of Growth were carried over post-reorganization. The reorganization was effective at the close of business on October 29, 2010.
The reorganization was accomplished by a tax-free exchange of shares. On October 29, 2010, Capital Growth exchanged its shares for shares of Growth as follows:
| Original Fund/Class | Shares Exchanged | New Fund/Class | Shares Received | |||
| Capital Growth — Investor Class | 2,077,088 | Growth — Investor Class | 1,023,911 | |||
| Capital Growth — Institutional Class | 109,789 | Growth — Institutional Class | 53,875 | |||
| Capital Growth — A Class | 3,382,474 | Growth — A Class | 1,681,204 | |||
| Capital Growth — B Class | 80,143 | Growth — A Class | 37,898 | |||
| Capital Growth — C Class | 438,099 | Growth — C Class | 204,997 | |||
| Capital Growth — R Class | 187,997 | Growth — R Class | 92,918 | |||
The net assets of Capital Growth and Growth immediately before the reorganization were $73,521,884 and $5,869,064,099, respectively. Capital Growth’s unrealized appreciation of $13,044,432 was combined with that of Growth. Immediately after the reorganization, the combined net assets were $5,942,585,983. Growth acquired capital loss carryovers of $(1,831,877) from Capital Growth.
24
| For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
| Investor Class | ||||||||||||||||||||||||||||||||||
| 2011 | $24.00 | 0.16 | 1.81 | 1.97 | (0.09 | ) | $25.88 | 8.20 | % | 0.98 | % | 0.58 | % | 79 | % | $5,377,431 | ||||||||||||||||||
| 2010 | $20.28 | 0.10 | 3.68 | 3.78 | (0.06 | ) | $24.00 | 18.65 | % | 1.00 | % | 0.43 | % | 86 | % | $4,440,152 | ||||||||||||||||||
| 2009 | $17.69 | 0.09 | 2.58 | 2.67 | (0.08 | ) | $20.28 | 15.25 | % | 1.00 | % | 0.50 | % | 114 | % | $3,372,274 | ||||||||||||||||||
| 2008 | $26.78 | 0.04 | (9.10 | ) | (9.06 | ) | (0.03 | ) | $17.69 | (33.86 | )% | 1.00 | % | 0.16 | % | 129 | % | $2,617,302 | ||||||||||||||||
| 2007 | $21.99 | 0.04 | 4.76 | 4.80 | (0.01 | ) | $26.78 | 21.86 | % | 1.00 | % | 0.15 | % | 112 | % | $4,132,570 | ||||||||||||||||||
| Institutional Class | ||||||||||||||||||||||||||||||||||
| 2011 | $24.23 | 0.20 | 1.84 | 2.04 | (0.14 | ) | $26.13 | 8.42 | % | 0.78 | % | 0.78 | % | 79 | % | $2,080,463 | ||||||||||||||||||
| 2010 | $20.47 | 0.14 | 3.72 | 3.86 | (0.10 | ) | $24.23 | 18.90 | % | 0.80 | % | 0.63 | % | 86 | % | $1,106,748 | ||||||||||||||||||
| 2009 | $17.86 | 0.12 | 2.61 | 2.73 | (0.12 | ) | $20.47 | 15.45 | % | 0.80 | % | 0.70 | % | 114 | % | $549,496 | ||||||||||||||||||
| 2008 | $27.03 | 0.08 | (9.17 | ) | (9.09 | ) | (0.08 | ) | $17.86 | (33.71 | )% | 0.80 | % | 0.36 | % | 129 | % | $286,262 | ||||||||||||||||
| 2007 | $22.19 | 0.09 | 4.81 | 4.90 | (0.06 | ) | $27.03 | 22.13 | % | 0.80 | % | 0.35 | % | 112 | % | $284,695 | ||||||||||||||||||
A Class(3) | ||||||||||||||||||||||||||||||||||
| 2011 | $23.60 | 0.08 | 1.79 | 1.87 | (0.02 | ) | $25.45 | 7.93 | % | 1.23 | % | 0.33 | % | 79 | % | $628,634 | ||||||||||||||||||
| 2010 | $19.94 | 0.04 | 3.62 | 3.66 | — | (4) | $23.60 | 18.37 | % | 1.25 | % | 0.18 | % | 86 | % | $369,142 | ||||||||||||||||||
| 2009 | $17.40 | 0.04 | 2.54 | 2.58 | (0.04 | ) | $19.94 | 14.99 | % | 1.25 | % | 0.25 | % | 114 | % | $214,371 | ||||||||||||||||||
| 2008 | $26.36 | (0.02 | ) | (8.94 | ) | (8.96 | ) | — | $17.40 | (34.03 | )% | 1.25 | % | (0.09 | )% | 129 | % | $141,441 | ||||||||||||||||
| 2007 | $21.68 | (0.04 | ) | 4.72 | 4.68 | — | $26.36 | 21.59 | % | 1.25 | % | (0.10 | )% | 112 | % | $206,837 | ||||||||||||||||||
25
xxxxx
| Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||
| Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||
| Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||
| 2011 | $23.85 | (0.12 | 1.82 | 1.70 | — | $25.55 | 7.13 | % | 1.98 | % | (0.42 | %�� | 79 | % | $14,730 | |||||||||||||||||||
2010(5) | $22.10 | (0.10 | ) | 1.85 | 1.75 | — | $23.85 | 7.92 | % | 2.00 | %(6) | (0.66 | )%(6) | 86 | %(7) | $6,219 | ||||||||||||||||||
| R Class | ||||||||||||||||||||||||||||||||||
| 2011 | $23.49 | — | (4) | 1.79 | 1.79 | — | $25.28 | 7.62 | % | 1.48 | % | 0.08 | % | 79 | % | $79,569 | ||||||||||||||||||
| 2010 | $19.90 | (0.02 | ) | 3.61 | 3.59 | — | $23.49 | 18.10 | % | 1.50 | % | (0.07 | )% | 86 | % | $20,325 | ||||||||||||||||||
| 2009 | $17.35 | (0.01 | ) | 2.56 | 2.55 | — | (4) | $19.90 | 14.67 | % | 1.50 | % | 0.00 | %(8) | 114 | % | $7,656 | |||||||||||||||||
| 2008 | $26.37 | (0.08 | ) | (8.94 | ) | (9.02 | ) | — | $17.35 | (34.21 | )% | 1.50 | % | (0.34 | )% | 129 | % | $3,280 | ||||||||||||||||
| 2007 | $21.74 | (0.10 | ) | 4.73 | 4.63 | — | $26.37 | 21.30 | % | 1.50 | % | (0.35 | )% | 112 | % | $2,383 | ||||||||||||||||||
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) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class. |
| (4) | Per-share amount was less than $0.005. |
| (5) | March 1, 2010 (commencement of sale) through October 31, 2010. |
| (6) | Annualized. |
| (7) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2010. |
| (8) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
26
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”), as of October 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Growth Fund of American Century Mutual Funds, Inc., as of October 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 20, 2011
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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 mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors), is 72. However, the mandatory retirement age for an individual director may be extended with the approval of the remaining independent directors.
Mr. Thomas is the only director who 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; that is, they have never been employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and American Century Services, LLC (ACS). The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | ||||
| Independent Directors | |||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 65 | None | ||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired as advisor to the President, Midwest Research Institute (not-for-profit research organization) (June 2006) | 65 | None | ||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) (2006 to present); President, BUCON, Inc. (full-service design-build construction company) (2004 to 2006) | 65 | None | ||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager); Chief Financial Officer, Plaza Belmont LLC (September 1999 to September 2006) | 65 | Saia, Inc. and Entertainment Properties Trust | ||||
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| (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 | |||||||||
Donald H. Pratt (1937) | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 65 | None | ||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 65 | DST Systems Inc., Euronet Worldwide Inc., and Charming Shoppes, Inc. | ||||
John R. Whitten (1946) | Director | Since 2008 | Project Consultant, Celanese Corp. (industrial chemical company) | 65 | Rudolph Technologies, Inc. | ||||
Stephen E. Yates (1948) | Advisory Director | Since 2011 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 65 | Applied Industrial Technology (2001 to 2010) | ||||
| Interested Director | |||||||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 106 | None | ||||
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Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present); Chief Administrative Officer, ACC (February 2006 to February 2007); Executive Vice President, ACC (November 2005 to February 2007). Also serves as: Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Executive Vice President since 2007 | Chief Operating Officer and Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Managing Director, Morgan Stanley (2000 to 2007); Global General Counsel, Morgan Stanley (2000 to 2006). Also serves as: Manager, ACS and Director, ACC and certain ACC subsidiaries | ||
Maryanne L. Roepke (1956) | Chief Compliance Officer since 2006 and Senior Vice President since 2000 | Chief Compliance Officer, American Century funds, ACIM and ACS (August 2006 to present); Assistant Treasurer, ACC (January 1995 to August 2006); and Treasurer and Chief Financial Officer, various American Century funds (July 2000 to August 2006). Also serves as: Senior Vice President, ACS | ||
Charles A. Etherington (1957) | General Counsel since 2007 and Senior Vice President since 2006 | Attorney, ACC (February 1994 to present); Vice President, ACC (November 2005 to present), General Counsel, ACC (March 2007 to present); Also serves as General Counsel, ACIM, ACS, ACIS and other ACC subsidiaries; and Senior Vice President, ACIM and ACS | ||
Robert J. Leach (1966) | Vice President, Treasurer and Chief Financial Officer since 2006 | Vice President, ACS (February 2000 to present); and Controller, various American Century funds (1997 to September 2006) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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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At a meeting held on June 9, 2011, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s independent directors (the “Directors”) each year.
As a part of the approval process, the Board requested and reviewed extensive data and information compiled by the Advisor and certain independent providers of evaluation data concerning the Fund and the services provided to the Fund by the Advisor. This review was in addition to the oversight and evaluation undertaken by the Board and its committees on a continuous basis throughout the year and included, but was not limited to the following:
| • | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
| • | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
| • | the 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; |
| • | data comparing the cost of owning the Fund to the cost of owning similar funds; |
| • | the Advisor’s compliance policies, procedures, and regulatory experience; |
| • | financial data showing the cost of services provided to the Fund, the profitability of the Fund to the Advisor, and the overall profitability of the Advisor; |
| • | data comparing services provided and charges to other investment management clients of the Advisor; and |
| • | consideration of collateral benefits derived by the Advisor from the management of the Fund and any potential economies of scale relating thereto. |
In keeping with its practice, the Board held two in-person meetings and one telephonic meeting to review and discuss the information provided. The Directors also had the benefit of the advice of independent counsel throughout the period.
Factors Considered
The Directors considered all of the information provided by the Advisor, the independent data providers, and independent counsel, and evaluated such information for the Fund. In connection with their review, the Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the management agreement, the Board based its decision on a number of factors, including the following:
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Nature, Extent and Quality of Services — Generally. Under the management agreement, the Advisor is responsible for providing or arranging for all services necessary for the operation of the Fund. The Board noted that under the management agreement, the Advisor provides or arranges at its own expense a wide variety of services including:
• | constructing and designing the Fund |
• | portfolio research and security selection |
• | initial capitalization/funding |
• | securities trading |
• | Fund administration |
• | custody of Fund assets |
• | daily valuation of the Fund’s portfolio |
• | shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping, and communications |
• | legal services |
• | regulatory and portfolio compliance |
• | financial reporting |
• | marketing and distribution |
The Board noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry, changing distribution channels, and the changing regulatory environment.
Investment Management Services. The nature of the investment management services provided to the Fund is quite complex and allows Fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes by investing in or exchanging among various American Century Investments funds, and liquidity. In evaluating investment performance, the Board expects the Advisor to manage the Fund in accordance with its investment objectives and approved strategies. Further, the Directors recognize that the Advisor has an obligation to monitor trading activities, and in particular to seek the best execution of fund trades, and to evaluate the use of and payment for research. In providing these services, the Advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. The Board, directly and through its Fund Performance Review Committee, regularly reviews investment performance information for the Fund, together with comparative information for appropriate benchmarks and/or peer groups of similarly-managed funds, over different time horizons.
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The Directors also review detailed performance information during the management agreement approval process. If performance concerns are identified, the Fund receives special reviews until performance improves, during which the Board discusses with the Advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Taking all these factors into consideration, the Board found the investment management services provided by the Advisor to the Fund to meet or exceed industry standards. More detailed information about the Fund’s performance can be found in the Performance and Portfolio Commentary sections of this report.
Shareholder and Other Services. 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. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the Advisor. The Board found the services provided by the Advisor to the Fund under the management agreement to be competitive and of high quality.
Costs of Services and Profitability. The Advisor provides detailed information concerning its cost of providing various services to the Fund, its profitability in managing the Fund, its overall profitability, and its financial condition. The Directors have reviewed with the Advisor the methodology used to prepare this financial information. The financial information regarding the Advisor is considered in evaluating the Advisor’s financial condition, 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.
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Comparison to Other Funds’ Fees. The management agreement provides that the Fund pay the Advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the Fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the Fund’s independent directors (including their independent legal counsel) and expenses incurred in connection with the provision of shareholder services and distribution services under a plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the unified fee structure, the Advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and any applicable Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The Board believes the unified fee structure is a benefit to Fund shareholders because it clearly discloses to shareholders the cost of owning Fund shares, and, since the unified fee cannot be increased without a vote of Fund shareholders, it shifts to the Advisor the risk of increased costs of operating the Fund and provides a direct incentive to minimize administrative inefficiencies. Part of the Board’s analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the Fund’s unified fee to the total expense ratio of other funds in the Fund’s peer group. The Board concluded that the management fee paid by the Fund to the Advisor under the management agreement is reasonable in light of the services provided to the Fund.
Comparison to Fees and Services Provided to Other Clients of the Advisor. The Board 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.
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 the Advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit Fund shareholders. The 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, however, that the assets of those other clients are not material to the analysis and, where applicable, may be included with the assets of the Fund to determine breakpoints in the management fee schedule.
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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, concluded that the management agreement between the Fund and the Advisor is fair and reasonable in light of the services provided and should be renewed.
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Retirement Account Information
As required by law, distributions you receive from certain IRAs, or 403(b), 457 and qualified plans are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules.
Proxy Voting Guidelines
American Century Investment Management, Inc., the fund’s investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates up to the maximum amount allowable as qualified dividend income for the fiscal year ended October 31, 2011.
For corporate taxpayers, the fund hereby designates $22,810,804, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2011 as qualified for the corporate dividends received deduction.
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| Contact Us | americancentury.com |
| Automated Information Line | 1-800-345-8765 |
| Investor Services Representative | 1-800-345-2021 or 816-531-5575 |
| Investors Using Advisors | 1-800-378-9878 |
Business, Not-For-Profit, Employer-Sponsored Retirement Plans | 1-800-345-3533 |
Banks and Trust Companies, Broker-Dealers, Financial Professionals, Insurance Companies | 1-800-345-6488 |
| Telecommunications Device for the Deaf | 1-800-634-4113 |
American Century Mutual Funds, Inc.
Investment Advisor:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
©2011 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-73925 1112
ITEM 2. CODE OF ETHICS.
| (a) | The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. |
| (b) | No response required. |
| (c) | None. |
| (d) | None. |
| (e) | Not applicable. |
| (f) | The registrant’s Code of Ethics for Senior Financial Officers was filed as Exhibit 12 (a)(1) to American Century Asset Allocation Portfolios, Inc.’s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, and is incorporated herein by reference. |
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
| (a)(1) | The registrant’s board has determined that the registrant has at least one audit committee financial expert serving on its audit committee. |
| (a)(2) | M. Jeannine Strandjord, James A. Olson and Andrea C. Hall 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 2010: $282,129
FY 2011: $285,752
| (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 2010: $0 FY 2011: $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 2010: $0 FY 2011: $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 2010: $0
FY 2011: $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 2010: $0
| FY 2011: $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 2010: $0 FY 2011: $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 2010: $0 FY 2011: $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 2010: $59,174
FY 2011: $67,680
| (h) | The registrant’s investment adviser and accountant have notified the registrant’s audit committee of all non-audit services that were rendered by the registrant’s accountant to the registrant’s investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides services to the registrant, which services were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The notification provided to the registrant’s audit committee included sufficient details regarding such services to allow the registrant’s audit committee to consider the continuing independence of its principal accountant. |
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
| (a) | The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. |
| (b) | Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
ITEM 11. CONTROLS AND PROCEDURES.
| (a) | The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
ITEM 12. EXHIBITS.
| (a)(1) | Registrant’s Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to American Century Asset Allocation Portfolios, Inc.’s Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005. |
| (a)(2) | Separate certifications by the registrant’s principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as EX-99.CERT. |
| (a)(3) | Not applicable. |
| (b) | A certification by the registrant’s chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Registrant: | AMERICAN CENTURY MUTUAL FUNDS, INC. | |||
| By: | /s/ Jonathan S. Thomas | |||
| Name: | Jonathan S. Thomas | |||
| Title: | President | |||
| Date: | December 29, 2011 | |||
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 29, 2011 | ||
| By: | /s/ Robert J. Leach | ||
| Name: | Robert J. Leach | ||
| Title: | Vice President, Treasurer, and | ||
| Chief Financial Officer | |||
| (principal financial officer) | |||
| Date: | December 29, 2011 | ||