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: | 10-31-2012 |
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
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Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWGTX | 11.40% | -0.10% | 10.19%(1) | 11.15% | 11/25/83 |
Russell 3000 Growth Index | — | 12.76% | 1.90% | 7.32% | 9.19%(2) | — |
Institutional Class | ACAJX | 11.62% | — | — | 21.59% | 9/30/11 |
A Class No sales charge* With sales charge* | ACAQX | 11.15% 4.76% | — — | — — | 21.08% 14.69% | 9/30/11 |
C Class | ACAHX | 10.32% | — | — | 20.17% | 9/30/11 |
R Class | ACAWX | 10.86% | — | — | 20.76% | 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. |
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 10 Years |
$10,000 investment made October 31, 2002 |
*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 |
1.00% | 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 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, Michael Orndorff, and Marcus Scott.
Marcus Scott became a Portfolio Manager on the All Cap Growth team in February 2012.
Performance Summary
All Cap Growth returned 11.40%* for the 12 months ended October 31, 2012, lagging the 12.76% return of the portfolio’s benchmark, the Russell 3000 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 tepid global economic recovery and continued sovereign debt concerns in Europe. 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 consumer discretionary and industrials sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the health care, information technology, and financials sectors partially offset those relative losses.
Consumer Discretionary, Industrials Lagged
In the consumer discretionary sector, an underweight allocation to the media industry hurt relative results. As optimism grew about the economic environment, advertising spending grew, helping companies in the industry group. Detrimental holdings in the media industry included China-based Focus Media Holding Ltd., which sold off sharply due to a third party research report. Stock decisions in the hotels, restaurants, and leisure group, as well as the diversified consumer services group, trimmed relative returns.
Elsewhere in the sector, however, it helped to own high-growth international retailer Michael Kors. The stock outperformed during the fiscal year following its initial public offering thanks to brand strength and exposure to luxury spending.
The industrials sector was a meaningful source of underperformance versus the benchmark. In the machinery industry, mining equipment manufacturer Joy Global was one of several overweight positions that trimmed relative performance. The mining equipment company underperformed along with lower metals prices and slowing economic growth.
In the electrical equipment industry group, Polypore, which manufactures separators for batteries used in automobiles and consumer electronic devices, was hurt by slower than expected demand. Commercial services overweight Clean Harbors also detracted. The hazardous waste disposal company suffered from concerns about pricing pressure in their energy service business as natural gas prices fell.
Health Care, Financials Gained
The health care sector was the largest source of relative gains, attributable largely to stock decisions among health care providers. The top individual contributor in the portfolio by far was pharmacy benefit manager SXC Health Solutions, which
*All fund returns referenced in this commentary are for Investor Class shares.
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acquired Catalyst Health Solutions during the reporting period. The portfolio held overweight positions in both companies, and they each posted strong returns. The merger provides the combined entity (renamed Catamaran Corp.) increased scale to go after larger potential clients.
Spanish health care company Grifols also contributed, as its acquisition of U.S. based Talecris drove gains in net revenues and net income.
In the financials sector, a position in consumer finance company Discover helped relative returns. Discover benefitted from reports of improving consumer credit quality and an alliance with PayPal, which will use Discover’s network for mobile payment transactions.
Information Technology Contributed, but Some Positions Detracted
The information technology sector was the second-largest source of relative outperformance. Here, an overweight position in Apple added significantly to results, as the company unveiled its much-anticipated iPhone 5 in September, selling more than five million units in its debut weekend. Apple also won a patent lawsuit against Samsung, its major rival in the smart phone market. Also in the sector, the portfolio underweighted the semiconductor group, an allocation decision that helped results versus the benchmark.
Some positions in the sector, though, detracted significantly from relative performance. A stake in China’s dominant internet search engine, Baidu was the largest individual detractor from relative returns. The company reported strong results, but underperformed after guiding future growth lower. Investor concerns about slowing economic growth in China also weighed on the company’s share price.
Information security software company Check Point Software Technologies detracted. Check Point underperformed after announcing slower-than-expected license revenue growth, which the company attributed to a pause in orders ahead of a new operating system launch.
Outlook
All Cap Growth’s investment process focuses on companies of all sizes with accelerating revenue and earnings growth rates, which are also exhibiting share-price 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 solid absolute returns during the reporting period. The team believes such a portfolio can outperform All Cap Growth’s peers and its benchmark, the Russell 3000 Growth Index, over time.
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OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 9.8% |
Philip Morris International, Inc. | 3.5% |
Express Scripts Holding Co. | 3.2% |
QUALCOMM, Inc. | 2.9% |
Costco Wholesale Corp. | 2.8% |
Precision Castparts Corp. | 2.6% |
Microsoft Corp. | 2.5% |
Catamaran Corp. | 2.3% |
Whole Foods Market, Inc. | 2.2% |
Google, Inc. Class A | 2.1% |
Top Five Industries | % of net assets |
Computers and Peripherals | 10.8% |
Food and Staples Retailing | 6.4% |
Specialty Retail | 6.1% |
IT Services | 5.5% |
Health Care Providers and Services | 5.5% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 93.1% |
Foreign Common Stocks* | 6.0% |
Total Common Stocks | 99.1% |
Temporary Cash Investments | 1.0% |
Other Assets and Liabilities | (0.1)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $966.00 | $4.94 | 1.00% |
Institutional Class | $1,000 | $967.00 | $3.96 | 0.80% |
A Class | $1,000 | $965.00 | $6.17 | 1.25% |
C Class | $1,000 | $961.40 | $9.86 | 2.00% |
R Class | $1,000 | $963.40 | $7.40 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.11 | $5.08 | 1.00% |
Institutional Class | $1,000 | $1,021.12 | $4.06 | 0.80% |
A Class | $1,000 | $1,018.85 | $6.34 | 1.25% |
C Class | $1,000 | $1,015.08 | $10.13 | 2.00% |
R Class | $1,000 | $1,017.60 | $7.61 | 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 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 99.1% | ||||||||
AEROSPACE AND DEFENSE — 3.2% | ||||||||
Precision Castparts Corp. | 144,599 | $25,025,749 | ||||||
TransDigm Group, Inc. | 46,354 | 6,174,816 | ||||||
31,200,565 | ||||||||
AUTOMOBILES — 1.3% | ||||||||
Harley-Davidson, Inc. | 101,037 | 4,724,490 | ||||||
Hyundai Motor Co. | 36,662 | 7,546,873 | ||||||
12,271,363 | ||||||||
BEVERAGES — 1.9% | ||||||||
Beam, Inc. | 38,651 | 2,147,450 | ||||||
Coca-Cola Co. (The) | 419,030 | 15,579,535 | ||||||
Monster Beverage Corp.(1) | 17,245 | 770,334 | ||||||
18,497,319 | ||||||||
BIOTECHNOLOGY — 2.7% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 92,876 | 8,394,133 | ||||||
Biogen Idec, Inc.(1) | 6,369 | 880,323 | ||||||
Gilead Sciences, Inc.(1) | 105,872 | 7,110,364 | ||||||
Grifols SA(1) | 217,005 | 7,526,809 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 37,478 | 2,936,776 | ||||||
26,848,405 | ||||||||
CAPITAL MARKETS — 0.5% | ||||||||
Lazard Ltd., Class A | 157,675 | 4,645,106 | ||||||
CHEMICALS — 3.3% | ||||||||
American Vanguard Corp. | 96,873 | 3,461,272 | ||||||
Cytec Industries, Inc. | 43,837 | 3,016,862 | ||||||
FMC Corp. | 89,150 | 4,771,308 | ||||||
Monsanto Co. | 226,005 | 19,452,251 | ||||||
Sherwin-Williams Co. (The) | 10,406 | 1,483,688 | ||||||
32,185,381 | ||||||||
COMMERCIAL BANKS — 0.7% | ||||||||
East West Bancorp., Inc. | 137,927 | 2,936,466 | ||||||
SVB Financial Group(1) | 66,851 | 3,783,098 | ||||||
6,719,564 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.4% | ||||||||
Cintas Corp. | 89,884 | 3,758,050 | ||||||
COMMUNICATIONS EQUIPMENT — 4.6% | ||||||||
Cisco Systems, Inc. | 673,547 | 11,544,596 | ||||||
Palo Alto Networks, Inc.(1) | 87,734 | 4,823,615 | ||||||
QUALCOMM, Inc. | 482,184 | 28,243,928 | ||||||
44,612,139 | ||||||||
COMPUTERS AND PERIPHERALS — 10.8% | ||||||||
Apple, Inc. | 160,075 | 95,260,632 | ||||||
EMC Corp.(1) | 424,178 | 10,358,427 | ||||||
105,619,059 | ||||||||
CONSTRUCTION AND ENGINEERING — 1.0% | ||||||||
Chicago Bridge & Iron Co. NV New York Shares | 100,128 | 3,759,806 | ||||||
Quanta Services, Inc.(1) | 248,014 | 6,431,003 | ||||||
10,190,809 | ||||||||
CONSUMER FINANCE — 2.4% | ||||||||
American Express Co. | 61,865 | 3,462,584 | ||||||
Discover Financial Services | 478,484 | 19,617,844 | ||||||
23,080,428 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.7% | ||||||||
Verizon Communications, Inc. | 366,371 | 16,354,801 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.5% | ||||||||
Jabil Circuit, Inc. | 28,117 | 487,549 | ||||||
Trimble Navigation Ltd.(1) | 87,313 | 4,119,427 | ||||||
4,606,976 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.3% | ||||||||
Cameron International Corp.(1) | 111,493 | 5,646,005 | ||||||
National Oilwell Varco, Inc. | 227,311 | 16,752,821 | ||||||
22,398,826 | ||||||||
FOOD AND STAPLES RETAILING — 6.4% | ||||||||
Costco Wholesale Corp. | 279,447 | 27,505,968 | ||||||
Natural Grocers by Vitamin Cottage, Inc.(1) | 86,046 | 1,745,013 | ||||||
PriceSmart, Inc. | 46,272 | 3,840,113 | ||||||
Wal-Mart Stores, Inc. | 106,633 | 7,999,608 | ||||||
Whole Foods Market, Inc. | 225,452 | 21,357,068 | ||||||
62,447,770 | ||||||||
FOOD PRODUCTS — 0.6% | ||||||||
Mead Johnson Nutrition Co. | 100,926 | 6,223,097 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.8% | ||||||||
Baxter International, Inc. | 197,938 | 12,396,857 | ||||||
Cooper Cos., Inc. (The) | 39,189 | 3,761,360 | ||||||
Covidien plc | 139,604 | 7,671,240 | ||||||
IDEXX Laboratories, Inc.(1) | 38,611 | 3,714,378 | ||||||
27,543,835 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 5.5% | ||||||||
Catamaran Corp.(1) | 483,969 | 22,823,978 | ||||||
Express Scripts Holding Co.(1) | 504,369 | 31,038,868 | ||||||
53,862,846 | ||||||||
HEALTH CARE TECHNOLOGY — 0.8% | ||||||||
Cerner Corp.(1) | 105,659 | 8,050,159 |
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Shares | Value | |||||||
HOTELS, RESTAURANTS AND LEISURE — 3.1% | ||||||||
Penn National Gaming, Inc.(1) | 81,035 | $3,276,245 | ||||||
Starbucks Corp. | 302,878 | 13,902,100 | ||||||
Yum! Brands, Inc. | 186,175 | 13,052,730 | ||||||
30,231,075 | ||||||||
HOUSEHOLD DURABLES — 0.3% | ||||||||
Toll Brothers, Inc.(1) | 102,301 | 3,376,956 | ||||||
INTERNET AND CATALOG RETAIL — 3.0% | ||||||||
Amazon.com, Inc.(1) | 47,250 | 11,000,745 | ||||||
Blue Nile, Inc.(1) | 41,344 | 1,561,563 | ||||||
Expedia, Inc. | 52,957 | 3,132,407 | ||||||
priceline.com, Inc.(1) | 23,477 | 13,470,398 | ||||||
29,165,113 | ||||||||
INTERNET SOFTWARE AND SERVICES — 4.9% | ||||||||
eBay, Inc.(1) | 150,358 | 7,260,788 | ||||||
Facebook, Inc. Class A(1) | 481,159 | 10,159,672 | ||||||
Google, Inc. Class A(1) | 30,652 | 20,836,310 | ||||||
LinkedIn Corp., Class A(1) | 46,441 | 4,965,936 | ||||||
Rackspace Hosting, Inc.(1) | 68,046 | 4,333,850 | ||||||
47,556,556 | ||||||||
IT SERVICES — 5.5% | ||||||||
Accenture plc, Class A | 163,551 | 11,024,973 | ||||||
Alliance Data Systems Corp.(1) | 116,390 | 16,649,590 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 81,613 | 5,439,506 | ||||||
MasterCard, Inc., Class A | 27,808 | 12,817,541 | ||||||
Teradata Corp.(1) | 117,048 | 7,995,549 | ||||||
53,927,159 | ||||||||
MACHINERY — 2.1% | ||||||||
Caterpillar, Inc. | 41,350 | 3,506,893 | ||||||
Chart Industries, Inc.(1) | 57,778 | 4,090,105 | ||||||
Flowserve Corp. | 29,370 | 3,979,341 | ||||||
Trinity Industries, Inc. | 130,877 | 4,093,833 | ||||||
Valmont Industries, Inc. | 39,483 | 5,334,153 | ||||||
21,004,325 | ||||||||
MEDIA — 0.5% | ||||||||
CBS Corp., Class B | 160,262 | 5,192,489 | ||||||
METALS AND MINING — 1.7% | ||||||||
Carpenter Technology Corp. | 146,933 | 7,142,413 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 249,943 | 9,717,784 | ||||||
16,860,197 | ||||||||
MULTILINE RETAIL — 0.5% | ||||||||
Family Dollar Stores, Inc. | 69,598 | 4,590,684 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 0.7% | ||||||||
Concho Resources, Inc.(1) | 40,802 | $3,513,868 | ||||||
Linn Energy LLC | 77,398 | 3,260,004 | ||||||
6,773,872 | ||||||||
PHARMACEUTICALS — 3.4% | ||||||||
Allergan, Inc. | 196,631 | 17,681,060 | ||||||
Perrigo Co. | 91,314 | 10,502,023 | ||||||
Watson Pharmaceuticals, Inc.(1) | 58,596 | 5,036,326 | ||||||
33,219,409 | ||||||||
ROAD AND RAIL — 2.4% | ||||||||
Canadian Pacific Railway Ltd. | 58,585 | 5,393,335 | ||||||
Kansas City Southern | 218,633 | 17,591,211 | ||||||
22,984,546 | ||||||||
SOFTWARE — 5.5% | ||||||||
Citrix Systems, Inc.(1) | 51,551 | 3,186,367 | ||||||
CommVault Systems, Inc.(1) | 61,533 | 3,843,966 | ||||||
Microsoft Corp. | 855,813 | 24,420,624 | ||||||
NetSuite, Inc.(1) | 138,264 | 8,781,147 | ||||||
Nuance Communications, Inc.(1) | 150,329 | 3,346,324 | ||||||
Salesforce.com, Inc.(1) | 52,057 | 7,599,281 | ||||||
Splunk, Inc.(1) | 90,604 | 2,541,442 | ||||||
53,719,151 | ||||||||
SPECIALTY RETAIL — 6.1% | ||||||||
ANN, Inc.(1) | 71,552 | 2,515,768 | ||||||
Cabela’s, Inc.(1) | 107,780 | 4,829,622 | ||||||
GNC Holdings, Inc. Class A | 165,497 | 6,399,769 | ||||||
Home Depot, Inc. (The) | 196,250 | 12,045,825 | ||||||
Lumber Liquidators Holdings, Inc.(1) | 60,147 | 3,357,406 | ||||||
PetSmart, Inc. | 173,229 | 11,500,673 | ||||||
TJX Cos., Inc. (The) | 303,681 | 12,642,240 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. | 63,014 | 5,811,151 | ||||||
59,102,454 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 1.8% | ||||||||
Coach, Inc. | 71,649 | 4,015,927 | ||||||
Lululemon Athletica, Inc.(1) | 46,964 | 3,240,986 | ||||||
Michael Kors Holdings Ltd.(1) | 145,889 | 7,978,669 | ||||||
Vera Bradley, Inc.(1) | 68,383 | 2,038,497 | ||||||
17,274,079 | ||||||||
TOBACCO — 4.2% | ||||||||
Altria Group, Inc. | 204,021 | 6,487,868 | ||||||
Philip Morris International, Inc. | 390,375 | 34,571,610 | ||||||
41,059,478 | ||||||||
TOTAL COMMON STOCKS (Cost $692,941,190) | 967,154,041 |
13
Shares | Value |
Temporary Cash Investments — 1.0% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $3,879,539), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $3,801,363) | $3,801,339 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $3,888,558), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $3,801,360) | 3,801,339 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $1,614,781), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $1,583,392) | $1,583,385 | |||||||
SSgA U.S. Government Money Market Fund | 25,908 | 25,908 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $9,211,971) | 9,211,971 | |||||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $702,153,161) | 976,366,012 | |||||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (551,852 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $975,814,160 |
Forward Foreign Currency Exchange Contracts | |||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
4,253,569 | EUR for USD | UBS AG | 11/30/12 | $5,514,606 | $(9,381) |
(Value on Settlement Date $5,505,225)
Notes to Schedule of Investments
EUR = Euro
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $702,153,161) | $976,366,012 | |||
Receivable for investments sold | 8,080,109 | |||
Receivable for capital shares sold | 425,714 | |||
Dividends and interest receivable | 1,162,150 | |||
986,033,985 | ||||
Liabilities | ||||
Payable for investments purchased | 8,331,087 | |||
Payable for capital shares redeemed | 1,023,926 | |||
Unrealized loss on forward foreign currency exchange contracts | 9,381 | |||
Accrued management fees | 851,090 | |||
Distribution and service fees payable | 4,341 | |||
10,219,825 | ||||
Net Assets | $975,814,160 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $637,339,216 | |||
Accumulated net investment loss | (200,949 | ) | ||
Undistributed net realized gain | 64,472,423 | |||
Net unrealized appreciation | 274,203,470 | |||
$975,814,160 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $961,562,056 | 31,588,991 | $30.44 |
Institutional Class, $0.01 Par Value | $61,452 | 2,015 | $30.50 |
A Class, $0.01 Par Value | $11,333,944 | 373,364 | $30.36* |
C Class, $0.01 Par Value | $1,992,567 | 66,187 | $30.11 |
R Class, $0.01 Par Value | $864,141 | 28,545 | $30.27 |
*Maximum offering price $32.21 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $14,978) | $10,216,291 | |||
Interest | 12,700 | |||
10,228,991 | ||||
Expenses: | ||||
Management fees | 9,796,331 | |||
Distribution and service fees: | ||||
A Class | 11,601 | |||
C Class | 7,946 | |||
R Class | 905 | |||
Directors’ fees and expenses | 35,889 | |||
9,852,672 | ||||
Net investment income (loss) | 376,319 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 66,894,843 | |||
Foreign currency transactions | 240,950 | |||
67,135,793 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 35,910,577 | |||
Translation of assets and liabilities in foreign currencies | 16,234 | |||
35,926,811 | ||||
Net realized and unrealized gain (loss) | 103,062,604 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $103,438,923 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $376,319 | $(846,286 | ) | |||||
Net realized gain (loss) | 67,135,793 | 126,248,283 | ||||||
Change in net unrealized appreciation (depreciation) | 35,926,811 | (49,826,959 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 103,438,923 | 75,575,038 | ||||||
Distributions to Shareholders | ||||||||
From net realized gains: | ||||||||
Investor Class | (23,595,114 | ) | — | |||||
Institutional Class | (705 | ) | — | |||||
A Class | (705 | ) | — | |||||
C Class | (1,880 | ) | — | |||||
R Class | (705 | ) | — | |||||
Decrease in net assets from distributions | (23,599,109 | ) | — | |||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (39,887,723 | ) | (99,159,677 | ) | ||||
Net increase (decrease) in net assets | 39,952,091 | (23,584,639 | ) | |||||
Net Assets | ||||||||
Beginning of period | 935,862,069 | 959,446,708 | ||||||
End of period | $975,814,160 | $935,862,069 | ||||||
Accumulated undistributed net investment income (loss) | $(200,949 | ) | $26,069 |
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. All Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund pursues its objective by investing in stocks of companies of all sizes that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. 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.
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 2009. 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $533,433,401 and $599,893,274, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011(1) | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 1,442,712 | $43,890,074 | 229,937 | $6,555,442 | ||||||||||||
Issued in reinvestment of distributions | 873,776 | 23,207,496 | — | — | ||||||||||||
Redeemed | (4,078,501 | ) | (121,343,490 | ) | (3,675,174 | ) | (105,815,119 | ) | ||||||||
(1,762,013 | ) | (54,245,920 | ) | (3,445,237 | ) | (99,259,677 | ) | |||||||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 1,317 | 40,379 | 987 | 25,000 | ||||||||||||
Issued in reinvestment of distributions | 27 | 705 | — | — | ||||||||||||
Redeemed | (316 | ) | (9,915 | ) | — | — | ||||||||||
1,028 | 31,169 | 987 | 25,000 | |||||||||||||
A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 396,764 | 12,260,804 | 987 | 25,000 | ||||||||||||
Issued in reinvestment of distributions | 27 | 705 | — | — | ||||||||||||
Redeemed | (24,414 | ) | (751,345 | ) | — | — | ||||||||||
372,377 | 11,510,164 | 987 | 25,000 | |||||||||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 68,891 | 2,084,611 | 987 | 25,000 | ||||||||||||
Issued in reinvestment of distributions | 71 | 1,880 | — | — | ||||||||||||
Redeemed | (3,762 | ) | (115,245 | ) | — | — | ||||||||||
65,200 | 1,971,246 | 987 | 25,000 | |||||||||||||
R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 32,043 | 986,202 | 987 | 25,000 | ||||||||||||
Issued in reinvestment of distributions | 27 | 705 | — | — | ||||||||||||
Redeemed | (4,512 | ) | (141,289 | ) | — | — | ||||||||||
27,558 | 845,618 | 987 | 25,000 | |||||||||||||
Net increase (decrease) | (1,295,850 | ) | $(39,887,723 | ) | (3,441,289 | ) | $(99,159,677 | ) |
(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.
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 | $908,366,244 | — | — | |||||||||
Foreign Common Stocks | 43,714,115 | $15,073,682 | — | |||||||||
Temporary Cash Investments | 25,908 | 9,186,063 | — | |||||||||
Total Value of Investment Securities | $952,106,267 | $24,259,745 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(9,381 | ) | — |
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 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, 2012, is disclosed on the Statement of Assets and Liabilities as a liability of $9,381 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2012, the effect of foreign currency risk derivative instruments on the Statement of Operations was $270,463 in net realized gain (loss) on foreign currency transactions and $16,688 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, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |
Distributions Paid From | ||
Ordinary income | — | — |
Long-term capital gains | $23,599,109 | — |
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $702,929,376 | |||
Gross tax appreciation of investments | $284,207,497 | |||
Gross tax depreciation of investments | (10,770,861 | ) | ||
Net tax appreciation (depreciation) of investments | $273,436,636 | |||
Undistributed ordinary income | — | |||
Accumulated long-term gains | $65,248,637 | |||
Late-year ordinary loss deferral | $(210,329 | ) |
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.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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 | |||||||||||||||||||||||||||||||||||||
2012 | $28.06 | 0.01 | 3.08 | 3.09 | — | (0.71 | ) | (0.71 | ) | $30.44 | 11.40 | % | 1.00 | % | 0.04 | % | 55 | % | $961,562 | ||||||||||||||||||
2011 | $26.07 | (0.02 | ) | 2.01 | 1.99 | — | — | — | $28.06 | 7.63 | % | 1.00 | % | (0.08 | )% | 75 | % | $935,751 | |||||||||||||||||||
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 | ) | — | (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 | |||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||
2012 | $28.06 | 0.09 | 3.06 | �� | 3.15 | — | (0.71 | ) | (0.71 | ) | $30.50 | 11.62 | % | 0.80 | % | 0.24 | % | 55 | % | $61 | |||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
2012 | $28.05 | (0.02 | ) | 3.04 | 3.02 | — | (0.71 | ) | (0.71 | ) | $30.36 | 11.15 | % | 1.25 | % | (0.21 | )% | 55 | % | $11,334 | |||||||||||||||||
2011(3) | $25.32 | (0.02 | ) | 2.75 | 2.73 | — | — | — | $28.05 | 10.78 | % | 1.25 | %(4) | (0.73 | )%(4) | 75 | %(5) | $28 | |||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||
2012 | $28.03 | (0.25 | ) | 3.04 | 2.79 | — | (0.71 | ) | (0.71 | ) | $30.11 | 10.32 | % | 2.00 | % | (0.96 | )% | 55 | % | $1,993 | |||||||||||||||||
2011(3) | $25.32 | (0.03 | ) | 2.74 | 2.71 | — | — | — | $28.03 | 10.70 | % | 2.00 | %(4) | (1.48 | )%(4) | 75 | %(5) | $28 | |||||||||||||||||||
R Class | |||||||||||||||||||||||||||||||||||||
2012 | $28.04 | (0.08 | ) | 3.02 | 2.94 | — | (0.71 | ) | (0.71 | ) | $30.27 | 10.86 | % | 1.50 | % | (0.46 | )% | 55 | % | $864 | |||||||||||||||||
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.
25
The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of All Cap Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the 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, 2012, 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 of American Century Mutual Funds, Inc., as of October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 19, 2012
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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
27
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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. The
31
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 $23,599,109, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2012.
The fund hereby designates $680,226, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2011. The fund utilized earnings and profits of $680,226 distributed to shareholders on redemption of shares as part of the dividends paid 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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76897 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 29 |
Statement of Operations | 30 |
Statement of Changes in Net Assets | 31 |
Notes to Financial Statements | 32 |
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By Scott Wittman, Chief Investment Officer, Quantitative Equity and Asset Allocation
U.S. Stocks Posted Double-Digit Gains
The U.S. stock market rose sharply during the 12 months ended October 31, 2012. Virtually all of the gains occurred in the first half of the period as the market rallied steadily throughout the fourth quarter of 2011 and first quarter of 2012. The market’s advance was driven by signs of improving U.S. economic activity—especially in the job market, where steady growth pushed the unemployment rate down to its lowest level in more than three years—and better news out of Europe regarding its ongoing sovereign debt crisis.
Over the last six months of the reporting period, the stock market experienced wide swings in investor sentiment but was little changed overall. Evidence of an economic slowdown in the U.S. and adverse developments in Europe weighed on the market, as did uncertainty regarding the outcome of the U.S. presidential election and the “fiscal cliff” (the simultaneous tax increases and spending cuts due to occur at the end of 2012). On the positive side, accommodative actions taken by central banks around the world late in the period helped restore investor confidence.
Overall, the broad U.S. equity indices (such as the S&P 500 Index and the Russell 3000 Index) gained approximately 15% for the 12-month period. Large-cap stocks led the market’s advance, while value shares outperformed growth issues across all market capitalizations.
Bonds Also Advanced
The U.S. bond market also gained ground during the reporting period. Better economic growth and improving conditions in Europe during the first half of the period provided a boost to the credit-related sectors of the bond market. In particular, corporate bonds (both investment-grade and high-yield) and commercial mortgage-backed securities outperformed throughout the fourth quarter of 2011 and first quarter of 2012.
As economic, financial, and political uncertainty took hold in the latter half of the period, Treasury bonds benefited from a flight to quality, sending their yields down to historically low levels. However, corporate bonds and commercial mortgage-backed securities also fared well during this period as investors continued to seek out higher-yielding investments in a low interest rate environment.
U.S. Market Returns | ||||
For the 12 months ended October 31, 2012 | ||||
U.S. Stock Indices | Barclays U.S. Bond Market Indices | |||
Russell 1000 Index (large-cap) | 14.97% | Corporate (investment-grade) | 10.21% | |
Russell Midcap Index | 12.15% | Aggregate (multi-sector) | 5.25% | |
Russell 2000 Index (small-cap) | 12.08% | Treasury | 3.66% | |
MBS (mortgage-backed securities) | 3.54% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWBIX | 11.12% | 3.42% | 6.75% | 7.86% | 10/20/88 |
Blended index(1) | — | 11.29% | 3.19% | 6.60% | 8.80%(2) | — |
S&P 500 Index | — | 15.21% | 0.36% | 6.91% | 9.37%(2) | — |
Barclays U.S. Aggregate Bond Index | — | 5.25% | 6.38% | 5.39% | 7.16%(2) | — |
Institutional Class | ABINX | 11.34% | 3.62% | 6.96% | 4.00% | 5/1/00 |
(1) | The blended index combines monthly returns of two widely known indices in proportion to the asset mix of the fund. The S&P 500 Index represents 60% of the index and the remaining 40% is represented by the Barclays U.S. Aggregate Bond Index. |
(2) | Since 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, 2002 |
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
0.90% | 0.70% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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 11.12%* for the fiscal year ended October 31, 2012. By comparison, the fund’s benchmark (a blended index consisting of 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index) returned 11.29%.
The 12-month returns for both the fund and its benchmark reflected double-digit gains in the U.S. equity market and positive performance for the U.S. bond market. Within the Balanced fund, both the equity and fixed-income portions performed in line with their respective components of the benchmark.
Stock Component Posted Strong Gain
The stock portion of the Balanced fund posted a strong return for the 12-month period that nearly matched the 15.21% return of the S&P 500 Index. Stock selection in the materials and energy sectors added value versus the index, while stock choices in the consumer staples and industrials sectors detracted from relative results.
The outperformance of the equity component’s holdings in the materials sector was driven primarily by stock selection among chemicals companies, while oil and gas producers and energy equipment and services providers contributed equally to the outperformance in the energy sector. The leading contributors in these sectors included specialty chemicals maker LyondellBasell Industries and oil and gas refiner Marathon Petroleum. Both companies benefited from higher profit margins—Lyondell from the usage of lower-cost natural gas in the company’s U.S. production facilities, and Marathon from lower oil prices and higher gasoline prices during the reporting period.
Other top contributors in the stock component included disk drive maker Seagate Technology, home improvement retailer Home Depot, and beverage maker Constellation Brands. Seagate avoided direct damage to its Thailand factories from severe flooding in late 2011, which allowed the company to outpace earnings expectations and recapture market share. Signs of a recovery in the housing market provided a lift to Home Depot, while Constellation Brands delivered better-than-expected profits and benefited from a favorable deal to sell its beer business.
On the downside, stock selection in the consumer staples and industrials sectors detracted the most from performance relative to the S&P 500. Food products makers had the most significant negative impact on performance in the consumer staples sector, while construction firms and machinery manufacturers weighed on results in the industrials sector. The most noteworthy detractors in these two sectors included meat producer Tyson Foods and engine maker Cummins. Tyson was hurt by drought conditions over the summer that led to sharply higher corn feed prices, while Cummins faced a slowdown in demand for heavy-duty truck engines in North America.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Other meaningful detractors in the equity component included semiconductor manufacturer Advanced Micro Devices, for-profit education firm ITT Educational Services, and payday lender Cash America International. Advanced Micro Devices fell amid a broad slowdown in global PC sales; ITT faced weaker enrollment and more stringent federal regulations; and Cash America reported lower-than-expected profits and canceled a planned initial public offering of its online lending unit.
Fixed-Income Portion Advanced
The fixed-income component of the Balanced portfolio performed in line with the 5.25% return of the Barclays U.S. Aggregate Bond Index for the 12-month period.
Sector allocation added value during the period, particularly an underweight position in Treasury bonds and an overweight position in credit-oriented sectors of the bond market, including corporate bonds and mortgage-backed securities. Within the credit sectors, exposure to high-yield corporate bonds and commercial mortgage-backed securities boosted performance as these higher-yielding securities benefited from strong investor demand in a low interest rate environment.
During the last six months of the reporting period, we took some profits and lowered the risk profile of the fixed-income component by reducing its overweight positions in corporate bonds and commercial mortgage-backed securities. We shifted these assets into Treasury bonds and residential mortgage-backed securities. We also added a small position in Treasury inflation-protected securities, as the substantial amount of fiscal and monetary stimulus coursing through the economy is likely to lead to higher inflation down the road.
Early in the reporting period, we exited the fixed-income component’s small position in German government bonds in favor of a new position in government bonds issued by the U.K. (hedged to remove the effects of currency fluctuations). Given the mounting debt problems facing eurozone nations, we concluded that the risk/reward trade-off was better in the U.K.—which is not a part of the eurozone—than in Germany. This positioning had a modestly positive impact on performance during the period.
Outlook
As 2013 approaches, the most important factor that is likely to impact the stock and bond markets in the near term is uncertainty—about the U.S. economic outlook, the “fiscal cliff,” the sovereign debt situation in Europe, and the pace of growth in emerging economies. Consequently, we expect to see continued financial market volatility in the coming year. We believe that our disciplined investment approach, for both the equity and fixed-income components of the portfolio, is particularly beneficial during periods of volatility as we adhere to our process regardless of the market environment, allowing us to take advantage of opportunities presented by market inefficiencies.
8
OCTOBER 31, 2012 | |
Top Ten Stock Holdings | % of net assets |
Apple, Inc. | 2.5% |
Exxon Mobil Corp. | 1.9% |
International Business Machines Corp. | 1.3% |
Chevron Corp. | 1.3% |
Pfizer, Inc. | 1.3% |
AT&T, Inc. | 1.3% |
Microsoft Corp. | 1.3% |
Oracle Corp. | 1.0% |
Comcast Corp., Class A | 1.0% |
Johnson & Johnson | 0.9% |
Top Five Stock Industries | % of net assets |
Oil, Gas and Consumable Fuels | 5.7% |
Pharmaceuticals | 4.8% |
Computers and Peripherals | 4.0% |
Insurance | 3.8% |
Software | 3.6% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 58.9% |
U.S. Government Agency Mortgage-Backed Securities | 12.2% |
U.S. Treasury Securities | 11.7% |
Corporate Bonds | 10.4% |
Commercial Mortgage-Backed Securities | 1.8% |
Collateralized Mortgage Obligations | 1.1% |
Sovereign Governments and Agencies | 0.7% |
Municipal Securities | 0.6% |
U.S. Government Agency Securities | 0.5% |
Temporary Cash Investments | 1.9% |
Other Assets and Liabilities | 0.2% |
Key Fixed-Income Portfolio Statistics | |
Weighted Average Life | 6.9 years |
Average Duration (effective) | 5.0 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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,021.40 | $4.57 | 0.90% |
Institutional Class | $1,000 | $1,022.50 | $3.56 | 0.70% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.61 | $4.57 | 0.90% |
Institutional Class | $1,000 | $1,021.62 | $3.56 | 0.70% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
11
Shares/ Principal Amount | Value | |||||||
Common Stocks — 58.9% | ||||||||
AEROSPACE AND DEFENSE — 2.8% | ||||||||
Boeing Co. (The) | 61,057 | $4,300,855 | ||||||
L-3 Communications Holdings, Inc. | 16,803 | 1,240,061 | ||||||
Northrop Grumman Corp. | 49,552 | 3,403,727 | ||||||
Raytheon Co. | 34,697 | 1,962,462 | ||||||
Textron, Inc. | 88,167 | 2,222,690 | ||||||
United Technologies Corp. | 60,085 | 4,696,244 | ||||||
17,826,039 | ||||||||
AIR FREIGHT AND LOGISTICS — 0.9% | ||||||||
FedEx Corp. | 14,740 | 1,355,933 | ||||||
United Parcel Service, Inc., Class B | 54,961 | 4,025,893 | ||||||
5,381,826 | ||||||||
AIRLINES† | ||||||||
Alaska Air Group, Inc.(1) | 1,115 | 42,637 | ||||||
Spirit Airlines, Inc.(1) | 15,487 | 271,797 | ||||||
314,434 | ||||||||
BEVERAGES — 0.3% | ||||||||
Coca-Cola Co. (The) | 37,626 | 1,398,935 | ||||||
Monster Beverage Corp.(1) | 5,452 | 243,541 | ||||||
PepsiCo, Inc. | 2,917 | 201,973 | ||||||
1,844,449 | ||||||||
BIOTECHNOLOGY — 0.8% | ||||||||
Amgen, Inc. | 41,142 | 3,560,634 | ||||||
United Therapeutics Corp.(1) | 35,897 | 1,639,416 | ||||||
5,200,050 | ||||||||
CAPITAL MARKETS — 0.1% | ||||||||
Morgan Stanley | 26,106 | 453,722 | ||||||
SEI Investments Co. | 7,835 | 171,430 | ||||||
625,152 | ||||||||
CHEMICALS — 2.8% | ||||||||
Agrium, Inc. | 17,099 | 1,804,629 | ||||||
CF Industries Holdings, Inc. | 15,990 | 3,280,988 | ||||||
Huntsman Corp. | 72,582 | 1,091,633 | ||||||
LyondellBasell Industries NV, Class A | 62,939 | 3,360,313 | ||||||
Methanex Corp. | 2,663 | 79,890 | ||||||
Monsanto Co. | 46,693 | 4,018,867 | ||||||
NewMarket Corp. | 4,053 | 1,099,619 | ||||||
PPG Industries, Inc. | 15,364 | 1,798,817 | ||||||
Valspar Corp. | 22,448 | 1,257,762 | ||||||
17,792,518 | ||||||||
COMMERCIAL BANKS — 1.1% | ||||||||
Bank of Montreal | 46,656 | 2,758,303 | ||||||
BB&T Corp. | 67,583 | 1,956,528 | ||||||
Wells Fargo & Co. | 61,656 | 2,077,190 | ||||||
6,792,021 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES† | ||||||||
Mine Safety Appliances Co. | 2,340 | 90,324 | ||||||
COMMUNICATIONS EQUIPMENT — 1.0% | ||||||||
Brocade Communications Systems, Inc.(1) | 102,891 | 545,322 | ||||||
Cisco Systems, Inc. | 306,655 | 5,256,067 | ||||||
QUALCOMM, Inc. | 9,505 | 556,755 | ||||||
6,358,144 | ||||||||
COMPUTERS AND PERIPHERALS — 4.0% | ||||||||
Apple, Inc. | 26,870 | 15,990,337 | ||||||
EMC Corp.(1) | 171,816 | 4,195,747 | ||||||
Seagate Technology plc | 89,193 | 2,436,753 | ||||||
Western Digital Corp. | 67,423 | 2,307,889 | ||||||
24,930,726 | ||||||||
CONSTRUCTION AND ENGINEERING — 0.3% | ||||||||
Chicago Bridge & Iron Co. NV New York Shares | 52,799 | 1,982,602 | ||||||
CONSUMER FINANCE — 1.0% | ||||||||
American Express Co. | 69,644 | 3,897,975 | ||||||
Cash America International, Inc. | 54,449 | 2,128,411 | ||||||
6,026,386 | ||||||||
DIVERSIFIED CONSUMER SERVICES — 0.1% | ||||||||
Coinstar, Inc.(1) | 18,662 | 875,994 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 1.4% | ||||||||
Bank of America Corp. | 97,446 | 908,197 | ||||||
Interactive Brokers Group, Inc., Class A | 6,150 | 87,637 | ||||||
JPMorgan Chase & Co. | 115,564 | 4,816,708 | ||||||
NYSE Euronext | 120,641 | 2,987,071 | ||||||
8,799,613 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.1% | ||||||||
AT&T, Inc. | 231,190 | 7,996,862 | ||||||
Verizon Communications, Inc. | 120,921 | 5,397,913 | ||||||
13,394,775 | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.2% | ||||||||
Tech Data Corp.(1) | 23,320 | 1,033,309 | ||||||
ENERGY EQUIPMENT AND SERVICES — 0.3% | ||||||||
Helix Energy Solutions Group, Inc.(1) | 96,379 | 1,666,393 |
12
Shares/ Principal Amount | Value | |||||||
FOOD AND STAPLES RETAILING — 1.5% | ||||||||
Costco Wholesale Corp. | 17,170 | $1,690,043 | ||||||
CVS Caremark Corp. | 99,699 | 4,626,033 | ||||||
Kroger Co. (The) | 95,535 | 2,409,393 | ||||||
Wal-Mart Stores, Inc. | 13,483 | 1,011,495 | ||||||
9,736,964 | ||||||||
FOOD PRODUCTS — 1.2% | ||||||||
Archer-Daniels-Midland Co. | 41,857 | 1,123,442 | ||||||
Campbell Soup Co. | 87,197 | 3,075,438 | ||||||
Dean Foods Co.(1) | 10,525 | 177,241 | ||||||
Smithfield Foods, Inc.(1) | 140,751 | 2,881,173 | ||||||
7,257,294 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.2% | ||||||||
Medtronic, Inc. | 96,257 | 4,002,366 | ||||||
St. Jude Medical, Inc. | 83,990 | 3,213,457 | ||||||
Stryker Corp. | 3,768 | 198,197 | ||||||
7,414,020 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 1.2% | ||||||||
Humana, Inc. | 8,231 | 611,316 | ||||||
McKesson Corp. | 38,611 | 3,602,793 | ||||||
UnitedHealth Group, Inc. | 56,104 | 3,141,824 | ||||||
7,355,933 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 0.1% | ||||||||
Bally Technologies, Inc.(1) | 15,136 | 755,589 | ||||||
HOUSEHOLD DURABLES — 0.7% | ||||||||
Garmin Ltd. | 71,170 | 2,703,748 | ||||||
Harman International Industries, Inc. | 13,908 | 583,162 | ||||||
Newell Rubbermaid, Inc. | 58,971 | 1,217,162 | ||||||
4,504,072 | ||||||||
HOUSEHOLD PRODUCTS — 1.2% | ||||||||
Energizer Holdings, Inc. | 28,003 | 2,043,379 | ||||||
Kimberly-Clark Corp. | 33,594 | 2,803,419 | ||||||
Procter & Gamble Co. (The) | 35,849 | 2,482,185 | ||||||
7,328,983 | ||||||||
INDUSTRIAL CONGLOMERATES — 1.1% | ||||||||
Danaher Corp. | 66,003 | 3,414,335 | ||||||
General Electric Co. | 162,340 | 3,418,881 | ||||||
6,833,216 | ||||||||
INSURANCE — 3.8% | ||||||||
Aflac, Inc. | 75,643 | 3,765,509 | ||||||
Allied World Assurance Co. Holdings AG | 26,743 | 2,147,463 | ||||||
Allstate Corp. (The) | 83,508 | 3,338,650 | ||||||
Assurant, Inc. | 27,698 | 1,047,261 | ||||||
Axis Capital Holdings Ltd. | 29,943 | 1,084,536 | ||||||
Berkshire Hathaway, Inc., Class B(1) | 15,772 | 1,361,912 | ||||||
Everest Re Group Ltd. | 11,545 | 1,282,072 | ||||||
Genworth Financial, Inc., Class A(1) | 62,428 | 372,071 | ||||||
Loews Corp. | 36,156 | 1,528,676 | ||||||
MetLife, Inc. | 103,606 | 3,676,977 | ||||||
Prudential Financial, Inc. | 64,387 | 3,673,278 | ||||||
Validus Holdings Ltd. | 23,504 | 841,443 | ||||||
24,119,848 | ||||||||
INTERNET AND CATALOG RETAIL† | ||||||||
Expedia, Inc. | 2,804 | 165,857 | ||||||
INTERNET SOFTWARE AND SERVICES — 0.4% | ||||||||
Google, Inc., Class A(1) | 4,095 | 2,783,658 | ||||||
IT SERVICES — 1.7% | ||||||||
Accenture plc, Class A | 27,393 | 1,846,562 | ||||||
International Business Machines Corp. | 43,650 | 8,491,235 | ||||||
Teradata Corp.(1) | 3,626 | 247,692 | ||||||
10,585,489 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.5% | ||||||||
Agilent Technologies, Inc. | 63,647 | 2,290,656 | ||||||
Life Technologies Corp.(1) | 22,561 | 1,103,458 | ||||||
3,394,114 | ||||||||
MACHINERY — 1.2% | ||||||||
Actuant Corp., Class A | 10,565 | 298,356 | ||||||
Ingersoll-Rand plc | 40,912 | 1,924,091 | ||||||
Parker-Hannifin Corp. | 38,359 | 3,017,319 | ||||||
Sauer-Danfoss, Inc. | 50,169 | 2,009,770 | ||||||
7,249,536 | ||||||||
MEDIA — 1.7% | ||||||||
Comcast Corp., Class A | 159,405 | 5,979,282 | ||||||
DISH Network Corp., Class A | 52,922 | 1,885,611 | ||||||
Regal Entertainment Group Class A | 124,459 | 1,911,690 | ||||||
Scholastic Corp. | 3,812 | 125,758 | ||||||
Thomson Reuters Corp. | 25,393 | 717,606 | ||||||
10,619,947 | ||||||||
METALS AND MINING — 0.4% | ||||||||
Coeur d’Alene Mines Corp.(1) | 81,071 | 2,505,905 | ||||||
MULTI-UTILITIES — 0.8% | ||||||||
Ameren Corp. | 65,605 | 2,157,093 | ||||||
Public Service Enterprise Group, Inc. | 87,079 | 2,790,011 | ||||||
4,947,104 | ||||||||
MULTILINE RETAIL — 0.5% | ||||||||
Dillard’s, Inc., Class A | 24,727 | 1,903,979 | ||||||
Macy’s, Inc. | 36,555 | 1,391,649 | ||||||
3,295,628 |
13
Shares/ Principal Amount | Value |
OIL, GAS AND CONSUMABLE FUELS — 5.7% | ||||||||
Chevron Corp. | 76,442 | $8,424,673 | ||||||
Energy XXI Bermuda Ltd. | 54,279 | 1,796,635 | ||||||
Exxon Mobil Corp. | 133,203 | 12,144,117 | ||||||
Marathon Petroleum Corp. | 67,313 | 3,697,503 | ||||||
Phillips 66 | 17,291 | 815,444 | ||||||
Suncor Energy, Inc. | 81,668 | 2,745,678 | ||||||
Tesoro Corp. | 49,028 | 1,848,846 | ||||||
Valero Energy Corp. | 109,912 | 3,198,439 | ||||||
Western Refining, Inc. | 47,202 | 1,173,914 | ||||||
35,845,249 | ||||||||
PAPER AND FOREST PRODUCTS† | ||||||||
Buckeye Technologies, Inc. | 6,001 | 157,226 | ||||||
PERSONAL PRODUCTS — 0.4% | ||||||||
Nu Skin Enterprises, Inc., Class A | 48,127 | 2,277,851 | ||||||
PHARMACEUTICALS — 4.8% | ||||||||
Abbott Laboratories | 82,412 | 5,399,634 | ||||||
Bristol-Myers Squibb Co. | 24,658 | 819,879 | ||||||
Eli Lilly & Co. | 94,411 | 4,591,207 | ||||||
Johnson & Johnson | 80,662 | 5,712,483 | ||||||
Merck & Co., Inc. | 122,645 | 5,596,291 | ||||||
Pfizer, Inc. | 328,647 | 8,173,451 | ||||||
30,292,945 | ||||||||
PROFESSIONAL SERVICES — 0.2% | ||||||||
Dun & Bradstreet Corp. | 5,730 | 464,359 | ||||||
Equifax, Inc. | 17,901 | 895,766 | ||||||
1,360,125 | ||||||||
ROAD AND RAIL — 0.6% | ||||||||
Union Pacific Corp. | 31,738 | 3,904,726 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.0% | ||||||||
Applied Materials, Inc. | 283,854 | 3,008,853 | ||||||
Broadcom Corp., Class A | 96,071 | 3,029,599 | ||||||
Intel Corp. | 86,578 | 1,872,249 | ||||||
KLA-Tencor Corp. | 50,198 | 2,335,211 | ||||||
Texas Instruments, Inc. | 72,302 | 2,030,963 | ||||||
12,276,875 | ||||||||
SOFTWARE — 3.6% | ||||||||
Activision Blizzard, Inc. | 28,356 | 308,797 | ||||||
Adobe Systems, Inc.(1) | 90,137 | 3,064,658 | ||||||
CA, Inc. | 86,352 | 1,944,647 | ||||||
Intuit, Inc. | 1,019 | 60,549 | ||||||
Microsoft Corp. | 275,931 | 7,873,691 | ||||||
Oracle Corp. | 199,857 | 6,205,560 | ||||||
Symantec Corp.(1) | 161,605 | 2,939,595 | ||||||
22,397,497 | ||||||||
SPECIALTY RETAIL — 2.8% | ||||||||
Advance Auto Parts, Inc. | 24,481 | 1,736,682 | ||||||
Buckle, Inc. (The) | 16,893 | 763,057 | ||||||
Foot Locker, Inc. | 30,804 | 1,031,934 | ||||||
GameStop Corp., Class A | 14,556 | 332,313 | ||||||
Home Depot, Inc. (The) | 92,015 | 5,647,881 | ||||||
O’Reilly Automotive, Inc.(1) | 21,991 | 1,884,189 | ||||||
PetSmart, Inc. | 38,966 | 2,586,953 | ||||||
TJX Cos., Inc. (The) | 85,129 | 3,543,920 | ||||||
17,526,929 | ||||||||
TOBACCO — 0.4% | ||||||||
Philip Morris International, Inc. | 17,287 | 1,530,937 | ||||||
Universal Corp. | 19,876 | 985,054 | ||||||
2,515,991 | ||||||||
TOTAL COMMON STOCKS (Cost $306,430,867) | 370,343,326 | |||||||
U.S. Government Agency Mortgage-Backed Securities(2) — 12.2% | ||||||||
FIXED-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 11.5% | ||||||||
FHLMC, 4.50%, 1/1/19 | $558,995 | 599,193 | ||||||
FHLMC, 6.50%, 1/1/28 | 48,302 | 56,580 | ||||||
FHLMC, 5.50%, 12/1/33 | 482,958 | 539,754 | ||||||
FHLMC, 5.00%, 7/1/35 | 4,755,409 | 5,170,852 | ||||||
FHLMC, 5.50%, 1/1/38 | 876,300 | 955,255 | ||||||
FHLMC, 6.00%, 8/1/38 | 155,540 | 171,761 | ||||||
FHLMC, 4.00%, 4/1/41 | 1,347,836 | 1,492,790 | ||||||
FHLMC, 6.50%, 7/1/47 | 22,969 | 25,764 | ||||||
FNMA, 6.50%, 5/1/13 | 421 | 429 | ||||||
FNMA, 6.50%, 5/1/13 | 281 | 286 | ||||||
FNMA, 6.50%, 6/1/13 | 1,769 | 1,797 | ||||||
FNMA, 6.50%, 6/1/13 | 1,071 | 1,088 | ||||||
FNMA, 6.50%, 6/1/13 | 1,129 | 1,147 | ||||||
FNMA, 6.00%, 1/1/14 | 8,182 | 8,432 | ||||||
FNMA, 6.00%, 4/1/14 | 33,772 | 34,253 | ||||||
FNMA, 4.50%, 5/1/19 | 182,850 | 197,527 | ||||||
FNMA, 4.50%, 5/1/19 | 482,384 | 521,106 | ||||||
FNMA, 5.00%, 9/1/20 | 1,063,258 | 1,159,239 | ||||||
FNMA, 6.50%, 1/1/28 | 22,712 | 26,586 | ||||||
FNMA, 6.50%, 1/1/29 | 64,561 | 75,840 | ||||||
FNMA, 7.50%, 7/1/29 | 116,711 | 142,666 | ||||||
FNMA, 7.50%, 9/1/30 | 33,643 | 41,078 | ||||||
FNMA, 5.00%, 7/1/31 | 1,867,051 | 2,040,285 | ||||||
FNMA, 6.50%, 9/1/31 | 41,112 | 48,501 | ||||||
FNMA, 7.00%, 9/1/31 | 14,872 | 17,771 | ||||||
FNMA, 6.50%, 1/1/32 | 102,141 | 120,694 |
14
Shares/ Principal Amount | Value |
FNMA, 6.50%, 8/1/32 | $77,056 | $87,969 | ||||||
FNMA, 5.50%, 6/1/33 | 308,943 | 344,280 | ||||||
FNMA, 5.50%, 7/1/33 | 506,503 | 562,111 | ||||||
FNMA, 5.50%, 8/1/33 | 733,140 | 813,630 | ||||||
FNMA, 5.50%, 9/1/33 | 478,000 | 544,371 | ||||||
FNMA, 5.00%, 11/1/33 | 1,582,483 | 1,738,462 | ||||||
FNMA, 4.50%, 9/1/35 | 1,208,998 | 1,306,407 | ||||||
FNMA, 5.00%, 2/1/36 | 1,661,835 | 1,820,008 | ||||||
FNMA, 5.50%, 4/1/36 | 666,722 | 735,337 | ||||||
FNMA, 5.50%, 5/1/36 | 1,326,240 | 1,462,728 | ||||||
FNMA, 5.50%, 2/1/37 | 400,139 | 439,318 | ||||||
FNMA, 6.00%, 7/1/37 | 3,108,099 | 3,483,449 | ||||||
FNMA, 6.50%, 8/1/37 | 302,799 | 339,639 | ||||||
FNMA, 4.50%, 9/1/40 | 6,009,863 | 6,614,274 | ||||||
FNMA, 4.00%, 1/1/41 | 2,111,583 | 2,342,634 | ||||||
FNMA, 4.50%, 1/1/41 | 1,801,910 | 1,980,313 | ||||||
FNMA, 4.50%, 2/1/41 | 1,518,540 | 1,643,736 | ||||||
FNMA, 4.00%, 5/1/41 | 3,464,383 | 3,715,710 | ||||||
FNMA, 4.50%, 7/1/41 | 1,082,388 | 1,191,243 | ||||||
FNMA, 4.50%, 9/1/41 | 1,339,794 | 1,473,281 | ||||||
FNMA, 4.00%, 12/1/41 | 2,337,197 | 2,565,181 | ||||||
FNMA, 4.00%, 1/1/42 | 1,570,333 | 1,707,318 | ||||||
FNMA, 4.00%, 1/1/42 | 2,228,541 | 2,390,909 | ||||||
FNMA, 3.50%, 5/1/42 | 3,429,621 | 3,679,214 | ||||||
FNMA, 3.50%, 6/1/42 | 994,354 | 1,068,739 | ||||||
FNMA, 6.50%, 6/1/47 | 57,345 | 63,981 | ||||||
FNMA, 6.50%, 8/1/47 | 104,706 | 116,823 | ||||||
FNMA, 6.50%, 8/1/47 | 108,479 | 121,033 | ||||||
FNMA, 6.50%, 9/1/47 | 244,746 | 273,069 | ||||||
FNMA, 6.50%, 9/1/47 | 8,329 | 9,292 | ||||||
FNMA, 6.50%, 9/1/47 | 97,707 | 109,014 | ||||||
FNMA, 6.50%, 9/1/47 | 67,491 | 75,301 | ||||||
FNMA, 6.50%, 9/1/47 | 67,657 | 75,486 | ||||||
GNMA, 7.00%, 4/20/26 | 97,932 | 116,171 | ||||||
GNMA, 7.50%, 8/15/26 | 56,886 | 68,286 | ||||||
GNMA, 7.00%, 2/15/28 | 15,172 | 18,156 | ||||||
GNMA, 7.50%, 2/15/28 | 18,980 | 19,587 | ||||||
GNMA, 7.00%, 12/15/28 | 35,456 | 42,432 | ||||||
GNMA, 7.00%, 5/15/31 | 111,779 | 134,511 | ||||||
GNMA, 5.50%, 11/15/32 | 496,603 | 552,740 | ||||||
GNMA, 4.00%, 1/20/41 | 2,659,887 | 2,920,321 | ||||||
GNMA, 4.50%, 5/20/41 | 1,768,794 | 1,954,970 | ||||||
GNMA, 4.50%, 6/15/41 | 1,156,522 | 1,274,562 | ||||||
GNMA, 4.00%, 12/15/41 | 2,950,941 | 3,236,381 | ||||||
GNMA, 3.50%, 6/20/42 | 2,464,817 | 2,681,061 | ||||||
GNMA, 3.50%, 7/20/42 | 1,189,871 | 1,294,261 | ||||||
72,658,373 | ||||||||
ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 0.7% | ||||||||
FHLMC, VRN, 2.59%, 11/15/12 | 218,143 | 228,413 | ||||||
FHLMC, VRN, 2.90%, 11/15/12 | 233,866 | 246,850 | ||||||
FHLMC, VRN, 3.26%, 11/15/12 | 266,037 | 279,836 | ||||||
FHLMC, VRN, 4.04%, 11/15/12 | 539,904 | 575,793 | ||||||
FHLMC, VRN, 6.16%, 11/15/12 | 411,017 | 446,861 | ||||||
FNMA, VRN, 2.73%, 11/25/12 | 537,119 | 564,356 | ||||||
FNMA, VRN, 3.35%, 11/25/12 | 316,716 | 335,028 | ||||||
FNMA, VRN, 3.37%, 11/25/12 | 316,110 | 335,303 | ||||||
FNMA, VRN, 3.90%, 11/25/12 | 548,705 | 584,357 | ||||||
FNMA, VRN, 3.91%, 11/25/12 | 468,313 | 498,374 | ||||||
FNMA, VRN, 3.96%, 11/25/12 | 177,704 | 188,528 | ||||||
4,283,699 | ||||||||
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $72,675,902) | 76,942,072 | |||||||
U.S. Treasury Securities — 11.7% | ||||||||
U.S. Treasury Bonds, 5.50%, 8/15/28 | 420,000 | 598,172 | ||||||
U.S. Treasury Bonds, 5.25%, 2/15/29 | 489,000 | 682,079 | ||||||
U.S. Treasury Bonds, 5.375%, 2/15/31 | 2,900,000 | 4,171,015 | ||||||
U.S. Treasury Bonds, 4.375%, 11/15/39 | 2,000,000 | 2,626,250 | ||||||
U.S. Treasury Bonds, 4.375%, 5/15/41 | 1,850,000 | 2,434,774 | ||||||
U.S. Treasury Bonds, 3.75%, 8/15/41 | 400,000 | 474,938 | ||||||
U.S. Treasury Bonds, 3.125%, 11/15/41 | 1,500,000 | 1,586,484 | ||||||
U.S. Treasury Bonds, 2.75%, 8/15/42 | 1,080,000 | 1,054,518 | ||||||
U.S. Treasury Inflation Indexed Notes, 1.25%, 4/15/14 | 2,286,018 | 2,364,600 | ||||||
U.S. Treasury Inflation Indexed Notes, 1.625%, 1/15/15 | 3,498,908 | 3,726,610 |
15
Shares/ Principal Amount | Value |
U.S. Treasury Inflation Indexed Notes, 1.875%, 7/15/15 | $5,566,727 | $6,085,128 | ||||||
U.S. Treasury Notes, 0.75%, 9/15/13 | 2,850,000 | 2,864,028 | ||||||
U.S. Treasury Notes, 0.75%, 12/15/13 | 1,500,000 | 1,508,965 | ||||||
U.S. Treasury Notes, 1.25%, 2/15/14 | 2,500,000 | 2,532,715 | ||||||
U.S. Treasury Notes, 1.25%, 3/15/14 | 1,000,000 | 1,013,867 | ||||||
U.S. Treasury Notes, 0.50%, 8/15/14 | 3,000,000 | 3,012,072 | ||||||
U.S. Treasury Notes, 0.50%, 10/15/14 | 2,000,000 | 2,008,282 | ||||||
U.S. Treasury Notes, 1.375%, 11/30/15 | 1,750,000 | 1,801,954 | ||||||
U.S. Treasury Notes, 2.125%, 12/31/15 | 4,650,000 | 4,897,757 | ||||||
U.S. Treasury Notes, 0.50%, 7/31/17 | 500,000 | 495,703 | ||||||
U.S. Treasury Notes, 0.75%, 10/31/17 | 2,500,000 | 2,503,515 | ||||||
U.S. Treasury Notes, 1.875%, 10/31/17 | 7,300,000 | 7,710,055 | ||||||
U.S. Treasury Notes, 2.75%, 2/28/18 | 2,400,000 | 2,645,626 | ||||||
U.S. Treasury Notes, 2.625%, 4/30/18 | 875,000 | 959,355 | ||||||
U.S. Treasury Notes, 1.375%, 11/30/18 | 200,000 | 204,969 | ||||||
U.S. Treasury Notes, 1.00%, 9/30/19 | 1,900,000 | 1,884,118 | ||||||
U.S. Treasury Notes, 2.625%, 8/15/20 | 1,871,000 | 2,054,884 | ||||||
U.S. Treasury Notes, 3.125%, 5/15/21 | 3,300,000 | 3,748,338 | ||||||
U.S. Treasury Notes, 2.125%, 8/15/21 | 2,600,000 | 2,733,656 | ||||||
U.S. Treasury Notes, 2.00%, 2/15/22 | 2,550,000 | 2,638,255 | ||||||
U.S. Treasury Notes, 1.625%, 8/15/22 | 800,000 | 794,875 | ||||||
TOTAL U.S. TREASURY SECURITIES (Cost $71,322,067) | 73,817,557 | |||||||
Corporate Bonds — 10.4% | ||||||||
AEROSPACE AND DEFENSE — 0.1% | ||||||||
L-3 Communications Corp., 4.75%, 7/15/20 | 90,000 | 100,269 | ||||||
Lockheed Martin Corp., 4.25%, 11/15/19 | 250,000 | 284,895 | ||||||
Raytheon Co., 4.40%, 2/15/20 | 110,000 | 128,013 | ||||||
United Technologies Corp., 5.70%, 4/15/40 | 120,000 | 160,717 | ||||||
United Technologies Corp., 4.50%, 6/1/42 | 90,000 | 103,640 | ||||||
777,534 | ||||||||
AUTOMOBILES — 0.2% | ||||||||
American Honda Finance Corp., 2.375%, 3/18/13(3) | 170,000 | 171,219 | ||||||
American Honda Finance Corp., 2.50%, 9/21/15(3) | 220,000 | 227,951 | ||||||
American Honda Finance Corp., 1.50%, 9/11/17(3) | 70,000 | 70,560 | ||||||
Daimler Finance North America LLC, 1.30%, 7/31/15(3) | 200,000 | 201,573 | ||||||
Daimler Finance North America LLC, 2.625%, 9/15/16(3) | 210,000 | 219,239 | ||||||
Ford Motor Credit Co. LLC, 5.875%, 8/2/21 | 240,000 | 276,587 | ||||||
Nissan Motor Acceptance Corp., 3.25%, 1/30/13(3) | 50,000 | 50,310 | ||||||
1,217,439 | ||||||||
BEVERAGES — 0.4% | ||||||||
Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/19 | 510,000 | 692,347 | ||||||
Anheuser-Busch InBev Worldwide, Inc., 3.75%, 7/15/42 | 140,000 | 144,403 | ||||||
Coca-Cola Co. (The), 1.80%, 9/1/16 | 180,000 | 186,769 | ||||||
Dr Pepper Snapple Group, Inc., 2.90%, 1/15/16 | 60,000 | 63,382 | ||||||
Dr Pepper Snapple Group, Inc., 3.20%, 11/15/21 | 60,000 | 62,460 | ||||||
PepsiCo, Inc., 4.875%, 11/1/40 | 50,000 | 60,913 | ||||||
PepsiCo, Inc., 3.60%, 8/13/42 | 90,000 | 91,202 | ||||||
Pernod-Ricard SA, 2.95%, 1/15/17(3) | 180,000 | 189,966 | ||||||
SABMiller Holdings, Inc., 2.45%, 1/15/17(3) | 330,000 | 346,144 | ||||||
SABMiller Holdings, Inc., 3.75%, 1/15/22(3) | 200,000 | 220,192 | ||||||
United Technologies Corp., 6.05%, 6/1/36 | 250,000 | 336,735 | ||||||
2,394,513 |
16
Shares/ Principal Amount | Value |
BIOTECHNOLOGY — 0.1% | ||||||||
Amgen, Inc., 2.125%, 5/15/17 | $250,000 | $260,172 | ||||||
Amgen, Inc., 3.625%, 5/15/22 | 20,000 | 21,521 | ||||||
Amgen, Inc., 6.40%, 2/1/39 | 50,000 | 65,216 | ||||||
Celgene Corp., 3.25%, 8/15/22 | 110,000 | 113,510 | ||||||
Gilead Sciences, Inc., 4.40%, 12/1/21 | 140,000 | 161,988 | ||||||
622,407 | ||||||||
CAPITAL MARKETS — 0.1% | ||||||||
Bear Stearns Cos. LLC (The), 6.40%, 10/2/17 | 330,000 | 397,914 | ||||||
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, 3.375%, 1/19/17 | 90,000 | 96,855 | ||||||
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, 3.875%, 2/8/22 | 230,000 | 249,000 | ||||||
Jefferies Group, Inc., 5.125%, 4/13/18 | 110,000 | 113,575 | ||||||
857,344 | ||||||||
CHEMICALS — 0.2% | ||||||||
Ashland, Inc., 4.75%, 8/15/22(3) | 100,000 | 102,500 | ||||||
CF Industries, Inc., 6.875%, 5/1/18 | 210,000 | 258,071 | ||||||
Dow Chemical Co. (The), 5.90%, 2/15/15 | 110,000 | 122,482 | ||||||
Dow Chemical Co. (The), 2.50%, 2/15/16 | 110,000 | 115,147 | ||||||
Eastman Chemical Co., 3.60%, 8/15/22 | 170,000 | 180,081 | ||||||
Ecolab, Inc., 4.35%, 12/8/21 | 270,000 | 307,026 | ||||||
1,085,307 | ||||||||
COMMERCIAL BANKS — 0.8% | ||||||||
Bank of America N.A., 5.30%, 3/15/17 | 870,000 | 977,342 | ||||||
Bank of Nova Scotia, 2.55%, 1/12/17 | 150,000 | 158,880 | ||||||
BB&T Corp., 5.70%, 4/30/14 | 60,000 | 64,493 | ||||||
BB&T Corp., 3.20%, 3/15/16 | 190,000 | 203,463 | ||||||
Capital One Financial Corp., 4.75%, 7/15/21 | 170,000 | 195,235 | ||||||
Fifth Third Bancorp, 6.25%, 5/1/13 | 170,000 | 174,763 | ||||||
HSBC Bank plc, 3.50%, 6/28/15(3) | 140,000 | 149,090 | ||||||
JPMorgan Chase Bank N.A., 5.875%, 6/13/16 | 250,000 | 284,289 | ||||||
Kreditanstalt fuer Wiederaufbau, 4.125%, 10/15/14 | 240,000 | 257,124 | ||||||
Kreditanstalt fuer Wiederaufbau, 2.00%, 6/1/16 | 260,000 | 272,375 | ||||||
Royal Bank of Scotland plc (The), 4.375%, 3/16/16 | 380,000 | 413,755 | ||||||
SunTrust Bank, 7.25%, 3/15/18 | 110,000 | 134,580 | ||||||
SunTrust Banks, Inc., 3.60%, 4/15/16 | 50,000 | 53,635 | ||||||
Toronto-Dominion Bank (The), 2.375%, 10/19/16 | 210,000 | 220,928 | ||||||
U.S. Bancorp., 3.44%, 2/1/16 | 120,000 | 126,143 | ||||||
U.S. Bancorp., MTN, 3.00%, 3/15/22 | 110,000 | 116,749 | ||||||
U.S. Bancorp., MTN, 2.95%, 7/15/22 | 60,000 | 61,966 | ||||||
Wachovia Bank N.A., 4.80%, 11/1/14 | 251,000 | 269,684 | ||||||
Wells Fargo & Co., 3.68%, 3/15/13 | 140,000 | 152,064 | ||||||
Wells Fargo & Co., 2.10%, 5/8/17 | 230,000 | 237,020 | ||||||
Wells Fargo & Co., 5.625%, 12/11/17 | 20,000 | 23,961 | ||||||
Wells Fargo & Co., 4.60%, 4/1/21 | 110,000 | 126,755 | ||||||
Wells Fargo & Co., MTN, 3.50%, 3/8/22 | 100,000 | 106,880 | ||||||
4,781,174 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.1% | ||||||||
Corrections Corp. of America, 7.75%, 6/1/17 | 90,000 | 96,637 | ||||||
Republic Services, Inc., 3.80%, 5/15/18 | 70,000 | 77,533 | ||||||
Republic Services, Inc., 5.50%, 9/15/19 | 110,000 | 130,509 | ||||||
Republic Services, Inc., 3.55%, 6/1/22 | 100,000 | 106,059 | ||||||
Waste Management, Inc., 6.125%, 11/30/39 | 120,000 | 154,209 | ||||||
564,947 | ||||||||
COMMUNICATIONS EQUIPMENT† | ||||||||
Cisco Systems, Inc., 5.90%, 2/15/39 | 130,000 | 175,727 | ||||||
COMPUTERS AND PERIPHERALS† | ||||||||
Hewlett-Packard Co., 2.60%, 9/15/17 | 320,000 | 311,850 |
17
Shares/ Principal Amount | Value |
CONSTRUCTION MATERIALS† | ||||||||
Owens Corning, 4.20%, 12/15/22 | $120,000 | $121,415 | ||||||
CONSUMER FINANCE — 0.2% | ||||||||
American Express Centurion Bank, 6.00%, 9/13/17 | 250,000 | 304,466 | ||||||
American Express Credit Corp., 2.80%, 9/19/16 | 60,000 | 63,929 | ||||||
American Express Credit Corp., MTN, 2.75%, 9/15/15 | 200,000 | 210,962 | ||||||
American Express Credit Corp., MTN, 2.375%, 3/24/17 | 100,000 | 105,229 | ||||||
PNC Bank N.A., 6.00%, 12/7/17 | 290,000 | 352,134 | ||||||
SLM Corp., 6.25%, 1/25/16 | 80,000 | 86,804 | ||||||
SLM Corp., MTN, 5.00%, 10/1/13 | 180,000 | 186,750 | ||||||
1,310,274 | ||||||||
CONTAINERS AND PACKAGING† | ||||||||
Ball Corp., 7.125%, 9/1/16 | 130,000 | 140,400 | ||||||
Ball Corp., 6.75%, 9/15/20 | 120,000 | 132,300 | ||||||
272,700 | ||||||||
DIVERSIFIED CONSUMER SERVICES† | ||||||||
Catholic Health Initiatives, 1.60%, 11/1/17 | 45,000 | 45,226 | ||||||
Catholic Health Initiatives, 2.95%, 11/1/22 | 85,000 | 86,439 | ||||||
131,665 | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 1.5% | ||||||||
Bank of America Corp., 4.50%, 4/1/15 | 260,000 | 278,626 | ||||||
Bank of America Corp., 3.75%, 7/12/16 | 100,000 | 107,222 | ||||||
Bank of America Corp., 6.50%, 8/1/16 | 480,000 | 558,573 | ||||||
Bank of America Corp., 5.75%, 12/1/17 | 320,000 | 370,918 | ||||||
Citigroup, Inc., 6.01%, 1/15/15 | 520,000 | 572,721 | ||||||
Citigroup, Inc., 4.75%, 5/19/15 | 70,000 | 75,905 | ||||||
Citigroup, Inc., 4.45%, 1/10/17 | 100,000 | 110,543 | ||||||
Citigroup, Inc., 6.125%, 5/15/18 | 660,000 | 789,237 | ||||||
Citigroup, Inc., 4.50%, 1/14/22 | 120,000 | 132,605 | ||||||
Deutsche Bank AG (London), 3.875%, 8/18/14 | 190,000 | 200,618 | ||||||
General Electric Capital Corp., 3.75%, 11/14/14 | 200,000 | 211,744 | ||||||
General Electric Capital Corp., 2.25%, 11/9/15 | 200,000 | 207,168 | ||||||
General Electric Capital Corp., 5.625%, 9/15/17 | 450,000 | 534,167 | ||||||
General Electric Capital Corp., 4.375%, 9/16/20 | 320,000 | 358,389 | ||||||
General Electric Capital Corp., 5.30%, 2/11/21 | 80,000 | 93,169 | ||||||
General Electric Capital Corp., MTN, 2.30%, 4/27/17 | 420,000 | 434,147 | ||||||
General Electric Capital Corp., MTN, 6.00%, 8/7/19 | 350,000 | 429,037 | ||||||
Goldman Sachs Group, Inc. (The), 3.30%, 5/3/15 | 40,000 | 41,798 | ||||||
Goldman Sachs Group, Inc. (The), 3.625%, 2/7/16 | 465,000 | 492,480 | ||||||
Goldman Sachs Group, Inc. (The), 5.75%, 1/24/22 | 550,000 | 639,090 | ||||||
Goldman Sachs Group, Inc. (The), 6.25%, 2/1/41 | 100,000 | 118,843 | ||||||
HSBC Holdings plc, 5.10%, 4/5/21 | 120,000 | 141,620 | ||||||
HSBC Holdings plc, 6.80%, 6/1/38 | 80,000 | 102,062 | ||||||
JPMorgan Chase & Co., 6.00%, 1/15/18 | 840,000 | 1,000,436 | ||||||
JPMorgan Chase & Co., 4.25%, 10/15/20 | 70,000 | 77,273 | ||||||
JPMorgan Chase & Co., 4.625%, 5/10/21 | 60,000 | 67,744 | ||||||
Morgan Stanley, 6.625%, 4/1/18 | 410,000 | 477,215 | ||||||
Morgan Stanley, 5.625%, 9/23/19 | 150,000 | 166,696 | ||||||
Morgan Stanley, 5.50%, 7/28/21 | 80,000 | 88,995 | ||||||
Morgan Stanley, 4.875%, 11/1/22 | 50,000 | 50,598 | ||||||
UBS AG (Stamford Branch), 5.875%, 12/20/17 | 380,000 | 449,974 | ||||||
9,379,613 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.4% | ||||||||
AT&T, Inc., 3.00%, 2/15/22 | 140,000 | 148,950 | ||||||
AT&T, Inc., 6.55%, 2/15/39 | 470,000 | 648,746 | ||||||
British Telecommunications plc, 5.95%, 1/15/18 | 270,000 | 324,426 | ||||||
CenturyLink, Inc., Series Q, 6.15%, 9/15/19 | 140,000 | 154,165 | ||||||
CenturyLink, Inc., Series T, 5.80%, 3/15/22 | 20,000 | 21,072 | ||||||
CenturyLink, Inc., Series P, 7.60%, 9/15/39 | 60,000 | 61,546 |
18
Shares/ Principal Amount | Value |
Deutsche Telekom International Finance BV, 2.25%, 3/6/17(3) | $50,000 | $51,252 | ||||||
Deutsche Telekom International Finance BV, 6.75%, 8/20/18 | 210,000 | 263,255 | ||||||
Telecom Italia Capital SA, 7.00%, 6/4/18 | 30,000 | 34,388 | ||||||
Telefonica Emisiones SAU, 5.88%, 7/15/19 | 160,000 | 168,400 | ||||||
Telefonica Emisiones SAU, 5.46%, 2/16/21 | 100,000 | 101,875 | ||||||
Verizon Communications, Inc., 8.75%, 11/1/18 | 100,000 | 139,642 | ||||||
Verizon Communications, Inc., 3.50%, 11/1/21 | 100,000 | 110,955 | ||||||
Verizon Communications, Inc., 7.35%, 4/1/39 | 160,000 | 246,654 | ||||||
Virgin Media Finance plc, 4.875%, 2/15/22 | 200,000 | 203,000 | ||||||
Windstream Corp., 7.875%, 11/1/17 | 60,000 | 67,125 | ||||||
2,745,451 | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.1% | ||||||||
Jabil Circuit, Inc., 7.75%, 7/15/16 | 200,000 | 232,000 | ||||||
Jabil Circuit, Inc., 5.625%, 12/15/20 | 80,000 | 85,400 | ||||||
Jabil Circuit, Inc., 4.70%, 9/15/22 | 50,000 | 50,250 | ||||||
367,650 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 0.1% | ||||||||
Ensco plc, 3.25%, 3/15/16 | 120,000 | 128,083 | ||||||
Noble Holding International Ltd., 3.95%, 3/15/22 | 50,000 | 53,753 | ||||||
Transocean, Inc., 2.50%, 10/15/17 | 140,000 | 141,894 | ||||||
Transocean, Inc., 6.50%, 11/15/20 | 100,000 | 121,595 | ||||||
Transocean, Inc., 6.375%, 12/15/21 | 50,000 | 60,898 | ||||||
Weatherford International Ltd., 9.625%, 3/1/19 | 150,000 | 198,851 | ||||||
705,074 | ||||||||
FOOD AND STAPLES RETAILING — 0.3% | ||||||||
CVS Caremark Corp., 6.60%, 3/15/19 | 350,000 | 451,927 | ||||||
Kroger Co. (The), 6.40%, 8/15/17 | 200,000 | 243,170 | ||||||
Safeway, Inc., 4.75%, 12/1/21 | 70,000 | 73,292 | ||||||
Target Corp., 4.00%, 7/1/42 | 70,000 | 74,059 | ||||||
Wal-Mart Stores, Inc., 5.875%, 4/5/27 | 468,000 | 639,538 | ||||||
Wal-Mart Stores, Inc., 5.625%, 4/15/41 | 60,000 | 81,161 | ||||||
Walgreen Co., 1.80%, 9/15/17 | 90,000 | 91,265 | ||||||
1,654,412 | ||||||||
FOOD PRODUCTS — 0.2% | ||||||||
General Mills, Inc., 3.15%, 12/15/21 | 130,000 | 138,673 | ||||||
Kellogg Co., 4.45%, 5/30/16 | 200,000 | 225,042 | ||||||
Kraft Foods, Inc., 6.125%, 8/23/18(3) | 81,000 | 100,467 | ||||||
Kraft Foods, Inc., 5.00%, 6/4/42(3) | 110,000 | 128,614 | ||||||
Mead Johnson Nutrition Co., 3.50%, 11/1/14 | 120,000 | 125,869 | ||||||
Mondelez International, Inc., 6.125%, 2/1/18 | 29,000 | 35,783 | ||||||
Mondelez International, Inc., 6.50%, 2/9/40 | 140,000 | 197,557 | ||||||
952,005 | ||||||||
GAS UTILITIES — 0.5% | ||||||||
El Paso Corp., 7.25%, 6/1/18 | 150,000 | 173,875 | ||||||
El Paso Pipeline Partners Operating Co. LLC, 6.50%, 4/1/20 | 140,000 | 171,997 | ||||||
Enbridge Energy Partners LP, 6.50%, 4/15/18 | 130,000 | 158,689 | ||||||
Enbridge Energy Partners LP, 5.20%, 3/15/20 | 100,000 | 116,418 | ||||||
Energy Transfer Partners LP, 6.50%, 2/1/42 | 90,000 | 113,264 | ||||||
Enterprise Products Operating LLC, 3.70%, 6/1/15 | 150,000 | 160,227 | ||||||
Enterprise Products Operating LLC, 6.30%, 9/15/17 | 300,000 | 368,065 | ||||||
Enterprise Products Operating LLC, 5.95%, 2/1/41 | 125,000 | 155,505 | ||||||
Enterprise Products Operating LLC, 4.45%, 2/15/43 | 90,000 | 91,838 | ||||||
Kinder Morgan Energy Partners LP, 6.85%, 2/15/20 | 200,000 | 255,669 | ||||||
Kinder Morgan Energy Partners LP, 6.50%, 9/1/39 | 130,000 | 165,997 | ||||||
Magellan Midstream Partners LP, 6.55%, 7/15/19 | 150,000 | 187,513 |
19
Shares/ Principal Amount | Value |
Plains All American Pipeline LP/PAA Finance Corp., 3.95%, 9/15/15 | $60,000 | $65,196 | ||||||
Plains All American Pipeline LP/PAA Finance Corp., 8.75%, 5/1/19 | 70,000 | 94,988 | ||||||
Plains All American Pipeline LP/PAA Finance Corp., 3.65%, 6/1/22 | 270,000 | 292,799 | ||||||
TransCanada PipeLines Ltd., 2.50%, 8/1/22 | 150,000 | 152,562 | ||||||
Williams Partners LP, 4.125%, 11/15/20 | 200,000 | 220,855 | ||||||
Williams Partners LP, 3.35%, 8/15/22 | 150,000 | 155,668 | ||||||
3,101,125 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES† | ||||||||
Covidien International Finance SA, 1.875%, 6/15/13 | 170,000 | 171,543 | ||||||
Covidien International Finance SA, 3.20%, 6/15/22 | 70,000 | 74,328 | ||||||
245,871 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 0.3% | ||||||||
Express Scripts, Inc., 2.65%, 2/15/17(3) | 400,000 | 417,818 | ||||||
Express Scripts, Inc., 7.25%, 6/15/19 | 360,000 | 466,573 | ||||||
Mayo Clinic Rochester, 3.77%, 11/15/43 | 75,000 | 74,855 | ||||||
NYU Hospitals Center, 4.43%, 7/1/42 | 90,000 | 92,145 | ||||||
UnitedHealth Group, Inc., 3.95%, 10/15/42 | 60,000 | 60,870 | ||||||
Universal Health Services, Inc., 7.125%, 6/30/16 | 160,000 | 182,000 | ||||||
WellPoint, Inc., 3.125%, 5/15/22 | 100,000 | 102,003 | ||||||
WellPoint, Inc., 3.30%, 1/15/23 | 110,000 | 113,910 | ||||||
WellPoint, Inc., 5.80%, 8/15/40 | 60,000 | 72,870 | ||||||
1,583,044 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 0.1% | ||||||||
Darden Restaurants, Inc., 3.35%, 11/1/22 | 90,000 | 90,201 | ||||||
McDonald’s Corp., 5.35%, 3/1/18 | 370,000 | 453,451 | ||||||
Wyndham Worldwide Corp., 6.00%, 12/1/16 | 1,000 | 1,120 | ||||||
Wyndham Worldwide Corp., 2.95%, 3/1/17 | 110,000 | 110,527 | ||||||
655,299 | ||||||||
HOUSEHOLD DURABLES† | ||||||||
Toll Brothers Finance Corp., 6.75%, 11/1/19 | 100,000 | 119,638 | ||||||
HOUSEHOLD PRODUCTS — 0.1% | ||||||||
Clorox Co. (The), 3.05%, 9/15/22 | 80,000 | 82,885 | ||||||
Jarden Corp., 8.00%, 5/1/16 | 230,000 | 246,963 | ||||||
329,848 | ||||||||
INDUSTRIAL CONGLOMERATES — 0.1% | ||||||||
Bombardier, Inc., 5.75%, 3/15/22(3) | 80,000 | 84,700 | ||||||
General Electric Co., 5.25%, 12/6/17 | 230,000 | 272,713 | ||||||
General Electric Co., 2.70%, 10/9/22 | 110,000 | 110,735 | ||||||
General Electric Co., 4.125%, 10/9/42 | 90,000 | 94,423 | ||||||
562,571 | ||||||||
INSURANCE — 0.5% | ||||||||
Allstate Corp. (The), 7.45%, 5/16/19 | 150,000 | 199,240 | ||||||
Allstate Corp. (The), 5.20%, 1/15/42 | 90,000 | 110,155 | ||||||
American International Group, Inc., 3.65%, 1/15/14 | 70,000 | 72,117 | ||||||
American International Group, Inc., 5.85%, 1/16/18 | 380,000 | 444,818 | ||||||
American International Group, Inc., 4.875%, 6/1/22 | 90,000 | 101,606 | ||||||
Berkshire Hathaway Finance Corp., 4.25%, 1/15/21 | 140,000 | 161,829 | ||||||
Berkshire Hathaway, Inc., 3.00%, 5/15/22 | 90,000 | 94,786 | ||||||
Genworth Financial, Inc., 7.20%, 2/15/21 | 70,000 | 72,563 | ||||||
Hartford Financial Services Group, Inc., 6.30%, 3/15/18 | 110,000 | 132,315 | ||||||
Hartford Financial Services Group, Inc., 5.125%, 4/15/22 | 110,000 | 125,379 | ||||||
ING US, Inc., 5.50%, 7/15/22(3) | 70,000 | 76,174 | ||||||
International Lease Finance Corp., 5.75%, 5/15/16 | 80,000 | 84,847 | ||||||
Liberty Mutual Group, Inc., 5.00%, 6/1/21(3) | 93,000 | 100,581 | ||||||
Liberty Mutual Group, Inc., 4.95%, 5/1/22(3) | 30,000 | 32,794 | ||||||
Liberty Mutual Group, Inc., 6.50%, 5/1/42(3) | 70,000 | 79,854 | ||||||
Lincoln National Corp., 6.25%, 2/15/20 | 160,000 | 190,045 |
20
Shares/ Principal Amount | Value |
MetLife, Inc., 6.75%, 6/1/16 | $150,000 | $179,320 | ||||||
MetLife, Inc., 1.76%, 12/15/17 | 90,000 | 91,537 | ||||||
MetLife, Inc., 4.125%, 8/13/42 | 90,000 | 91,204 | ||||||
Principal Financial Group, Inc., 3.30%, 9/15/22 | 70,000 | 71,641 | ||||||
Prudential Financial, Inc., 7.375%, 6/15/19 | 100,000 | 128,527 | ||||||
Prudential Financial, Inc., 5.375%, 6/21/20 | 70,000 | 82,127 | ||||||
Prudential Financial, Inc., 5.625%, 5/12/41 | 110,000 | 130,226 | ||||||
2,853,685 | ||||||||
IT SERVICES — 0.1% | ||||||||
Fidelity National Information Services, Inc., 5.00%, 3/15/22 | 100,000 | 102,500 | ||||||
International Business Machines Corp., 1.95%, 7/22/16 | 410,000 | 428,770 | ||||||
531,270 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES† | ||||||||
Thermo Fisher Scientific, Inc., 1.85%, 1/15/18 | 70,000 | 71,329 | ||||||
Thermo Fisher Scientific, Inc., 3.60%, 8/15/21 | 190,000 | 206,329 | ||||||
277,658 | ||||||||
MACHINERY — 0.1% | ||||||||
Caterpillar Financial Services Corp., MTN, 2.85%, 6/1/22 | 220,000 | 230,863 | ||||||
Deere & Co., 5.375%, 10/16/29 | 200,000 | 258,486 | ||||||
Deere & Co., 3.90%, 6/9/42 | 100,000 | 105,808 | ||||||
595,157 | ||||||||
MEDIA — 0.9% | ||||||||
CBS Corp., 1.95%, 7/1/17 | 50,000 | 51,260 | ||||||
CBS Corp., 4.85%, 7/1/42 | 90,000 | 97,750 | ||||||
Comcast Corp., 5.90%, 3/15/16 | 339,000 | 394,266 | ||||||
Comcast Corp., 6.50%, 11/15/35 | 90,000 | 118,805 | ||||||
Comcast Corp., 6.40%, 5/15/38 | 230,000 | 303,242 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 4.75%, 10/1/14 | 155,000 | 166,524 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 3.55%, 3/15/15 | 190,000 | 201,606 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 5.00%, 3/1/21 | 330,000 | 375,591 | ||||||
Discovery Communications LLC, 5.625%, 8/15/19 | 90,000 | 108,346 | ||||||
DISH DBS Corp., 7.125%, 2/1/16 | 50,000 | 56,125 | ||||||
DISH DBS Corp., 6.75%, 6/1/21 | 170,000 | 190,187 | ||||||
Interpublic Group of Cos., Inc. (The), 10.00%, 7/15/17 | 200,000 | 221,750 | ||||||
Lamar Media Corp., 9.75%, 4/1/14 | 150,000 | 167,250 | ||||||
NBCUniversal Media LLC, 5.15%, 4/30/20 | 90,000 | 107,869 | ||||||
NBCUniversal Media LLC, 4.375%, 4/1/21 | 380,000 | 435,474 | ||||||
News America, Inc., 3.00%, 9/15/22(3) | 130,000 | 132,641 | ||||||
News America, Inc., 6.90%, 8/15/39 | 150,000 | 202,309 | ||||||
Omnicom Group, Inc., 3.625%, 5/1/22 | 120,000 | 128,478 | ||||||
Qwest Corp., 7.50%, 10/1/14 | 200,000 | 222,616 | ||||||
SBA Telecommunications, Inc., 8.25%, 8/15/19 | 78,000 | 87,555 | ||||||
Time Warner Cable, Inc., 6.75%, 7/1/18 | 280,000 | 354,737 | ||||||
Time Warner Cable, Inc., 4.50%, 9/15/42 | 100,000 | 102,873 | ||||||
Time Warner, Inc., 3.15%, 7/15/15 | 140,000 | 149,108 | ||||||
Time Warner, Inc., 3.40%, 6/15/22 | 70,000 | 74,900 | ||||||
Time Warner, Inc., 7.70%, 5/1/32 | 200,000 | 293,317 | ||||||
Time Warner, Inc., 4.90%, 6/15/42 | 100,000 | 111,303 | ||||||
Viacom, Inc., 4.375%, 9/15/14 | 150,000 | 160,203 | ||||||
Viacom, Inc., 4.50%, 3/1/21 | 110,000 | 124,640 | ||||||
Viacom, Inc., 3.125%, 6/15/22 | 120,000 | 125,086 | ||||||
Virgin Media Secured Finance plc, 6.50%, 1/15/18 | 320,000 | 348,800 | ||||||
5,614,611 | ||||||||
METALS AND MINING — 0.2% | ||||||||
AngloGold Ashanti Holdings plc, 5.375%, 4/15/20 | 50,000 | 52,666 | ||||||
ArcelorMittal, 5.50%, 8/5/20 | 120,000 | 115,828 | ||||||
ArcelorMittal, 6.50%, 2/25/22 | 60,000 | 58,997 |
21
Shares/ Principal Amount | Value |
Barrick North America Finance LLC, 4.40%, 5/30/21 | $130,000 | $144,044 | ||||||
Newmont Mining Corp., 3.50%, 3/15/22 | 100,000 | 103,210 | ||||||
Newmont Mining Corp., 6.25%, 10/1/39 | 120,000 | 147,657 | ||||||
Rio Tinto Finance USA Ltd., 3.50%, 11/2/20 | 80,000 | 85,207 | ||||||
Teck Resources Ltd., 5.375%, 10/1/15 | 70,000 | 77,581 | ||||||
Teck Resources Ltd., 3.15%, 1/15/17 | 110,000 | 114,842 | ||||||
Vale Overseas Ltd., 5.625%, 9/15/19 | 310,000 | 354,895 | ||||||
Vale Overseas Ltd., 4.625%, 9/15/20 | 150,000 | 162,382 | ||||||
1,417,309 | ||||||||
MULTI-UTILITIES — 0.5% | ||||||||
Cleveland Electric Illuminating Co. (The), 5.70%, 4/1/17 | 81,000 | 91,932 | ||||||
CMS Energy Corp., 4.25%, 9/30/15 | 160,000 | 170,980 | ||||||
CMS Energy Corp., 8.75%, 6/15/19 | 180,000 | 238,128 | ||||||
Consumers Energy Co., 2.85%, 5/15/22 | 50,000 | 53,076 | ||||||
Dominion Resources, Inc., 6.40%, 6/15/18 | 190,000 | 238,185 | ||||||
Dominion Resources, Inc., 2.75%, 9/15/22 | 110,000 | 113,234 | ||||||
Dominion Resources, Inc., 4.90%, 8/1/41 | 130,000 | 154,180 | ||||||
DPL, Inc., 6.50%, 10/15/16 | 250,000 | 272,500 | ||||||
Duke Energy Corp., 6.30%, 2/1/14 | 100,000 | 107,011 | ||||||
Duke Energy Corp., 3.95%, 9/15/14 | 130,000 | 137,648 | ||||||
Duke Energy Corp., 1.625%, 8/15/17 | 150,000 | 151,213 | ||||||
Duke Energy Corp., 3.55%, 9/15/21 | 90,000 | 96,556 | ||||||
Edison International, 3.75%, 9/15/17 | 130,000 | 141,436 | ||||||
Exelon Generation Co. LLC, 5.20%, 10/1/19 | 150,000 | 172,732 | ||||||
FirstEnergy Solutions Corp., 6.05%, 8/15/21 | 90,000 | 104,094 | ||||||
Florida Power Corp., 6.35%, 9/15/37 | 110,000 | 150,970 | ||||||
Georgia Power Co., 4.30%, 3/15/42 | 70,000 | 76,723 | ||||||
Ipalco Enterprises, Inc., 5.00%, 5/1/18 | 50,000 | 52,877 | ||||||
Nisource Finance Corp., 4.45%, 12/1/21 | 70,000 | 77,972 | ||||||
Nisource Finance Corp., 5.25%, 2/15/43 | 70,000 | 78,591 | ||||||
Northern States Power Co., 3.40%, 8/15/42 | 70,000 | 68,875 | ||||||
Pacific Gas & Electric Co., 5.80%, 3/1/37 | 80,000 | 104,533 | ||||||
Pacific Gas & Electric Co., 4.45%, 4/15/42 | 50,000 | 55,662 | ||||||
Progress Energy, Inc., 3.15%, 4/1/22 | 90,000 | 92,791 | ||||||
Public Service Company of Colorado, 4.75%, 8/15/41 | 50,000 | 60,688 | ||||||
Sempra Energy, 6.50%, 6/1/16 | 200,000 | 236,962 | ||||||
Southern California Edison Co., 5.625%, 2/1/36 | 60,000 | 78,152 | ||||||
Southern Power Co., 5.15%, 9/15/41 | 40,000 | 46,863 | ||||||
3,424,564 | ||||||||
OFFICE ELECTRONICS† | ||||||||
Xerox Corp., 5.65%, 5/15/13 | 80,000 | 82,098 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 0.8% | ||||||||
Anadarko Petroleum Corp., 5.95%, 9/15/16 | 50,000 | 58,113 | ||||||
Anadarko Petroleum Corp., 6.45%, 9/15/36 | 150,000 | 193,111 | ||||||
Apache Corp., 4.75%, 4/15/43 | 160,000 | 189,379 | ||||||
BP Capital Markets plc, 3.20%, 3/11/16 | 120,000 | 129,091 | ||||||
BP Capital Markets plc, 2.25%, 11/1/16 | 180,000 | 188,194 | ||||||
BP Capital Markets plc, 4.50%, 10/1/20 | 100,000 | 117,532 | ||||||
Cenovus Energy, Inc., 4.50%, 9/15/14 | 140,000 | 150,008 | ||||||
ConocoPhillips, 5.75%, 2/1/19 | 240,000 | 300,641 | ||||||
ConocoPhillips Holding Co., 6.95%, 4/15/29 | 70,000 | 100,915 | ||||||
Devon Energy Corp., 1.875%, 5/15/17 | 60,000 | 61,488 | ||||||
Devon Energy Corp., 5.60%, 7/15/41 | 180,000 | 225,327 | ||||||
EOG Resources, Inc., 5.625%, 6/1/19 | 150,000 | 185,694 | ||||||
Hess Corp., 6.00%, 1/15/40 | 110,000 | 139,868 |
22
Shares/ Principal Amount | Value |
Marathon Petroleum Corp., 3.50%, 3/1/16 | $210,000 | $225,121 | ||||||
Newfield Exploration Co., 6.875%, 2/1/20 | 200,000 | 217,500 | ||||||
Newfield Exploration Co., 5.625%, 7/1/24 | 70,000 | 74,900 | ||||||
Noble Energy, Inc., 4.15%, 12/15/21 | 150,000 | 165,509 | ||||||
Occidental Petroleum Corp., 2.70%, 2/15/23 | 150,000 | 156,121 | ||||||
Peabody Energy Corp., 7.375%, 11/1/16 | 40,000 | 46,000 | ||||||
Peabody Energy Corp., 6.50%, 9/15/20 | 30,000 | 31,950 | ||||||
Pemex Project Funding Master Trust, 6.625%, 6/15/35 | 50,000 | 62,625 | ||||||
Petrobras International Finance Co. - Pifco, 5.75%, 1/20/20 | 200,000 | 231,530 | ||||||
Petrobras International Finance Co. - Pifco, 5.375%, 1/27/21 | 310,000 | 352,823 | ||||||
Petroleos Mexicanos, 6.00%, 3/5/20 | 120,000 | 144,000 | ||||||
Petroleos Mexicanos, 4.875%, 1/24/22 | 80,000 | 89,800 | ||||||
Petroleos Mexicanos, 5.50%, 6/27/44(3) | 50,000 | 54,625 | ||||||
Phillips 66, 4.30%, 4/1/22(3) | 150,000 | 168,845 | ||||||
Pioneer Natural Resources Co., 3.95%, 7/15/22 | 120,000 | 128,568 | ||||||
Shell International Finance BV, 2.375%, 8/21/22 | 230,000 | 235,098 | ||||||
Shell International Finance BV, 3.625%, 8/21/42 | 140,000 | 145,144 | ||||||
Suncor Energy, Inc., 6.10%, 6/1/18 | 174,000 | 214,755 | ||||||
Suncor Energy, Inc., 6.85%, 6/1/39 | 30,000 | 42,858 | ||||||
Talisman Energy, Inc., 7.75%, 6/1/19 | 170,000 | 219,445 | ||||||
Tesoro Corp., 5.375%, 10/1/22 | 50,000 | 52,375 | ||||||
5,098,953 | ||||||||
PAPER AND FOREST PRODUCTS — 0.1% | ||||||||
Georgia-Pacific LLC, 5.40%, 11/1/20(3) | 340,000 | 403,878 | ||||||
International Paper Co., 4.75%, 2/15/22 | 70,000 | 79,785 | ||||||
International Paper Co., 6.00%, 11/15/41 | 70,000 | 85,777 | ||||||
569,440 | ||||||||
PHARMACEUTICALS — 0.3% | ||||||||
Bristol-Myers Squibb Co., 3.25%, 8/1/42 | 80,000 | 76,648 | ||||||
GlaxoSmithKline Capital plc, 2.85%, 5/8/22 | 340,000 | 358,180 | ||||||
Merck & Co., Inc., 2.40%, 9/15/22 | 150,000 | 152,939 | ||||||
Merck & Co., Inc., 3.60%, 9/15/42 | 30,000 | 30,955 | ||||||
Roche Holdings, Inc., 6.00%, 3/1/19(3) | 350,000 | 440,488 | ||||||
Roche Holdings, Inc., 7.00%, 3/1/39(3) | 160,000 | 248,069 | ||||||
Sanofi, 4.00%, 3/29/21 | 95,000 | 109,445 | ||||||
Watson Pharmaceuticals, Inc., 5.00%, 8/15/14 | 260,000 | 278,133 | ||||||
Watson Pharmaceuticals, Inc., 4.625%, 10/1/42 | 60,000 | 64,525 | ||||||
1,759,382 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.3% | ||||||||
American Tower Corp., 4.625%, 4/1/15 | 230,000 | 247,154 | ||||||
American Tower Corp., 4.70%, 3/15/22 | 170,000 | 187,974 | ||||||
Boston Properties LP, 3.85%, 2/1/23 | 130,000 | 140,373 | ||||||
BRE Properties, Inc., 3.375%, 1/15/23 | 110,000 | 110,482 | ||||||
Developers Diversified Realty Corp., 4.75%, 4/15/18 | 290,000 | 325,702 | ||||||
Essex Portfolio LP, 3.625%, 8/15/22(3) | 120,000 | 120,408 | ||||||
HCP, Inc., 3.75%, 2/1/16 | 200,000 | 212,545 | ||||||
Simon Property Group LP, 5.75%, 12/1/15 | 160,000 | 180,316 | ||||||
UDR, Inc., 4.25%, 6/1/18 | 110,000 | 122,074 | ||||||
Ventas Realty LP/Ventas Capital Corp., 3.125%, 11/30/15 | 195,000 | 206,824 | ||||||
Ventas Realty LP/Ventas Capital Corp., 4.00%, 4/30/19 | 100,000 | 108,056 | ||||||
Ventas Realty LP/Ventas Capital Corp., 4.75%, 6/1/21 | 60,000 | 66,874 | ||||||
WEA Finance LLC, 4.625%, 5/10/21(3) | 90,000 | 99,143 | ||||||
2,127,925 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT† | ||||||||
ProLogis LP, 6.625%, 12/1/19 | 160,000 | 191,934 |
23
Shares/ Principal Amount | Value |
ROAD AND RAIL — 0.1% | ||||||||
Burlington Northern Santa Fe LLC, 3.60%, 9/1/20 | $176,000 | $192,911 | ||||||
Burlington Northern Santa Fe LLC, 5.05%, 3/1/41 | 60,000 | 69,750 | ||||||
CSX Corp., 4.25%, 6/1/21 | 110,000 | 123,299 | ||||||
CSX Corp., 4.75%, 5/30/42 | 110,000 | 123,143 | ||||||
Union Pacific Corp., 2.95%, 1/15/23 | 80,000 | 83,777 | ||||||
Union Pacific Corp., 4.75%, 9/15/41 | 150,000 | 173,825 | ||||||
766,705 | ||||||||
SOFTWARE — 0.1% | ||||||||
Intuit, Inc., 5.75%, 3/15/17 | 254,000 | 293,135 | ||||||
Oracle Corp., 2.50%, 10/15/22 | 290,000 | 295,570 | ||||||
588,705 | ||||||||
SPECIALTY RETAIL — 0.1% | ||||||||
Home Depot, Inc. (The), 5.95%, 4/1/41 | 250,000 | 349,078 | ||||||
Lowe’s Cos., Inc., 4.65%, 4/15/42 | 100,000 | 112,809 | ||||||
461,887 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.1% | ||||||||
Gap, Inc. (The), 5.95%, 4/12/21 | 120,000 | 136,492 | ||||||
Hanesbrands, Inc., 6.375%, 12/15/20 | 100,000 | 109,625 | ||||||
Ltd. Brands, Inc., 6.90%, 7/15/17 | 100,000 | 115,375 | ||||||
361,492 | ||||||||
TOBACCO — 0.1% | ||||||||
Altria Group, Inc., 9.25%, 8/6/19 | 127,000 | 179,344 | ||||||
Altria Group, Inc., 2.85%, 8/9/22 | 270,000 | 271,070 | ||||||
Philip Morris International, Inc., 4.125%, 5/17/21 | 180,000 | 205,275 | ||||||
655,689 | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.2% | ||||||||
Alltel Corp., 7.875%, 7/1/32 | 100,000 | 160,294 | ||||||
America Movil SAB de CV, 5.00%, 3/30/20 | 110,000 | 129,856 | ||||||
Cellco Partnership/Verizon Wireless Capital LLC, 8.50%, 11/15/18 | 330,000 | 460,366 | ||||||
Vodafone Group plc, 5.625%, 2/27/17 | 110,000 | 130,751 | ||||||
Vodafone Group plc, 2.50%, 9/26/22 | 70,000 | 71,587 | ||||||
952,854 | ||||||||
TOTAL CORPORATE BONDS (Cost $58,951,681) | 65,357,215 | |||||||
Commercial Mortgage-Backed Securities(2) — 1.8% | ||||||||
Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A4 SEQ, 4.76%, 11/10/39 | 400,000 | 416,052 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2004-6, Class A3 SEQ, 4.51%, 12/10/42 | 176,255 | 178,821 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.12%, 11/1/12 | 350,000 | 392,393 | ||||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.18%, 11/1/12 | 300,000 | 330,762 | ||||||
CenterPoint Energy Transition Bond Co. LLC, Series 2012-1, Class A2 SEQ, 2.16%, 10/15/21 | 240,000 | 251,465 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2005-CD1, Class AM, VRN, 5.22%, 11/1/12 | 275,000 | 304,827 | ||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2004-C2, Class A2, VRN, 5.42%, 11/1/12 | 575,000 | 607,840 | ||||||
Credit Suisse Mortgage Capital Certificates, Series 2007-TF2A, Class A1, VRN, 0.39%, 11/15/12(3) | 274,999 | 260,284 | ||||||
GE Capital Commercial Mortgage Corp., Series 2005-C3, Class A5, VRN, 4.98%, 11/1/12 | 200,000 | 199,815 | ||||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, VRN, 4.80%, 11/1/12 | 480,000 | 516,792 | ||||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class AJ, VRN, 4.86%, 11/1/12 | 158,000 | 167,899 | ||||||
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.40%, 11/1/12 | 600,000 | 641,400 |
24
Shares/ Principal Amount | Value |
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.76%, 7/10/39 | $345,000 | $371,794 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.75%, 7/10/39 | 1,000,000 | 1,087,821 | ||||||
GS Mortgage Securities Corp. II, Series 2012-ALOH, Class A SEQ, 3.55%, 4/10/34(3) | 400,000 | 434,180 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C1, Class A4 SEQ, 4.57%, 1/15/31 | 400,000 | 418,134 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C2, Class A4 SEQ, 4.37%, 3/15/36 | 1,000,000 | 1,043,874 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.27%, 11/11/12 | 300,000 | 320,250 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2004-C8, Class AJ, VRN, 4.86%, 11/11/12 | 125,000 | 134,351 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class AJ SEQ, 4.84%, 7/15/40 | 150,000 | 157,121 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class AM, VRN, 5.02%, 11/11/12 | 400,000 | 437,084 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class AM SEQ, VRN, 5.26%, 11/11/12 | 425,000 | 470,209 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2012-C5, Class A4 SEQ, 3.18%, 8/15/45 | 175,000 | 186,495 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2012-C6, Class AS, 3.48%, 11/15/45 | 150,000 | 156,820 | ||||||
Morgan Stanley Capital I, Series 2005-HQ6, Class A2A SEQ, 4.88%, 8/13/42 | 50,623 | 51,071 | ||||||
Morgan Stanley Capital I, Series 2005-T17, Class A5 SEQ, 4.78%, 12/13/41 | 600,000 | 644,063 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A3 SEQ, 4.50%, 10/15/41 | 66,839 | 67,916 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A4 SEQ, 4.80%, 10/15/41 | 1,100,000 | 1,180,115 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $11,187,088) | 11,429,648 | |||||||
Collateralized Mortgage Obligations(2) — 1.1% | ||||||||
PRIVATE SPONSOR COLLATERALIZED MORTGAGE OBLIGATIONS — 0.9% | ||||||||
ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33 | 150,501 | 155,788 | ||||||
Banc of America Alternative Loan Trust, Series 2007-2, Class 2A4, 5.75%, 6/25/37 | 559,306 | 409,144 | ||||||
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19 | 122,095 | 125,240 | ||||||
Banc of America Mortgage Securities, Inc., Series 2005-1, Class 1A15, 5.50%, 2/25/35 | 250,000 | 265,043 | ||||||
Chase Mortgage Finance Corp., Series 2006-S4, Class A3, 6.00%, 12/25/36 | 138,033 | 139,501 | ||||||
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 5.32%, 11/1/12 | 423,002 | 424,952 | ||||||
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35 | 70,565 | 70,890 | ||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-AR28, Class 2A1, VRN, 2.81%, 11/1/12 | 447,112 | 448,808 | ||||||
MASTR Adjustable Rate Mortgages Trust, Series 2004-13, Class 3A7, VRN, 2.63%, 11/1/12 | 600,000 | 616,514 | ||||||
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33 | 186,883 | 194,398 | ||||||
PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 5.95%, 11/1/12 | 261,292 | 285,603 |
25
Shares/ Principal Amount | Value |
Sequoia Mortgage Trust, Series 2012-1, Class 1A1, VRN, 2.87%, 11/1/12 | $331,263 | $339,107 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34 | 282,493 | 297,180 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-4, Class A9, 5.50%, 5/25/34 | 168,170 | 174,033 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-2, Class 1A1 SEQ, 5.50%, 4/25/35 | 35,886 | 35,902 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 323,850 | 336,949 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR14, Class A1, VRN, 5.34%, 11/1/12 | 143,618 | 145,675 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 1A1, VRN, 2.75%, 11/1/12 | 265,934 | 274,233 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 390,972 | 407,215 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-13, Class A5, 6.00%, 10/25/36 | 365,283 | 377,493 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37 | 254,011 | 254,370 | ||||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 6.06%, 11/1/12 | 223,587 | 230,910 | ||||||
6,008,948 | ||||||||
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS — 0.2% | ||||||||
FHLMC, Series 77, Class H, 8.50%, 9/15/20 | 70,274 | 77,595 | ||||||
FHLMC, Series 2926, Class EW SEQ, 5.00%, 1/15/25 | 869,784 | 963,477 | ||||||
1,041,072 | ||||||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $6,880,864) | 7,050,020 | |||||||
Sovereign Governments and Agencies — 0.7% | ||||||||
BRAZIL — 0.2% | ||||||||
Brazilian Government International Bond, 5.875%, 1/15/19 | 690,000 | 855,600 | ||||||
Brazilian Government International Bond, 4.875%, 1/22/21 | 40,000 | 48,100 | ||||||
Brazilian Government International Bond, 5.625%, 1/7/41 | 130,000 | 167,050 | ||||||
1,070,750 | ||||||||
CANADA — 0.1% | ||||||||
Hydro-Quebec, 8.40%, 1/15/22 | 145,000 | 208,615 | ||||||
Province of Ontario Canada, 5.45%, 4/27/16 | 150,000 | 174,258 | ||||||
Province of Ontario Canada, 1.60%, 9/21/16 | 110,000 | 113,577 | ||||||
496,450 | ||||||||
CHILE — 0.1% | ||||||||
Chile Government International Bond, 3.25%, 9/14/21 | 100,000 | 109,000 | ||||||
Chile Government International Bond, 3.625%, 10/30/42 | 200,000 | 196,000 | ||||||
305,000 | ||||||||
COLOMBIA† | ||||||||
Colombia Government International Bond, 4.375%, 7/12/21 | 210,000 | 241,710 | ||||||
ITALY† | ||||||||
Republic of Italy, 6.875%, 9/27/23 | 80,000 | 93,627 | ||||||
MEXICO — 0.2% | ||||||||
United Mexican States, 5.625%, 1/15/17 | 90,000 | 105,660 | ||||||
United Mexican States, 5.95%, 3/19/19 | 420,000 | 520,800 | ||||||
United Mexican States, 5.125%, 1/15/20 | 330,000 | 396,000 | ||||||
United Mexican States, 6.05%, 1/11/40 | 120,000 | 159,900 | ||||||
United Mexican States, MTN, 4.75%, 3/8/44 | 100,000 | 111,250 | ||||||
1,293,610 |
26
Shares/ Principal Amount | Value |
PERU† | ||||||||
Republic of Peru, 6.55%, 3/14/37 | $70,000 | $102,900 | ||||||
Republic of Peru, 5.625%, 11/18/50 | 120,000 | 156,000 | ||||||
258,900 | ||||||||
POLAND† | ||||||||
Poland Government International Bond, 5.125%, 4/21/21 | 140,000 | 164,870 | ||||||
SOUTH KOREA — 0.1% | ||||||||
Export-Import Bank of Korea, 3.75%, 10/20/16 | 160,000 | 173,789 | ||||||
Korea Development Bank, 3.25%, 3/9/16 | 130,000 | 137,285 | ||||||
Korea Development Bank, 4.00%, 9/9/16 | 110,000 | 119,830 | ||||||
430,904 | ||||||||
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $3,816,788) | 4,355,821 | |||||||
Municipal Securities — 0.6% | ||||||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 5.94%, 2/15/47 | 50,000 | 58,386 | ||||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 7.50%, 2/15/50 | 75,000 | 102,800 | ||||||
Bay Area Toll Authority Toll Bridge Rev., Series 2010 S1, (Building Bonds), 6.92%, 4/1/40 | 135,000 | 187,843 | ||||||
California GO, (Building Bonds), 7.30%, 10/1/39 | 110,000 | 150,055 | ||||||
California GO, (Building Bonds), 7.60%, 11/1/40 | 30,000 | 42,327 | ||||||
Illinois GO, 5.88%, 3/1/19 | 240,000 | 276,958 | ||||||
Illinois GO, (Taxable Pension), 5.10%, 6/1/33 | 300,000 | 298,776 | ||||||
Illinois GO, Series 2010-3, (Building Bonds), 6.73%, 4/1/35 | 55,000 | 63,757 | ||||||
Los Angeles Community College District GO, Series 2010 D, (Election of 2008), 6.68%, 8/1/36 | 100,000 | 130,531 | ||||||
Los Angeles Department of Water & Power Rev., (Building Bonds), 5.72%, 7/1/39 | 60,000 | 75,860 | ||||||
Metropolitan Transportation Authority Rev., Series 2010 C1, (Building Bonds), 6.69%, 11/15/40 | 105,000 | 138,720 | ||||||
Metropolitan Transportation Authority Rev., Series 2010 E, (Building Bonds), 6.81%, 11/15/40 | 60,000 | 80,226 | ||||||
Missouri Highways & Transportation Commission Rev., (Building Bonds), 5.45%, 5/1/33 | 130,000 | 161,112 | ||||||
New Jersey State Turnpike Authority Rev., Series 2009 F, (Building Bonds), 7.41%, 1/1/40 | 200,000 | 296,670 | ||||||
New Jersey State Turnpike Authority Rev., Series 2010 A, (Building Bonds), 7.10%, 1/1/41 | 95,000 | 137,612 | ||||||
New York GO, Series 2010 F1, (Building Bonds), 6.27%, 12/1/37 | 95,000 | 128,184 | ||||||
Ohio State University (The) Rev., Series 2011 A, 4.80%, 6/1/2111 | 100,000 | 114,311 | ||||||
Ohio Water Development Authority Pollution Control Rev., Series 2010 B2, (Building Bonds), 4.88%, 12/1/34 | 110,000 | 128,352 | ||||||
Oregon State Department of Transportation Highway User Tax Rev., Series 2010 A, (Building Bonds), 5.83%, 11/15/34 | 70,000 | 92,123 | ||||||
Port Authority of New York & New Jersey Rev., 4.93%, 10/1/51 | 50,000 | �� | 56,248 | |||||
Port Authority of New York & New Jersey Rev., 4.46%, 10/1/62 | 300,000 | 297,906 | ||||||
Rutgers State University Rev., Series 2010 H, (Building Bonds), 5.67%, 5/1/40 | 205,000 | 261,900 | ||||||
Sacramento Municipal Utility District Electric Rev., Series 2010 W, (Building Bonds), 6.16%, 5/15/36 | 210,000 | 260,518 | ||||||
Salt River Agricultural Improvement & Power District Electric Rev., Series 2010 A, (Building Bonds), 4.84%, 1/1/41 | 95,000 | 114,580 |
27
Shares/ Principal Amount | Value |
San Francisco City & County Public Utilities Water Commission Rev., Series 2010 B, (Building Bonds), 6.00%, 11/1/40 | $105,000 | $131,124 | ||||||
Santa Clara Valley Transportation Authority Sales Tax Rev., Series 2010 A, (Building Bonds), 5.88%, 4/1/32 | 120,000 | 146,878 | ||||||
Texas GO, (Building Bonds), 5.52%, 4/1/39 | 50,000 | 65,839 | ||||||
Washington GO, Series 2010 F, (Building Bonds), 5.14%, 8/1/40 | 20,000 | 24,932 | ||||||
TOTAL MUNICIPAL SECURITIES (Cost $3,325,336) | 4,024,528 | |||||||
U.S. Government Agency Securities — 0.5% | ||||||||
FIXED-RATE U.S. GOVERNMENT AGENCY SECURITIES — 0.2% | ||||||||
FHLMC, 2.375%, 1/13/22 | 990,000 | 1,038,654 | ||||||
FNMA, 6.625%, 11/15/30 | 100,000 | 153,620 | ||||||
1,192,274 | ||||||||
GOVERNMENT-BACKED CORPORATE BOND(4) — 0.3% | ||||||||
Citigroup Funding, Inc., 1.875%, 11/15/12 | 1,800,000 | 1,800,911 | ||||||
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (Cost $2,936,353) | 2,993,185 | |||||||
Temporary Cash Investments — 1.9% | ||||||||
SSgA U.S. Government Money Market Fund (Cost $11,769,419) | 11,769,419 | 11,769,419 | ||||||
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $549,296,365) | 628,082,791 | |||||||
OTHER ASSETS AND LIABILITIES — 0.2% | 1,059,967 | |||||||
TOTAL NET ASSETS — 100.0% | $629,142,758 |
Notes to Schedule of Investments
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 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 $5,383,559, which represented 0.9% of total net assets. |
(4) | 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.
28
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $549,296,365) | $628,082,791 | |||
Receivable for investments sold | 113,832 | |||
Receivable for capital shares sold | 769,270 | |||
Dividends and interest receivable | 1,961,005 | |||
630,926,898 | ||||
Liabilities | ||||
Payable for investments purchased | 301,125 | |||
Payable for capital shares redeemed | 1,002,713 | |||
Accrued management fees | 480,302 | |||
1,784,140 | ||||
Net Assets | $629,142,758 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $537,125,365 | |||
Undistributed net investment income | 950,504 | |||
Undistributed net realized gain | 12,280,463 | |||
Net unrealized appreciation | 78,786,426 | |||
$629,142,758 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $609,475,937 | 35,010,264 | $17.41 |
Institutional Class, $0.01 Par Value | $19,666,821 | 1,129,454 | $17.41 |
See Notes to Financial Statements.
29
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $31,652) | $7,976,915 | |||
Interest | 7,548,088 | |||
15,525,003 | ||||
Expenses: | ||||
Management fees | 5,244,806 | |||
Directors’ fees and expenses | 21,538 | |||
Other expenses | 235 | |||
5,266,579 | ||||
Net investment income (loss) | 10,258,424 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 29,130,684 | |||
Futures contract transactions | 98,420 | |||
Swap agreement transactions | (64,370 | ) | ||
Foreign currency transactions | (351 | ) | ||
29,164,383 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 21,164,350 | |||
Swap agreements | (31,438 | ) | ||
21,132,912 | ||||
Net realized and unrealized gain (loss) | 50,297,295 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $60,555,719 |
See Notes to Financial Statements.
30
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $10,258,424 | $9,458,465 | ||||||
Net realized gain (loss) | 29,164,383 | 31,035,682 | ||||||
Change in net unrealized appreciation (depreciation) | 21,132,912 | 93,208 | ||||||
Net increase (decrease) in net assets resulting from operations | 60,555,719 | 40,587,355 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (10,409,930 | ) | (9,350,204 | ) | ||||
Institutional Class | (354,593 | ) | (194,380 | ) | ||||
Decrease in net assets from distributions | (10,764,523 | ) | (9,544,584 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | 57,785,933 | (3,081,008 | ) | |||||
Net increase (decrease) in net assets | 107,577,129 | 27,961,763 | ||||||
Net Assets | ||||||||
Beginning of period | 521,565,629 | 493,603,866 | ||||||
End of period | $629,142,758 | $521,565,629 | ||||||
Undistributed net investment income | $950,504 | $954,894 |
See Notes to Financial Statements.
31
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 offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
32
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 paydown gain (loss) and accretion of discounts and amortization of premiums. Inflation adjustments related to inflation-linked debt securities are reflected as interest income.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
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 to-be-announced (TBA) security and at the same time make a commitment to purchase the same security at a future date at a specified price. Conversely, the fund may purchase
a TBA security and at the same time make a commitment to sell the same security at a future date at a specified price. These types of transactions are known as “TBA roll” transactions and are accounted for as purchases and sales. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover certain types of investments, including, but not limited to, futures contracts, forward commitments, when-issued securities, swap agreements and certain forward foreign currency exchange contracts. American Century Investment Management, Inc. (ACIM) (the investment advisor) monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts and swap agreements.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2009. 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.
33
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
Management Fees — The corporation has entered into a management agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The agreement provides that all expenses of managing and operating the fund, except distribution and service fees, brokerage expenses, taxes, interest, fees and expenses of the independent directors (including legal counsel fees), and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on each class’s daily net assets and paid monthly in arrears. The rate of the fee is determined by applying a fee rate calculation formula. This formula takes into account the fund’s assets as well as certain assets, if any, of other clients of the investment advisor outside the American Century Investments family of funds (such as subadvised funds and separate accounts) that have very similar investment teams and investment strategies (strategy assets). The annual management fee schedule ranges from 0.800% to 0.900% for the Investor Class. The 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, 2012 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., 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.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the year ended October 31, 2012 totaled $524,507,854, of which $157,123,197 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 totaled $470,161,021, of which $114,161,061 represented U.S. Treasury and Government Agency obligations.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 250,000,000 | 250,000,000 | ||||||||||||||
Sold | 7,196,145 | $121,112,372 | 3,223,460 | $50,423,973 | ||||||||||||
Issued in reinvestment of distributions | 604,809 | 10,152,195 | 582,740 | 9,098,277 | ||||||||||||
Redeemed | (4,855,798 | ) | (81,892,325 | ) | (4,172,359 | ) | (65,140,298 | ) | ||||||||
2,945,156 | 49,372,242 | (366,159 | ) | (5,618,048 | ) | |||||||||||
Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||||||
Sold | 984,145 | 16,394,969 | 1,093,989 | 17,073,594 | ||||||||||||
Issued in reinvestment of distributions | 21,031 | 354,593 | 12,431 | 194,380 | ||||||||||||
Redeemed | (485,585 | ) | (8,335,871 | ) | (931,815 | ) | (14,730,934 | ) | ||||||||
519,591 | 8,413,691 | 174,605 | 2,537,040 | |||||||||||||
Net increase (decrease) | 3,464,747 | $57,785,933 | (191,554 | ) | $(3,081,008 | ) |
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 | $370,343,326 | — | — | |||||||||
U.S. Government Agency Mortgage-Backed Securities | — | $76,942,072 | — | |||||||||
U.S. Treasury Securities | — | 73,817,557 | — | |||||||||
Corporate Bonds | — | 65,357,215 | — | |||||||||
Commercial Mortgage-Backed Securities | — | 11,429,648 | — | |||||||||
Collateralized Mortgage Obligations | — | 7,050,020 | — | |||||||||
Sovereign Governments and Agencies | — | 4,355,821 | — | |||||||||
Municipal Securities | — | 4,024,528 | — | |||||||||
U.S. Government Agency Securities | — | 2,993,185 | — | |||||||||
Temporary Cash Investments | 11,769,419 | — | — | |||||||||
Total Value of Investment Securities | $382,112,745 | $245,970,046 | — |
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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 participated in one credit risk derivative instrument to buy protection throughout most of the period and liquidated the position in August 2012.
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.
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, 2012 | ||||||||||
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 | $(64,370 | ) | Change in net unrealized appreciation (depreciation) on swap agreements | $(31,438 | ) | ||||
Equity Price Risk | Net realized gain (loss) on futures contract transactions | 98,420 | Change in net unrealized appreciation (depreciation) on futures contracts | — | ||||||
$34,050 | $(31,438 | ) |
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8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||
Distributions Paid From | ||||
Ordinary income | $10,764,523 | $9,544,584 | ||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $553,470,039 | |||
Gross tax appreciation of investments | $79,567,971 | |||
Gross tax depreciation of investments | (4,955,219 | ) | ||
Net tax appreciation (depreciation) of investments | $74,612,752 | |||
Other book-to-tax adjustments | $(175,451 | ) | ||
Net tax appreciation (depreciation) | $74,437,301 | |||
Undistributed ordinary income | $950,504 | |||
Accumulated long-term gains | $16,629,588 |
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.
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||||||||||
2012 | $15.96 | 0.29 | 1.47 | 1.76 | (0.31 | ) | — | (0.31 | ) | $17.41 | 11.12 | % | 0.90 | % | 1.75 | % | 82 | % | $609,476 | |||||||||||||||||
2011 | $15.02 | 0.29 | 0.94 | 1.23 | (0.29 | ) | — | (0.29 | ) | $15.96 | 8.26 | % | 0.90 | % | 1.84 | % | 87 | % | $511,829 | |||||||||||||||||
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 | ||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||
2012 | $15.96 | 0.32 | 1.47 | 1.79 | (0.34 | ) | — | (0.34 | ) | $17.41 | 11.34 | % | 0.70 | % | 1.95 | % | 82 | % | $19,667 | |||||||||||||||||
2011 | $15.02 | 0.32 | 0.94 | 1.26 | (0.32 | ) | — | (0.32 | ) | $15.96 | 8.48 | % | 0.70 | % | 2.04 | % | 87 | % | $9,736 | |||||||||||||||||
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 |
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 of
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, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
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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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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
44
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.
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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, 2012.
For corporate taxpayers, the fund hereby designates $7,304,424, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76894 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
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By Phil Davidson, Chief Investment Officer, U.S. Value Equity
Central Bank Actions Helped Drive Stocks Higher
Stock market performance generally remained robust during the 12-month period ended October 31, 2012. Despite persistent concerns about weakening global economies and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures, which fueled much of the period’s market optimism.
The period began on an upbeat note, as select economic data improved and a trio of European summits helped calm the latest round of default fears in the eurozone. But, a barrage of disappointing U.S. economic data released in the second calendar quarter of 2012, combined with ongoing problems in Europe, stifled the prevailing investor optimism, reigniting recession fears and triggering a short-term market selloff.
In this environment, investors presumed the European Central Bank (ECB) and the U.S. Federal Reserve (the Fed) would step in with additional stimulus measures. This anticipation—and the eventual announcements of the programs in September 2012—sparked a stock market rally late in the period. The ECB was the first to act with a plan to buy the sovereign bonds of financially strapped eurozone nations that agree to reforms. The Fed followed with a third round of quantitative easing (QE). Dubbed “QE3,” the plan has the Fed purchasing $40 billion in mortgage-backed securities per month, with no specific end date. The Fed also committed to keeping short-term rates low into 2015.
Value Outperformed as More Companies Issued Dividends
Value stocks significantly outperformed their growth stock counterparts across the capitalization spectrum. Much of this was due to strong results from the financials and telecommunication services sectors.
As of the end of August 2012, 402 companies in the S&P 500 Index were paying dividends—the largest number of dividend-paying companies in the index since December 1999. But, looking ahead, the scheduled increase in the federal dividend tax rate beginning next year may cause some companies to rethink their dividend strategies. We believe this would be unfortunate, because dividends can lead to less-volatile returns, which most investors want, particularly in today’s uncertain climate.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | ||||||
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 | 17.80%(2) 17.47%(2) 11.91%(2) | -1.83%(2) -2.27%(2) -1.60%(2) | 5.98%(2) 5.57%(2) 5.17%(2) | 4.45% 4.05% 3.78% | 3/31/99 |
Russell 1000 Value Index | — | 16.89% | -1.00% | 7.34% | 4.44% | — |
Institutional Class Return After-Tax on Distributions(1) Return After-Tax on Distributions and Sale of Shares(1) | ACPIX | 18.00%(2) 17.64%(2) 12.08%(2) | -1.63%(2) -2.09%(2) -1.44%(2) | 6.20%(2) 5.76%(2) 5.36%(2) | 3.98% 3.58% 3.39% | 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 | 17.37%(2) 10.67%(2) 10.40%(2) 7.22%(2) | -2.09%(2) -3.23%(2) -3.62%(2) -2.76%(2) | — — — — | 5.22%(2) 4.56%(2) 4.23%(2) 3.93%(2) | 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.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
*Ending value would have been lower if a portion of the management fee had not been waived.
Total Annual Fund Operating Expenses | ||
Investor Class | Institutional Class | A Class |
1.10% | 0.90% | 1.35% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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.
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Portfolio Managers: Brendan Healy and Matt Titus
Performance Summary
Capital Value returned 17.80%* for the 12 months ended October 31, 2012. By comparison, its benchmark, the Russell 1000 Value Index, returned 16.89%. The fund’s return reflects operating expenses, while the index’s returns do not.
U.S. stocks recorded strong gains during the reporting period in spite of numerous headwinds. Investor sentiment fluctuated, largely in response to conflicting U.S. economic data and events related to the European sovereign debt crisis. Though the unemployment rate declined and the housing market showed signs of improvement, U.S. economic growth overall was lackluster. Inflation remained benign, allowing the Federal Reserve (the Fed) to keep short-term interest rates at exceptionally low levels. The Fed also announced a third round of quantitative easing and extended Operation Twist in support of the U.S. economic recovery. Against this backdrop, value stocks outperformed their growth counterparts across the capitalization spectrum. Capital Value also outperformed, primarily because of strong security selection. The portfolio benefited from its positions in the financials, industrials, and health care sectors. It was hampered by investments in the information technology and consumer discretionary sectors.
Financials Enhanced Performance
Financials stocks, which declined earlier in the reporting period on fears about European debt contagion, rallied as the crisis moderated. Investors were also heartened by news that many large U.S. banks had passed their stress test, implying they were well-capitalized and therefore better able to withstand an economic downturn. In this environment, Capital Value benefited from effective security selection, particularly in the capital markets and insurance segments. A notable contributor was insurance company Allstate, which reported higher profits on improved operating income and realized capital gains. Within commercial banking, an overweight in Wells Fargo, which appreciated more
than 30% in the benchmark, was advantageous.
Industrials, Health Care Aided Results
In the industrials sector, strong security selection boosted results. Capital Value held Ingersoll-Rand. The diversified industrial company has successfully reduced costs, boosting its profit margins as the prolonged slump in residential and commercial construction continues to weigh on demand for its products.
The portfolio’s overweight in health care, one of the strongest performing sectors in the benchmark, also added value. Capital Value owned shares of pharmaceutical companies Pfizer and Merck, both of which posted significant gains in the benchmark. In the biotechnology industry, a position in Amgen outperformed on the expectation of accelerated 2012 revenue growth, boosted by sales of the company’s new bone-building drugs. In addition, Amgen increased its dividend and conducted a modified Dutch auction in which it repurchased approximately $5 billion in outstanding shares.
*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.
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Information Technology Detracted
In information technology, the only sector to post a decline in the benchmark, Capital Value was hampered by its overweight in semiconductor names. More specifically, the portfolio was overweight Marvell Technology Group. Marvell’s shares fell on weaker-than-expected revenues. The company’s hard drive business has been affected by slowing PC sales and it has seen weak results in its mobile and wireless business.
In the computers and peripherals industry, an overweight in Hewlett-Packard (HP) dampened performance. HP has experienced a steady drop in revenues and is struggling to regain a competitive position in the consumer and enterprise markets. We reduced the portfolio’s position in the stock, and at the end of the reporting period, Capital Value was underweight HP.
Consumer Discretionary Slowed Results
Overall, security selection in the consumer discretionary sector detracted from relative results. Capital Value did not own Walt Disney, which outperformed on stronger-than-expected advertising revenues. An overweight in Staples also hindered performance. The office supply retailer announced a sharp drop in second-quarter earnings and lowered its full-year outlook. Its shares declined further on news of a restructuring plan, including a reduction in its North American retail footprint.
However, consumer discretionary was also the source of top two contributors. Comcast has experienced growth in the number of its broadband and pay-TV subscribers. The cable and television network operator also increased its dividend and implemented a new stock repurchase program. Home improvement retailer Lowe’s Companies appreciated on improvement in the U.S. housing market.
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, 2012, Capital Value is broadly diversified, with ongoing overweight positions in the health care, consumer discretionary, information technology, and energy sectors. Our valuation work is also directing us toward smaller relative weightings in utilities, financials, and materials stocks. In addition, we are still finding value opportunities among mega-cap stocks and have maintained our bias toward them.
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OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Exxon Mobil Corp. | 7.2% |
General Electric Co. | 3.8% |
Chevron Corp. | 3.6% |
Pfizer, Inc. | 3.5% |
JPMorgan Chase & Co. | 3.2% |
Wells Fargo & Co. | 3.1% |
Procter & Gamble Co. (The) | 3.0% |
Johnson & Johnson | 2.9% |
Merck & Co., Inc. | 2.6% |
AT&T, Inc. | 2.3% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 15.4% |
Pharmaceuticals | 9.5% |
Insurance | 8.1% |
Commercial Banks | 6.2% |
Diversified Financial Services | 6.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.7% |
Temporary Cash Investments | 1.3% |
Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets. |
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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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $1,047.10 | $5.15 | 1.00% |
Investor Class (before waiver) | $1,000 | $1,047.10(2) | $5.66 | 1.10% |
Institutional Class (after waiver) | $1,000 | $1,048.60 | $4.12 | 0.80% |
Institutional Class (before waiver) | $1,000 | $1,048.60(2) | $4.63 | 0.90% |
A Class (after waiver) | $1,000 | $1,045.70 | $6.43 | 1.25% |
A Class (before waiver) | $1,000 | $1,045.70(2) | $6.94 | 1.35% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,020.11 | $5.08 | 1.00% |
Investor Class (before waiver) | $1,000 | $1,019.61 | $5.58 | 1.10% |
Institutional Class (after waiver) | $1,000 | $1,021.12 | $4.06 | 0.80% |
Institutional Class (before waiver) | $1,000 | $1,020.61 | $4.57 | 0.90% |
A Class (after waiver) | $1,000 | $1,018.85 | $6.34 | 1.25% |
A Class (before waiver) | $1,000 | $1,018.35 | $6.85 | 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 366, 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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Shares | Value | |||||||
Common Stocks — 98.7% | ||||||||
AEROSPACE AND DEFENSE — 1.1% | ||||||||
Honeywell International, Inc. | 5,050 | $309,262 | ||||||
Northrop Grumman Corp. | 6,090 | 418,322 | ||||||
Raytheon Co. | 12,390 | 700,778 | ||||||
1,428,362 | ||||||||
AIRLINES — 0.5% | ||||||||
Southwest Airlines Co. | 77,410 | 682,756 | ||||||
AUTO COMPONENTS — 0.2% | ||||||||
Autoliv, Inc. | 5,130 | 295,488 | ||||||
AUTOMOBILES — 1.4% | ||||||||
Ford Motor Co. | 156,380 | 1,745,201 | ||||||
BEVERAGES — 0.5% | ||||||||
PepsiCo, Inc. | 8,150 | 564,306 | ||||||
BIOTECHNOLOGY — 0.4% | ||||||||
Amgen, Inc. | 2,760 | 238,864 | ||||||
Gilead Sciences, Inc.(1) | 4,670 | 313,637 | ||||||
552,501 | ||||||||
CAPITAL MARKETS — 4.3% | ||||||||
Ameriprise Financial, Inc. | 22,930 | 1,338,424 | ||||||
Bank of New York Mellon Corp. (The) | 36,420 | 899,938 | ||||||
BlackRock, Inc. | 5,200 | 986,336 | ||||||
Goldman Sachs Group, Inc. (The) | 13,700 | 1,676,743 | ||||||
Morgan Stanley | 22,190 | 385,662 | ||||||
5,287,103 | ||||||||
CHEMICALS — 0.5% | ||||||||
E.I. du Pont de Nemours & Co. | 12,750 | 567,630 | ||||||
COMMERCIAL BANKS — 6.2% | ||||||||
KeyCorp | 53,070 | 446,849 | ||||||
PNC Financial Services Group, Inc. | 27,950 | 1,626,411 | ||||||
U.S. Bancorp | 53,670 | 1,782,381 | ||||||
Wells Fargo & Co. | 114,950 | 3,872,665 | ||||||
7,728,306 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.8% | ||||||||
ADT Corp. (The)(1) | 7,415 | 307,797 | ||||||
Avery Dennison Corp. | 7,470 | 241,879 | ||||||
Tyco International Ltd. | 18,150 | 487,690 | ||||||
1,037,366 | ||||||||
COMMUNICATIONS EQUIPMENT — 2.2% | ||||||||
Cisco Systems, Inc. | 156,050 | 2,674,697 | ||||||
COMPUTERS AND PERIPHERALS — 0.2% | ||||||||
Hewlett-Packard Co. | 15,790 | 218,692 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 6.0% | ||||||||
Bank of America Corp. | 97,580 | $909,445 | ||||||
Citigroup, Inc. | 69,520 | 2,599,353 | ||||||
JPMorgan Chase & Co. | 94,610 | 3,943,345 | ||||||
7,452,143 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 3.2% | ||||||||
AT&T, Inc. | 81,280 | 2,811,475 | ||||||
CenturyLink, Inc. | 24,710 | 948,370 | ||||||
Verizon Communications, Inc. | 5,460 | 243,734 | ||||||
4,003,579 | ||||||||
ELECTRIC UTILITIES — 3.4% | ||||||||
American Electric Power Co., Inc. | 16,790 | 746,148 | ||||||
Exelon Corp. | 14,610 | 522,746 | ||||||
NV Energy, Inc. | 31,990 | 608,130 | ||||||
Pinnacle West Capital Corp. | 15,650 | 828,980 | ||||||
PPL Corp. | 26,460 | 782,687 | ||||||
Xcel Energy, Inc. | 26,940 | 761,055 | ||||||
4,249,746 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.2% | ||||||||
Baker Hughes, Inc. | 25,450 | 1,068,136 | ||||||
National Oilwell Varco, Inc. | 10,050 | 740,685 | ||||||
Schlumberger Ltd. | 13,260 | 921,968 | ||||||
2,730,789 | ||||||||
FOOD AND STAPLES RETAILING — 2.7% | ||||||||
CVS Caremark Corp. | 26,920 | 1,249,088 | ||||||
Kroger Co. (The) | 43,340 | 1,093,035 | ||||||
Wal-Mart Stores, Inc. | 12,790 | 959,506 | ||||||
3,301,629 | ||||||||
FOOD PRODUCTS — 1.1% | ||||||||
Kraft Foods Group, Inc.(1) | 10,580 | 481,178 | ||||||
Mondelez International, Inc. Class A | 31,740 | 842,380 | ||||||
1,323,558 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.5% | ||||||||
Medtronic, Inc. | 43,850 | 1,823,283 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.2% | ||||||||
Aetna, Inc. | 21,670 | 946,979 | ||||||
Quest Diagnostics, Inc. | 10,590 | 611,255 | ||||||
WellPoint, Inc. | 18,180 | 1,114,070 | ||||||
2,672,304 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 0.5% | ||||||||
Carnival Corp. | 15,250 | 577,670 | ||||||
HOUSEHOLD PRODUCTS — 3.0% | ||||||||
Procter & Gamble Co. (The) | 53,700 | 3,718,188 |
12
Shares | Value | |||||||
INDUSTRIAL CONGLOMERATES — 3.8% | ||||||||
General Electric Co. | 224,170 | $4,721,020 | ||||||
INSURANCE — 8.1% | ||||||||
Allstate Corp. (The) | 27,520 | 1,100,249 | ||||||
American International Group, Inc.(1) | 19,440 | 679,039 | ||||||
Berkshire Hathaway, Inc., Class B(1) | 19,840 | 1,713,184 | ||||||
Chubb Corp. (The) | 6,270 | 482,665 | ||||||
Loews Corp. | 20,250 | 856,170 | ||||||
MetLife, Inc. | 45,680 | 1,621,183 | ||||||
Principal Financial Group, Inc. | 26,790 | 737,797 | ||||||
Prudential Financial, Inc. | 20,820 | 1,187,781 | ||||||
Torchmark Corp. | 5,130 | 259,527 | ||||||
Travelers Cos., Inc. (The) | 20,530 | 1,456,398 | ||||||
10,093,993 | ||||||||
IT SERVICES — 0.1% | ||||||||
Fiserv, Inc.(1) | 2,380 | 178,357 | ||||||
MACHINERY — 2.3% | ||||||||
Dover Corp. | 14,390 | 837,786 | ||||||
Eaton Corp. | 18,550 | 875,931 | ||||||
Ingersoll-Rand plc | 6,020 | 283,120 | ||||||
PACCAR, Inc. | 19,070 | 826,494 | ||||||
2,823,331 | ||||||||
MEDIA — 3.6% | ||||||||
CBS Corp., Class B | 23,030 | 746,172 | ||||||
Comcast Corp., Class A | 41,850 | 1,569,793 | ||||||
Time Warner Cable, Inc. | 5,700 | 564,927 | ||||||
Time Warner, Inc. | 36,780 | 1,598,091 | ||||||
4,478,983 | ||||||||
METALS AND MINING — 1.7% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 34,360 | 1,335,917 | ||||||
Nucor Corp. | 18,300 | 734,379 | ||||||
2,070,296 | ||||||||
MULTI-UTILITIES — 0.7% | ||||||||
PG&E Corp. | 20,490 | 871,235 | ||||||
MULTILINE RETAIL — 2.5% | ||||||||
Kohl’s Corp. | 13,030 | 694,238 | ||||||
Macy’s, Inc. | 16,010 | 609,501 | ||||||
Target Corp. | 28,550 | 1,820,063 | ||||||
3,123,802 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 15.4% | ||||||||
Apache Corp. | 15,740 | 1,302,485 | ||||||
Chevron Corp. | 39,960 | 4,403,992 | ||||||
Exxon Mobil Corp. | 97,640 | 8,901,839 | ||||||
Occidental Petroleum Corp. | 15,290 | 1,207,298 | ||||||
Royal Dutch Shell plc, Class A | 34,340 | 1,177,506 | ||||||
Total SA ADR | 21,880 | 1,102,752 | ||||||
Ultra Petroleum Corp.(1) | 9,690 | 221,029 | ||||||
Valero Energy Corp. | 25,860 | 752,526 | ||||||
19,069,427 | ||||||||
PAPER AND FOREST PRODUCTS — 0.7% | ||||||||
International Paper Co. | 23,070 | 826,598 | ||||||
PHARMACEUTICALS — 9.5% | ||||||||
Abbott Laboratories | 10,550 | 691,236 | ||||||
Johnson & Johnson | 49,980 | 3,539,584 | ||||||
Merck & Co., Inc. | 70,690 | 3,225,585 | ||||||
Pfizer, Inc. | 174,650 | 4,343,545 | ||||||
11,799,950 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.9% | ||||||||
Applied Materials, Inc. | 50,620 | 536,572 | ||||||
Intel Corp. | 58,790 | 1,271,334 | ||||||
Marvell Technology Group Ltd. | 69,210 | 546,067 | ||||||
2,353,973 | ||||||||
SOFTWARE — 2.8% | ||||||||
Adobe Systems, Inc.(1) | 16,410 | 557,940 | ||||||
Microsoft Corp. | 52,280 | 1,491,810 | ||||||
Oracle Corp. | 44,480 | 1,381,104 | ||||||
3,430,854 | ||||||||
SPECIALTY RETAIL — 1.1% | ||||||||
Lowe’s Cos., Inc. | 32,920 | 1,065,950 | ||||||
Staples, Inc. | 31,550 | 363,298 | ||||||
1,429,248 | ||||||||
TOBACCO — 0.4% | ||||||||
Altria Group, Inc. | 15,050 | 478,590 | ||||||
TOTAL COMMON STOCKS (Cost $94,185,497) | 122,384,954 |
13
Value | ||||
Temporary Cash Investments — 1.3% | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% – 2.00%, 1/31/16 – 6/30/16, valued at $655,261), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $642,057) | $642,053 | |||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% – 3.75%, 8/15/41 – 2/15/42, valued at $656,784), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $642,057) | 642,053 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $272,739), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $267,438) | 267,437 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,551,543) | 1,551,543 | |||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $95,737,040) | 123,936,497 | |||
OTHER ASSETS AND LIABILITIES† | 12,566 | |||
TOTAL NET ASSETS — 100.0% | $123,949,063 |
Forward Foreign Currency Exchange Contracts | |||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
1,572,141 | EUR for USD | UBS AG | 11/30/12 | $2,038,226 | $(3,467) |
(Value on Settlement Date $2,034,759) |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
USD = United States Dollar
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $95,737,040) | $123,936,497 | |||
Foreign currency holdings, at value (cost of $9,310) | 9,242 | |||
Receivable for investments sold | 18,653 | |||
Receivable for capital shares sold | 72,181 | |||
Dividends and interest receivable | 150,650 | |||
124,187,223 | ||||
Liabilities | ||||
Payable for investments purchased | 29,171 | |||
Payable for capital shares redeemed | 99,096 | |||
Unrealized loss on forward foreign currency exchange contracts | 3,467 | |||
Accrued management fees | 105,830 | |||
Distribution and service fees payable | 596 | |||
238,160 | ||||
Net Assets | $123,949,063 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $106,081,275 | |||
Undistributed net investment income | 1,638,687 | |||
Accumulated net realized loss | (11,966,821 | ) | ||
Net unrealized appreciation | 28,195,922 | |||
$123,949,063 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $117,210,336 | 17,014,420 | $6.89 |
Institutional Class, $0.01 Par Value | $3,943,091 | 571,568 | $6.90 |
A Class, $0.01 Par Value | $2,795,636 | 406,664 | $6.87* |
*Maximum offering price $7.29 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $10,847) | $3,347,645 | |||
Interest | 1,152 | |||
3,348,797 | ||||
Expenses: | ||||
Management fees | 1,323,820 | |||
Distribution and service fees — A Class | 7,080 | |||
Directors’ fees and expenses | 4,567 | |||
Other expenses | 289 | |||
1,335,756 | ||||
Fees waived | (121,156 | ) | ||
1,214,600 | ||||
Net investment income (loss) | 2,134,197 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 8,230,011 | |||
Foreign currency transactions | (6,349 | ) | ||
8,223,662 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 9,281,650 | |||
Translation of assets and liabilities in foreign currencies | (3,535 | ) | ||
9,278,115 | ||||
Net realized and unrealized gain (loss) | 17,501,777 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $19,635,974 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $2,134,197 | $2,071,772 | ||||||
Net realized gain (loss) | 8,223,662 | 12,040,029 | ||||||
Change in net unrealized appreciation (depreciation) | 9,278,115 | (5,433,491 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 19,635,974 | 8,678,310 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (2,040,255 | ) | (2,149,583 | ) | ||||
Institutional Class | (69,034 | ) | (71,311 | ) | ||||
A Class | (44,437 | ) | (56,838 | ) | ||||
Decrease in net assets from distributions | (2,153,726 | ) | (2,277,732 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (11,665,672 | ) | (33,415,464 | ) | ||||
Net increase (decrease) in net assets | 5,816,576 | (27,014,886 | ) | |||||
Net Assets | ||||||||
Beginning of period | 118,132,487 | 145,147,373 | ||||||
End of period | $123,949,063 | $118,132,487 | ||||||
Undistributed net investment income | $1,638,687 | $1,673,790 |
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. 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 will attempt to minimize the impact of federal income taxes on shareholder returns by attempting to minimize taxable distributions to shareholders.
The fund offers the Investor Class, the Institutional Class and the A 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. 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.
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 2009. 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 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, 2012, 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, 2013, 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, 2012 was $113,876, $4,448 and $2,832 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, 2012 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, 2012 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, 2012 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., 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.
20
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $38,292,289 and $49,751,938, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 1,371,428 | $8,875,075 | 1,861,396 | $11,169,225 | ||||||||||||
Issued in reinvestment of distributions | 332,121 | 1,949,551 | 325,518 | 1,927,066 | ||||||||||||
Redeemed | (3,332,680 | ) | (21,270,073 | ) | (7,465,681 | ) | (44,959,583 | ) | ||||||||
(1,629,131 | ) | (10,445,447 | ) | (5,278,767 | ) | (31,863,292 | ) | |||||||||
Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||||||
Sold | 306,311 | 1,903,786 | 273,829 | 1,635,705 | ||||||||||||
Issued in reinvestment of distributions | 11,445 | 67,183 | 7,940 | 47,007 | ||||||||||||
Redeemed | (351,998 | ) | (2,267,771 | ) | (369,861 | ) | (2,257,450 | ) | ||||||||
(34,242 | ) | (296,802 | ) | (88,092 | ) | (574,738 | ) | |||||||||
A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 101,370 | 650,478 | 105,439 | 642,697 | ||||||||||||
Issued in reinvestment of distributions | 7,540 | 44,259 | 9,570 | 56,655 | ||||||||||||
Redeemed | (261,248 | ) | (1,618,160 | ) | (278,681 | ) | (1,676,786 | ) | ||||||||
(152,338 | ) | (923,423 | ) | (163,672 | ) | (977,434 | ) | |||||||||
Net increase (decrease) | (1,815,711 | ) | $(11,665,672 | ) | (5,530,531 | ) | $(33,415,464 | ) |
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 | ||||||||||||
Common Stocks | $121,207,448 | $1,177,506 | — | |||||||||
Temporary Cash Investments | — | 1,551,543 | — | |||||||||
Total Value of Investment Securities | $121,207,448 | $2,729,049 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(3,467 | ) | — |
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 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, 2012, is disclosed on the Statement of Assets and Liabilities as a liability of $3,467 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2012, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(6,680) in net realized gain (loss) on foreign currency transactions and $(3,467) in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
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8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $2,153,726 | $2,277,732 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $98,054,587 | |||
Gross tax appreciation of investments | $27,855,015 | |||
Gross tax depreciation of investments | (1,973,105 | ) | ||
Net tax appreciation (depreciation) of investments | $25,881,910 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(69 | ) | ||
Net tax appreciation (depreciation) | $25,881,841 | |||
Undistributed ordinary income | $1,635,220 | |||
Accumulated short-term capital losses | $(9,649,273 | ) |
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 foreign currency exchange contracts.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
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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 | ||||||||||||||||||||||||||||||||||||||||||
2012 | $5.96 | 0.11 | 0.93 | 1.04 | (0.11 | ) | — | (0.11 | ) | $6.89 | 17.80 | % | 1.00 | % | 1.10 | % | 1.76 | % | 1.66 | % | 32 | % | $117,210 | |||||||||||||||||||
2011 | $5.73 | 0.09 | 0.23 | 0.32 | (0.09 | ) | — | (0.09 | ) | $5.96 | 5.67 | % | 1.00 | % | 1.10 | % | 1.53 | % | 1.43 | % | 37 | % | $111,188 | |||||||||||||||||||
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 | ||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||
2012 | $5.97 | 0.12 | 0.93 | 1.05 | (0.12 | ) | — | (0.12 | ) | $6.90 | 18.00 | % | 0.80 | % | 0.90 | % | 1.96 | % | 1.86 | % | 32 | % | $3,943 | |||||||||||||||||||
2011 | $5.74 | 0.10 | 0.24 | 0.34 | (0.11 | ) | — | (0.11 | ) | $5.97 | 5.87 | % | 0.80 | % | 0.90 | % | 1.73 | % | 1.63 | % | 37 | % | $3,618 | |||||||||||||||||||
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 |
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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) | ||||||||||||||||||||||||||||||||||||||||||
2012 | $5.95 | 0.10 | 0.92 | 1.02 | (0.10 | ) | — | (0.10 | ) | $6.87 | 17.37 | % | 1.25 | % | 1.35 | % | 1.51 | % | 1.41 | % | 32 | % | $2,796 | |||||||||||||||||||
2011 | $5.72 | 0.08 | 0.23 | 0.31 | (0.08 | ) | — | (0.08 | ) | $5.95 | 5.41 | % | 1.25 | % | 1.35 | % | 1.28 | % | 1.18 | % | 37 | % | $3,326 | |||||||||||||||||||
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 |
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 of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capital Value Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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
31
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.
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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.
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, 2012.
For corporate taxpayers, the fund hereby designates $2,153,726, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 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 |
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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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76900 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal 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 produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
A Class No sales charge* With sales charge* | AFDAX | 15.48% 8.84% | 0.32% -0.86% | 6.67% 5.87% | 11/30/04 |
S&P 500 Index | — | 15.21% | 0.36% | 4.51% | — |
Investor Class | AFDIX | 15.65% | 0.56% | 6.31% | 7/29/05 |
Institutional Class | AFEIX | 15.93% | 0.77% | 6.52% | 7/29/05 |
B Class No sales charge* With sales charge* | AFDBX | 14.60% 10.60% | -0.44% -0.64% | 5.86% 5.86% | 11/30/04 |
C Class | AFDCX | 14.59% | -0.44% | 5.86% | 11/30/04 |
R Class | AFDRX | 15.09% | 0.04% | 5.77% | 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 to 0.00% after the sixth year. 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.
5
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 |
1.01% | 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.
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 15.48%* for the 12 months ended October 31, 2012, outpacing its benchmark, the S&P 500 Index, which returned 15.21%.
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 tepid global economic recovery and continued sovereign debt concerns in Europe. In this environment, large-cap stocks outperformed their mid- and small-cap counterparts, and value-oriented shares outperformed growth stocks.
Within the portfolio, Fundamental Equity derived positive absolute returns from every sector in which it invested. Relative to the benchmark, security selection in the consumer discretionary sector accounted for the bulk of outperformance. Stock decisions in the energy and information technology sectors also contributed to gains versus the benchmark. Holdings in the health care and consumer staples sectors partially trimmed those relative results.
Consumer Discretionary Led Outperformance
Within the consumer discretionary sector, the largest source of relative gains was the specialty retail industry. Here, the portfolio was rewarded for on overweight position in Home Depot, which outperformed as housing data for both new construction and renovations started to stabilize and improve.
An overweight allocation to the media industry contributed meaningfully to relative results. As optimism about the economic environment increased, advertising spending grew, helping companies in the industry group. The portfolio’s overweight position in Comcast Cable was the most significant individual contributor in the sector. Comcast’s strong earnings were largely attributable to growth in its Internet and cable television division, as well as strong revenue from its NBCUniversal unit, which increased advertising dollars through its coverage of the Olympics. Elsewhere in the sector, stock decisions in the hotels, restaurants, and leisure group helped performance versus the benchmark.
Energy, Information Technology Contributed
In the energy sector, Fundamental Equity was rewarded for its stock selection in the oil, gas, and consumable fuels group. The portfolio held positions in several strong performers, while underweighting or completely avoiding some benchmark laggards. The portfolio underweighted the energy equipment and services industry group, an allocation decision that also benefited relative results.
The information technology sector was also a source of relative outperformance. Here, an overweight position in Apple added significantly to results, as the company unveiled its much-anticipated iPhone 5 in September, selling more than five million units in its debut weekend. Apple also won a patent lawsuit against Samsung, its major rival in the smart phone market. Also in the sector, the portfolio benefited from effective stock decisions in the software group.
* | 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. |
7
Although returns from the information technology sector overall outpaced the benchmark, some positions underperformed. Semiconductor company Marvell Technology Group, which struggled on fears of slower computer hard drive sales and increased competition in the China wireless chip business, detracted from relative results.
Health Care, Consumer Staples Lagged
The health care sector was a source of underperformance relative to the benchmark. Here, stock selection among health care providers and pharmaceutical companies hurt relative results.
Despite the underperformance from the sector overall, an overweight stake in Amgen was the largest individual contributor to relative returns. The biotechnology company outperformed on a strong report driven by increased demand for its rheumatoid arthritis (Embrel) and osteoporosis (Prolia) drugs.
In the consumer staples sector, an overweight position in Tyson Foods detracted. The meat processor posted lower earnings for its fiscal third quarter of 2012 on early extinguishment of debt, and lowered profit guidance on the full year of 2012 due to lower-than-expected demand for protein in the U.S.
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.
8
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Exxon Mobil Corp. | 4.8% |
Apple, Inc. | 4.5% |
International Business Machines Corp. | 3.0% |
Microsoft Corp. | 2.4% |
Chevron Corp. | 2.1% |
Procter & Gamble Co. (The) | 2.0% |
Comcast Corp., Class A | 1.9% |
Wells Fargo & Co. | 1.8% |
Home Depot, Inc. (The) | 1.8% |
Amgen, Inc. | 1.8% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 10.5% |
Pharmaceuticals | 5.9% |
Computers and Peripherals | 5.6% |
IT Services | 5.2% |
Media | 5.0% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.1% |
Exchange-Traded Funds | 0.1% |
Total Equity Exposure | 99.2% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | (0.1)% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 - 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,022.80 | $5.14 | 1.01% |
Institutional Class | $1,000 | $1,024.10 | $4.12 | 0.81% |
A Class | $1,000 | $1,021.40 | $6.40 | 1.26% |
B Class | $1,000 | $1,017.40 | $10.19 | 2.01% |
C Class | $1,000 | $1,018.10 | $10.20 | 2.01% |
R Class | $1,000 | $1,020.10 | $7.67 | 1.51% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.06 | $5.13 | 1.01% |
Institutional Class | $1,000 | $1,021.06 | $4.12 | 0.81% |
A Class | $1,000 | $1,018.80 | $6.39 | 1.26% |
B Class | $1,000 | $1,015.03 | $10.18 | 2.01% |
C Class | $1,000 | $1,015.03 | $10.18 | 2.01% |
R Class | $1,000 | $1,017.55 | $7.66 | 1.51% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
11
Shares | Value | |||||||
Common Stocks — 99.1% | ||||||||
AEROSPACE AND DEFENSE — 3.1% | ||||||||
General Dynamics Corp. | 17,955 | $1,222,377 | ||||||
Honeywell International, Inc. | 46,850 | 2,869,094 | ||||||
Lockheed Martin Corp. | 2,685 | 251,504 | ||||||
Northrop Grumman Corp. | 2,612 | 179,418 | ||||||
United Technologies Corp. | 11,665 | 911,736 | ||||||
5,434,129 | ||||||||
AIR FREIGHT AND LOGISTICS — 0.8% | ||||||||
United Parcel Service, Inc., Class B | 18,214 | 1,334,176 | ||||||
AIRLINES — 0.2% | ||||||||
Allegiant Travel Co.(1) | 4,258 | 309,727 | ||||||
AUTOMOBILES — 0.6% | ||||||||
Ford Motor Co. | 89,029 | 993,564 | ||||||
BEVERAGES — 0.9% | ||||||||
Dr Pepper Snapple Group, Inc. | 31,200 | 1,336,920 | ||||||
PepsiCo, Inc. | 4,422 | 306,179 | ||||||
1,643,099 | ||||||||
BIOTECHNOLOGY — 1.9% | ||||||||
Amgen, Inc. | 35,460 | 3,068,886 | ||||||
Gilead Sciences, Inc.(1) | 3,537 | 237,545 | ||||||
3,306,431 | ||||||||
CAPITAL MARKETS — 0.4% | ||||||||
Ameriprise Financial, Inc. | 3,669 | 214,159 | ||||||
Legg Mason, Inc. | 18,141 | 462,233 | ||||||
676,392 | ||||||||
CHEMICALS — 1.3% | ||||||||
Ashland, Inc. | 1,314 | 93,491 | ||||||
CF Industries Holdings, Inc. | 2,730 | 560,169 | ||||||
E.I. du Pont de Nemours & Co. | 7,143 | 318,006 | ||||||
Eastman Chemical Co. | 1,966 | 116,466 | ||||||
LyondellBasell Industries NV, Class A | 18,060 | 964,223 | ||||||
Monsanto Co. | 435 | 37,441 | ||||||
PPG Industries, Inc. | 979 | 114,621 | ||||||
2,204,417 | ||||||||
COMMERCIAL BANKS — 2.6% | ||||||||
Bank of Hawaii Corp. | 7,263 | 320,734 | ||||||
PNC Financial Services Group, Inc. | 16,148 | 939,652 | ||||||
Wells Fargo & Co. | 95,584 | 3,220,225 | ||||||
4,480,611 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.2% | ||||||||
Knoll, Inc. | 19,264 | 277,209 | ||||||
COMMUNICATIONS EQUIPMENT — 1.3% | ||||||||
Cisco Systems, Inc. | 81,192 | 1,391,631 | ||||||
Motorola Solutions, Inc. | 3,326 | 171,888 | ||||||
QUALCOMM, Inc. | 12,385 | 725,451 | ||||||
2,288,970 | ||||||||
COMPUTERS AND PERIPHERALS — 5.6% | ||||||||
Apple, Inc. | 13,201 | 7,855,915 | ||||||
EMC Corp.(1) | 69,494 | 1,697,043 | ||||||
Hewlett-Packard Co. | 12,188 | 168,804 | ||||||
9,721,762 | ||||||||
CONSTRUCTION AND ENGINEERING — 0.2% | ||||||||
EMCOR Group, Inc. | 8,126 | 261,332 | ||||||
Fluor Corp. | 2,241 | 125,160 | ||||||
Foster Wheeler AG(1) | 1,637 | 36,456 | ||||||
422,948 | ||||||||
CONSUMER FINANCE — 2.0% | ||||||||
American Express Co. | 15,968 | 893,729 | ||||||
Capital One Financial Corp. | 28,454 | 1,712,077 | ||||||
Discover Financial Services | 21,579 | 884,739 | ||||||
3,490,545 | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 3.2% | ||||||||
Citigroup, Inc. | 78,052 | 2,918,365 | ||||||
JPMorgan Chase & Co. | 61,868 | 2,578,658 | ||||||
5,497,023 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.7% | ||||||||
AT&T, Inc. | 81,534 | 2,820,261 | ||||||
Verizon Communications, Inc. | 43,182 | 1,927,645 | ||||||
4,747,906 | ||||||||
ELECTRIC UTILITIES — 1.7% | ||||||||
FirstEnergy Corp. | 18,531 | 847,237 | ||||||
Northeast Utilities | 15,432 | 606,478 | ||||||
Xcel Energy, Inc. | 50,160 | 1,417,020 | ||||||
2,870,735 | ||||||||
ELECTRICAL EQUIPMENT — 1.1% | ||||||||
Belden, Inc. | 10,027 | 358,967 | ||||||
Emerson Electric Co. | 32,108 | 1,554,990 | ||||||
1,913,957 | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.1% | ||||||||
Jabil Circuit, Inc. | 9,064 | 157,170 | ||||||
ENERGY EQUIPMENT AND SERVICES — 1.0% | ||||||||
Halliburton Co. | 13,957 | 450,671 | ||||||
National Oilwell Varco, Inc. | 12,101 | 891,844 | ||||||
Patterson-UTI Energy, Inc. | 21,922 | 354,698 | ||||||
1,697,213 |
12
Shares | Value | |||||||
FOOD AND STAPLES RETAILING — 2.0% | ||||||||
Kroger Co. (The) | 2,219 | $55,963 | ||||||
Safeway, Inc. | 10,878 | 177,420 | ||||||
SYSCO Corp. | 1,571 | 48,811 | ||||||
Wal-Mart Stores, Inc. | 34,046 | 2,554,131 | ||||||
Walgreen Co. | 19,629 | 691,530 | ||||||
3,527,855 | ||||||||
FOOD PRODUCTS — 2.9% | ||||||||
Archer-Daniels-Midland Co. | 10,086 | 270,708 | ||||||
Bunge Ltd. | 3,532 | 250,878 | ||||||
ConAgra Foods, Inc. | 16,521 | 459,945 | ||||||
H.J. Heinz Co. | 35,973 | 2,068,807 | ||||||
Kraft Foods Group, Inc.(1) | 1,414 | 64,309 | ||||||
Mondelez International, Inc. Class A | 4,243 | 112,609 | ||||||
Smithfield Foods, Inc.(1) | 27,409 | 561,062 | ||||||
Tyson Foods, Inc., Class A | 70,090 | 1,178,213 | ||||||
4,966,531 | ||||||||
GAS UTILITIES — 0.1% | ||||||||
Questar Corp. | 9,115 | 184,488 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 0.4% | ||||||||
Baxter International, Inc. | 2,041 | 127,828 | ||||||
Covidien plc | 1,377 | 75,666 | ||||||
Medtronic, Inc. | 4,493 | 186,819 | ||||||
Stryker Corp. | 5,105 | 268,523 | ||||||
658,836 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 4.5% | ||||||||
Aetna, Inc. | 19,854 | 867,620 | ||||||
AmerisourceBergen Corp. | 50,609 | 1,996,019 | ||||||
Cardinal Health, Inc. | 40,927 | 1,683,327 | ||||||
Express Scripts Holding Co.(1) | 4,772 | 293,669 | ||||||
Humana, Inc. | 11,407 | 847,198 | ||||||
UnitedHealth Group, Inc. | 38,582 | 2,160,592 | ||||||
7,848,425 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 1.3% | ||||||||
Bally Technologies, Inc.(1) | 3,800 | 189,696 | ||||||
Cheesecake Factory, Inc. (The) | 2,817 | 93,130 | ||||||
Starbucks Corp. | 10,949 | 502,559 | ||||||
Wyndham Worldwide Corp. | 17,900 | 902,160 | ||||||
Wynn Resorts Ltd. | 4,699 | 568,861 | ||||||
Yum! Brands, Inc. | 527 | 36,948 | ||||||
2,293,354 | ||||||||
HOUSEHOLD DURABLES — 0.1% | ||||||||
Tupperware Brands Corp. | 3,860 | 228,126 | ||||||
HOUSEHOLD PRODUCTS — 2.4% | ||||||||
Colgate-Palmolive Co. | 1,726 | 181,161 | ||||||
Kimberly-Clark Corp. | 6,422 | 535,916 | ||||||
Procter & Gamble Co. (The) | 50,710 | 3,511,160 | ||||||
4,228,237 | ||||||||
INDUSTRIAL CONGLOMERATES — 1.6% | ||||||||
General Electric Co. | 134,595 | 2,834,571 | ||||||
INSURANCE — 4.5% | ||||||||
ACE Ltd. | 10,290 | 809,309 | ||||||
Aflac, Inc. | 10,769 | 536,081 | ||||||
American Financial Group, Inc. | 5,241 | 203,351 | ||||||
American International Group, Inc.(1) | 10,624 | 371,096 | ||||||
Assurant, Inc. | 10,353 | 391,447 | ||||||
Chubb Corp. (The) | 6,226 | 479,277 | ||||||
MetLife, Inc. | 8,479 | 300,920 | ||||||
Principal Financial Group, Inc. | 15,948 | 439,208 | ||||||
Prudential Financial, Inc. | 43,708 | 2,493,541 | ||||||
Travelers Cos., Inc. (The) | 7,562 | 536,448 | ||||||
Unum Group | 60,679 | 1,230,570 | ||||||
7,791,248 | ||||||||
INTERNET AND CATALOG RETAIL — 0.8% | ||||||||
Amazon.com, Inc.(1) | 3,423 | 796,943 | ||||||
Expedia, Inc. | 6,761 | 399,913 | ||||||
priceline.com, Inc.(1) | 190 | 109,016 | ||||||
TripAdvisor, Inc.(1) | 3,345 | 101,320 | ||||||
1,407,192 | ||||||||
INTERNET SOFTWARE AND SERVICES — 1.9% | ||||||||
AOL, Inc.(1) | 4,457 | 153,009 | ||||||
eBay, Inc.(1) | 6,422 | 310,118 | ||||||
Google, Inc., Class A(1) | 4,186 | 2,845,517 | ||||||
3,308,644 | ||||||||
IT SERVICES — 5.2% | ||||||||
Accenture plc, Class A | 17,758 | 1,197,067 | ||||||
International Business Machines Corp. | 26,595 | 5,173,525 | ||||||
Visa, Inc., Class A | 14,404 | 1,998,699 | ||||||
Western Union Co. (The) | 60,423 | 767,372 | ||||||
9,136,663 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.3% | ||||||||
Hasbro, Inc. | 13,696 | 492,919 | ||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.3% | ||||||||
Agilent Technologies, Inc. | 9,002 | 323,982 | ||||||
Thermo Fisher Scientific, Inc. | 2,686 | 164,007 | ||||||
487,989 |
13
Shares | Value |
MACHINERY — 1.8% | ||||||||
AGCO Corp.(1) | 3,170 | $144,267 | ||||||
Caterpillar, Inc. | 3,489 | 295,902 | ||||||
Cummins, Inc. | 5,769 | 539,863 | ||||||
Dover Corp. | 29,226 | 1,701,538 | ||||||
Oshkosh Corp.(1) | 1,545 | 46,319 | ||||||
Wabtec Corp. | 4,915 | 402,538 | ||||||
3,130,427 | ||||||||
MEDIA — 5.0% | ||||||||
CBS Corp., Class B | 41,813 | 1,354,741 | ||||||
Comcast Corp., Class A | 87,685 | 3,289,065 | ||||||
Gannett Co., Inc. | 4,687 | 79,210 | ||||||
Omnicom Group, Inc. | 4,880 | 233,801 | ||||||
Time Warner Cable, Inc. | 12,385 | 1,227,477 | ||||||
Time Warner, Inc. | 49,147 | 2,135,437 | ||||||
Viacom, Inc., Class B | 6,879 | 352,686 | ||||||
8,672,417 | ||||||||
METALS AND MINING — 0.9% | ||||||||
Cliffs Natural Resources, Inc. | 9,078 | 329,259 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 25,985 | 1,010,297 | ||||||
Reliance Steel & Aluminum Co. | 4,063 | 220,783 | ||||||
1,560,339 | ||||||||
MULTI-UTILITIES — 1.4% | ||||||||
Ameren Corp. | 3,739 | 122,938 | ||||||
CenterPoint Energy, Inc. | 57,074 | 1,236,794 | ||||||
DTE Energy Co. | 16,290 | 1,011,609 | ||||||
Public Service Enterprise Group, Inc. | 2,161 | 69,238 | ||||||
2,440,579 | ||||||||
MULTILINE RETAIL — 0.5% | ||||||||
Dillard’s, Inc., Class A | 2,969 | 228,613 | ||||||
Macy’s, Inc. | 14,551 | 553,957 | ||||||
782,570 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 10.5% | ||||||||
Chevron Corp. | 33,527 | 3,695,011 | ||||||
ConocoPhillips | 36,074 | 2,086,881 | ||||||
Exxon Mobil Corp. | 92,201 | 8,405,965 | ||||||
Hess Corp. | 5,845 | 305,460 | ||||||
HollyFrontier Corp. | 27,858 | 1,076,154 | ||||||
Murphy Oil Corp. | 8,584 | 515,040 | ||||||
Occidental Petroleum Corp. | 18,443 | 1,456,259 | ||||||
Peabody Energy Corp. | 10,092 | 281,567 | ||||||
Valero Energy Corp. | 7,929 | 230,734 | ||||||
Williams Cos., Inc. (The) | 7,338 | 256,757 | ||||||
WPX Energy, Inc.(1) | 2,446 | 41,435 | ||||||
18,351,263 | ||||||||
PAPER AND FOREST PRODUCTS — 0.9% | ||||||||
International Paper Co. | 41,977 | 1,504,036 | ||||||
PHARMACEUTICALS — 5.9% | ||||||||
Abbott Laboratories | 44,957 | 2,945,583 | ||||||
Bristol-Myers Squibb Co. | 72,702 | 2,417,342 | ||||||
Hospira, Inc.(1) | 8,663 | 265,867 | ||||||
Johnson & Johnson | 39,262 | 2,780,535 | ||||||
Merck & Co., Inc. | 2,913 | 132,920 | ||||||
Pfizer, Inc. | 71,847 | 1,786,835 | ||||||
10,329,082 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.3% | ||||||||
American Tower Corp. | 15,350 | 1,155,701 | ||||||
Public Storage | 6,092 | 844,534 | ||||||
Simon Property Group, Inc. | 1,455 | 221,466 | ||||||
2,221,701 | ||||||||
ROAD AND RAIL — 1.2% | ||||||||
CSX Corp. | 8,401 | 171,968 | ||||||
Norfolk Southern Corp. | 1,818 | 111,534 | ||||||
Ryder System, Inc. | 16,579 | 748,045 | ||||||
Union Pacific Corp. | 9,241 | 1,136,920 | ||||||
2,168,467 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.8% | ||||||||
Altera Corp. | 31,385 | 956,615 | ||||||
Intel Corp. | 59,598 | 1,288,807 | ||||||
Marvell Technology Group Ltd. | 45,213 | 356,731 | ||||||
Texas Instruments, Inc. | 18,371 | 516,041 | ||||||
3,118,194 | ||||||||
SOFTWARE — 3.3% | ||||||||
Microsoft Corp. | 148,050 | 4,224,607 | ||||||
Oracle Corp. | 29,294 | 909,579 | ||||||
Red Hat, Inc.(1) | 779 | 38,303 | ||||||
Symantec Corp.(1) | 35,973 | 654,349 | ||||||
5,826,838 | ||||||||
SPECIALTY RETAIL — 3.7% | ||||||||
AutoZone, Inc.(1) | 776 | 291,000 | ||||||
Chico’s FAS, Inc. | 13,411 | 249,445 | ||||||
Gap, Inc. (The) | 27,835 | 994,266 | ||||||
Home Depot, Inc. (The) | 52,272 | 3,208,455 | ||||||
Limited Brands, Inc. | 2,250 | 107,753 | ||||||
Lowe’s Cos., Inc. | 17,823 | 577,109 | ||||||
Pier 1 Imports, Inc. | 53,078 | 1,082,791 | ||||||
6,510,819 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.2% | ||||||||
Coach, Inc. | 7,666 | 429,679 |
14
Shares | Value |
TOBACCO — 1.5% | ||||||||
Altria Group, Inc. | 8,729 | $277,582 | ||||||
Lorillard, Inc. | 1,819 | 211,022 | ||||||
Philip Morris International, Inc. | 23,715 | 2,100,201 | ||||||
2,588,805 | ||||||||
TOTAL COMMON STOCKS (Cost $118,887,328) | 172,498,278 | |||||||
Exchange-Traded Funds — 0.1% | ||||||||
SPDR S&P 500 ETF Trust (Cost $170,376) | 1,358 | 191,722 | ||||||
Temporary Cash Investments — 0.9% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $695,769), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $681,749) | 681,745 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $697,387), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $681,749) | 681,745 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $289,600), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $283,970) | $283,969 | |||||||
SSgA U.S. Government Money Market Fund | 668 | 668 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,648,127) | 1,648,127 | |||||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $120,705,831) | 174,338,127 | |||||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (196,532 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $174,141,595 |
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, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $120,705,831) | $174,338,127 | |||
Receivable for investments sold | 120,958 | |||
Receivable for capital shares sold | 124,632 | |||
Dividends and interest receivable | 234,593 | |||
174,818,310 | ||||
Liabilities | ||||
Payable for capital shares redeemed | 488,499 | |||
Accrued management fees | 148,553 | |||
Distribution and service fees payable | 39,663 | |||
676,715 | ||||
Net Assets | $174,141,595 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $227,756,276 | |||
Undistributed net investment income | 1,444,585 | |||
Accumulated net realized loss | (108,691,562 | ) | ||
Net unrealized appreciation | 53,632,296 | |||
$174,141,595 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $38,249,996 | 2,580,272 | $14.82 |
Institutional Class, $0.01 Par Value | $9,224,994 | 621,342 | $14.85 |
A Class, $0.01 Par Value | $105,718,150 | 7,144,382 | $14.80* |
B Class, $0.01 Par Value | $3,165,164 | 216,790 | $14.60 |
C Class, $0.01 Par Value | $14,966,510 | 1,024,747 | $14.61 |
R Class, $0.01 Par Value | $2,816,781 | 191,036 | $14.74 |
*Maximum offering price $15.70 (net asset value divided by 0.9425).
See Notes to Financial Statements.
16
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $17,218) | $4,229,557 | |||
Interest | 1,348 | |||
4,230,905 | ||||
Expenses: | ||||
Management fees | 1,743,782 | |||
Distribution and service fees: | ||||
A Class | 266,679 | |||
B Class | 31,956 | |||
C Class | 147,966 | |||
R Class | 11,563 | |||
Directors’ fees and expenses | 11,824 | |||
Other expenses | 1,486 | |||
2,215,256 | ||||
Net investment income (loss) | 2,015,649 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 7,398,817 | |||
Foreign currency transactions | 45 | |||
7,398,862 | ||||
Change in net unrealized appreciation (depreciation) on investments | 15,225,088 | |||
Net realized and unrealized gain (loss) | 22,623,950 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $24,639,599 |
See Notes to Financial Statements.
17
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $2,015,649 | $1,583,623 | ||||||
Net realized gain (loss) | 7,398,862 | 10,077,638 | ||||||
Change in net unrealized appreciation (depreciation) | 15,225,088 | 6,419,151 | ||||||
Net increase (decrease) in net assets resulting from operations | 24,639,599 | 18,080,412 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (478,590 | ) | (476,248 | ) | ||||
Institutional Class | (111,278 | ) | (1,525 | ) | ||||
A Class | (981,254 | ) | (1,090,905 | ) | ||||
B Class | (7,176 | ) | (3,497 | ) | ||||
C Class | (32,405 | ) | (13,721 | ) | ||||
R Class | (13,234 | ) | (16,038 | ) | ||||
Decrease in net assets from distributions | (1,623,937 | ) | (1,601,934 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (20,705,063 | ) | (37,702,737 | ) | ||||
Net increase (decrease) in net assets | 2,310,599 | (21,224,259 | ) | |||||
Net Assets | ||||||||
Beginning of period | 171,830,996 | 193,055,255 | ||||||
End of period | $174,141,595 | $171,830,996 | ||||||
Undistributed net investment income | $1,444,585 | $1,058,401 |
See Notes to Financial Statements.
18
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 offers 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.
The value of investments initially expressed in foreign currencies is translated into U.S. dollars at prevailing exchange rates.
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. 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 2009. 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.
20
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 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, 2012 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $31,732,380 and $51,603,398, respectively.
21
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 1,342,007 | $18,814,978 | 1,087,184 | $13,925,436 | ||||||||||||
Issued in reinvestment of distributions | 35,466 | 454,676 | 36,152 | 451,179 | ||||||||||||
Redeemed | (2,344,052 | ) | (31,995,934 | ) | (1,067,200 | ) | (13,854,962 | ) | ||||||||
(966,579 | ) | (12,726,280 | ) | 56,136 | 521,653 | |||||||||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 679,623 | 8,808,345 | 1,571 | 20,636 | ||||||||||||
Issued in reinvestment of distributions | 8,687 | 111,278 | 122 | 1,525 | ||||||||||||
Redeemed | (74,872 | ) | (1,040,106 | ) | (3,787 | ) | (50,840 | ) | ||||||||
613,438 | 7,879,517 | (2,094 | ) | (28,679 | ) | |||||||||||
A Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||||||
Sold | 1,044,206 | 14,687,028 | 1,054,724 | 13,579,202 | ||||||||||||
Issued in reinvestment of distributions | 71,129 | 911,874 | 84,114 | 1,049,738 | ||||||||||||
Redeemed | (2,172,087 | ) | (30,183,533 | ) | (3,834,225 | ) | (49,366,679 | ) | ||||||||
(1,056,752 | ) | (14,584,631 | ) | (2,695,387 | ) | (34,737,739 | ) | |||||||||
B Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 2,968 | 40,429 | 2,834 | 36,606 | ||||||||||||
Issued in reinvestment of distributions | 521 | 6,630 | 262 | 3,246 | ||||||||||||
Redeemed | (31,934 | ) | (443,468 | ) | (83,929 | ) | (1,056,396 | ) | ||||||||
(28,445 | ) | (396,409 | ) | (80,833 | ) | (1,016,544 | ) | |||||||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 134,302 | 1,852,399 | 171,419 | 2,193,034 | ||||||||||||
Issued in reinvestment of distributions | 1,594 | 20,313 | 729 | 9,037 | ||||||||||||
Redeemed | (205,903 | ) | (2,860,466 | ) | (335,718 | ) | (4,280,843 | ) | ||||||||
(70,007 | ) | (987,754 | ) | (163,570 | ) | (2,078,772 | ) | |||||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 103,146 | 1,481,207 | 36,394 | 467,960 | ||||||||||||
Issued in reinvestment of distributions | 1,034 | 13,234 | 1,286 | 16,038 | ||||||||||||
Redeemed | (103,525 | ) | (1,383,947 | ) | (68,028 | ) | (846,654 | ) | ||||||||
655 | 110,494 | (30,348 | ) | (362,656 | ) | |||||||||||
Net increase (decrease) | (1,507,690 | ) | $(20,705,063 | ) | (2,916,096 | ) | $(37,702,737 | ) |
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 | $172,498,278 | — | — | |||||||||
Exchange-Traded Funds | 191,722 | — | — | |||||||||
Temporary Cash Investments | 668 | $1,647,459 | — | |||||||||
Total Value of Investment Securities | $172,690,668 | $1,647,459 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $1,623,937 | $1,601,934 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $124,761,624 | |||
Gross tax appreciation of investments | $52,758,974 | |||
Gross tax depreciation of investments | (3,182,471 | ) | ||
Net tax appreciation (depreciation) of investments | $49,576,503 | |||
Undistributed ordinary income | $1,444,585 | |||
Accumulated short-term capital losses | $(104,635,769 | ) |
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.
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 $(31,004,542)and $(73,631,227) expire in 2016 and 2017 respectively.
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 | ||||||||||||||||||||||||||||||||||||
2012 | $12.97 | 0.20 | 1.81 | 2.01 | (0.16 | ) | — | (0.16 | ) | $14.82 | 15.65 | % | 1.01 | % | 1.39 | % | 18 | % | $38,250 | |||||||||||||||||
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 | ||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||
2012 | $12.99 | 0.21 | 1.83 | 2.04 | (0.18 | ) | — | (0.18 | ) | $14.85 | 15.93 | % | 0.81 | % | 1.59 | % | 18 | % | $9,225 | |||||||||||||||||
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 | ||||||||||||||
A Class | ||||||||||||||||||||||||||||||||||||
2012 | $12.94 | 0.16 | 1.82 | 1.98 | (0.12 | ) | — | (0.12 | ) | $14.80 | 15.48 | % | 1.26 | % | 1.14 | % | 18 | % | $105,718 | |||||||||||||||||
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 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||
B Class | ||||||||||||||||||||||||||||||||||||
2012 | $12.77 | 0.06 | 1.80 | 1.86 | (0.03 | ) | — | (0.03 | ) | $14.60 | 14.60 | % | 2.01 | % | 0.39 | % | 18 | % | $3,165 | |||||||||||||||||
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 | |||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
2012 | $12.78 | 0.05 | 1.81 | 1.86 | (0.03 | ) | — | (0.03 | ) | $14.61 | 14.59 | % | 2.01 | % | 0.39 | % | 18 | % | $14,967 | |||||||||||||||||
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 | |||||||||||||||
R Class | ||||||||||||||||||||||||||||||||||||
2012 | $12.90 | 0.13 | 1.80 | 1.93 | (0.09 | ) | — | (0.09 | ) | $14.74 | 15.09 | % | 1.51 | % | 0.89 | % | 18 | % | $2,817 | |||||||||||||||||
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 |
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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. |
See Notes to Financial Statements.
26
The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Fundamental Equity Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
27
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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 time horizons.
32
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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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, 2012.
For corporate taxpayers, the fund hereby designates $1,623,937, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76898 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal 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 produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Investor Class | AFSIX | 12.78% | 1.41% | 4.74% | 2/28/05 |
Russell 1000 Growth Index | — | 13.02% | 1.95% | 5.50% | — |
Institutional Class | AFGNX | 13.09% | 1.61% | 2.12% | 9/28/07 |
A Class No sales charge* With sales charge* | AFGAX | 12.62% 6.16% | 1.18% -0.02% | 1.67% 0.49% | 9/28/07 |
C Class | AFGCX | 11.69% | 0.40% | 0.89% | 9/28/07 |
R Class | AFGRX | 12.29% | 0.90% | 1.40% | 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.
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 |
1.01% | 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.
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: Greg Woodhams and Joe Reiland
Performance Summary
Focused Growth returned 12.78%* in the 12 months ended October 31, 2012. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 13.02% for the same period.
In terms of Focused Growth’s absolute returns, information technology (IT) and consumer discretionary shares contributed most, while materials and energy stocks detracted fractionally. Relative to the benchmark, stocks in the consumer discretionary and telecommunication services sectors helped performance most, while the leading relative detractors were consumer staples and energy shares.
Leading Detractors
The largest individual detractor for the fiscal year was auto component manufacturer BorgWarner, which underperformed as a result of weakness in Europe and slower automotive build rates in China. The number-two detractor was integrated oil firm Occidental Petroleum, which was affected by concerns about the pace of the firm’s development program.
Information Technology also Detracted
Stock selection in the information technology sector detracted from performance relative to the Russell 1000 Growth Index. The sector was hit by worries about exposure to Europe and potential slowdown in the U.S. going forward. In the technology sector, stock choices made software and communications equipment firms the leading detractors. The top individual detractor in the sector was communication equipment maker Cisco Systems. Cisco actually gained market share and reported solid results, but the company lowered forward earnings guidance marginally after evaluating the macroeconomic environment here and abroad. Technology services company Accenture, computer security provider Check Point Software Technologies, and computer storage and data provider EMC were other notable detractors in this space. It also hurt to be underrepresented in shares of Microsoft. The software giant benefited from new product launches in 2012, as well as from being perceived as somewhat of a “safe-haven” amid volatility within the technology sector.
Consumer Discretionary Led Contributors
The consumer discretionary sector was home to the largest contributor to performance, specialty retailer Home Depot. The home improvement retailer benefited from the home building and remodeling recovery evident during the fiscal year. Another key contributor was media company Time Warner Cable, which benefited from cost cuts and agreeing a deal to broadcast NFL games.
Telecommunication shares also contributed to performance due to stock selection and an overweight position among wireless telecommunication providers. The leading contributor for the fiscal year was cellular tower operator Crown Castle
*All fund returns referenced in this commentary are for Investor Class shares.
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International. The company continues to benefit from a long-running trend by cellular network providers such as AT&T and Verizon to add capacity to their networks to handle increasing voice and data traffic.
Other Notable Contributors
MasterCard was a notable contributor to relative results for the fiscal year, benefiting from rising transaction volumes and fees. In addition, it helped to hold a stake in pharmaceutical benefit manager Express Scripts, which acquired Medco Health Solutions during the period. Another key individual contributor was a stake in internet search giant Google. The company reported share gains in its search business and better margin discipline. Railroad Union Pacific helped relative results. The company beat earnings estimates, benefiting from negotiating better rates on some of its contracts to improve revenue per container.
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, 2012, the energy, health care, and industrials sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in financial and consumer staples shares. Information technology shares were the portfolio’s single largest sector allocation on an absolute basis.
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OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 8.8% |
Coca-Cola Co. (The) | 4.3% |
Home Depot, Inc. (The) | 4.0% |
Abbott Laboratories | 3.9% |
Schlumberger Ltd. | 3.8% |
Microsoft Corp. | 3.8% |
Honeywell International, Inc. | 3.5% |
MasterCard, Inc., Class A | 3.5% |
Comcast Corp., Class A | 3.4% |
Google, Inc., Class A | 3.4% |
Top Five Industries | % of net assets |
Computers and Peripherals | 11.8% |
Pharmaceuticals | 6.4% |
Aerospace and Defense | 5.6% |
Software | 5.1% |
Media | 4.9% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.9% |
Exchange-Traded Funds | 0.4% |
Total Equity Exposure | 98.3% |
Temporary Cash Investments | 1.9% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 - 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $975.60 | $5.02 | 1.01% |
Institutional Class | $1,000 | $977.20 | $4.03 | 0.81% |
A Class | $1,000 | $975.60 | $6.26 | 1.26% |
C Class | $1,000 | $971.10 | $9.96 | 2.01% |
R Class | $1,000 | $973.90 | $7.49 | 1.51% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.06 | $5.13 | 1.01% |
Institutional Class | $1,000 | $1,021.06 | $4.12 | 0.81% |
A Class | $1,000 | $1,018.80 | $6.39 | 1.26% |
C Class | $1,000 | $1,015.03 | $10.18 | 2.01% |
R Class | $1,000 | $1,017.55 | $7.66 | 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 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 97.9% | ||||||||
AEROSPACE AND DEFENSE — 5.6% | ||||||||
Honeywell International, Inc. | 9,306 | $569,899 | ||||||
Textron, Inc. | 6,150 | 155,042 | ||||||
United Technologies Corp. | 2,171 | 169,685 | ||||||
894,626 | ||||||||
AIR FREIGHT AND LOGISTICS — 2.4% | ||||||||
United Parcel Service, Inc., Class B | 5,221 | 382,438 | ||||||
AUTOMOBILES — 1.3% | ||||||||
Harley-Davidson, Inc. | 4,492 | 210,046 | ||||||
BEVERAGES — 4.3% | ||||||||
Coca-Cola Co. (The) | 18,458 | 686,268 | ||||||
BIOTECHNOLOGY — 1.1% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 1,935 | 174,885 | ||||||
CHEMICALS — 2.8% | ||||||||
Monsanto Co. | 5,208 | 448,253 | ||||||
COMMERCIAL BANKS — 2.0% | ||||||||
SunTrust Banks, Inc. | 4,925 | 133,960 | ||||||
Wells Fargo & Co. | 5,506 | 185,497 | ||||||
319,457 | ||||||||
COMMUNICATIONS EQUIPMENT — 2.4% | ||||||||
Cisco Systems, Inc. | 22,667 | 388,512 | ||||||
COMPUTERS AND PERIPHERALS — 11.8% | ||||||||
Apple, Inc. | 2,388 | 1,421,099 | ||||||
EMC Corp.(1) | 19,850 | 484,737 | ||||||
1,905,836 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 3.8% | ||||||||
Schlumberger Ltd. | 8,848 | 615,201 | ||||||
FOOD AND STAPLES RETAILING — 1.9% | ||||||||
CVS Caremark Corp. | 4,481 | 207,918 | ||||||
Wal-Mart Stores, Inc. | 1,388 | 104,128 | ||||||
312,046 | ||||||||
FOOD PRODUCTS — 1.1% | ||||||||
Hershey Co. (The) | 1,983 | 136,529 | ||||||
Kraft Foods Group, Inc.(1) | 897 | 40,796 | ||||||
177,325 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.3% | ||||||||
Covidien plc | 5,567 | 305,907 | ||||||
Edwards Lifesciences Corp.(1) | 828 | 71,895 | ||||||
377,802 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.1% | ||||||||
Express Scripts Holding Co.(1) | 8,073 | 496,812 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.7% | ||||||||
Marriott International, Inc. Class A | 3,194 | 116,517 | ||||||
Starbucks Corp. | 6,795 | 311,891 | ||||||
428,408 | ||||||||
HOUSEHOLD DURABLES — 0.7% | ||||||||
PulteGroup, Inc.(1) | 6,731 | 116,716 | ||||||
HOUSEHOLD PRODUCTS — 2.5% | ||||||||
Colgate-Palmolive Co. | 3,757 | 394,335 | ||||||
INDUSTRIAL CONGLOMERATES — 0.2% | ||||||||
Danaher Corp. | 563 | 29,124 | ||||||
INTERNET AND CATALOG RETAIL — 0.1% | ||||||||
Amazon.com, Inc.(1) | 70 | 16,297 | ||||||
INTERNET SOFTWARE AND SERVICES — 3.4% | ||||||||
Google, Inc., Class A(1) | 810 | 550,614 | ||||||
IT SERVICES — 3.8% | ||||||||
Automatic Data Processing, Inc. | 837 | 48,370 | ||||||
MasterCard, Inc., Class A | 1,216 | 560,491 | ||||||
608,861 | ||||||||
MACHINERY — 3.2% | ||||||||
Illinois Tool Works, Inc. | 8,526 | 522,900 | ||||||
MEDIA — 4.9% | ||||||||
CBS Corp., Class B | 7,276 | 235,742 | ||||||
Comcast Corp., Class A | 14,800 | 555,148 | ||||||
790,890 | ||||||||
MULTILINE RETAIL — 2.3% | ||||||||
Macy’s, Inc. | 9,603 | 365,586 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 2.9% | ||||||||
Noble Energy, Inc. | 762 | 72,398 | ||||||
Occidental Petroleum Corp. | 4,964 | 391,957 | ||||||
464,355 | ||||||||
PHARMACEUTICALS — 6.4% | ||||||||
Abbott Laboratories | 9,624 | 630,564 | ||||||
Johnson & Johnson | 5,725 | 405,445 | ||||||
1,036,009 | ||||||||
ROAD AND RAIL — 1.8% | ||||||||
Union Pacific Corp. | 2,383 | 293,181 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 4.5% | ||||||||
Broadcom Corp., Class A | 1,110 | 35,004 | ||||||
Linear Technology Corp. | 10,874 | 339,921 | ||||||
Xilinx, Inc. | 10,744 | 351,974 | ||||||
726,899 |
12
Shares | Value | |||||||
SOFTWARE — 5.1% | ||||||||
Microsoft Corp. | 21,407 | $610,849 | ||||||
Oracle Corp. | 6,647 | 206,389 | ||||||
817,238 | ||||||||
SPECIALTY RETAIL — 4.0% | ||||||||
Home Depot, Inc. (The) | 10,620 | 651,856 | ||||||
TOBACCO — 0.3% | ||||||||
Philip Morris International, Inc. | 554 | 49,062 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 3.2% | ||||||||
Crown Castle International Corp.(1) | 7,706 | 514,376 | ||||||
TOTAL COMMON STOCKS (Cost $12,122,414) | 15,766,214 | |||||||
Exchange-Traded Funds — 0.4% | ||||||||
iShares Russell 1000 Growth Index Fund (Cost $56,521) | 897 | 58,081 |
Value | ||||
Temporary Cash Investments — 1.9% | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $131,501), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $128,851) | $128,850 | |||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $131,807), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $128,851) | 128,850 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $54,735), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $53,671) | 53,671 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $311,371) | 311,371 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $12,490,306) | 16,135,666 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (34,157 | ) | ||
TOTAL NET ASSETS — 100.0% | $16,101,509 |
Notes to Schedule of Investments
(1) | Non-income producing. |
See Notes to Financial Statements.
13
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $12,490,306) | $16,135,666 | |||
Receivable for capital shares sold | 3,104 | |||
Dividends and interest receivable | 10,179 | |||
16,148,949 | ||||
Liabilities | ||||
Payable for capital shares redeemed | 32,543 | |||
Accrued management fees | 14,086 | |||
Distribution and service fees payable | 811 | |||
47,440 | ||||
Net Assets | $16,101,509 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $13,066,512 | |||
Undistributed net investment income | 72,036 | |||
Accumulated net realized loss | (682,399 | ) | ||
Net unrealized appreciation | 3,645,360 | |||
$16,101,509 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Investor Class, $0.01 Par Value | $13,827,862 | 1,151,850 | $12.00 | |||||||||
Institutional Class, $0.01 Par Value | $27,808 | 2,316 | $12.01 | |||||||||
A Class, $0.01 Par Value | $1,376,321 | 114,825 | $11.99 | * | ||||||||
C Class, $0.01 Par Value | $311,037 | 26,468 | $11.75 | |||||||||
R Class, $0.01 Par Value | $558,481 | 46,733 | $11.95 |
* | Maximum offering price $12.72 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
14
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends | $282,829 | |||
Interest | 267 | |||
283,096 | ||||
Expenses: | ||||
Management fees | 165,592 | |||
Distribution and service fees: | ||||
A Class | 2,684 | |||
C Class | 3,141 | |||
R Class | 2,647 | |||
Directors’ fees and expenses | 692 | |||
Other expenses | 66 | |||
174,822 | ||||
Net investment income (loss) | 108,274 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on investment and foreign currency transactions | 830,859 | |||
Change in net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 1,047,187 | |||
Net realized and unrealized gain (loss) | 1,878,046 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $1,986,320 |
See Notes to Financial Statements.
15
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $108,274 | $86,095 | ||||||
Net realized gain (loss) | 830,859 | 510,907 | ||||||
Change in net unrealized appreciation (depreciation) | 1,047,187 | (87,497 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 1,986,320 | 509,505 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (78,796 | ) | (72,511 | ) | ||||
Institutional Class | (183 | ) | (180 | ) | ||||
A Class | (3,082 | ) | (1,550 | ) | ||||
R Class | (358 | ) | (89 | ) | ||||
Decrease in net assets from distributions | (82,419 | ) | (74,330 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (2,029,094 | ) | 2,319,045 | |||||
Net increase (decrease) in net assets | (125,193 | ) | 2,754,220 | |||||
Net Assets | ||||||||
Beginning of period | 16,226,702 | 13,472,482 | ||||||
End of period | $16,101,509 | $16,226,702 | ||||||
Undistributed net investment income | $72,036 | $48,583 |
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. 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 investing primarily in stocks of larger-sized companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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. 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 2009. 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.
18
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
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, 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, 2012 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, 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $9,636,331 and $11,582,552, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 96,795 | $1,125,652 | 499,144 | $5,526,676 | ||||||||||||
Issued in reinvestment of distributions | 7,272 | 76,575 | 6,447 | 70,211 | ||||||||||||
Redeemed | (292,238 | ) | (3,410,412 | ) | (418,174 | ) | (4,547,799 | ) | ||||||||
(188,171 | ) | (2,208,185 | ) | 87,417 | 1,049,088 | |||||||||||
Institutional Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Issued in reinvestment of distributions | 17 | 183 | 17 | 180 | ||||||||||||
A Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 46,218 | 566,025 | 288,494 | 3,258,421 | ||||||||||||
Issued in reinvestment of distributions | 272 | 2,868 | 141 | 1,540 | ||||||||||||
Redeemed | (29,073 | ) | (336,864 | ) | (240,611 | ) | (2,597,762 | ) | ||||||||
17,417 | 232,029 | 48,024 | 662,199 | |||||||||||||
B Class/Shares Authorized | N/A | 10,000,000 | ||||||||||||||
Redeemed | (5,355 | ) | (55,166 | ) | ||||||||||||
C Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 3,149 | 35,864 | 32,076 | 362,261 | ||||||||||||
Redeemed | (9,600 | ) | (108,846 | ) | (12,217 | ) | (133,745 | ) | ||||||||
(6,451 | ) | (72,982 | ) | 19,859 | 228,516 | |||||||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 3,022 | 36,167 | 42,927 | 435,823 | ||||||||||||
Issued in reinvestment of distributions | 34 | 358 | 8 | 89 | ||||||||||||
Redeemed | (1,415 | ) | (16,664 | ) | (170 | ) | (1,684 | ) | ||||||||
1,641 | 19,861 | 42,765 | 434,228 | |||||||||||||
Net increase (decrease) | (175,547 | ) | $(2,029,094 | ) | 192,727 | $2,319,045 |
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 | ||||||||||||
Common Stocks | $15,766,214 | — | — | |||||||||
Exchange-Traded Funds | 58,081 | — | — | |||||||||
Temporary Cash Investments | — | $311,371 | — | |||||||||
Total Value of Investment Securities | $15,824,295 | $311,371 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $82,419 | $74,330 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $12,568,814 | |||
Gross tax appreciation of investments | $3,691,488 | |||
Gross tax depreciation of investments | (124,636 | ) | ||
Net tax appreciation (depreciation) of investments | $3,566,852 | |||
Undistributed ordinary income | $72,036 | |||
Accumulated short-term capital losses | $(603,891 | ) |
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.
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.
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 | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||||||
2012 | $10.70 | 0.08 | 1.28 | 1.36 | (0.06 | ) | — | (0.06 | ) | $12.00 | 12.78 | % | 1.01 | % | 0.70 | % | 59 | % | $13,828 | ||||||||||||||||||
2011 | $10.17 | 0.06 | 0.53 | 0.59 | (0.06 | ) | — | (0.06 | ) | $10.70 | 5.76 | % | 1.00 | % | 0.54 | % | 91 | % | $14,335 | ||||||||||||||||||
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 | |||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||
2012 | $10.70 | 0.10 | 1.29 | 1.39 | (0.08 | ) | — | (0.08 | ) | $12.01 | 13.09 | % | 0.81 | % | 0.90 | % | 59 | % | $28 | ||||||||||||||||||
2011 | $10.17 | 0.08 | 0.53 | 0.61 | (0.08 | ) | — | (0.08 | ) | $10.70 | 5.98 | % | 0.80 | % | 0.74 | % | 91 | % | $25 | ||||||||||||||||||
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 | |||||||||||||||
A Class | |||||||||||||||||||||||||||||||||||||
2012 | $10.68 | 0.05 | 1.29 | 1.34 | (0.03 | ) | — | (0.03 | ) | $11.99 | 12.62 | % | 1.26 | % | 0.45 | % | 59 | % | $1,376 | ||||||||||||||||||
2011 | $10.15 | 0.04 | 0.52 | 0.56 | (0.03 | ) | — | (0.03 | ) | $10.68 | 5.51 | % | 1.25 | % | 0.29 | % | 91 | % | $1,040 | ||||||||||||||||||
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 |
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) | |||||||||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||
2012 | $10.52 | (0.03 | ) | 1.26 | 1.23 | — | — | — | $11.75 | 11.69 | % | 2.01 | % | (0.30 | )% | 59 | % | $311 | |||||||||||||||||||
2011 | $10.05 | (0.05 | ) | 0.52 | 0.47 | — | — | — | $10.52 | 4.68 | % | 2.00 | % | (0.46 | )% | 91 | % | $346 | |||||||||||||||||||
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 | |||||||||||||||
R Class | |||||||||||||||||||||||||||||||||||||
2012 | $10.65 | 0.02 | 1.29 | 1.31 | (0.01 | ) | — | (0.01 | ) | $11.95 | 12.29 | % | 1.51 | % | 0.20 | % | 59 | % | $558 | ||||||||||||||||||
2011 | $10.12 | 0.01 | 0.52 | 0.53 | — | (3) | — | — | (3) | $10.65 | 5.26 | % | 1.50 | % | 0.04 | % | 91 | % | $480 | ||||||||||||||||||
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 | %(4) | 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 |
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) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
23
The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Focused Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
24
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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.
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.
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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, 2012.
For corporate taxpayers, the fund hereby designates $82,419, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76899 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By David Hollond, Chief Investment Officer,
U.S. Growth Equity—Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | ANOIX | 9.06% | -1.20% | 9.48% | 6.51% | 6/1/01 |
Russell 2000 Growth Index | — | 9.70% | 1.41% | 9.66% | 4.18%(1) | — |
Institutional Class | ANONX | 9.23% | -1.02% | — | 1.48% | 5/18/07 |
A Class No sales charge* With sales charge* | ANOAX | 8.69% 2.49% | -1.45% -2.61% | — — | 9.46% 8.81% | 1/31/03 |
B Class No sales charge* With sales charge* | ANOBX | 8.03% 4.03% | -2.18% -2.39% | — — | 8.65% 8.65% | 1/31/03 |
C Class | ANOCX | 7.99% | -2.19% | — | 8.69%(2) | 1/31/03 |
R Class | ANORX | 8.49% | -1.72% | — | -0.85% | 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 to 0.00% after the sixth year. 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.
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, 2002 |
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | B Class | C Class | R Class |
1.41% | 1.21% | 1.66% | 2.41% | 2.41% | 1.91% |
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.
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 9.06%* for the 12 months ended October 31, 2012. By comparison, the Russell 2000 Growth Index (the fund’s benchmark) returned 9.70%.
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 tepid global economic recovery and continued sovereign debt concerns in Europe. In an environment dominated by macroeconomic risks, price momentum and acceleration, two factors that the Small Cap Growth team looks for in portfolio holdings, were not rewarded consistently. As a result, the portfolio delivered solid returns but underperformed its benchmark.
Relative to the benchmark, positioning among health care shares detracted most. Effective stock choices in the industrials and consumer discretionary sectors made the largest contributions to relative returns.
Health Care Positioning Detracted
Stock selection and an underweight position made health care shares the leading detractors for the fiscal year. The largest individual detractor in the sector was biopharmaceutical company Pharmacyclics, to which Small Cap Growth had some exposure, but less than the index. The company reported positive study data for an oncology drug. Positioning among health care providers and health care technology stocks also detracted from relative results.
Leading Individual Detractors
Premium mattress manufacturer Tempur-Pedic was the largest individual detractor in the portfolio. This stock had been a top contributor in prior quarters, but the company struggled in recent months after reporting weaker-than-expected results in April and then lowering future earnings expectations in June on slowing sales growth and price discounts due to increased competition.
Drought-like conditions in the U.S. meant crop yields plummeted, which led to associated declines in demand for agricultural equipment, grain storage, and packaging products, creating a difficult environment for a number of our portfolio companies. A notable detractor in the sector was Titan International, which manufactures tires for agricultural equipment. The company suffered from manufacturing difficulties that weighed further on results.
Internet software and services firms also detracted from relative results for the fiscal year. A good example is Vocus, which provides software and services for managing corporate public relations. The stock suffered after the company announced a dilutive acquisition outside of its core business.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Industrials, Consumer Discretionary Contributed
The industrials sector was the largest source of outperformance, largely attributable to positioning in the trading companies and distributors industry group. Here, the portfolio was rewarded for an overweight position in United Rentals. The company benefited from rising rental rates, a recovery in construction activity, and an accretive acquisition. Elsewhere in the sector, positioning in the commercial services and supplies group also helped returns versus the benchmark.
The consumer discretionary sector also generated significant gains for Small Cap Growth. The leading individual contributor in the sector was auto dealer Lithia Motors. Rising demand for new cars meant better-than-expected results for the company, which upped its future earnings guidance. Within the hotels, restaurants, and leisure industry group, a position in Cedar Fair benefited results. The amusement park operator drove up revenues through increased attendance at its parks as well as higher spending levels per visitor.
Apart from these sectors, a position in information technology company Kenexa added significantly to relative results, after the talent management software maker was acquired by IBM. Communication software firm Allot Communications was another source of strength. The company reported better-than-expected earnings and revenue growth, as well as good growth overseas and the firm’s first significant orders from U.S. wireless carriers.
Outlook
Our investment process focuses on smaller companies with accelerating growth rates in revenue and earnings, as well as share-price momentum. We believe that active investing in such companies will generate outperformance over time compared with the Russell 2000 Growth Index.
8
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Lithia Motors, Inc., Class A | 2.1% |
Polaris Industries, Inc. | 1.7% |
Triumph Group, Inc. | 1.6% |
United Rentals, Inc. | 1.3% |
M/I Homes, Inc. | 1.1% |
Beacon Roofing Supply, Inc. | 1.1% |
Titan International, Inc. | 1.0% |
Eagle Materials, Inc. | 1.0% |
OSI Systems, Inc. | 0.9% |
Blucora, Inc. | 0.9% |
Top Five Industries | % of net assets |
Specialty Retail | 6.3% |
Biotechnology | 5.4% |
Trading Companies and Distributors | 5.2% |
Oil, Gas and Consumable Fuels | 4.6% |
Health Care Equipment and Supplies | 4.5% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.4% |
Temporary Cash Investments | 3.0% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $973.40 | $7.09 | 1.43% |
Institutional Class | $1,000 | $973.70 | $6.10 | 1.23% |
A Class | $1,000 | $971.80 | $8.33 | 1.68% |
B Class | $1,000 | $968.20 | $12.02 | 2.43% |
C Class | $1,000 | $968.30 | $12.02 | 2.43% |
R Class | $1,000 | $969.40 | $9.55 | 1.93% |
Hypothetical | ||||
Investor Class | $1,000 | $1,017.95 | $7.25 | 1.43% |
Institutional Class | $1,000 | $1,018.95 | $6.24 | 1.23% |
A Class | $1,000 | $1,016.69 | $8.52 | 1.68% |
B Class | $1,000 | $1,012.92 | $12.30 | 2.43% |
C Class | $1,000 | $1,012.92 | $12.30 | 2.43% |
R Class | $1,000 | $1,015.43 | $9.78 | 1.93% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
11
Shares | Value | |||||||
Common Stocks — 97.4% | ||||||||
AEROSPACE AND DEFENSE — 1.6% | ||||||||
Triumph Group, Inc. | 85,359 | $5,584,186 | ||||||
AUTO COMPONENTS — 0.9% | ||||||||
American Axle & Manufacturing Holdings, Inc.(1) | 280,341 | 3,047,307 | ||||||
AUTOMOBILES — 0.9% | ||||||||
Thor Industries, Inc. | 39,795 | 1,513,404 | ||||||
Winnebago Industries, Inc.(1) | 131,131 | 1,652,250 | ||||||
3,165,654 | ||||||||
BIOTECHNOLOGY — 5.4% | ||||||||
Acorda Therapeutics, Inc.(1) | 31,216 | 747,623 | ||||||
Affymax, Inc.(1) | 27,428 | 625,084 | ||||||
Alkermes plc(1) | 78,979 | 1,463,481 | ||||||
Alnylam Pharmaceuticals, Inc.(1) | 35,122 | 567,923 | ||||||
Arena Pharmaceuticals, Inc.(1) | 133,588 | 1,056,681 | ||||||
Cepheid, Inc.(1) | 42,753 | 1,295,843 | ||||||
Cubist Pharmaceuticals, Inc.(1) | 41,804 | 1,793,392 | ||||||
Dendreon Corp.(1) | 120,693 | 458,633 | ||||||
Exact Sciences Corp.(1) | 48,599 | 459,747 | ||||||
Exelixis, Inc.(1) | 132,864 | 631,104 | ||||||
Genomic Health, Inc.(1) | 14,450 | 451,563 | ||||||
Halozyme Therapeutics, Inc.(1) | 72,059 | 381,192 | ||||||
ImmunoGen, Inc.(1) | 47,166 | 522,599 | ||||||
InterMune, Inc.(1) | 36,816 | 292,687 | ||||||
Ironwood Pharmaceuticals, Inc.(1) | 53,644 | 623,880 | ||||||
Isis Pharmaceuticals, Inc.(1) | 70,747 | 611,962 | ||||||
Neurocrine Biosciences, Inc.(1) | 59,949 | 439,426 | ||||||
NPS Pharmaceuticals, Inc.(1) | 50,450 | 466,158 | ||||||
Opko Health, Inc.(1) | 100,250 | 429,070 | ||||||
PDL BioPharma, Inc. | 89,399 | 666,023 | ||||||
Pharmacyclics, Inc.(1) | 34,690 | 2,118,518 | ||||||
Rigel Pharmaceuticals, Inc.(1) | 46,041 | 410,225 | ||||||
Seattle Genetics, Inc.(1) | 60,858 | 1,531,187 | ||||||
Theravance, Inc.(1) | 42,179 | 949,449 | ||||||
18,993,450 | ||||||||
BUILDING PRODUCTS — 2.5% | ||||||||
American Woodmark Corp.(1) | 31,561 | 725,903 | ||||||
Apogee Enterprises, Inc. | 110,548 | 2,251,863 | ||||||
Builders FirstSource, Inc.(1) | 516,696 | 2,846,995 | ||||||
Fortune Brands Home & Security, Inc.(1) | 68,415 | 1,945,722 | ||||||
Patrick Industries, Inc.(1) | 53,348 | 942,659 | ||||||
8,713,142 | ||||||||
CAPITAL MARKETS — 0.5% | ||||||||
Triangle Capital Corp. | 66,599 | 1,733,572 | ||||||
CHEMICALS — 0.9% | ||||||||
Flotek Industries, Inc.(1) | 76,681 | 851,926 | ||||||
H.B. Fuller Co. | 43,193 | 1,313,067 | ||||||
Rentech Nitrogen Partners LP | 30,011 | 1,152,723 | ||||||
3,317,716 | ||||||||
COMMERCIAL BANKS — 3.9% | ||||||||
Banco Latinoamericano de Comercio Exterior SA E Shares | 53,095 | 1,194,637 | ||||||
Bancorp, Inc.(1) | 47,821 | 543,725 | ||||||
Cathay General Bancorp. | 92,327 | 1,633,265 | ||||||
City National Corp. | 28,340 | 1,448,174 | ||||||
Home Bancshares, Inc. | 77,565 | 2,686,852 | ||||||
Pinnacle Financial Partners, Inc.(1) | 64,535 | 1,261,659 | ||||||
Signature Bank(1) | 18,850 | 1,342,874 | ||||||
Texas Capital Bancshares, Inc.(1) | 65,524 | 3,110,424 | ||||||
UMB Financial Corp. | 14,590 | 649,693 | ||||||
13,871,303 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.9% | ||||||||
Deluxe Corp. | 81,852 | 2,579,157 | ||||||
G&K Services, Inc., Class A | 60,320 | 1,945,320 | ||||||
HNI Corp. | 29,381 | 808,565 | ||||||
US Ecology, Inc. | 57,381 | 1,361,651 | ||||||
6,694,693 | ||||||||
COMMUNICATIONS EQUIPMENT — 2.3% | ||||||||
Aruba Networks, Inc.(1) | 69,906 | 1,270,192 | ||||||
InterDigital, Inc. | 30,352 | 1,156,108 | ||||||
Ixia(1) | 108,768 | 1,523,839 | ||||||
Netgear, Inc.(1) | 36,523 | 1,296,932 | ||||||
Procera Networks, Inc.(1) | 80,360 | 1,820,154 | ||||||
Sycamore Networks, Inc. | 71,544 | 413,524 | ||||||
Telular Corp. | 81,504 | 814,225 | ||||||
8,294,974 | ||||||||
COMPUTERS AND PERIPHERALS — 0.3% | ||||||||
Electronics for Imaging, Inc.(1) | 37,611 | 652,927 | ||||||
Synaptics, Inc.(1) | 10,849 | 251,263 | ||||||
904,190 |
12
Shares | Value | |||||||
CONSTRUCTION AND ENGINEERING — 0.6% | ||||||||
KBR, Inc. | 24,269 | $676,134 | ||||||
MasTec, Inc.(1) | 64,603 | 1,457,444 | ||||||
2,133,578 | ||||||||
CONSTRUCTION MATERIALS — 1.6% | ||||||||
Eagle Materials, Inc. | 64,481 | 3,415,559 | ||||||
Headwaters, Inc.(1) | 318,768 | 2,291,942 | ||||||
5,707,501 | ||||||||
CONTAINERS AND PACKAGING — 0.2% | ||||||||
Packaging Corp. of America | 21,890 | 772,060 | ||||||
DISTRIBUTORS — 0.5% | ||||||||
Pool Corp. | 43,944 | 1,850,921 | ||||||
DIVERSIFIED CONSUMER SERVICES — 0.6% | ||||||||
Grand Canyon Education, Inc.(1) | 61,317 | 1,334,258 | ||||||
Steiner Leisure, Ltd.(1) | 15,565 | 683,615 | ||||||
2,017,873 | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 0.2% | ||||||||
MarketAxess Holdings, Inc. | 27,052 | 845,104 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.7% | ||||||||
8x8, Inc.(1) | 192,003 | 1,257,620 | ||||||
Premiere Global Services, Inc.(1) | 131,368 | 1,116,628 | ||||||
2,374,248 | ||||||||
ELECTRICAL EQUIPMENT — 0.7% | ||||||||
Acuity Brands, Inc. | 18,937 | 1,225,224 | ||||||
Franklin Electric Co., Inc. | 22,022 | 1,275,955 | ||||||
2,501,179 | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.7% | ||||||||
Cognex Corp. | 47,803 | 1,742,897 | ||||||
IPG Photonics Corp.(1) | 13,175 | 699,329 | ||||||
Littelfuse, Inc. | 32,786 | 1,757,330 | ||||||
OSI Systems, Inc.(1) | 42,115 | 3,337,614 | ||||||
Power-One, Inc.(1) | 302,681 | 1,219,804 | ||||||
Universal Display Corp.(1) | 26,406 | 865,589 | ||||||
9,622,563 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.3% | ||||||||
Bristow Group, Inc. | 14,218 | 709,763 | ||||||
Dril-Quip, Inc.(1) | 35,386 | 2,450,834 | ||||||
Hornbeck Offshore Services, Inc.(1) | 74,704 | 2,587,747 | ||||||
McDermott International, Inc.(1) | 89,296 | 956,360 | ||||||
Mitcham Industries, Inc.(1) | 56,548 | 766,225 | ||||||
RigNet, Inc.(1) | 26,905 | 499,626 | ||||||
7,970,555 | ||||||||
FOOD AND STAPLES RETAILING — 0.8% | ||||||||
Andersons, Inc. (The) | 44,143 | 1,733,937 | ||||||
United Natural Foods, Inc.(1) | 21,605 | 1,150,250 | ||||||
2,884,187 | ||||||||
FOOD PRODUCTS — 0.3% | ||||||||
J&J Snack Foods Corp. | 16,687 | 955,665 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 4.5% | ||||||||
Abaxis, Inc.(1) | 16,794 | 617,683 | ||||||
Align Technology, Inc.(1) | 46,506 | 1,236,129 | ||||||
Analogic Corp. | 8,925 | 657,416 | ||||||
Arthrocare Corp.(1) | 17,958 | 540,177 | ||||||
Conceptus, Inc.(1) | 25,113 | 473,129 | ||||||
Cyberonics, Inc.(1) | 18,614 | 860,897 | ||||||
DexCom, Inc.(1) | 52,138 | 683,008 | ||||||
Haemonetics Corp.(1) | 17,100 | 1,397,070 | ||||||
HeartWare International, Inc.(1) | 10,253 | 861,047 | ||||||
ICU Medical, Inc.(1) | 9,479 | 562,389 | ||||||
Insulet Corp.(1) | 33,749 | 715,816 | ||||||
Integra LifeSciences Holdings Corp.(1) | 9,386 | 359,015 | ||||||
MAKO Surgical Corp.(1) | 31,083 | 470,907 | ||||||
Masimo Corp.(1) | 37,102 | 815,131 | ||||||
Meridian Bioscience, Inc. | 31,832 | 628,682 | ||||||
Neogen Corp.(1) | 17,976 | 769,193 | ||||||
NxStage Medical, Inc.(1) | 38,830 | 434,896 | ||||||
OraSure Technologies, Inc.(1) | 45,328 | 410,672 | ||||||
Orthofix International NV(1) | 12,080 | 479,093 | ||||||
STERIS Corp. | 29,926 | 1,065,665 | ||||||
Volcano Corp.(1) | 37,066 | 1,060,829 | ||||||
West Pharmaceutical Services, Inc. | 15,585 | 839,564 | ||||||
15,938,408 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.6% | ||||||||
Accretive Health, Inc.(1) | 43,632 | 514,421 | ||||||
Air Methods Corp.(1) | 8,995 | 986,122 | ||||||
Bio-Reference Labs, Inc.(1) | 19,192 | 532,770 | ||||||
Centene Corp.(1) | 34,320 | 1,303,474 | ||||||
Chemed Corp. | 13,513 | 908,749 | ||||||
Emeritus Corp.(1) | 24,908 | 559,185 | ||||||
HealthSouth Corp.(1) | 54,901 | 1,214,959 | ||||||
HMS Holdings Corp.(1) | 57,928 | 1,337,557 | ||||||
IPC The Hospitalist Co., Inc.(1) | 13,147 | 453,440 | ||||||
Landauer, Inc. | 8,164 | 473,104 | ||||||
MWI Veterinary Supply, Inc.(1) | 8,802 | 924,386 |
13
Shares | Value |
Owens & Minor, Inc. | 37,613 | $1,070,842 | ||||||
PSS World Medical, Inc.(1) | 36,155 | 1,034,756 | ||||||
Team Health Holdings, Inc.(1) | 21,624 | 575,415 | ||||||
WellCare Health Plans, Inc.(1) | 14,319 | 681,584 | ||||||
12,570,764 | ||||||||
HEALTH CARE TECHNOLOGY — 0.8% | ||||||||
athenahealth, Inc.(1) | 23,134 | 1,487,285 | ||||||
Computer Programs & Systems, Inc. | 9,320 | 454,909 | ||||||
HealthStream, Inc.(1) | 16,357 | 417,758 | ||||||
Quality Systems, Inc. | 31,095 | 542,608 | ||||||
2,902,560 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 2.5% | ||||||||
AFC Enterprises, Inc.(1) | 65,478 | 1,657,903 | ||||||
Bally Technologies, Inc.(1) | 14,993 | 748,451 | ||||||
Cedar Fair LP | 85,645 | 3,070,373 | ||||||
Papa John’s International, Inc.(1) | 40,772 | 2,173,963 | ||||||
Six Flags Entertainment Corp. | 18,225 | 1,040,830 | ||||||
8,691,520 | ||||||||
HOUSEHOLD DURABLES — 2.8% | ||||||||
M.D.C. Holdings, Inc. | 72,772 | 2,782,801 | ||||||
M/I Homes, Inc.(1) | 172,457 | 3,837,168 | ||||||
Standard Pacific Corp.(1) | 454,094 | 3,133,249 | ||||||
9,753,218 | ||||||||
INDUSTRIAL CONGLOMERATES — 1.0% | ||||||||
Raven Industries, Inc. | 97,459 | 2,659,656 | ||||||
Standex International Corp. | 22,289 | 1,030,643 | ||||||
3,690,299 | ||||||||
INSURANCE — 0.2% | ||||||||
Amtrust Financial Services, Inc. | 26,067 | 630,821 | ||||||
INTERNET AND CATALOG RETAIL — 0.5% | ||||||||
HSN, Inc. | 35,646 | 1,854,305 | ||||||
INTERNET SOFTWARE AND SERVICES — 4.1% | ||||||||
Blucora, Inc.(1) | 182,498 | 3,202,840 | ||||||
CoStar Group, Inc.(1) | 27,094 | 2,246,093 | ||||||
Liquidity Services, Inc.(1) | 16,427 | 677,285 | ||||||
Market Leader, Inc.(1) | 105,484 | 717,291 | ||||||
NIC, Inc. | 51,812 | 740,912 | ||||||
Perficient, Inc.(1) | 86,417 | 982,561 | ||||||
Rackspace Hosting, Inc.(1) | 27,037 | 1,721,987 | ||||||
SPS Commerce, Inc.(1) | 11,162 | 404,622 | ||||||
Stamps.com, Inc.(1) | 19,897 | 547,565 | ||||||
ValueClick, Inc.(1) | 80,911 | 1,348,786 | ||||||
Web.com Group, Inc.(1) | 114,601 | 1,808,404 | ||||||
14,398,346 | ||||||||
IT SERVICES — 2.3% | ||||||||
Cardtronics, Inc.(1) | 34,556 | 981,736 | ||||||
Computer Task Group, Inc.(1) | 42,276 | 788,447 | ||||||
FleetCor Technologies, Inc.(1) | 27,955 | 1,325,347 | ||||||
Heartland Payment Systems, Inc. | 111,759 | 2,914,675 | ||||||
MAXIMUS, Inc. | 24,972 | 1,377,955 | ||||||
WEX, Inc.(1) | 11,289 | 832,902 | ||||||
8,221,062 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 2.5% | ||||||||
Polaris Industries, Inc. | 70,772 | 5,980,234 | ||||||
Smith & Wesson Holding Corp.(1) | 191,279 | 1,836,278 | ||||||
Sturm Ruger & Co., Inc. | 23,330 | 1,101,876 | ||||||
8,918,388 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.6% | ||||||||
Luminex Corp.(1) | 32,786 | 527,199 | ||||||
PAREXEL International Corp.(1) | 40,493 | 1,242,730 | ||||||
Sequenom, Inc.(1) | 86,784 | 269,898 | ||||||
2,039,827 | ||||||||
MACHINERY — 3.5% | ||||||||
CLARCOR, Inc. | 17,628 | 797,491 | ||||||
Lindsay Corp. | 39,247 | 2,997,293 | ||||||
Middleby Corp.(1) | 19,171 | 2,395,417 | ||||||
NN, Inc.(1) | 109,722 | 908,498 | ||||||
Sauer-Danfoss, Inc. | 22,248 | 891,255 | ||||||
Titan International, Inc. | 175,813 | 3,688,557 | ||||||
Trinity Industries, Inc. | 27,397 | 856,978 | ||||||
12,535,489 | ||||||||
MEDIA — 0.7% | ||||||||
ReachLocal, Inc.(1) | 52,491 | 647,739 | ||||||
Regal Entertainment Group Class A | 116,090 | 1,783,142 | ||||||
2,430,881 | ||||||||
MULTILINE RETAIL — 0.3% | ||||||||
Dillard’s, Inc., Class A | 14,651 | 1,128,127 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 4.6% | ||||||||
Berry Petroleum Co., Class A | 12,232 | 471,054 | ||||||
Callon Petroleum Co.(1) | 120,753 | 690,707 | ||||||
Gulfport Energy Corp.(1) | 93,308 | 3,095,959 | ||||||
Kodiak Oil & Gas Corp.(1) | 197,287 | 1,822,932 | ||||||
Rosetta Resources, Inc.(1) | 64,065 | 2,949,553 |
14
Shares | Value |
Stone Energy Corp.(1) | 58,121 | $1,371,074 | ||||||
Tesoro Logistics LP | 17,169 | 758,698 | ||||||
Vaalco Energy, Inc.(1) | 123,280 | 1,007,198 | ||||||
W&T Offshore, Inc. | 52,765 | 894,367 | ||||||
Western Refining, Inc. | 124,479 | 3,095,793 | ||||||
16,157,335 | ||||||||
PAPER AND FOREST PRODUCTS — 1.2% | ||||||||
Buckeye Technologies, Inc. | 11,933 | 312,645 | ||||||
KapStone Paper and Packaging Corp.(1) | 129,684 | 2,849,157 | ||||||
Neenah Paper, Inc. | 46,542 | 1,205,438 | ||||||
4,367,240 | ||||||||
PHARMACEUTICALS — 2.5% | ||||||||
Auxilium Pharmaceuticals, Inc.(1) | 35,599 | 729,068 | ||||||
Impax Laboratories, Inc.(1) | 48,165 | 1,023,506 | ||||||
Jazz Pharmaceuticals plc(1) | 27,834 | 1,495,521 | ||||||
Medicines Co. (The)(1) | 38,230 | 838,002 | ||||||
Medicis Pharmaceutical Corp., Class A | 37,205 | 1,615,069 | ||||||
Nektar Therapeutics(1) | 64,739 | 582,651 | ||||||
Optimer Pharmaceuticals, Inc.(1) | 43,571 | 415,667 | ||||||
Questcor Pharmaceuticals, Inc. | 38,613 | 983,859 | ||||||
VIVUS, Inc.(1) | 67,405 | 1,004,334 | ||||||
8,687,677 | ||||||||
PROFESSIONAL SERVICES — 1.2% | ||||||||
Barrett Business Services, Inc. | 35,513 | 1,059,353 | ||||||
Exponent, Inc.(1) | 20,318 | 1,117,084 | ||||||
On Assignment, Inc.(1) | 110,464 | 2,107,653 | ||||||
4,284,090 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 3.1% | ||||||||
Brandywine Realty Trust | 75,466 | 875,406 | ||||||
CBL & Associates Properties, Inc. | 69,442 | 1,553,418 | ||||||
Cedar Realty Trust, Inc. | 110,650 | 585,338 | ||||||
EastGroup Properties, Inc. | 11,734 | 610,872 | ||||||
Mid-America Apartment Communities, Inc. | 13,705 | 886,851 | ||||||
National Retail Properties, Inc. | 41,753 | 1,322,735 | ||||||
Omega Healthcare Investors, Inc. | 35,945 | 824,578 | ||||||
PennyMac Mortgage Investment Trust | 46,769 | 1,189,803 | ||||||
Sovran Self Storage, Inc. | 33,205 | 1,919,249 | ||||||
Sun Communities, Inc. | 31,175 | 1,308,726 | ||||||
11,076,976 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.6% | ||||||||
Cirrus Logic, Inc.(1) | 70,331 | 2,866,692 | ||||||
MaxLinear, Inc. Class A(1) | 88,054 | 500,147 | ||||||
Photronics, Inc.(1) | 179,068 | 875,643 | ||||||
Rudolph Technologies, Inc.(1) | 64,451 | 612,929 | ||||||
Semtech Corp.(1) | 47,961 | 1,197,586 | ||||||
Silicon Image, Inc.(1) | 133,831 | 588,856 | ||||||
Silicon Motion Technology Corp. ADR(1) | 48,730 | 667,114 | ||||||
Skyworks Solutions, Inc.(1) | 96,236 | 2,251,922 | ||||||
Spansion, Inc., Class A(1) | 56,128 | 622,460 | ||||||
Ultratech, Inc.(1) | 83,661 | 2,585,961 | ||||||
12,769,310 | ||||||||
SOFTWARE — 4.4% | ||||||||
Actuate Corp.(1) | 91,537 | 487,892 | ||||||
Allot Communications Ltd.(1) | 92,274 | 2,155,521 | ||||||
Aspen Technology, Inc.(1) | 59,855 | 1,483,207 | ||||||
Bottomline Technologies, Inc.(1) | 29,338 | 686,509 | ||||||
BroadSoft, Inc.(1) | 32,085 | 1,226,289 | ||||||
Fortinet, Inc.(1) | 16,297 | 315,673 | ||||||
Guidance Software, Inc.(1) | 97,137 | 1,183,129 | ||||||
NetScout Systems, Inc.(1) | 74,498 | 1,842,335 | ||||||
PROS Holdings, Inc.(1) | 47,117 | 910,772 | ||||||
SolarWinds, Inc.(1) | 27,323 | 1,382,271 | ||||||
Synchronoss Technologies, Inc.(1) | 38,948 | 798,044 | ||||||
TIBCO Software, Inc.(1) | 36,399 | 917,619 | ||||||
Ultimate Software Group, Inc.(1) | 21,129 | 2,141,635 | ||||||
15,530,896 | ||||||||
SPECIALTY RETAIL — 6.3% | ||||||||
Aaron’s, Inc. | 37,162 | 1,145,705 | ||||||
America’s Car-Mart, Inc.(1) | 19,287 | 807,354 | ||||||
ANN, Inc.(1) | 30,109 | 1,058,632 | ||||||
Ascena Retail Group, Inc.(1) | 64,303 | 1,273,199 | ||||||
Cabela’s, Inc.(1) | 31,428 | 1,408,289 | ||||||
Francesca’s Holdings Corp.(1) | 46,078 | 1,360,683 | ||||||
Genesco, Inc.(1) | 23,627 | 1,353,827 | ||||||
GNC Holdings, Inc. Class A | 13,715 | 530,359 | ||||||
Group 1 Automotive, Inc. | 13,161 | 816,114 | ||||||
Lithia Motors, Inc., Class A | 212,031 | 7,251,460 | ||||||
Penske Automotive Group, Inc. | 35,814 | 1,095,908 | ||||||
Select Comfort Corp.(1) | 38,108 | 1,060,546 |
15
Shares | Value |
Tractor Supply Co. | 24,197 | $2,328,719 | ||||||
Zale Corp.(1) | 129,860 | 932,395 | ||||||
22,423,190 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 2.7% | ||||||||
Carter’s, Inc.(1) | 28,707 | 1,551,900 | ||||||
G-III Apparel Group Ltd.(1) | 55,424 | 2,048,471 | ||||||
Iconix Brand Group, Inc.(1) | 86,356 | 1,598,450 | ||||||
Movado Group, Inc. | 59,522 | 1,886,252 | ||||||
Oxford Industries, Inc. | 37,309 | 2,069,903 | ||||||
Wolverine World Wide, Inc. | 13,004 | 544,478 | ||||||
9,699,454 | ||||||||
THRIFTS AND MORTGAGE FINANCE — 0.4% | ||||||||
Berkshire Hills Bancorp, Inc. | 23,051 | 541,237 | ||||||
Rockville Financial, Inc. | 53,279 | 708,078 | ||||||
1,249,315 | ||||||||
TRADING COMPANIES AND DISTRIBUTORS — 5.2% | ||||||||
Applied Industrial Technologies, Inc. | 27,337 | 1,109,609 | ||||||
Beacon Roofing Supply, Inc.(1) | 116,776 | 3,776,536 | ||||||
DXP Enterprises, Inc.(1) | 44,607 | 2,196,003 | ||||||
H&E Equipment Services, Inc. | 94,429 | 1,437,209 | ||||||
SeaCube Container Leasing Ltd. | 68,447 | 1,267,638 | ||||||
TAL International Group, Inc. | 12,363 | 422,073 | ||||||
Titan Machinery, Inc.(1) | 93,323 | 2,207,089 | ||||||
United Rentals, Inc.(1) | 109,646 | 4,458,206 | ||||||
Watsco, Inc. | 19,589 | 1,338,908 | ||||||
18,213,271 | ||||||||
TOTAL COMMON STOCKS (Cost $270,882,356) | 344,118,390 | |||||||
Temporary Cash Investments — 3.0% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $4,420,101), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $4,331,033) | $4,331,005 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $4,430,377), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $4,331,029) | 4,331,005 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $1,839,779), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $1,804,016) | 1,804,008 | |||||||
SSgA U.S. Government Money Market Fund | 3,867 | 3,867 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $10,469,885) | 10,469,885 | |||||||
TOTAL INVESTMENT SECURITIES — 100.4% (Cost $281,352,241) | 354,588,275 | |||||||
OTHER ASSETS AND LIABILITIES — (0.4)% | (1,326,344 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $353,261,931 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) | Non-income producing. |
See Notes to Financial Statements.
16
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $281,352,241) | $354,588,275 | |||
Receivable for investments sold | 1,804,742 | |||
Receivable for capital shares sold | 175,501 | |||
Dividends and interest receivable | 98,700 | |||
356,667,218 | ||||
Liabilities | ||||
Payable for investments purchased | 1,757,897 | |||
Payable for capital shares redeemed | 1,196,402 | |||
Accrued management fees | 417,626 | |||
Distribution and service fees payable | 33,362 | |||
3,405,287 | ||||
Net Assets | $353,261,931 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $524,564,580 | |||
Accumulated net investment loss | (695,973 | ) | ||
Accumulated net realized loss | (243,842,710 | ) | ||
Net unrealized appreciation | 73,236,034 | |||
$353,261,931 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $144,021,388 | 16,388,063 | $8.79 |
Institutional Class, $0.01 Par Value | $96,091,969 | 10,818,062 | $8.88 |
A Class, $0.01 Par Value | $98,665,324 | 11,430,572 | $8.63* |
B Class, $0.01 Par Value | $1,622,745 | 197,688 | $8.21 |
C Class, $0.01 Par Value | $11,290,705 | 1,370,324 | $8.24 |
R Class, $0.01 Par Value | $1,569,800 | 183,285 | $8.56 |
*Maximum offering price $9.16 (net asset value divided by 0.9425).
See Notes to Financial Statements.
17
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $5,104) | $4,931,502 | |||
Interest | 4,260 | |||
4,935,762 | ||||
Expenses: | ||||
Management fees | 5,165,658 | |||
Distribution and service fees: | ||||
A Class | 269,889 | |||
B Class | 19,296 | |||
C Class | 121,510 | |||
R Class | 6,544 | |||
Directors’ fees and expenses | 19,156 | |||
Other expenses | 208 | |||
5,602,261 | ||||
Net investment income (loss) | (666,499 | ) | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on investment transactions | 31,132,021 | |||
Change in net unrealized appreciation (depreciation) on investments | 2,658,560 | |||
Net realized and unrealized gain (loss) | 33,790,581 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $33,124,082 |
See Notes to Financial Statements.
18
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $(666,499 | ) | $(3,984,277 | ) | ||||
Net realized gain (loss) | 31,132,021 | 51,226,321 | ||||||
Change in net unrealized appreciation (depreciation) | 2,658,560 | (15,851,118 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 33,124,082 | 31,390,926 | ||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (83,545,081 | ) | (29,540,806 | ) | ||||
Redemption Fees | ||||||||
Increase in net assets from redemption fees | 24,643 | 157,637 | ||||||
Net increase (decrease) in net assets | (50,396,356 | ) | 2,007,757 | |||||
Net Assets | ||||||||
Beginning of period | 403,658,287 | 401,650,530 | ||||||
End of period | $353,261,931 | $403,658,287 | ||||||
Accumulated net investment loss | $(695,973 | ) | $(334,719 | ) |
See Notes to Financial Statements.
19
OCTOBER 31, 2012
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 stocks of small cap companies that management believes will increase in value over time.
The fund offers 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
20
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.
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 2009. 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.
21
Redemption — The fund may impose a 2.00% redemption fee on shares held less than 60 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Prior to November 14, 2011, the redemption fee applied to shares held less than 180 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 1.10% 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, 2012 was 1.42% for the Investor Class, A Class, B Class, C Class and R Class and 1.22% 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $233,409,778 and $323,252,233, respectively.
22
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 165,000,000 | 165,000,000 | ||||||||||||||
Sold | 2,453,283 | $21,315,951 | 8,803,517 | $75,368,241 | ||||||||||||
Redeemed | (6,694,205 | ) | (56,972,418 | ) | (7,346,365 | ) | (61,075,419 | ) | ||||||||
(4,240,922 | ) | (35,656,467 | ) | 1,457,152 | 14,292,822 | |||||||||||
Institutional Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||||||
Sold | 1,541,330 | 13,151,985 | 2,202,843 | 18,437,124 | ||||||||||||
Redeemed | (3,700,610 | ) | (31,789,664 | ) | (4,492,812 | ) | (37,796,193 | ) | ||||||||
(2,159,280 | ) | (18,637,679 | ) | (2,289,969 | ) | (19,359,069 | ) | |||||||||
A Class/Shares Authorized | 110,000,000 | 110,000,000 | ||||||||||||||
Sold | 959,987 | 8,050,146 | 2,317,591 | 19,344,137 | ||||||||||||
Redeemed | (4,114,005 | ) | (34,423,505 | ) | (4,972,627 | ) | (41,162,124 | ) | ||||||||
(3,154,018 | ) | (26,373,359 | ) | (2,655,036 | ) | (21,817,987 | ) | |||||||||
B Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
Sold | 2,663 | 22,559 | 11,789 | 88,253 | ||||||||||||
Redeemed | (93,983 | ) | (748,733 | ) | (160,539 | ) | (1,294,643 | ) | ||||||||
(91,320 | ) | (726,174 | ) | (148,750 | ) | (1,206,390 | ) | |||||||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
Sold | 140,410 | 1,130,008 | 496,741 | 4,074,090 | ||||||||||||
Redeemed | (432,945 | ) | (3,478,706 | ) | (725,256 | ) | (5,727,473 | ) | ||||||||
(292,535 | ) | (2,348,698 | ) | (228,515 | ) | (1,653,383 | ) | |||||||||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
Sold | 90,711 | 749,242 | 79,880 | 673,191 | ||||||||||||
Redeemed | (67,748 | ) | (551,946 | ) | (55,683 | ) | (469,990 | ) | ||||||||
22,963 | 197,296 | 24,197 | 203,201 | |||||||||||||
Net increase (decrease) | (9,915,112 | ) | $(83,545,081 | ) | (3,840,921 | ) | $(29,540,806 | ) |
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 | $344,118,390 | — | — | |||||||||
Temporary Cash Investments | 3,867 | $10,466,018 | — | |||||||||
Total Value of Investment Securities | $344,122,257 | $10,466,018 | — |
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.
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, 2012 and October 31, 2011.
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $283,478,312 | |||
Gross tax appreciation of investments | $80,491,656 | |||
Gross tax depreciation of investments | (9,381,693 | ) | ||
Net tax appreciation (depreciation) of investments | $71,109,963 | |||
Undistributed ordinary income | — | |||
Accumulated short-term capital losses | $(242,009,573 | ) | ||
Late-year ordinary loss deferral | $(403,039 | ) |
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.
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 | 2016 | 2017 |
$(4,467,024) | $(125,173,360) | $(112,369,189) |
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
24
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 Realized Gains | 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(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||
2012 | $8.06 | (0.01 | ) | 0.74 | 0.73 | — | $8.79 | 9.06 | % | 1.42 | % | (0.12 | )% | 62 | % | $144,021 | |||||||||||||||
2011 | $7.45 | (0.07 | ) | 0.68 | 0.61 | — | $8.06 | 8.19 | % | 1.40 | % | (0.84 | )% | 108 | % | $166,243 | |||||||||||||||
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 | ||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||
2012 | $8.13 | 0.01 | 0.74 | 0.75 | — | $8.88 | 9.23 | % | 1.22 | % | 0.08 | % | 62 | % | $96,092 | ||||||||||||||||
2011 | $7.50 | (0.05 | ) | 0.68 | 0.63 | — | $8.13 | 8.40 | % | 1.20 | % | (0.64 | )% | 108 | % | $105,520 | |||||||||||||||
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 | ||||||||||||
A Class | |||||||||||||||||||||||||||||||
2012 | $7.94 | (0.03 | ) | 0.72 | 0.69 | — | $8.63 | 8.69 | % | 1.67 | % | (0.37 | )% | 62 | % | $98,665 | |||||||||||||||
2011 | $7.35 | (0.09 | ) | 0.68 | 0.59 | — | $7.94 | 8.03 | % | 1.65 | % | (1.09 | )% | 108 | % | $115,741 | |||||||||||||||
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 |
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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 Realized Gains | 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(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||
B Class | |||||||||||||||||||||||||||||||
2012 | $7.60 | (0.09 | ) | 0.70 | 0.61 | — | $8.21 | 8.03 | % | 2.42 | % | (1.12 | )% | 62 | % | $1,623 | |||||||||||||||
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 | ||||||||||||
C Class | |||||||||||||||||||||||||||||||
2012 | $7.63 | (0.09 | ) | 0.70 | 0.61 | — | $8.24 | 7.99 | % | 2.42 | % | (1.12 | )% | 62 | % | $11,291 | |||||||||||||||
2011 | $7.13 | (0.15 | ) | 0.65 | 0.50 | — | $7.63 | 7.01 | % | 2.40 | % | (1.84 | )% | 108 | % | $12,691 | |||||||||||||||
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 | ||||||||||||
R Class | |||||||||||||||||||||||||||||||
2012 | $7.89 | (0.04 | ) | 0.71 | 0.67 | — | $8.56 | 8.49 | % | 1.92 | % | (0.62 | )% | 62 | % | $1,570 | |||||||||||||||
2011 | $7.33 | (0.11 | ) | 0.67 | 0.56 | — | $7.89 | 7.64 | % | 1.90 | % | (1.34 | )% | 108 | % | $1,266 | |||||||||||||||
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 |
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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) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
See Notes to Financial Statements.
27
The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Small Cap Growth Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
28
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
29
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | None |
30
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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:
32
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
33
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.
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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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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76906 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal 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 produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCUX | 9.65% | 0.56% | 5.44% | 10.93% | 11/2/81 |
Russell 1000 Growth Index | — | 13.02% | 1.95% | 7.15% | 10.08%(1) | — |
S&P 500 Index | — | 15.21% | 0.36% | 6.91% | 11.14%(1) | — |
Institutional Class | TWUIX | 9.90% | 0.76% | 5.65% | 4.89% | 11/14/96 |
A Class(2) No sales charge* With sales charge* | TWUAX | 9.41% 3.11% | 0.31% -0.87% | 5.18% 4.56% | 4.66% 4.28% | 10/2/96 |
C Class | TWCCX | 8.61% | -0.44% | 4.41% | 2.43% | 10/29/01 |
R Class | AULRX | 9.12% | 0.05% | — | 3.91% | 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.
5
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
0.99% | 0.79% | 1.24% | 1.99% | 1.49% |
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
Performance Summary
Ultra returned 9.65%* for the 12 months ended October 31, 2012, compared with the 13.02% return of its benchmark, the Russell 1000 Growth Index, and the 15.21% 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 tepid global economic recovery and continued sovereign debt concerns in Europe. Despite this challenging environment, Ultra delivered solid results for the period.
Within the portfolio, security selection in the consumer discretionary, industrials, and financials sectors accounted for the bulk of Ultra’s underperformance relative to the benchmark. Stock selection in the health care, information technology, and consumer staples sectors added to relative returns.
Consumer Discretionary, Industrials, Financials Detracted
The consumer discretionary sector was the largest source of underperformance versus the benchmark. In the specialty retail group, an overweight position in jewelry retailer Tiffany underperformed following reports of slowing growth. Also in the consumer discretionary sector, the portfolio held an underweight allocation to the media industry, a decision that hurt relative results. As optimism grew about the economic environment, advertising spending grew, helping companies in the industry group.
In the internet and catalog retail industry group, a position in Netflix hurt relative performance. The company reported a loss in the first quarter of 2012 due to higher costs of entering foreign markets and lower-than-expected subscriber growth forecasted for the future. The position was eliminated.
The industrials sector was a source of underperformance relative to the benchmark, due largely to positioning in the machinery industry. An overweight stake in underground mining equipment company Joy Global detracted from absolute and relative results amid declining demand for mining equipment from coal mines in the U.S. Elsewhere in the industrials sector, the portfolio held several underperforming positions in the electrical equipment industry.
In the financials sector, the portfolio avoided the real estate investment trust (REIT) industry. This allocation decision hurt relative results, as REITs as a group delivered solid gains within the benchmark.
Apart from those sectors, an overweight position in information technology company Electronic Arts detracted from relative returns. The video game maker underperformed due to concerns that competitors such as Zynga (and its ties to Facebook) would hurt Electronic Arts’ future growth opportunities.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Health Care, Information Technology, Consumer Staples Helped
In the health care sector, Ultra was rewarded for its overweight position in Gilead Sciences. The company made progress on its development of therapies for Hepatitis C. Several positions among health care providers also benefited returns relative to the benchmark, including pharmacy benefits manager Express Scripts. The company performed well following its acquisition of Medco Health Solutions due largely to the scale advantage over competitors that the merger created.
The information technology sector was a key source of relative outperformance. Here, an overweight position in Apple added significantly to results, as the company unveiled its much-anticipated iPhone 5 in September, selling more than five million units in its debut weekend. Apple also won a patent lawsuit against Samsung, their major rival in the smart phone market. Also in the sector, the portfolio benefited from positioning in the IT services group.
The consumer staples sector added to absolute and relative results. Here, the portfolio benefited from positioning in the beverages group. Holdings in the personal products group also contributed.
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, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 10.2% |
Google, Inc., Class A | 4.7% |
Gilead Sciences, Inc. | 3.0% |
Philip Morris International, Inc. | 2.9% |
Amazon.com, Inc. | 2.6% |
Express Scripts Holding Co. | 2.6% |
QUALCOMM, Inc. | 2.4% |
Costco Wholesale Corp. | 2.3% |
Monsanto Co. | 2.1% |
Schlumberger Ltd. | 2.1% |
Top Five Industries | % of net assets |
Computers and Peripherals | 11.7% |
Internet Software and Services | 8.0% |
Machinery | 5.8% |
Biotechnology | 5.0% |
Software | 4.8% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 92.9% |
Foreign Common Stocks* | 5.7% |
Total Common Stocks | 98.6% |
Temporary Cash Investments | 1.5% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $977.50 | $4.92 | 0.99% |
Institutional Class | $1,000 | $978.80 | $3.93 | 0.79% |
A Class | $1,000 | $976.50 | $6.16 | 1.24% |
C Class | $1,000 | $973.10 | $9.87 | 1.99% |
R Class | $1,000 | $975.10 | $7.40 | 1.49% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.03 | 0.99% |
Institutional Class | $1,000 | $1,021.17 | $4.01 | 0.79% |
A Class | $1,000 | $1,018.90 | $6.29 | 1.24% |
C Class | $1,000 | $1,015.13 | $10.08 | 1.99% |
R Class | $1,000 | $1,017.65 | $7.56 | 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 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 98.6% | ||||||||
AEROSPACE AND DEFENSE — 1.2% | ||||||||
General Dynamics Corp. | 1,118,000 | $76,113,440 | ||||||
AUTO COMPONENTS — 0.4% | ||||||||
BorgWarner, Inc.(1) | 345,000 | 22,707,900 | ||||||
BEVERAGES — 1.4% | ||||||||
Coca-Cola Co. (The) | 2,430,000 | 90,347,400 | ||||||
BIOTECHNOLOGY — 5.0% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 544,000 | 49,166,720 | ||||||
Celgene Corp.(1) | 1,019,000 | 74,713,080 | ||||||
Gilead Sciences, Inc.(1) | 2,827,056 | 189,865,081 | ||||||
313,744,881 | ||||||||
CAPITAL MARKETS — 0.7% | ||||||||
T. Rowe Price Group, Inc. | 710,000 | 46,107,400 | ||||||
CHEMICALS — 4.2% | ||||||||
Ecolab, Inc. | 1,034,167 | 71,978,023 | ||||||
Monsanto Co. | 1,550,000 | 133,408,500 | ||||||
Potash Corp. of Saskatchewan, Inc. | 1,411,000 | 56,962,070 | ||||||
262,348,593 | ||||||||
COMMUNICATIONS EQUIPMENT — 2.4% | ||||||||
Palo Alto Networks, Inc.(1) | 19,106 | 1,050,448 | ||||||
QUALCOMM, Inc. | 2,538,000 | 148,663,350 | ||||||
149,713,798 | ||||||||
COMPUTERS AND PERIPHERALS — 11.7% | ||||||||
Apple, Inc. | 1,085,000 | 645,683,500 | ||||||
EMC Corp.(1) | 3,843,000 | 93,846,060 | ||||||
739,529,560 | ||||||||
CONSUMER FINANCE — 0.8% | ||||||||
American Express Co. | 910,000 | 50,932,700 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 1.4% | ||||||||
CME Group, Inc. | 586,000 | 32,774,980 | ||||||
JPMorgan Chase & Co. | 1,282,000 | 53,433,760 | ||||||
86,208,740 | ||||||||
ELECTRICAL EQUIPMENT — 2.9% | ||||||||
Cooper Industries plc | 1,182,000 | 88,579,080 | ||||||
Emerson Electric Co. | 1,957,000 | 94,777,510 | ||||||
183,356,590 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.6% | ||||||||
Core Laboratories NV | 315,000 | 32,652,900 | ||||||
Schlumberger Ltd. | 1,911,000 | 132,871,830 | ||||||
165,524,730 | ||||||||
FOOD AND STAPLES RETAILING — 4.3% | ||||||||
Costco Wholesale Corp. | 1,446,000 | 142,329,780 | ||||||
Wal-Mart Stores, Inc. | 1,234,000 | 92,574,680 | ||||||
Whole Foods Market, Inc. | 407,000 | 38,555,110 | ||||||
273,459,570 | ||||||||
FOOD PRODUCTS — 2.9% | ||||||||
Hershey Co. (The) | 864,000 | 59,486,400 | ||||||
Mead Johnson Nutrition Co. | 731,000 | 45,073,460 | ||||||
Nestle SA | 1,207,000 | 76,595,834 | ||||||
181,155,694 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 3.8% | ||||||||
HeartWare International, Inc.(1) | 137,000 | 11,505,260 | ||||||
Intuitive Surgical, Inc.(1) | 233,000 | 126,337,260 | ||||||
St. Jude Medical, Inc. | 1,466,000 | 56,089,160 | ||||||
Varian Medical Systems, Inc.(1) | 684,000 | 45,663,840 | ||||||
239,595,520 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 4.2% | ||||||||
Express Scripts Holding Co.(1) | 2,643,000 | 162,650,220 | ||||||
UnitedHealth Group, Inc. | 1,849,000 | 103,544,000 | ||||||
266,194,220 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 3.4% | ||||||||
McDonald’s Corp. | 1,110,000 | 96,348,000 | ||||||
Starbucks Corp. | 2,549,000 | 116,999,100 | ||||||
213,347,100 | ||||||||
HOUSEHOLD PRODUCTS — 1.6% | ||||||||
Colgate-Palmolive Co. | 966,000 | 101,391,360 | ||||||
INSURANCE — 1.1% | ||||||||
MetLife, Inc. | 2,047,000 | 72,648,030 | ||||||
INTERNET AND CATALOG RETAIL — 2.6% | ||||||||
Amazon.com, Inc.(1) | 709,000 | 165,069,380 | ||||||
INTERNET SOFTWARE AND SERVICES — 8.0% | ||||||||
Baidu, Inc. ADR(1) | 505,000 | 53,843,100 | ||||||
Facebook, Inc. Class A(1) | 1,403,000 | 29,624,345 | ||||||
Google, Inc., Class A(1) | 438,000 | 297,739,260 | ||||||
LinkedIn Corp., Class A(1) | 612,000 | 65,441,160 | ||||||
Tencent Holdings Ltd. | 1,612,000 | 56,991,632 | ||||||
503,639,497 | ||||||||
IT SERVICES — 2.7% | ||||||||
MasterCard, Inc., Class A | 262,000 | 120,763,660 | ||||||
Teradata Corp.(1) | 748,000 | 51,095,880 | ||||||
171,859,540 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.7% | ||||||||
Hasbro, Inc. | 1,263,000 | 45,455,370 |
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Shares | Value | |||||||
MACHINERY — 5.8% | ||||||||
Cummins, Inc. | 710,000 | $66,441,800 | ||||||
Donaldson Co., Inc. | 1,026,000 | 33,109,020 | ||||||
Joy Global, Inc. | 1,343,000 | 83,870,350 | ||||||
Parker-Hannifin Corp. | 1,062,000 | 83,536,920 | ||||||
WABCO Holdings, Inc.(1) | 940,000 | 55,055,800 | ||||||
Wabtec Corp. | 525,000 | 42,997,500 | ||||||
365,011,390 | ||||||||
MEDIA — 0.8% | ||||||||
Time Warner, Inc. | 1,162,000 | 50,488,900 | ||||||
METALS AND MINING — 0.5% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 812,000 | 31,570,560 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.2% | ||||||||
EOG Resources, Inc. | 331,000 | 38,558,190 | ||||||
Exxon Mobil Corp. | 1,005,000 | 91,625,850 | ||||||
Occidental Petroleum Corp. | 909,000 | 71,774,640 | ||||||
201,958,680 | ||||||||
PERSONAL PRODUCTS — 1.7% | ||||||||
Estee Lauder Cos., Inc. (The), Class A | 1,788,000 | 110,176,560 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.3% | ||||||||
Altera Corp. | 1,827,000 | 55,686,960 | ||||||
Linear Technology Corp. | 2,015,000 | 62,988,900 | ||||||
Microchip Technology, Inc. | 948,000 | 29,719,800 | ||||||
148,395,660 | ||||||||
SOFTWARE — 4.8% | ||||||||
Microsoft Corp. | 934,000 | 26,651,690 | ||||||
NetSuite, Inc.(1) | 416,000 | 26,420,160 | ||||||
Oracle Corp. | 3,792,000 | 117,741,600 | ||||||
Salesforce.com, Inc.(1) | 558,000 | 81,456,840 | ||||||
VMware, Inc., Class A(1) | 583,000 | 49,420,910 | ||||||
Workday, Inc.(1) | 11,576 | 561,436 | ||||||
302,252,636 | ||||||||
SPECIALTY RETAIL — 4.0% | ||||||||
O’Reilly Automotive, Inc.(1) | 840,000 | 71,971,200 | ||||||
Tiffany & Co. | 1,155,000 | 73,019,100 | ||||||
TJX Cos., Inc. (The) | 2,616,000 | 108,904,080 | ||||||
253,894,380 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 2.6% | ||||||||
Burberry Group plc | 1,507,000 | 28,356,187 | ||||||
Lululemon Athletica, Inc.(1) | 839,000 | 57,899,390 | ||||||
NIKE, Inc., Class B | 844,000 | 77,124,720 | ||||||
163,380,297 | ||||||||
TOBACCO — 2.9% | ||||||||
Philip Morris International, Inc. | 2,055,000 | 181,990,800 | ||||||
TOTAL COMMON STOCKS (Cost $3,587,605,840) | 6,229,570,876 | |||||||
Temporary Cash Investments — 1.5% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% – 2.00%, 1/31/16 – 6/30/16, valued at $40,037,856), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $39,231,068) | 39,230,817 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% – 3.75%, 8/15/41 – 2/15/42, valued at $40,130,938), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $39,231,035) | 39,230,817 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $16,664,961), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $16,341,016) | 16,340,943 | |||||||
SSgA U.S. Government Money Market Fund | 2,731 | 2,731 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $94,805,308) | 94,805,308 | |||||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $3,682,411,148) | 6,324,376,184 | |||||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (7,226,241 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $6,317,149,943 |
13
Forward Foreign Currency Exchange Contracts | |||||||||||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||||
61,710,893 | CHF for USD | Credit Suisse AG | 11/30/12 | $66,290,818 | $(233,344 | ) | |||||||
14,641,259 | GBP for USD | Credit Suisse AG | 11/30/12 | 23,625,070 | (59,232 | ) | |||||||
$89,915,888 | $(292,576 | ) |
(Value on Settlement Date $89,623,312)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CHF = Swiss Franc
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $3,682,411,148) | $6,324,376,184 | |||
Receivable for capital shares sold | 1,007,945 | |||
Dividends and interest receivable | 4,936,089 | |||
6,330,320,218 | ||||
Liabilities | ||||
Payable for investments purchased | 2,538,822 | |||
Payable for capital shares redeemed | 4,873,935 | |||
Unrealized loss on forward foreign currency exchange contracts | 292,576 | |||
Accrued management fees | 5,447,390 | |||
Distribution and service fees payable | 17,552 | |||
13,170,275 | ||||
Net Assets | $6,317,149,943 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $4,130,814,591 | |||
Undistributed net investment income | 23,005,732 | |||
Accumulated net realized loss | (478,432,321 | ) | ||
Net unrealized appreciation | 2,641,761,941 | |||
$6,317,149,943 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $6,194,268,185 | 241,180,645 | $25.68 |
Institutional Class, $0.01 Par Value | $52,361,812 | 1,989,650 | $26.32 |
A Class, $0.01 Par Value | $63,460,659 | 2,549,805 | $24.89* |
C Class, $0.01 Par Value | $1,464,274 | 64,151 | $22.83 |
R Class, $0.01 Par Value | $5,595,013 | 226,869 | $24.66 |
*Maximum offering price $26.41 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $699,312) | $79,202,940 | |||
Interest | 58,040 | |||
79,260,980 | ||||
Expenses: | ||||
Management fees | 62,506,384 | |||
Distribution and service fees: | ||||
A Class | 160,311 | |||
C Class | 10,874 | |||
R Class | 24,897 | |||
Directors’ fees and expenses | 235,349 | |||
Other expenses | 506 | |||
62,938,321 | ||||
Net investment income (loss) | 16,322,659 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 59,190,438 | |||
Foreign currency transactions | 7,828,174 | |||
67,018,612 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 500,447,902 | |||
Translation of assets and liabilities in foreign currencies | (338,262 | ) | ||
500,109,640 | ||||
Net realized and unrealized gain (loss) | 567,128,252 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $583,450,911 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $16,322,659 | $9,948,775 | ||||||
Net realized gain (loss) | 67,018,612 | 292,495,282 | ||||||
Change in net unrealized appreciation (depreciation) | 500,109,640 | 328,587,673 | ||||||
Net increase (decrease) in net assets resulting from operations | 583,450,911 | 631,031,730 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | — | (12,309,961 | ) | |||||
Institutional Class | — | (189,254 | ) | |||||
Decrease in net assets from distributions | — | (12,499,215 | ) | |||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (371,178,954 | ) | (537,865,157 | ) | ||||
Net increase (decrease) in net assets | 212,271,957 | 80,667,358 | ||||||
Net Assets | ||||||||
Beginning of period | 6,104,877,986 | 6,024,210,628 | ||||||
End of period | $6,317,149,943 | $6,104,877,986 | ||||||
Undistributed net investment income | $23,005,732 | $47,552 |
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. 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 stocks of larger-sized companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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 2009. 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, 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, 2012 was 0.99% for the Investor Class, A Class, C Class and R Class and 0.79% for the Institutional Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $799,447,009 and $1,187,517,053, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 3,500,000,000 | 3,500,000,000 | ||||||||||||||
Sold | 10,917,537 | $271,182,938 | 7,967,748 | $184,093,884 | ||||||||||||
Issued in reinvestment of distributions | — | — | 529,802 | 11,930,837 | ||||||||||||
Redeemed | (25,327,027 | ) | (633,737,852 | ) | (31,294,147 | ) | (725,130,132 | ) | ||||||||
(14,409,490 | ) | (362,554,914 | ) | (22,796,597 | ) | (529,105,411 | ) | |||||||||
Institutional Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 565,669 | 14,453,949 | 651,707 | 15,348,582 | ||||||||||||
Issued in reinvestment of distributions | — | — | 8,231 | 189,232 | ||||||||||||
Redeemed | (778,943 | ) | (20,325,791 | ) | (567,827 | ) | (13,398,417 | ) | ||||||||
(213,274 | ) | (5,871,842 | ) | 92,111 | 2,139,397 | |||||||||||
A Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||||||||
Sold | 632,383 | 15,355,125 | 1,456,808 | 33,705,237 | ||||||||||||
Redeemed | (821,416 | ) | (19,845,648 | ) | (2,020,737 | ) | (44,830,105 | ) | ||||||||
(189,033 | ) | (4,490,523 | ) | (563,929 | ) | (11,124,868 | ) | |||||||||
B Class/Shares Authorized | N/A | 50,000,000 | ||||||||||||||
Sold | 929 | 19,516 | ||||||||||||||
Redeemed | (5,900 | ) | (131,961 | ) | ||||||||||||
(4,971 | ) | (112,445 | ) | |||||||||||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 33,458 | 754,820 | 6,859 | 146,359 | ||||||||||||
Redeemed | (1,562 | ) | (34,436 | ) | (15,725 | ) | (324,172 | ) | ||||||||
31,896 | 720,384 | (8,866 | ) | (177,813 | ) | |||||||||||
R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 106,133 | 2,600,422 | 78,707 | 1,717,632 | ||||||||||||
Redeemed | (63,922 | ) | (1,582,481 | ) | (52,771 | ) | (1,201,649 | ) | ||||||||
42,211 | 1,017,941 | 25,936 | 515,983 | |||||||||||||
Net increase (decrease) | (14,737,690 | ) | $(371,178,954 | ) | (23,256,316 | ) | $(537,865,157 | ) |
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 | $5,866,269,763 | — | — | |||||||||
Foreign Common Stocks | 201,357,460 | $161,943,653 | — | |||||||||
Temporary Cash Investments | 2,731 | 94,802,577 | — | |||||||||
Total Value of Investment Securities | $6,067,629,954 | $256,746,230 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(292,576 | ) | — |
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 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, 2012, is disclosed on the Statement of Assets and Liabilities as a liability of $292,576 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2012, the effect of foreign currency risk derivative instruments on the Statement of Operations was $7,888,546 in net realized gain (loss) on foreign currency transactions and $(245,024) 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, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | — | $12,499,215 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $3,734,233,528 | |||
Gross tax appreciation of investments | $2,618,702,290 | |||
Gross tax depreciation of investments | (28,559,634 | ) | ||
Net tax appreciation (depreciation) of investments | $2,590,142,656 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $89,478 | |||
Net tax appreciation (depreciation) | $2,590,232,134 | |||
Undistributed ordinary income | $22,713,156 | |||
Accumulated short-term capital losses | $(426,609,938 | ) |
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 foreign currency exchange contracts.
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.
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 | |||||||||||||||||||||||||||||||||||||
2012 | $23.42 | 0.06 | 2.20 | 2.26 | — | — | — | $25.68 | 9.65 | % | 0.99 | % | 0.26 | % | 13 | % | $6,194,268 | ||||||||||||||||||||
2011 | $21.22 | 0.04 | 2.20 | 2.24 | (0.04 | ) | — | (0.04 | ) | $23.42 | 10.59 | % | 0.99 | % | 0.16 | % | 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 | ||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||
2012 | $23.95 | 0.12 | 2.25 | 2.37 | — | — | — | $26.32 | 9.90 | % | 0.79 | % | 0.46 | % | 13 | % | $52,362 | ||||||||||||||||||||
2011 | $21.69 | 0.08 | 2.27 | 2.35 | (0.09 | ) | — | (0.09 | ) | $23.95 | 10.85 | % | 0.79 | % | 0.36 | % | 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 | ||||||||||||||||
A Class | |||||||||||||||||||||||||||||||||||||
2012 | $22.75 | — | (3) | 2.14 | 2.14 | — | — | — | $24.89 | 9.41 | % | 1.24 | % | 0.01 | % | 13 | % | $63,461 | |||||||||||||||||||
2011 | $20.62 | (0.02 | ) | 2.15 | 2.13 | — | — | — | $22.75 | 10.33 | % | 1.24 | % | (0.09 | )% | 13 | % | $62,304 | |||||||||||||||||||
2010 | $17.33 | — | (3) | 3.33 | 3.33 | (0.04 | ) | — | (0.04 | ) | $20.62 | 19.24 | % | 1.25 | % | 0.00 | %(4) | 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 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||||||||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||
2012 | $21.02 | (0.17 | ) | 1.98 | 1.81 | — | — | — | $22.83 | 8.61 | % | 1.99 | % | (0.74 | )% | 13 | % | $1,464 | |||||||||||||||||||
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 | |||||||||||||||
R Class | |||||||||||||||||||||||||||||||||||||
2012 | $22.60 | (0.06 | ) | 2.12 | 2.06 | — | — | — | $24.66 | 9.12 | % | 1.49 | % | (0.24 | )% | 13 | % | $5,595 | |||||||||||||||||||
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 |
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) | Ratio was less than 0.005%. |
See Notes to Financial Statements.
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The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ultra Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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 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.
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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.
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
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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76902 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Targetdate and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal 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 produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCGX | 10.67% | 1.61% | 7.01% | 13.20% | 6/30/71(1) |
Russell 1000 Growth Index | — | 13.02% | 1.95% | 7.15% | N/A(2) | — |
Institutional Class | TWGIX | 10.86% | 1.81% | 7.22% | 5.15% | 6/16/97 |
A Class(3) No sales charge* With sales charge* | TCRAX | 10.37% 4.03% | 1.35% 0.16% | 6.75% 6.11% | 5.02% 4.62% | 6/4/97 |
C Class | TWRCX | 9.55% | — | — | 9.25% | 3/1/10 |
R Class | AGWRX | 10.12% | 1.09% | — | 5.82% | 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) | Benchmark data first available 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, 2002 |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
0.98% | 0.78% | 1.23% | 1.98% | 1.48% |
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 returned 10.67%* in the 12 months ended October 31, 2012. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 13.02%.
In terms of Growth’s absolute returns, health care shares contributed most. No sector detracted in absolute terms. Relative to the benchmark, stock selection made the information technology (IT) sector the leading detractor. Stock choices meant health care shares contributed most to relative performance.
IT Detracted Most
Information technology stocks detracted most from performance relative to the Russell 1000 Growth Index. The sector was hit by worries about exposure to Europe and potential slowdown in the U.S. going forward. In the technology sector, stock selection made computers and peripherals firms the leading detractors. It hurt to hold a stake in storage hardware provider NetApp, which reported in-line results during the period but lowered its forward outlook because of a slowdown in the financial and government sectors. We reduced the position, but still believe NetApp will continue to gain market share from competitors Hewlett-Packard, Hitachi, and IBM.
Other notable detractors in the sector were communication equipment maker Cisco Systems and semiconductor company Marvell Technology Group. Cisco actually gained market share and reported solid results, but the company lowered forward earnings guidance marginally after evaluating the macroeconomic environment here and abroad. Similarly, Marvell Technology declined on concerns about its exposure to hard disk drives and Chinese handsets. We eliminated the position.
Industrials Detracted
A number of Growth’s industrial holdings were affected by investor uncertainty around corporate earnings growth and pricing power resulting from worries about a slowdown in the global economy. In addition, the portfolio tended to be underweight the sector because our analysis showed these companies to have high but declining margins amid slowing growth. The leading detractor in this space was capital equipment manufacturer Terex. We eliminated the position when we saw signs of a poor pricing environment for the company’s products.
Another notable individual detractor was auto component manufacturer BorgWarner, which underperformed as a result of weakness in Europe and slower automotive build rates in China.
Health Care Led Contributors
In the health care sector, the top contribution came from life sciences tools companies, led by a stake in Illumina. The maker of research and diagnostic tools received a buyout offer from Roche, valuing the company at a significant premium. In addition, it helped to hold a stake in pharmaceutical benefit manager Express Scripts, which acquired Medco Health Solutions during
*All fund returns referenced in this commentary are for Investor Class shares.
7
the period. Other key individual contributors in the health care sector were biotechnology firm Gilead Sciences and medical equipment and supplies maker ResMed. Gilead made progress on its development of therapies for Hepatitis C, while ResMed benefited from regulatory changes that are likely to drive increased demand for its products used in the treatment of sleep apnea.
Telecommunication shares also contributed to performance due to stock selection and an overweight position among wireless telecommunication providers. The leading contributor for the fiscal year was cellular tower operator Crown Castle International. The company continues to benefit from a long-running trend by cellular network providers such as AT&T and Verizon to add capacity to their networks to handle increasing voice and data traffic.
In the energy sector, the portfolio’s outperformance was driven by stock selection decisions. It benefited performance to have little or no exposure to many of the poorest-performing stocks in the sector during the period, including equipment and services firms Halliburton and Baker Hughes, and oil and gas companies Peabody Energy and Consol Energy. However, these gains were partially offset by a stake in Occidental Petroleum, as concerns about the pace of the firm’s development program weighed on the shares.
Among other notable individual contributors were stakes in specialty retailers Lowe’s and Home Depot. These stocks benefited from the home building and remodeling recovery evident during the fiscal year.
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, 2012, the consumer staples, energy, and telecommunication services sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in industrial, consumer discretionary, and materials shares. Information technology shares were the portfolio’s single largest sector allocation on an absolute basis.
8
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 7.7% |
Microsoft Corp. | 2.6% |
Google, Inc., Class A | 2.5% |
Philip Morris International, Inc. | 2.5% |
International Business Machines Corp. | 2.4% |
Coca-Cola Co. (The) | 2.4% |
Oracle Corp. | 2.2% |
Wal-Mart Stores, Inc. | 2.2% |
Schlumberger Ltd. | 2.2% |
Amazon.com, Inc. | 1.8% |
Top Five Industries | % of net assets |
Computers and Peripherals | 9.9% |
Software | 6.2% |
Pharmaceuticals | 5.5% |
Aerospace and Defense | 5.3% |
Beverages | 5.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.6% |
Temporary Cash Investments | 0.6% |
Other Assets and Liabilities | (0.2)% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $967.90 | $4.80 | 0.97% |
Institutional Class | $1,000 | $968.90 | $3.81 | 0.77% |
A Class | $1,000 | $966.70 | $6.03 | 1.22% |
C Class | $1,000 | $963.20 | $9.72 | 1.97% |
R Class | $1,000 | $965.40 | $7.26 | 1.47% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.26 | $4.93 | 0.97% |
Institutional Class | $1,000 | $1,021.27 | $3.91 | 0.77% |
A Class | $1,000 | $1,019.00 | $6.19 | 1.22% |
C Class | $1,000 | $1,015.23 | $9.98 | 1.97% |
R Class | $1,000 | $1,017.75 | $7.46 | 1.47% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
11
Shares | Value | |||||||
Common Stocks — 99.6% | ||||||||
AEROSPACE AND DEFENSE — 5.3% | ||||||||
Boeing Co. (The) | 826,900 | $58,246,836 | ||||||
Hexcel Corp.(1) | 1,021,300 | 26,104,428 | ||||||
Honeywell International, Inc. | 2,246,400 | 137,569,536 | ||||||
Precision Castparts Corp. | 371,600 | 64,312,812 | ||||||
Textron, Inc. | 1,991,500 | 50,205,715 | ||||||
United Technologies Corp. | 1,550,200 | 121,163,632 | ||||||
457,602,959 | ||||||||
AIR FREIGHT AND LOGISTICS — 1.0% | ||||||||
United Parcel Service, Inc., Class B | 1,243,300 | 91,071,725 | ||||||
AUTO COMPONENTS — 0.3% | ||||||||
Autoliv, Inc. | 403,400 | 23,235,840 | ||||||
AUTOMOBILES — 0.7% | ||||||||
Harley-Davidson, Inc. | 1,245,200 | 58,225,552 | ||||||
BEVERAGES — 5.1% | ||||||||
Beam, Inc. | 726,500 | 40,364,340 | ||||||
Brown-Forman Corp., Class B | 365,200 | 23,394,712 | ||||||
Coca-Cola Co. (The) | 5,540,600 | 205,999,508 | ||||||
Monster Beverage Corp.(1) | 656,800 | 29,339,256 | ||||||
PepsiCo, Inc. | 2,085,500 | 144,400,020 | ||||||
443,497,836 | ||||||||
BIOTECHNOLOGY — 2.2% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 342,400 | 30,946,112 | ||||||
Amgen, Inc. | 614,700 | 53,199,212 | ||||||
Gilead Sciences, Inc.(1) | 1,623,100 | 109,007,396 | ||||||
193,152,720 | ||||||||
CHEMICALS — 2.5% | ||||||||
Agrium, Inc. | 469,600 | 49,561,584 | ||||||
Monsanto Co. | 1,567,800 | 134,940,546 | ||||||
Rockwood Holdings, Inc. | 680,100 | 31,216,590 | ||||||
215,718,720 | ||||||||
COMMERCIAL BANKS — 1.4% | ||||||||
SunTrust Banks, Inc. | 2,404,300 | 65,396,960 | ||||||
Wells Fargo & Co. | 1,611,200 | 54,281,328 | ||||||
119,678,288 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.5% | ||||||||
Tyco International Ltd. | 1,635,000 | 43,932,450 | ||||||
COMMUNICATIONS EQUIPMENT — 2.1% | ||||||||
Cisco Systems, Inc. | 2,299,300 | 39,410,002 | ||||||
Palo Alto Networks, Inc.(1) | 432,100 | 23,756,858 | ||||||
QUALCOMM, Inc. | 1,330,400 | 77,928,180 | ||||||
Riverbed Technology, Inc.(1) | 2,282,700 | 42,161,469 | ||||||
183,256,509 | ||||||||
COMPUTERS AND PERIPHERALS — 9.9% | ||||||||
Apple, Inc. | 1,124,800 | 669,368,480 | ||||||
EMC Corp.(1) | 5,453,300 | 133,169,586 | ||||||
NetApp, Inc.(1) | 2,096,300 | 56,390,470 | ||||||
858,928,536 | ||||||||
DISTRIBUTORS — 0.4% | ||||||||
LKQ Corp.(1) | 1,624,700 | 33,939,983 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.1% | ||||||||
Verizon Communications, Inc. | 2,067,600 | 92,297,664 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.4% | ||||||||
Trimble Navigation Ltd.(1) | 657,000 | 30,997,260 | ||||||
ENERGY EQUIPMENT AND SERVICES — 3.2% | ||||||||
Core Laboratories NV | 265,200 | 27,490,632 | ||||||
Oceaneering International, Inc. | 1,228,200 | 64,271,706 | ||||||
Schlumberger Ltd. | 2,683,100 | 186,555,943 | ||||||
278,318,281 | ||||||||
FOOD AND STAPLES RETAILING — 4.3% | ||||||||
Costco Wholesale Corp. | 1,031,300 | 101,510,859 | ||||||
CVS Caremark Corp. | 756,650 | 35,108,560 | ||||||
Wal-Mart Stores, Inc. | 2,524,900 | 189,417,998 | ||||||
Whole Foods Market, Inc. | 514,300 | 48,719,639 | ||||||
374,757,056 | ||||||||
FOOD PRODUCTS — 1.9% | ||||||||
Annie’s, Inc.(1) | 299,455 | 11,828,472 | ||||||
Hershey Co. (The) | 620,400 | 42,714,540 | ||||||
Kraft Foods Group, Inc.(1) | 1,086,599 | 49,418,523 | ||||||
Mead Johnson Nutrition Co. | 926,300 | 57,115,658 | ||||||
161,077,193 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.7% | ||||||||
Cooper Cos., Inc. (The) | 236,800 | 22,728,064 | ||||||
Covidien plc | 491,600 | 27,013,420 | ||||||
DENTSPLY International, Inc. | 585,400 | 21,566,136 | ||||||
Edwards Lifesciences Corp.(1) | 365,300 | 31,718,999 | ||||||
IDEXX Laboratories, Inc.(1) | 129,000 | 12,409,800 | ||||||
ResMed, Inc. | 767,300 | 30,645,962 | ||||||
146,082,381 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.3% | ||||||||
AmerisourceBergen Corp. | 2,051,200 | 80,899,328 | ||||||
DaVita, Inc.(1) | 303,200 | 34,116,064 | ||||||
Express Scripts Holding Co.(1) | 1,351,400 | 83,165,156 | ||||||
198,180,548 |
12
Shares | Value | |||||||
HOTELS, RESTAURANTS AND LEISURE — 2.3% | ||||||||
Marriott International, Inc. Class A | 1,462,900 | $53,366,592 | ||||||
McDonald’s Corp. | 771,300 | 66,948,840 | ||||||
Starbucks Corp. | 1,734,500 | 79,613,550 | ||||||
199,928,982 | ||||||||
HOUSEHOLD DURABLES — 1.2% | ||||||||
Mohawk Industries, Inc.(1) | 552,900 | 46,150,563 | ||||||
PulteGroup, Inc.(1) | 3,378,400 | 58,581,456 | ||||||
104,732,019 | ||||||||
HOUSEHOLD PRODUCTS — 0.9% | ||||||||
Church & Dwight Co., Inc. | 283,300 | 14,380,308 | ||||||
Colgate-Palmolive Co. | 630,800 | 66,208,768 | ||||||
80,589,076 | ||||||||
INDUSTRIAL CONGLOMERATES — 0.9% | ||||||||
Danaher Corp. | 1,593,000 | 82,405,890 | ||||||
INSURANCE — 0.8% | ||||||||
Travelers Cos., Inc. (The) | 922,600 | 65,449,244 | ||||||
INTERNET AND CATALOG RETAIL — 1.8% | ||||||||
Amazon.com, Inc.(1) | 685,900 | 159,691,238 | ||||||
INTERNET SOFTWARE AND SERVICES — 4.0% | ||||||||
eBay, Inc.(1) | 2,747,800 | 132,691,262 | ||||||
Google, Inc., Class A(1) | 316,200 | 214,943,274 | ||||||
347,634,536 | ||||||||
IT SERVICES — 4.8% | ||||||||
Automatic Data Processing, Inc. | 1,322,200 | 76,409,938 | ||||||
International Business Machines Corp. | 1,084,100 | 210,889,973 | ||||||
MasterCard, Inc., Class A | 275,732 | 127,093,151 | ||||||
414,393,062 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.2% | ||||||||
Waters Corp.(1) | 223,700 | 18,300,897 | ||||||
MACHINERY — 1.4% | ||||||||
Deere & Co. | 498,700 | 42,608,928 | ||||||
Illinois Tool Works, Inc. | 1,239,400 | 76,012,402 | ||||||
118,621,330 | ||||||||
MEDIA — 3.8% | ||||||||
CBS Corp., Class B | 1,351,300 | 43,782,120 | ||||||
Comcast Corp., Class A | 3,908,700 | 146,615,337 | ||||||
Scripps Networks Interactive, Inc. Class A | 870,200 | 52,838,544 | ||||||
Viacom, Inc., Class B | 1,598,800 | 81,970,476 | ||||||
325,206,477 | ||||||||
METALS AND MINING — 0.4% | ||||||||
Nucor Corp. | 765,700 | 30,727,541 | ||||||
MULTI-UTILITIES — 0.3% | ||||||||
DTE Energy Co. | 461,600 | 28,665,360 | ||||||
MULTILINE RETAIL — 1.3% | ||||||||
Dollar General Corp.(1) | 1,168,700 | 56,822,194 | ||||||
Macy’s, Inc. | 1,557,300 | 59,286,411 | ||||||
116,108,605 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 2.5% | ||||||||
EOG Resources, Inc. | 753,900 | 87,821,811 | ||||||
Noble Energy, Inc. | 793,900 | 75,428,439 | ||||||
Occidental Petroleum Corp. | 647,600 | 51,134,496 | ||||||
214,384,746 | ||||||||
PERSONAL PRODUCTS — 0.7% | ||||||||
Estee Lauder Cos., Inc. (The), Class A | 988,300 | 60,899,046 | ||||||
PHARMACEUTICALS — 5.5% | ||||||||
Abbott Laboratories | 2,158,200 | 141,405,264 | ||||||
Allergan, Inc. | 1,150,600 | 103,461,952 | ||||||
Bristol-Myers Squibb Co. | 1,797,400 | 59,763,550 | ||||||
Eli Lilly & Co. | 640,200 | 31,132,926 | ||||||
Johnson & Johnson | 1,985,000 | 140,577,700 | ||||||
476,341,392 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.5% | ||||||||
American Campus Communities, Inc. | 814,100 | 36,886,871 | ||||||
Simon Property Group, Inc. | 618,000 | 94,065,780 | ||||||
130,952,651 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.4% | ||||||||
CBRE Group, Inc.(1) | 1,809,500 | 32,607,190 | ||||||
ROAD AND RAIL — 1.7% | ||||||||
Union Pacific Corp. | 1,162,800 | 143,059,284 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.1% | ||||||||
Broadcom Corp., Class A | 2,160,400 | 68,128,214 | ||||||
Intel Corp. | 2,947,300 | 63,735,362 | ||||||
Linear Technology Corp. | 1,659,900 | 51,888,474 | ||||||
Teradyne, Inc.(1) | 838,800 | 12,263,256 | ||||||
Xilinx, Inc. | 2,305,800 | 75,538,008 | ||||||
271,553,314 | ||||||||
SOFTWARE — 6.2% | ||||||||
Cadence Design Systems, Inc.(1) | 3,554,200 | 44,996,172 | ||||||
CommVault Systems, Inc.(1) | 371,747 | 23,223,035 | ||||||
Microsoft Corp. | 7,982,400 | 227,777,784 | ||||||
Oracle Corp. | 6,139,200 | 190,622,160 | ||||||
ServiceNow, Inc.(1) | 517,600 | 15,864,440 | ||||||
Splunk, Inc.(1) | 809,100 | 22,695,255 | ||||||
Workday, Inc.(1) | 260,600 | 12,639,100 | ||||||
537,817,946 |
13
Shares | Value |
SPECIALTY RETAIL — 3.2% | ||||||||
GNC Holdings, Inc. Class A | 1,375,800 | $53,202,186 | ||||||
Home Depot, Inc. (The) | 1,027,600 | 63,074,088 | ||||||
Lowe’s Cos., Inc. | 2,761,500 | 89,417,370 | ||||||
Tractor Supply Co. | 227,400 | 21,884,976 | ||||||
Urban Outfitters, Inc.(1) | 1,392,200 | 49,785,072 | ||||||
277,363,692 | ||||||||
TOBACCO — 2.5% | ||||||||
Philip Morris International, Inc. | 2,422,300 | 214,518,888 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 1.9% | ||||||||
Crown Castle International Corp.(1) | 1,340,000 | 89,445,000 | ||||||
SBA Communications Corp., Class A(1) | 1,193,800 | 79,542,894 | ||||||
168,987,894 | ||||||||
TOTAL COMMON STOCKS (Cost $7,481,548,796) | 8,624,891,801 | |||||||
Temporary Cash Investments — 0.6% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $22,925,541), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $22,463,577) | 22,463,433 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $22,978,840), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $22,463,558) | 22,463,433 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $9,542,300), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $9,356,810) | $9,356,768 | |||||||
SSgA U.S. Government Money Market Fund | 10,189 | 10,189 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $54,293,823) | 54,293,823 | |||||||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $7,535,842,619) | 8,679,185,624 | |||||||
OTHER ASSETS AND LIABILITIES — (0.2)% | (16,955,989 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $8,662,229,635 |
Notes to Schedule of Investments
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $7,535,842,619) | $8,679,185,624 | |||
Receivable for investments sold | 57,754,091 | |||
Receivable for capital shares sold | 6,448,788 | |||
Dividends and interest receivable | 5,445,448 | |||
8,748,833,951 | ||||
Liabilities | ||||
Payable for investments purchased | 64,481,540 | |||
Payable for capital shares redeemed | 15,002,927 | |||
Accrued management fees | 6,904,146 | |||
Distribution and service fees payable | 215,703 | |||
86,604,316 | ||||
Net Assets | $8,662,229,635 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $7,218,809,987 | |||
Undistributed net investment income | 49,113,306 | |||
Undistributed net realized gain | 250,963,321 | |||
Net unrealized appreciation | 1,143,343,021 | |||
$8,662,229,635 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $5,593,916,015 | 203,581,578 | $27.48 |
Institutional Class, $0.01 Par Value | $2,237,707,852 | 80,644,734 | $27.75 |
A Class, $0.01 Par Value | $701,313,465 | 25,972,042 | $27.00* |
C Class, $0.01 Par Value | $14,084,013 | 522,098 | $26.98 |
R Class, $0.01 Par Value | $115,208,290 | 4,295,734 | $26.82 |
*Maximum offering price $28.65 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $45,549) | $134,470,229 | |||
Interest | 56,984 | |||
134,527,213 | ||||
Expenses: | ||||
Management fees | 81,548,721 | |||
Distribution and service fees: | ||||
A Class | 1,745,795 | |||
C Class | 150,051 | |||
R Class | 511,770 | |||
Directors’ fees and expenses | 359,086 | |||
Other expenses | 411 | |||
84,315,834 | ||||
Net investment income (loss) | 50,211,379 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 321,235,832 | |||
Futures contract transactions | 4,660,631 | |||
Foreign currency transactions | (41,270 | ) | ||
325,855,193 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 547,927,847 | |||
Translation of assets and liabilities in foreign currencies | 18,256 | |||
547,946,103 | ||||
Net realized and unrealized gain (loss) | 873,801,296 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $924,012,675 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $50,211,379 | $45,354,297 | ||||||
Net realized gain (loss) | 325,855,193 | 516,322,848 | ||||||
Change in net unrealized appreciation (depreciation) | 547,946,103 | (116,233,346 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 924,012,675 | 445,443,799 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (26,416,678 | ) | (16,085,104 | ) | ||||
Institutional Class | (14,792,971 | ) | (6,371,247 | ) | ||||
A Class | (1,716,972 | ) | (354,453 | ) | ||||
R Class | (11,579 | ) | — | |||||
From net realized gains: | ||||||||
Investor Class | (188,116,335 | ) | — | |||||
Institutional Class | (75,859,024 | ) | — | |||||
A Class | (23,798,326 | ) | — | |||||
C Class | (518,181 | ) | — | |||||
R Class | (2,911,202 | ) | — | |||||
Decrease in net assets from distributions | (334,141,268 | ) | (22,810,804 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (108,468,943 | ) | 1,815,608,193 | |||||
Net increase (decrease) in net assets | 481,402,464 | 2,238,241,188 | ||||||
Net Assets | ||||||||
Beginning of period | 8,180,827,171 | 5,942,585,983 | ||||||
End of period | $8,662,229,635 | $8,180,827,171 | ||||||
Undistributed net investment income | $49,113,306 | $42,917,624 |
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. 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 stocks of larger-sized companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2009. 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 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, 2012 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $6,479,030,152 and $6,780,490,605, respectively.
For the year ended October 31, 2012, the fund incurred net realized gains of $65,926,664 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.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 800,000,000 | 800,000,000 | ||||||||||||||
Sold | 30,597,197 | $815,590,046 | 57,583,802 | $1,507,849,223 | ||||||||||||
Issued in reinvestment of distributions | 8,543,449 | 208,801,900 | 592,046 | 15,180,062 | ||||||||||||
Redeemed | (43,315,016 | ) | (1,179,529,361 | ) | (35,393,701 | ) | (920,453,919 | ) | ||||||||
(4,174,370 | ) | (155,137,415 | ) | 22,782,147 | 602,575,366 | |||||||||||
Institutional Class/Shares Authorized | 250,000,000 | 250,000,000 | ||||||||||||||
Sold | 28,226,797 | 760,524,181 | 47,037,732 | 1,238,818,648 | ||||||||||||
Issued in reinvestment of distributions | 3,536,090 | 87,129,253 | 238,680 | 6,165,100 | ||||||||||||
Redeemed | (30,746,180 | ) | (858,219,071 | ) | (13,327,125 | ) | (338,969,351 | ) | ||||||||
1,016,707 | (10,565,637 | ) | 33,949,287 | 906,014,397 | ||||||||||||
A Class/Shares Authorized | 310,000,000 | 310,000,000 | ||||||||||||||
Sold | 7,679,409 | 199,942,589 | 18,959,093 | 495,200,696 | ||||||||||||
Issued in reinvestment of distributions | 969,672 | 23,340,001 | 12,885 | 325,465 | ||||||||||||
Redeemed | (7,375,216 | ) | (194,657,631 | ) | (9,913,957 | ) | (255,065,676 | ) | ||||||||
1,273,865 | 28,624,959 | 9,058,021 | 240,460,485 | |||||||||||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||||||
Sold | 75,173 | 1,960,969 | 422,812 | 11,102,799 | ||||||||||||
Issued in reinvestment of distributions | 14,143 | 342,255 | — | — | ||||||||||||
Redeemed | (143,783 | ) | (3,804,971 | ) | (107,008 | ) | (2,723,977 | ) | ||||||||
(54,467 | ) | (1,501,747 | ) | 315,804 | 8,378,822 | |||||||||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||||||||
Sold | 2,150,364 | 56,736,953 | 3,010,975 | 76,296,991 | ||||||||||||
Issued in reinvestment of distributions | 111,295 | 2,666,644 | — | — | ||||||||||||
Redeemed | (1,112,835 | ) | (29,292,700 | ) | (729,423 | ) | (18,117,868 | ) | ||||||||
1,148,824 | 30,110,897 | 2,281,552 | 58,179,123 | |||||||||||||
Net increase (decrease) | (789,441 | ) | $(108,468,943 | ) | 68,386,811 | $1,815,608,193 |
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 | ||||||||||||
Common Stocks | $8,624,891,801 | — | — | |||||||||
Temporary Cash Investments | 10,189 | $54,283,634 | — | |||||||||
Total Value of Investment Securities | $8,624,901,990 | $54,283,634 | — |
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.
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, 2012, the effect of equity price risk derivative instruments on the Statement of Operations was $4,660,631 in net realized gain (loss) on futures contract transactions.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $42,938,200 | $22,810,804 | ||||||
Long-term capital gains | $291,203,068 | — |
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.
22
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $7,558,192,347 | |||
Gross tax appreciation of investments | $1,249,189,625 | |||
Gross tax depreciation of investments | (128,196,348 | ) | ||
Net tax appreciation (depreciation) of investments | $1,120,993,277 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $16 | |||
Net tax appreciation (depreciation) | $1,120,993,293 | |||
Undistributed ordinary income | $49,113,306 | |||
Accumulated long-term gains | $273,313,049 |
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.
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 | |||||||||||||||||||||||||||||||||||||
2012 | $25.88 | 0.14 | 2.50 | 2.64 | (0.13 | ) | (0.91 | ) | (1.04 | ) | $27.48 | 10.67 | % | 0.97 | % | 0.54 | % | 74 | % | $5,593,916 | |||||||||||||||||
2011 | $24.00 | 0.16 | 1.81 | 1.97 | (0.09 | ) | — | (0.09 | ) | $25.88 | 8.20 | % | 0.98 | % | 0.58 | % | 79 | % | $5,377,431 | ||||||||||||||||||
2010 | $20.28 | 0.10 | 3.68 | 3.78 | (0.06 | ) | — | (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 | ) | — | (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 | ) | — | (0.03 | ) | $17.69 | (33.86 | )% | 1.00 | % | 0.16 | % | 129 | % | $2,617,302 | ||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||
2012 | $26.13 | 0.20 | 2.51 | 2.71 | (0.18 | ) | (0.91 | ) | (1.09 | ) | $27.75 | 10.86 | % | 0.77 | % | 0.74 | % | 74 | % | $2,237,708 | |||||||||||||||||
2011 | $24.23 | 0.20 | 1.84 | 2.04 | (0.14 | ) | — | (0.14 | ) | $26.13 | 8.42 | % | 0.78 | % | 0.78 | % | 79 | % | $2,080,463 | ||||||||||||||||||
2010 | $20.47 | 0.14 | 3.72 | 3.86 | (0.10 | ) | — | (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 | ) | — | (0.12 | ) | $20.47 | 15.45 | % | 0.80 | % | 0.70 | % | 114 | % | $549,496 | ||||||||||||||||||
2008 | $27.03 | 0.08 | (9.17 | ) | (9.09 | ) | (0.08 | ) | — | (0.08 | ) | $17.86 | (33.71 | )% | 0.80 | % | 0.36 | % | 129 | % | $286,262 | ||||||||||||||||
A Class(3) | |||||||||||||||||||||||||||||||||||||
2012 | $25.45 | 0.07 | 2.46 | 2.53 | (0.07 | ) | (0.91 | ) | (0.98 | ) | $27.00 | 10.37 | % | 1.22 | % | 0.29 | % | 74 | % | $701,313 | |||||||||||||||||
2011 | $23.60 | 0.08 | 1.79 | 1.87 | (0.02 | ) | — | (0.02 | ) | $25.45 | 7.93 | % | 1.23 | % | 0.33 | % | 79 | % | $628,634 | ||||||||||||||||||
2010 | $19.94 | 0.04 | 3.62 | 3.66 | — | (4) | — | — | (4) | $23.60 | 18.37 | % | 1.25 | % | 0.18 | % | 86 | % | $369,142 | ||||||||||||||||||
2009 | $17.40 | 0.04 | 2.54 | 2.58 | (0.04 | ) | — | (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 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | |||||||||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||
2012 | $25.55 | (0.12 | ) | 2.46 | 2.34 | — | (0.91 | ) | (0.91 | ) | $26.98 | 9.55 | % | 1.97 | % | (0.46 | )% | 74 | % | $14,084 | |||||||||||||||||
2011 | $23.85 | (0.12 | ) | 1.82 | 1.70 | — | — | — | $25.55 | 7.13 | % | 1.98 | % | (0.42 | )% | 79 | % | $14,730 | |||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
2012 | $25.28 | 0.01 | 2.44 | 2.45 | — | (4) | (0.91 | ) | (0.91 | ) | $26.82 | 10.12 | % | 1.47 | % | 0.04 | % | 74 | % | $115,208 | |||||||||||||||||
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) | — | — | (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 |
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.
25
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, 2012, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the 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, 2012, 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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Deloitte &Touche LLP
Kansas City, Missouri
December 19, 2012
26
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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. The
31
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.
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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, 2012.
For corporate taxpayers, the fund hereby designates $42,938,200, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 as qualified for the corporate dividends received deduction.
The fund hereby designates $291,203,068, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2012.
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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76896 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 18 |
Statement of Operations | 19 |
Statement of Changes in Net Assets | 20 |
Notes to Financial Statements | 21 |
Financial Highlights | 26 |
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity—
Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWNOX | 8.84% | -1.07% | 7.32% | 6.28% | 12/26/96 |
Russell 2500 Growth Index | — | 10.08% | 2.04% | 10.40% | 6.13%(1) | — |
Institutional Class | TWNIX | 9.08% | — | — | 11.76% | 3/1/10 |
A Class No sales charge* With sales charge* | TWNAX | 8.60% 2.41% | — — | — — | 11.30% 8.86% | 3/1/10 |
C Class | TWNCX | 7.77% | — | — | 10.42% | 3/1/10 |
R Class | TWNRX | 8.38% | — | — | 10.99% | 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.
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, 2002 |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.52% | 1.32% | 1.77% | 2.52% | 2.02% |
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.
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
New Opportunities returned 8.84%* for the 12 months ended October 31, 2012. By comparison, the Russell 2500 Growth Index (the fund’s benchmark)
returned 10.08%.
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 tepid global economic recovery and continued sovereign debt concerns in Europe. In an environment dominated by macroeconomic risks, price momentum and acceleration, two factors that the New Opportunities team looks for in portfolio holdings, were not rewarded consistently. As a result, the portfolio delivered solid returns but underperformed its benchmark.
The portfolio derived positive absolute results from each sector in which it was invested. Relative to the benchmark, an underweight allocation to the health care sector and stock decisions in the consumer staples sector accounted for the bulk of underperformance. Effective stock choices in the industrials and consumer discretionary sectors made the largest contributions to relative returns.
Health Care Underweight Position Detracted
An underweight allocation to the health care sector was the leading relative detractor. For example, the two largest detractors in the sector were biopharmaceutical companies Pharmacyclics and VIVUS. VIVUS benefited from a positive FDA drug approval, while Pharmacyclics reported positive study data for an oncology drug. New Opportunities had exposure to both of these stocks, but less than the index. Positioning in the pharmaceuticals group and an underweight allocation to the health care equipment and services industry also detracted from relative results.
In the consumer staples sector, New Opportunities maintained an overweight position in PriceSmart, an international membership warehouse retailer. The company, known as the Costco of Latin America, had contributed meaningfully to returns in the previous reporting period as it benefited from the trend toward demand for more affordable goods and services. During the last 12 months, though, rising costs squeezed the company’s profits, and its share price declined.
Industrials, Consumer Discretionary Contributed
The industrials sector was the largest source of outperformance, largely attributable to positioning in the trading companies and distributors industry group. Here, the portfolio was rewarded for an overweight position in United Rentals. The company benefited from rising rental rates, a recovery in construction activity, and an accretive acquisition. Elsewhere in the sector, positioning in the commercial services and supplies group also helped returns versus the benchmark.
*All fund returns referenced in this commentary are for Investor Class shares.
7
The consumer discretionary sector also generated significant gains for New Opportunities. The leading individual contributor for the reporting period was auto dealer Lithia Motors. Rising demand for new cars meant better-than-expected results for the company, which upped its future earnings guidance. Within the hotels, restaurants, and leisure industry group, a position in Cedar Fair benefited results. The amusement park operator drove up revenues through increased attendance at its parks as well as higher spending levels per visitor. An overweight allocation among companies in the leisure equipment and products industry also helped relative returns.
Despite the significant positive overall contribution from consumer discretionary shares, the leading individual detractor for the fiscal year also resided in this space. Premium mattress manufacturer Tempur-Pedic had been a top contributor early in the reporting period, but the company struggled as it reported weaker-than-expected results in April and lowered forward expectations in June on slowing sales growth and price discounts due to increased competition.
Apart from these sectors, a position in information technology company Kenexa added significantly to relative results, after the talent management software maker was acquired by IBM. Communication software firm Allot Communications was another source of strength. The company reported better-than-expected earnings and revenue growth, as well as good growth overseas and the firm’s first significant orders from U.S. wireless carriers.
Outlook
Our investment process focuses on small and mid-sized companies with accelerating growth rates in revenue and earnings, as well as share-price momentum. We believe that active investing in such companies will generate outperformance over time compared with the Russell 2500 Growth Index.
8
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Lithia Motors, Inc., Class A | 2.0% |
Polaris Industries, Inc. | 1.5% |
Triumph Group, Inc. | 1.3% |
United Rentals, Inc. | 1.1% |
Titan International, Inc. | 0.9% |
Beacon Roofing Supply, Inc. | 0.9% |
TransDigm Group, Inc. | 0.9% |
Alliance Data Systems Corp. | 0.9% |
Catamaran Corp. | 0.8% |
OSI Systems, Inc. | 0.8% |
Top Five Industries | % of net assets |
Specialty Retail | 6.4% |
Software | 6.0% |
Trading Companies and Distributors | 4.2% |
IT Services | 4.1% |
Real Estate Investment Trusts (REITs) | 4.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.2% |
Temporary Cash Investments | 3.0% |
Other Assets and Liabilities | (0.2)% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 - 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $970.20 | $7.43 | 1.50% |
Institutional Class | $1,000 | $970.30 | $6.44 | 1.30% |
A Class | $1,000 | $968.80 | $8.66 | 1.75% |
C Class | $1,000 | $964.60 | $12.35 | 2.50% |
R Class | $1,000 | $967.40 | $9.89 | 2.00% |
Hypothetical | ||||
Investor Class | $1,000 | $1,017.60 | $7.61 | 1.50% |
Institutional Class | $1,000 | $1,018.60 | $6.60 | 1.30% |
A Class | $1,000 | $1,016.34 | $8.87 | 1.75% |
C Class | $1,000 | $1,012.57 | $12.65 | 2.50% |
R Class | $1,000 | $1,015.08 | $10.13 | 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 366, to reflect the one-half year period. |
11
Shares | Value | |||||||
Common Stocks — 97.2% | ||||||||
AEROSPACE AND DEFENSE — 2.8% | ||||||||
B/E Aerospace, Inc.(1) | 19,966 | $900,267 | ||||||
TransDigm Group, Inc. | 10,447 | 1,391,645 | ||||||
Triumph Group, Inc. | 31,905 | 2,087,225 | ||||||
4,379,137 | ||||||||
AUTO COMPONENTS — 1.0% | ||||||||
American Axle & Manufacturing Holdings, Inc.(1) | 107,678 | 1,170,460 | ||||||
Goodyear Tire & Rubber Co. (The)(1) | 38,777 | 442,445 | ||||||
1,612,905 | ||||||||
AUTOMOBILES — 0.7% | ||||||||
Thor Industries, Inc. | 13,134 | 499,486 | ||||||
Winnebago Industries, Inc.(1) | 46,556 | 586,606 | ||||||
1,086,092 | ||||||||
BIOTECHNOLOGY — 4.0% | ||||||||
Acorda Therapeutics, Inc.(1) | 6,879 | 164,752 | ||||||
Alkermes plc(1) | 18,636 | 345,325 | ||||||
Arena Pharmaceuticals, Inc.(1) | 31,021 | 245,376 | ||||||
ARIAD Pharmaceuticals, Inc.(1) | 23,277 | 501,619 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 16,764 | 620,939 | ||||||
Cepheid, Inc.(1) | 9,689 | 293,674 | ||||||
Cubist Pharmaceuticals, Inc.(1) | 9,406 | 403,517 | ||||||
Dendreon Corp.(1) | 31,548 | 119,882 | ||||||
Incyte Corp. Ltd.(1) | 15,563 | 248,386 | ||||||
Ironwood Pharmaceuticals, Inc.(1) | 13,732 | 159,703 | ||||||
Isis Pharmaceuticals, Inc.(1) | 16,518 | 142,881 | ||||||
Medivation, Inc.(1) | 10,117 | 517,181 | ||||||
Myriad Genetics, Inc.(1) | 13,169 | 344,633 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 8,754 | 685,963 | ||||||
Pharmacyclics, Inc.(1) | 7,510 | 458,636 | ||||||
Seattle Genetics, Inc.(1) | 13,905 | 349,850 | ||||||
Theravance, Inc.(1) | 9,825 | 221,161 | ||||||
United Therapeutics Corp.(1) | 7,293 | 333,071 | ||||||
6,156,549 | ||||||||
BUILDING PRODUCTS — 1.9% | ||||||||
American Woodmark Corp.(1) | 13,777 | 316,871 | ||||||
Apogee Enterprises, Inc. | 37,001 | 753,710 | ||||||
Builders FirstSource, Inc.(1) | 197,252 | 1,086,859 | ||||||
Fortune Brands Home & Security, Inc.(1) | 26,036 | 740,464 | ||||||
2,897,904 | ||||||||
CAPITAL MARKETS — 1.6% | ||||||||
Affiliated Managers Group, Inc.(1) | 5,330 | 674,245 | ||||||
Eaton Vance Corp. | 15,185 | 427,306 | ||||||
Lazard Ltd. Class A | 13,643 | 401,923 | ||||||
SEI Investments Co. | 16,167 | 353,734 | ||||||
Triangle Capital Corp. | 22,656 | 589,735 | ||||||
2,446,943 | ||||||||
CHEMICALS — 2.3% | ||||||||
Albemarle Corp. | 11,740 | 646,991 | ||||||
H.B. Fuller Co. | 13,734 | 417,514 | ||||||
International Flavors & Fragrances, Inc. | 11,304 | 730,464 | ||||||
Rentech Nitrogen Partners LP | 10,124 | 388,863 | ||||||
Valspar Corp. | 12,994 | 728,054 | ||||||
W.R. Grace & Co.(1) | 10,266 | 658,667 | ||||||
3,570,553 | ||||||||
COMMERCIAL BANKS — 2.9% | ||||||||
Banco Latinoamericano de Comercio Exterior SA E Shares | 16,185 | 364,163 | ||||||
Bancorp, Inc.(1) | 9,729 | 110,619 | ||||||
Cathay General Bancorp. | 30,052 | 531,620 | ||||||
City National Corp. | 10,273 | 524,950 | ||||||
Home Bancshares, Inc. | 28,049 | 971,617 | ||||||
Pinnacle Financial Partners, Inc.(1) | 20,338 | 397,608 | ||||||
Signature Bank(1) | 4,991 | 355,559 | ||||||
Texas Capital Bancshares, Inc.(1) | 23,573 | 1,119,010 | ||||||
UMB Financial Corp. | 3,682 | 163,959 | ||||||
4,539,105 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.4% | ||||||||
Deluxe Corp. | 29,042 | 915,113 | ||||||
G&K Services, Inc., Class A | 20,412 | 658,287 | ||||||
HNI Corp. | 8,742 | 240,580 | ||||||
US Ecology, Inc. | 17,639 | 418,574 | ||||||
2,232,554 | ||||||||
COMMUNICATIONS EQUIPMENT — 1.5% | ||||||||
Aruba Networks, Inc.(1) | 19,096 | 346,974 | ||||||
InterDigital, Inc. | 6,853 | 261,031 | ||||||
Ixia(1) | 38,297 | 536,541 |
12
Shares | Value | |||||||
Netgear, Inc.(1) | 10,787 | $383,046 | ||||||
Procera Networks, Inc.(1) | 10,707 | 242,514 | ||||||
Riverbed Technology, Inc.(1) | 22,141 | 408,944 | ||||||
Sycamore Networks, Inc. | 21,124 | 122,097 | ||||||
2,301,147 | ||||||||
COMPUTERS AND PERIPHERALS — 0.4% | ||||||||
Electronics for Imaging, Inc.(1) | 6,725 | 116,746 | ||||||
NCR Corp.(1) | 22,394 | 476,544 | ||||||
593,290 | ||||||||
CONSTRUCTION AND ENGINEERING — 0.5% | ||||||||
KBR, Inc. | 10,557 | 294,118 | ||||||
MasTec, Inc.(1) | 22,247 | 501,892 | ||||||
796,010 | ||||||||
CONSTRUCTION MATERIALS — 1.3% | ||||||||
Eagle Materials, Inc. | 21,838 | 1,156,759 | ||||||
Headwaters, Inc.(1) | 118,383 | 851,174 | ||||||
2,007,933 | ||||||||
CONTAINERS AND PACKAGING — 0.8% | ||||||||
Ball Corp. | 22,073 | 945,387 | ||||||
Packaging Corp. of America | 8,490 | 299,442 | ||||||
1,244,829 | ||||||||
DISTRIBUTORS — 1.0% | ||||||||
LKQ Corp.(1) | 38,829 | 811,138 | ||||||
Pool Corp. | 16,570 | 697,928 | ||||||
1,509,066 | ||||||||
DIVERSIFIED CONSUMER SERVICES — 0.6% | ||||||||
Apollo Group, Inc., Class A(1) | 12,716 | 255,337 | ||||||
Grand Canyon Education, Inc.(1) | 19,866 | 432,284 | ||||||
Hillenbrand, Inc. | 7,979 | 163,330 | ||||||
Steiner Leisure, Ltd.(1) | 3,552 | 156,004 | ||||||
1,006,955 | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 0.4% | ||||||||
MarketAxess Holdings, Inc. | 6,903 | 215,650 | ||||||
MSCI, Inc., Class A(1) | 14,977 | 403,480 | ||||||
619,130 | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.8% | ||||||||
8x8, Inc.(1) | 66,929 | 438,385 | ||||||
Premiere Global Services, Inc.(1) | 33,086 | 281,231 | ||||||
tw telecom, inc., Class A(1) | 21,275 | 541,874 | ||||||
1,261,490 | ||||||||
ELECTRIC UTILITIES — 0.4% | ||||||||
ITC Holdings Corp. | 7,168 | 570,716 | ||||||
ELECTRICAL EQUIPMENT — 0.8% | ||||||||
Acuity Brands, Inc. | 5,518 | 357,015 | ||||||
Franklin Electric Co., Inc. | 5,615 | 325,333 | ||||||
Hubbell, Inc., Class B | 6,924 | 579,677 | ||||||
1,262,025 | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.9% | ||||||||
Cognex Corp. | 16,492 | 601,298 | ||||||
FLIR Systems, Inc. | 13,105 | 254,630 | ||||||
IPG Photonics Corp.(1) | 3,746 | 198,838 | ||||||
Littelfuse, Inc. | 10,066 | 539,538 | ||||||
OSI Systems, Inc.(1) | 15,713 | 1,245,255 | ||||||
Power-One, Inc.(1) | 102,142 | 411,632 | ||||||
Trimble Navigation Ltd.(1) | 21,189 | 999,697 | ||||||
Universal Display Corp.(1) | 7,559 | 247,784 | ||||||
4,498,672 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.7% | ||||||||
Bristow Group, Inc. | 6,220 | 310,503 | ||||||
Dresser-Rand Group, Inc.(1) | 10,666 | 549,619 | ||||||
Dril-Quip, Inc.(1) | 13,068 | 905,090 | ||||||
Hornbeck Offshore Services, Inc.(1) | 28,263 | 979,030 | ||||||
McDermott International, Inc.(1) | 30,668 | 328,454 | ||||||
Oceaneering International, Inc. | 18,631 | 974,960 | ||||||
RigNet, Inc.(1) | 6,725 | 124,883 | ||||||
4,172,539 | ||||||||
FOOD AND STAPLES RETAILING — 0.5% | ||||||||
Andersons, Inc. (The) | 14,960 | 587,629 | ||||||
United Natural Foods, Inc.(1) | 5,155 | 274,452 | ||||||
862,081 | ||||||||
FOOD PRODUCTS — 0.2% | ||||||||
J&J Snack Foods Corp. | 4,866 | 278,676 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.9% | ||||||||
Align Technology, Inc.(1) | 10,623 | 282,359 | ||||||
Cooper Cos., Inc. (The) | 2,143 | 205,685 | ||||||
Cyberonics, Inc.(1) | 4,505 | 208,356 | ||||||
Haemonetics Corp.(1) | 3,921 | 320,346 | ||||||
HeartWare International, Inc.(1) | 2,314 | 194,330 | ||||||
IDEXX Laboratories, Inc.(1) | 7,539 | 725,252 | ||||||
Masimo Corp.(1) | 9,454 | 207,704 | ||||||
Mettler-Toledo International, Inc.(1) | 4,339 | 734,896 | ||||||
ResMed, Inc. | 19,674 | 785,780 |
13
Shares | Value |
STERIS Corp. | 6,592 | $234,741 | ||||||
Thoratec Corp.(1) | 9,091 | 324,549 | ||||||
Volcano Corp.(1) | 8,965 | 256,578 | ||||||
4,480,576 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.8% | ||||||||
Air Methods Corp.(1) | 2,121 | 232,525 | ||||||
AMERIGROUP Corp.(1) | 4,854 | 443,364 | ||||||
Catamaran Corp.(1) | 26,914 | 1,269,264 | ||||||
Centene Corp.(1) | 7,759 | 294,687 | ||||||
Chemed Corp. | 3,169 | 213,115 | ||||||
HealthSouth Corp.(1) | 12,342 | 273,128 | ||||||
HMS Holdings Corp.(1) | 12,472 | 287,979 | ||||||
MWI Veterinary Supply, Inc.(1) | 1,971 | 206,994 | ||||||
Owens & Minor, Inc. | 8,463 | 240,942 | ||||||
Patterson Cos., Inc. | 12,285 | 410,319 | ||||||
PSS World Medical, Inc.(1) | 8,967 | 256,636 | ||||||
WellCare Health Plans, Inc.(1) | 3,241 | 154,272 | ||||||
4,283,225 | ||||||||
HEALTH CARE TECHNOLOGY — 0.3% | ||||||||
athenahealth, Inc.(1) | 5,059 | 325,243 | ||||||
Quality Systems, Inc. | 7,935 | 138,466 | ||||||
463,709 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 2.2% | ||||||||
AFC Enterprises, Inc.(1) | 19,039 | 482,068 | ||||||
Bally Technologies, Inc.(1) | 3,596 | 179,512 | ||||||
Cedar Fair LP | 31,261 | 1,120,707 | ||||||
Panera Bread Co., Class A(1) | 4,052 | 683,329 | ||||||
Papa John’s International, Inc.(1) | 12,573 | 670,392 | ||||||
Six Flags Entertainment Corp. | 4,767 | 272,244 | ||||||
3,408,252 | ||||||||
HOUSEHOLD DURABLES — 2.5% | ||||||||
M.D.C. Holdings, Inc. | 27,069 | 1,035,119 | ||||||
M/I Homes, Inc.(1) | 28,503 | 634,192 | ||||||
NVR, Inc.(1) | 657 | 593,757 | ||||||
Standard Pacific Corp.(1) | 170,435 | 1,176,001 | ||||||
Tupperware Brands Corp. | 8,229 | 486,334 | ||||||
3,925,403 | ||||||||
INDUSTRIAL CONGLOMERATES — 0.8% | ||||||||
Raven Industries, Inc. | 37,023 | 1,010,358 | ||||||
Standex International Corp. | 5,747 | 265,741 | ||||||
1,276,099 | ||||||||
INSURANCE — 0.5% | ||||||||
Amtrust Financial Services, Inc. | 6,968 | 168,626 | ||||||
Arthur J Gallagher & Co. | 16,289 | 577,282 | ||||||
745,908 | ||||||||
INTERNET AND CATALOG RETAIL — 0.8% | ||||||||
HSN, Inc. | 12,474 | 648,898 | ||||||
Netflix, Inc.(1) | 7,256 | 573,877 | ||||||
1,222,775 | ||||||||
INTERNET SOFTWARE AND SERVICES — 2.4% | ||||||||
Blucora, Inc.(1) | 65,846 | 1,155,597 | ||||||
CoStar Group, Inc.(1) | 9,521 | 789,291 | ||||||
Liquidity Services, Inc.(1) | 3,782 | 155,932 | ||||||
NIC, Inc. | 16,018 | 229,057 | ||||||
Perficient, Inc.(1) | 22,402 | 254,711 | ||||||
Stamps.com, Inc.(1) | 2,890 | 79,533 | ||||||
ValueClick, Inc.(1) | 23,285 | 388,161 | ||||||
Web.com Group, Inc.(1) | 42,315 | 667,731 | ||||||
3,720,013 | ||||||||
IT SERVICES — 4.1% | ||||||||
Alliance Data Systems Corp.(1) | 9,532 | 1,363,553 | ||||||
Broadridge Financial Solutions, Inc. | 17,549 | 402,749 | ||||||
Cardtronics, Inc.(1) | 10,797 | 306,743 | ||||||
Computer Task Group, Inc.(1) | 13,323 | 248,474 | ||||||
FleetCor Technologies, Inc.(1) | 8,758 | 415,217 | ||||||
Gartner, Inc.(1) | 12,879 | 597,714 | ||||||
Global Payments, Inc. | 11,531 | 492,950 | ||||||
Heartland Payment Systems, Inc. | 42,486 | 1,108,035 | ||||||
MAXIMUS, Inc. | 7,283 | 401,876 | ||||||
Total System Services, Inc. | 19,389 | 436,059 | ||||||
VeriFone Systems, Inc.(1) | 13,441 | 398,391 | ||||||
WEX, Inc.(1) | 2,774 | 204,666 | ||||||
6,376,427 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 2.2% | ||||||||
Polaris Industries, Inc. | 27,754 | 2,345,213 | ||||||
Smith & Wesson Holding Corp.(1) | 67,899 | 651,831 | ||||||
Sturm Ruger & Co., Inc. | 7,384 | 348,746 | ||||||
3,345,790 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.7% | ||||||||
Bruker Corp.(1) | 15,580 | 188,362 | ||||||
Charles River Laboratories International, Inc.(1) | 5,100 | 190,332 |
14
Shares | Value |
PAREXEL International Corp.(1) | 9,430 | $289,407 | ||||||
Techne Corp. | 5,241 | 353,034 | ||||||
1,021,135 | ||||||||
MACHINERY — 4.0% | ||||||||
CLARCOR, Inc. | 3,491 | 157,933 | ||||||
Donaldson Co., Inc. | 20,012 | 645,787 | ||||||
Lincoln Electric Holdings, Inc. | 11,198 | 485,657 | ||||||
Lindsay Corp. | 14,634 | 1,117,599 | ||||||
Middleby Corp.(1) | 5,585 | 697,846 | ||||||
Sauer-Danfoss, Inc. | 5,655 | 226,539 | ||||||
Titan International, Inc. | 68,614 | 1,439,522 | ||||||
Trinity Industries, Inc. | 8,823 | 275,983 | ||||||
WABCO Holdings, Inc.(1) | 10,488 | 614,282 | ||||||
Wabtec Corp. | 6,790 | 556,101 | ||||||
6,217,249 | ||||||||
MEDIA — 0.6% | ||||||||
ReachLocal, Inc.(1) | 16,584 | 204,646 | ||||||
Regal Entertainment Group Class A | 44,983 | 690,939 | ||||||
895,585 | ||||||||
METALS AND MINING — 0.7% | ||||||||
Compass Minerals International, Inc. | 4,836 | 381,319 | ||||||
Royal Gold, Inc. | 8,093 | 712,831 | ||||||
1,094,150 | ||||||||
MULTILINE RETAIL — 0.3% | ||||||||
Dillard’s, Inc., Class A | 5,264 | 405,328 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.5% | ||||||||
Berry Petroleum Co., Class A | 1,640 | 63,156 | ||||||
Gulfport Energy Corp.(1) | 31,774 | 1,054,261 | ||||||
Kodiak Oil & Gas Corp.(1) | 65,807 | 608,057 | ||||||
Rosetta Resources, Inc.(1) | 22,905 | 1,054,546 | ||||||
SandRidge Energy, Inc.(1) | 57,114 | 355,249 | ||||||
Stone Energy Corp.(1) | 18,905 | 445,969 | ||||||
Tesoro Logistics LP | 4,995 | 220,729 | ||||||
Vaalco Energy, Inc.(1) | 38,235 | 312,380 | ||||||
W&T Offshore, Inc. | 13,080 | 221,706 | ||||||
Western Refining, Inc. | 45,894 | 1,141,384 | ||||||
5,477,437 | ||||||||
PAPER AND FOREST PRODUCTS — 0.2% | ||||||||
Neenah Paper, Inc. | 12,668 | 328,101 | ||||||
PERSONAL PRODUCTS — 0.7% | ||||||||
Herbalife Ltd. | 16,318 | 837,929 | ||||||
Nu Skin Enterprises, Inc., Class A | 5,293 | 250,518 | ||||||
1,088,447 | ||||||||
PHARMACEUTICALS — 1.4% | ||||||||
Auxilium Pharmaceuticals, Inc.(1) | 8,290 | 169,779 | ||||||
Endo Health Solutions Inc.(1) | 10,804 | 309,643 | ||||||
Impax Laboratories, Inc.(1) | 10,924 | 232,135 | ||||||
Jazz Pharmaceuticals plc(1) | 6,193 | 332,750 | ||||||
Medicines Co. (The)(1) | 9,016 | 197,631 | ||||||
Medicis Pharmaceutical Corp., Class A | 8,425 | 365,729 | ||||||
Salix Pharmaceuticals Ltd.(1) | 8,719 | 340,390 | ||||||
VIVUS, Inc.(1) | 15,507 | 231,054 | ||||||
2,179,111 | ||||||||
PROFESSIONAL SERVICES — 1.6% | ||||||||
Equifax, Inc. | 14,776 | 739,391 | ||||||
Exponent, Inc.(1) | 6,594 | 362,538 | ||||||
On Assignment, Inc.(1) | 40,443 | 771,652 | ||||||
Robert Half International, Inc. | 24,057 | 646,893 | ||||||
2,520,474 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 4.1% | ||||||||
Brandywine Realty Trust | 32,931 | 382,000 | ||||||
Camden Property Trust | 8,469 | 555,820 | ||||||
CBL & Associates Properties, Inc. | 23,925 | 535,202 | ||||||
EastGroup Properties, Inc. | 3,763 | 195,902 | ||||||
Essex Property Trust, Inc. | 4,849 | 727,350 | ||||||
Federal Realty Investment Trust | 6,931 | 747,370 | ||||||
Mid-America Apartment Communities, Inc. | 3,837 | 248,292 | ||||||
National Retail Properties, Inc. | 15,037 | 476,372 | ||||||
Omega Healthcare Investors, Inc. | 11,755 | 269,660 | ||||||
PennyMac Mortgage Investment Trust | 11,433 | 290,856 | ||||||
Rayonier, Inc. | 15,220 | 745,932 | ||||||
Sovran Self Storage, Inc. | 11,658 | 673,832 | ||||||
Sun Communities, Inc. | 11,426 | 479,664 | ||||||
6,328,252 | ||||||||
ROAD AND RAIL — 0.5% | ||||||||
Hertz Global Holdings, Inc.(1) | 55,594 | 737,732 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.9% | ||||||||
Cirrus Logic, Inc.(1) | 26,472 | 1,078,999 | ||||||
LSI Corp.(1) | 76,967 | 527,224 | ||||||
Photronics, Inc.(1) | 55,803 | 272,877 | ||||||
Rudolph Technologies, Inc.(1) | 16,741 | 159,207 | ||||||
Semtech Corp.(1) | 12,599 | 314,597 |
15
Shares | Value |
Silicon Image, Inc.(1) | 41,325 | $181,830 | ||||||
Silicon Motion Technology Corp. ADR(1) | 8,257 | 113,038 | ||||||
Skyworks Solutions, Inc.(1) | 34,862 | 815,771 | ||||||
Spansion, Inc., Class A(1) | 17,733 | 196,659 | ||||||
Ultratech, Inc.(1) | 28,571 | 883,129 | ||||||
4,543,331 | ||||||||
SOFTWARE — 6.0% | ||||||||
Allot Communications Ltd.(1) | 34,207 | 799,076 | ||||||
ANSYS, Inc.(1) | 13,187 | 934,695 | ||||||
Aspen Technology, Inc.(1) | 18,048 | 447,229 | ||||||
Bottomline Technologies, Inc.(1) | 9,592 | 224,453 | ||||||
BroadSoft, Inc.(1) | 10,783 | 412,126 | ||||||
Concur Technologies, Inc.(1) | 6,410 | 424,534 | ||||||
FactSet Research Systems, Inc. | 5,008 | 453,474 | ||||||
Fortinet, Inc.(1) | 11,554 | 223,801 | ||||||
Guidance Software, Inc.(1) | 28,394 | 345,839 | ||||||
Informatica Corp.(1) | 13,602 | 369,158 | ||||||
MICROS Systems, Inc.(1) | 10,682 | 484,856 | ||||||
NetScout Systems, Inc.(1) | 23,027 | 569,458 | ||||||
Nuance Communications, Inc.(1) | 47,632 | 1,060,288 | ||||||
PROS Holdings, Inc.(1) | 10,134 | 195,890 | ||||||
SolarWinds, Inc.(1) | 10,002 | 506,001 | ||||||
Solera Holdings, Inc. | 9,949 | 465,713 | ||||||
Synchronoss Technologies, Inc.(1) | 13,620 | 279,074 | ||||||
TIBCO Software, Inc.(1) | 14,737 | 371,520 | ||||||
Ultimate Software Group, Inc.(1) | 7,012 | 710,736 | ||||||
9,277,921 | ||||||||
SPECIALTY RETAIL — 6.4% | ||||||||
Aaron’s, Inc. | 11,566 | 356,580 | ||||||
America’s Car-Mart, Inc.(1) | 5,136 | 214,993 | ||||||
American Eagle Outfitters, Inc. | 21,108 | 440,524 | ||||||
ANN, Inc.(1) | 10,483 | 368,582 | ||||||
Ascena Retail Group, Inc.(1) | 19,917 | 394,357 | ||||||
Cabela’s, Inc.(1) | 9,337 | 418,391 | ||||||
Dick’s Sporting Goods, Inc. | 12,984 | 649,200 | ||||||
Francesca’s Holdings Corp.(1) | 13,737 | 405,654 | ||||||
Genesco, Inc.(1) | 7,888 | 451,982 | ||||||
GNC Holdings, Inc. Class A | 3,600 | 139,212 | ||||||
Group 1 Automotive, Inc. | 4,241 | 262,984 | ||||||
Lithia Motors, Inc., Class A | 88,635 | 3,031,317 | ||||||
Penske Automotive Group, Inc. | 12,079 | 369,617 | ||||||
Sally Beauty Holdings, Inc.(1) | 20,344 | 489,884 | ||||||
Select Comfort Corp.(1) | 10,370 | 288,597 | ||||||
Tractor Supply Co. | 8,759 | 842,966 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. | 8,654 | 798,072 | ||||||
9,922,912 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 3.6% | ||||||||
Carter’s, Inc.(1) | 9,385 | 507,353 | ||||||
Fossil, Inc.(1) | 6,980 | 607,958 | ||||||
G-III Apparel Group Ltd.(1) | 13,494 | 498,738 | ||||||
Hanesbrands, Inc.(1) | 12,240 | 409,673 | ||||||
Iconix Brand Group, Inc.(1) | 27,449 | 508,081 | ||||||
Movado Group, Inc. | 20,553 | 651,325 | ||||||
Oxford Industries, Inc. | 12,706 | 704,929 | ||||||
PVH Corp. | 8,813 | 969,342 | ||||||
Under Armour, Inc. Class A(1) | 10,850 | 567,021 | ||||||
Wolverine World Wide, Inc. | 2,844 | 119,078 | ||||||
5,543,498 | ||||||||
THRIFTS AND MORTGAGE FINANCE — 0.1% | ||||||||
Berkshire Hills Bancorp, Inc. | 4,020 | 94,390 | ||||||
TRADING COMPANIES AND DISTRIBUTORS — 4.2% | ||||||||
Applied Industrial Technologies, Inc. | 8,345 | 338,723 | ||||||
Beacon Roofing Supply, Inc.(1) | 43,972 | 1,422,054 | ||||||
DXP Enterprises, Inc.(1) | 9,034 | 444,744 | ||||||
H&E Equipment Services, Inc. | 32,104 | 488,623 | ||||||
MSC Industrial Direct Co., Inc. Class A | 6,311 | 470,801 | ||||||
SeaCube Container Leasing Ltd. | 20,711 | 383,568 | ||||||
Titan Machinery, Inc.(1) | 34,131 | 807,198 | ||||||
United Rentals, Inc.(1) | 43,047 | 1,750,291 | ||||||
Watsco, Inc. | 6,314 | 431,562 | ||||||
6,537,564 | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.8% | ||||||||
MetroPCS Communications, Inc.(1) | 24,199 | 247,072 | ||||||
SBA Communications Corp., Class A(1) | 14,526 | 967,867 | ||||||
1,214,939 | ||||||||
TOTAL COMMON STOCKS (Cost $129,773,301) | 150,582,034 |
16
Value | ||||
Temporary Cash Investments — 3.0% | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $1,968,980), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $1,929,303) | $1,929,291 | |||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $1,973,557), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $1,929,302) | 1,929,291 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $819,549), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $803,620) | 803,616 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $4,662,198) | 4,662,198 | |||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $134,435,499) | 155,244,232 | |||
OTHER ASSETS AND LIABILITIES — (0.2)% | (313,179 | ) | ||
TOTAL NET ASSETS — 100.0% | $154,931,053 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) | Non-income producing. |
See Notes to Financial Statements.
17
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $134,435,499) | $155,244,232 | |||
Receivable for investments sold | 637,266 | |||
Receivable for capital shares sold | 17,299 | |||
Dividends and interest receivable | 166,372 | |||
156,065,169 | ||||
Liabilities | ||||
Payable for investments purchased | 708,004 | |||
Payable for capital shares redeemed | 226,246 | |||
Accrued management fees | 199,716 | |||
Distribution and service fees payable | 150 | |||
1,134,116 | ||||
Net Assets | $154,931,053 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $170,682,157 | |||
Accumulated net investment loss | (493,831 | ) | ||
Accumulated net realized loss | (36,066,006 | ) | ||
Net unrealized appreciation | 20,808,733 | |||
$154,931,053 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $154,517,242 | 19,005,940 | $8.13 |
Institutional Class, $0.01 Par Value | $33,656 | 4,119 | $8.17 |
A Class, $0.01 Par Value | $239,001 | 29,596 | $8.08* |
C Class, $0.01 Par Value | $79,538 | 10,051 | $7.91 |
R Class, $0.01 Par Value | $61,616 | 7,684 | $8.02 |
* | Maximum offering price $8.57 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
18
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $1,680) | $2,029,444 | |||
Interest | 1,875 | |||
2,031,319 | ||||
Expenses: | ||||
Management fees | 2,387,601 | |||
Distribution and service fees: | ||||
A Class | 699 | |||
C Class | 667 | |||
R Class | 296 | |||
Directors’ fees and expenses | 5,888 | |||
Other expenses | 27 | |||
2,395,178 | ||||
Net investment income (loss) | (363,859 | ) | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on investment transactions | 5,704,469 | |||
Change in net unrealized appreciation (depreciation) on investments | 8,180,114 | |||
Net realized and unrealized gain (loss) | 13,884,583 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $13,520,724 |
See Notes to Financial Statements.
19
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $(363,859 | ) | $(1,589,679 | ) | ||||
Net realized gain (loss) | 5,704,469 | 24,987,553 | ||||||
Change in net unrealized appreciation (depreciation) | 8,180,114 | (10,838,613 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 13,520,724 | 12,559,261 | ||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (17,127,334 | ) | (1,032,579 | ) | ||||
Redemption Fees | ||||||||
Increase in net assets from redemption fees | 2,645 | 42,568 | ||||||
Net increase (decrease) in net assets | (3,603,965 | ) | 11,569,250 | |||||
Net Assets | ||||||||
Beginning of period | 158,535,018 | 146,965,768 | ||||||
End of period | $154,931,053 | $158,535,018 | ||||||
Accumulated net investment loss | $(493,831 | ) | $(220,383 | ) |
See Notes to Financial Statements.
20
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 in stocks of small and mid-sized companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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
21
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.
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 2009. 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.
22
Redemption — The fund may impose a 2.00% redemption fee on shares held less than 60 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Prior to November 14, 2011, the redemption fee applied to shares held less than 180 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 1.10% 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, 2012 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $98,537,740 and $118,491,536, respectively.
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5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 621,604 | $4,915,018 | 2,261,585 | $17,909,206 | ||||||||||||
Redeemed | (2,782,961 | ) | (22,002,462 | ) | (2,482,613 | ) | (19,139,301 | ) | ||||||||
(2,161,357 | ) | (17,087,444 | ) | (221,028 | ) | (1,230,095 | ) | |||||||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 8,432 | 64,452 | 27,185 | 214,828 | ||||||||||||
Redeemed | (16,755 | ) | (130,048 | ) | (6,990 | ) | (48,162 | ) | ||||||||
(8,323 | ) | (65,596 | ) | 20,195 | 166,666 | |||||||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 2,447 | 18,044 | 2,299 | 18,257 | ||||||||||||
Redeemed | (130 | ) | (992 | ) | (410 | ) | (3,383 | ) | ||||||||
2,317 | 17,052 | 1,889 | 14,874 | |||||||||||||
R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 1,932 | 14,548 | 2,191 | 15,976 | ||||||||||||
Redeemed | (726 | ) | (5,894 | ) | — | — | ||||||||||
1,206 | 8,654 | 2,191 | 15,976 | |||||||||||||
Net increase (decrease) | (2,166,157 | ) | $(17,127,334 | ) | (196,753 | ) | $(1,032,579 | ) |
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 | $150,582,034 | — | — | |||||||||
Temporary Cash Investments | — | $4,662,198 | — | |||||||||
Total Value of Investment Securities | $150,582,034 | $4,662,198 | — |
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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.
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, 2012 and October 31, 2011.
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $134,562,913 | |||
Gross tax appreciation of investments | $26,294,990 | |||
Gross tax depreciation of investments | (5,613,671 | ) | ||
Net tax appreciation (depreciation) of investments | $20,681,319 | |||
Undistributed ordinary income | — | |||
Accumulated short-term capital losses | $(36,035,605 | ) | ||
Late-year ordinary loss deferral | $(396,818 | ) |
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.
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 $(2,607,639) and $(33,427,966) expire in 2016 and 2017, respectively.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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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 | Net Asset Value, End of Period | Total Return(2) | Operating Expenses(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||
2012 | $7.47 | (0.02 | ) | 0.68 | 0.66 | $8.13 | 8.84 | % | 1.50 | % | (0.22 | )% | 63 | % | $154,517 | ||||||||||||||
2011 | $6.86 | (0.07 | ) | 0.68 | 0.61 | $7.47 | 8.89 | % | 1.50 | % | (0.95 | )% | 107 | % | $158,117 | ||||||||||||||
2010 | $5.06 | (0.04 | ) | 1.84 | 1.80 | $6.86 | 33.57 | % | 1.51 | % | (0.59 | )% | 181 | % | $146,747 | ||||||||||||||
2009 | $5.12 | (0.02 | ) | (0.04 | ) | (0.06 | ) | $5.06 | (1.17 | )% | 1.50 | % | (0.51 | )% | 206 | % | $119,287 | ||||||||||||
2008 | $8.58 | (0.05 | ) | (3.41 | ) | (3.46 | ) | $5.12 | (40.33 | )% | 1.50 | % | (0.66 | )% | 159 | % | $146,932 | ||||||||||||
Institutional Class | |||||||||||||||||||||||||||||
2012 | $7.49 | — | (4) | 0.68 | 0.68 | $8.17 | 9.08 | % | 1.30 | % | (0.02 | )% | 63 | % | $34 | ||||||||||||||
2011 | $6.87 | (0.06 | ) | 0.68 | 0.62 | $7.49 | 9.02 | % | 1.30 | % | (0.75 | )% | 107 | % | $31 | ||||||||||||||
2010(5) | $6.07 | (0.01 | ) | 0.81 | 0.80 | $6.87 | 13.18 | % | 1.31 | %(6) | (0.29 | )%(6) | 181 | %(7) | $28 | ||||||||||||||
A Class | |||||||||||||||||||||||||||||
2012 | $7.44 | (0.04 | ) | 0.68 | 0.64 | $8.08 | 8.60 | % | 1.75 | % | (0.47 | )% | 63 | % | $239 | ||||||||||||||
2011 | $6.85 | (0.09 | ) | 0.68 | 0.59 | $7.44 | 8.61 | % | 1.75 | % | (1.20 | )% | 107 | % | $282 | ||||||||||||||
2010(5) | $6.07 | (0.03 | ) | 0.81 | 0.78 | $6.85 | 12.85 | % | 1.76 | %(6) | (0.67 | )%(6) | 181 | %(7) | $121 | ||||||||||||||
C Class | |||||||||||||||||||||||||||||
2012 | $7.34 | (0.09 | ) | 0.66 | 0.57 | $7.91 | 7.77 | % | 2.50 | % | (1.22 | )% | 63 | % | $80 | ||||||||||||||
2011 | $6.81 | (0.15 | ) | 0.68 | 0.53 | $7.34 | 7.78 | % | 2.50 | % | (1.95 | )% | 107 | % | $57 | ||||||||||||||
2010(5) | $6.07 | (0.06 | ) | 0.80 | 0.74 | $6.81 | 12.19 | % | 2.51 | %(6) | (1.46 | )%(6) | 181 | %(7) | $40 |
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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 | Net Asset Value, End of Period | Total Return(2) | Operating Expenses(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||
R Class | |||||||||||||||||||||||||||||
2012 | $7.40 | (0.06 | ) | 0.68 | 0.62 | $8.02 | 8.38 | % | 2.00 | % | (0.72 | )% | 63 | % | $62 | ||||||||||||||
2011 | $6.84 | (0.11 | ) | 0.67 | 0.56 | $7.40 | 8.19 | % | 2.00 | % | (1.45 | )% | 107 | % | $48 | ||||||||||||||
2010(5) | $6.07 | (0.04 | ) | 0.81 | 0.77 | $6.84 | 12.69 | % | 2.01 | %(6) | (0.99 | )%(6) | 181 | %(7) | $29 |
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) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
(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. |
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 New Opportunities Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the 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, 2012, 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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 19, 2012
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Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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:
32
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.
33
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.
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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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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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76901 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
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Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
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Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWHIX | 9.41% | 0.86% | 10.87% | 11.24% | 11/10/87 |
Russell Midcap Growth Index | — | 9.09% | 1.55% | 10.03% | 10.31%(1) | — |
Russell Midcap Index | — | 12.15% | 1.70% | 10.52% | 11.56%(1) | — |
Institutional Class | ATHIX | 9.62% | 1.06% | 11.08% | 8.30% | 6/16/97 |
A Class(2) No sales charge* With sales charge* | ATHAX | 9.08% 2.79% | 0.60% -0.58% | 10.59% 9.94% | 7.52% 7.11% | 7/11/97 |
B Class No sales charge* With sales charge* | ATHBX | 8.30% 4.30% | -0.16% -0.36% | — — | 1.00% 0.81% | 9/28/07 |
C Class | AHGCX | 8.30% | -0.14% | 9.77% | 5.51% | 6/26/01 |
R Class | ATHWX | 8.86% | 0.35% | — | 1.51% | 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 to 0.00% after the sixth year. 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.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
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.
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Performance Summary
Heritage returned 9.41%* for the 12 months ended October 31, 2012, outpacing the 9.09% return of the portfolio’s 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 tepid global economic recovery and continued sovereign debt concerns in Europe. Price momentum and acceleration, two factors that the Heritage team looks for in portfolio holdings, were not rewarded consistently during the reporting period. Nevertheless, the portfolio delivered solid returns and outperformed its benchmark.
Within the portfolio, stock decisions in the health care and information technology sectors accounted for the bulk of outperformance versus the benchmark. Holdings in the consumer staples sector also added to relative gains. Stock selection in the materials, consumer discretionary, and industrials sectors detracted from relative returns.
Health Care, Consumer Staples Gained
The health care sector was the largest source of relative gains, attributable largely to stock decisions among health care providers. The top individual contributor in the portfolio by far was pharmacy benefit manager SXC Health Solutions, which acquired Catalyst Health Solutions during the reporting period. The portfolio held overweight positions in both companies, and they each posted strong returns. The merger provides the combined entity (renamed Catamaran Corp.) increased scale to go after larger potential clients.
Spanish health care company Grifols also contributed, as its acquisition of U.S.-based Talecris drove gains in net revenues and net income.
Outperformance in consumer staples was driven by positions in the food and staples retailing group, including an overweight stake in Whole Foods. The company continued to post solid results and see strong volume trends even in the face of weaker economic data, as a secular trend toward healthier diets and organic foods fueled demand. Elsewhere in the sector, the portfolio sidestepped the personal products industry group, an allocation decision that also helped relative results.
Information Technology Contributed, but Some Positions Detracted
The information technology sector was the second-largest source of relative outperformance. Here, an overweight position in Apple added significantly to results, as the company unveiled its much-anticipated iPhone 5 in September, selling more than five million units in its debut weekend. Apple also won a patent lawsuit against Samsung, their major rival in the smart phone market. Also in the sector, the portfolio underweighted the semiconductor group, an allocation decision that helped results versus the benchmark.
*All fund returns referenced in this commentary are for Investor Class shares.
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Some positions in the sector, though, detracted significantly from relative performance. A stake in China’s dominant internet search engine, Baidu was the largest individual detractor from relative returns. The company reported strong results, but underperformed after guiding future growth lower. Investor concerns about slowing economic growth in China also weighed on the company’s share price.
Information security software company Check Point Software Technologies detracted. Check Point underperformed after announcing slower-than-expected license revenue growth, which the company attributed to a pause in orders ahead of a new operating system launch.
Materials, Consumer Discretionary, Industrials Lagged
Relative underperformance in the materials sector was primarily a function of benchmark holdings that Heritage didn’t own. The two largest detractors were paint companies Sherwin-Williams and PPG Industries, which outperformed as housing data for both new construction and renovations started to stabilize and improve.
In the consumer discretionary sector, an underweight allocation to the media industry hurt relative results. As optimism grew about the economic environment, advertising spending grew, helping companies in the industry group. Detrimental holdings in the media industry included China-based Focus Media Holding Ltd., which sold off sharply due to a third party research report. Stock decisions in the hotels, restaurants, and leisure group, as well as the diversified consumer services group, trimmed relative returns.
Elsewhere in the sector, however, it helped to own high-growth international retailer Michael Kors. The stock outperformed during the fiscal year following its initial public offering thanks to brand strength and exposure to luxury spending.
The industrials sector was a meaningful source of underperformance versus the benchmark. In the machinery industry, mining equipment manufacturer Joy Global was one of several overweight positions that trimmed relative performance. The mining equipment company underperformed along with lower metals prices and slowing economic growth.
In the electrical equipment industry group, Polypore, which manufactures lithium-ion separators used in electric vehicles, was hurt over competitor concern. Commercial services overweight Clean Harbors detracted. The hazardous waste disposal company suffered from concerns about pricing pressure in their energy service business as natural gas prices fell.
Outlook
Heritage’s investment process focuses on mid-capitalization companies with accelerating revenue and earnings growth rates, which are also exhibiting share-price strength. This process, which has historically added value, has faced unprecedented headwinds in recent reporting periods. Despite this challenge, Heritage provided solid absolute and relative returns during the reporting period. We believe that active investing in such companies will generate attractive absolute and relative investment performance over time.
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OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Catamaran Corp. | 2.9% |
Alliance Data Systems Corp. | 2.8% |
Kansas City Southern | 2.4% |
Whole Foods Market, Inc. | 2.4% |
PetSmart, Inc. | 2.3% |
Alexion Pharmaceuticals, Inc. | 1.9% |
SBA Communications Corp., Class A | 1.8% |
Apple, Inc. | 1.7% |
Perrigo Co. | 1.6% |
Costco Wholesale Corp. | 1.6% |
Top Five Industries | % of net assets |
Specialty Retail | 10.0% |
Food and Staples Retailing | 5.4% |
IT Services | 4.8% |
Biotechnology | 4.5% |
Software | 4.1% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 91.1% |
Foreign Common Stocks* | 6.8% |
Total Common Stocks | 97.9% |
Temporary Cash Investments | 2.7% |
Other Assets and Liabilities | (0.6)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 - 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $959.00 | $4.97 | 1.01% |
Institutional Class | $1,000 | $959.90 | $3.99 | 0.81% |
A Class | $1,000 | $957.70 | $6.20 | 1.26% |
B Class | $1,000 | $953.90 | $9.87 | 2.01% |
C Class | $1,000 | $954.40 | $9.87 | 2.01% |
R Class | $1,000 | $956.50 | $7.43 | 1.51% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.06 | $5.13 | 1.01% |
Institutional Class | $1,000 | $1,021.06 | $4.12 | 0.81% |
A Class | $1,000 | $1,018.80 | $6.39 | 1.26% |
B Class | $1,000 | $1,015.03 | $10.18 | 2.01% |
C Class | $1,000 | $1,015.03 | $10.18 | 2.01% |
R Class | $1,000 | $1,017.55 | $7.66 | 1.51% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 97.9% | ||||||||
AEROSPACE AND DEFENSE — 2.0% | ||||||||
TransDigm Group, Inc. | 363,600 | $48,435,156 | ||||||
Triumph Group, Inc. | 408,400 | 26,717,528 | ||||||
75,152,684 | ||||||||
AUTO COMPONENTS — 0.8% | ||||||||
BorgWarner, Inc.(1) | 488,937 | 32,181,833 | ||||||
AUTOMOBILES — 1.4% | ||||||||
Harley-Davidson, Inc. | 1,105,800 | 51,707,208 | ||||||
BEVERAGES — 0.8% | ||||||||
Beam, Inc. | 339,700 | 18,873,732 | ||||||
Monster Beverage Corp.(1) | 280,000 | 12,507,600 | ||||||
31,381,332 | ||||||||
BIOTECHNOLOGY — 4.5% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 791,500 | 71,535,770 | ||||||
Grifols SA(1) | 1,407,000 | 48,801,736 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 263,000 | 20,608,680 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 229,300 | 32,629,390 | ||||||
173,575,576 | ||||||||
BUILDING PRODUCTS — 0.8% | ||||||||
Fortune Brands Home & Security, Inc.(1) | 1,092,000 | 31,056,480 | ||||||
CAPITAL MARKETS — 1.9% | ||||||||
KKR & Co. LP | 1,300,700 | 19,575,535 | ||||||
Lazard Ltd. Class A | 742,500 | 21,874,050 | ||||||
Raymond James Financial, Inc. | 804,500 | 30,683,630 | ||||||
72,133,215 | ||||||||
CHEMICALS — 3.8% | ||||||||
Airgas, Inc. | 461,300 | 41,041,861 | ||||||
American Vanguard Corp. | 377,689 | 13,494,828 | ||||||
Cytec Industries, Inc. | 285,700 | 19,661,874 | ||||||
FMC Corp. | 1,044,800 | 55,917,696 | ||||||
Sherwin-Williams Co. (The) | 94,600 | 13,488,068 | ||||||
143,604,327 | ||||||||
COMMERCIAL BANKS — 1.2% | ||||||||
East West Bancorp., Inc. | 1,003,200 | 21,358,128 | ||||||
SVB Financial Group(1) | 443,800 | 25,114,642 | ||||||
46,472,770 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.7% | ||||||||
Cintas Corp. | 572,600 | 23,940,406 | ||||||
Stericycle, Inc.(1) | 418,700 | 39,676,012 | ||||||
63,616,418 | ||||||||
COMMUNICATIONS EQUIPMENT — 0.5% | ||||||||
Palo Alto Networks, Inc.(1) | 348,545 | 19,163,004 | ||||||
COMPUTERS AND PERIPHERALS — 1.7% | ||||||||
Apple, Inc. | 108,527 | 64,584,418 | ||||||
CONSTRUCTION AND ENGINEERING — 1.7% | ||||||||
Chicago Bridge & Iron Co. NV New York Shares | 669,400 | 25,135,970 | ||||||
Quanta Services, Inc.(1) | 1,514,600 | 39,273,578 | ||||||
64,409,548 | ||||||||
CONSUMER FINANCE — 1.6% | ||||||||
Discover Financial Services | 1,485,904 | 60,922,064 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.8% | ||||||||
tw telecom, inc., Class A(1) | 1,203,200 | 30,645,504 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.4% | ||||||||
Jabil Circuit, Inc. | 350,500 | 6,077,670 | ||||||
Trimble Navigation Ltd.(1) | 962,900 | 45,429,622 | ||||||
51,507,292 | ||||||||
ENERGY EQUIPMENT AND SERVICES — 2.5% | ||||||||
Atwood Oceanics, Inc.(1) | 481,000 | 22,991,800 | ||||||
National Oilwell Varco, Inc. | 674,500 | 49,710,650 | ||||||
Oil States International, Inc.(1) | 334,200 | 24,430,020 | ||||||
97,132,470 | ||||||||
FOOD AND STAPLES RETAILING — 5.4% | ||||||||
Costco Wholesale Corp. | 623,900 | 61,410,477 | ||||||
Fresh Market, Inc. (The)(1) | 507,686 | 28,790,873 | ||||||
PriceSmart, Inc. | 303,800 | 25,212,362 | ||||||
Whole Foods Market, Inc. | 949,100 | 89,908,243 | ||||||
205,321,955 | ||||||||
FOOD PRODUCTS — 2.4% | ||||||||
Hain Celestial Group, Inc. (The)(1) | 318,300 | 18,397,740 | ||||||
McCormick & Co., Inc. | 509,400 | 31,389,228 | ||||||
Mead Johnson Nutrition Co. | 688,100 | 42,428,246 | ||||||
92,215,214 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.3% | ||||||||
Cooper Cos., Inc. (The) | 297,900 | 28,592,442 | ||||||
IDEXX Laboratories, Inc.(1) | 418,400 | 40,250,080 | ||||||
Intuitive Surgical, Inc.(1) | 34,800 | 18,869,256 | ||||||
87,711,778 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.9% | ||||||||
Catamaran Corp.(1) | 2,367,084 | 111,631,681 | ||||||
Express Scripts Holding Co.(1) | 627,800 | 38,634,812 | ||||||
150,266,493 |
12
Shares | Value | |||||||
HEALTH CARE TECHNOLOGY — 1.3% | ||||||||
Cerner Corp.(1) | 646,400 | $49,249,216 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.9% | ||||||||
Bally Technologies, Inc.(1) | 512,748 | 25,596,380 | ||||||
Panera Bread Co., Class A(1) | 156,272 | 26,353,710 | ||||||
Penn National Gaming, Inc.(1) | 523,000 | 21,144,890 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 734,500 | 38,083,825 | ||||||
111,178,805 | ||||||||
HOUSEHOLD DURABLES — 0.6% | ||||||||
Toll Brothers, Inc.(1) | 679,300 | 22,423,693 | ||||||
HOUSEHOLD PRODUCTS — 1.1% | ||||||||
Church & Dwight Co., Inc. | 838,400 | 42,557,184 | ||||||
INTERNET AND CATALOG RETAIL — 1.9% | ||||||||
Blue Nile, Inc.(1) | 161,500 | 6,099,855 | ||||||
Expedia, Inc. | 473,300 | 27,995,695 | ||||||
priceline.com, Inc.(1) | 66,711 | 38,276,770 | ||||||
72,372,320 | ||||||||
INTERNET SOFTWARE AND SERVICES — 2.5% | ||||||||
Equinix, Inc.(1) | 142,800 | 25,762,548 | ||||||
LinkedIn Corp., Class A(1) | 308,729 | 33,012,392 | ||||||
Rackspace Hosting, Inc.(1) | 555,800 | 35,398,902 | ||||||
94,173,842 | ||||||||
IT SERVICES — 4.8% | ||||||||
Alliance Data Systems Corp.(1) | 760,400 | 108,775,220 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 283,500 | 18,895,275 | ||||||
Teradata Corp.(1) | 832,000 | 56,833,920 | ||||||
184,504,415 | ||||||||
MACHINERY — 3.2% | ||||||||
Chart Industries, Inc.(1) | 341,600 | 24,181,864 | ||||||
Flowserve Corp. | 244,400 | 33,113,756 | ||||||
Trinity Industries, Inc. | 927,400 | 29,009,072 | ||||||
Valmont Industries, Inc. | 262,200 | 35,423,220 | ||||||
121,727,912 | ||||||||
MEDIA — 1.3% | ||||||||
Scripps Networks Interactive, Inc. Class A | 427,900 | 25,982,088 | ||||||
Sirius XM Radio, Inc.(1) | 8,876,600 | 24,854,480 | ||||||
50,836,568 | ||||||||
METALS AND MINING — 1.6% | ||||||||
Carpenter Technology Corp. | 835,700 | 40,623,377 | ||||||
First Quantum Minerals Ltd. | 880,200 | 19,785,222 | ||||||
60,408,599 | ||||||||
MULTILINE RETAIL — 1.1% | ||||||||
Family Dollar Stores, Inc. | 648,900 | 42,801,444 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 2.8% | ||||||||
Cabot Oil & Gas Corp. | 760,600 | 35,732,988 | ||||||
Concho Resources, Inc.(1) | 420,700 | 36,230,684 | ||||||
Linn Energy LLC | 806,000 | 33,948,720 | ||||||
105,912,392 | ||||||||
PHARMACEUTICALS — 2.8% | ||||||||
Perrigo Co. | 537,700 | 61,840,877 | ||||||
Watson Pharmaceuticals, Inc.(1) | 528,200 | 45,398,790 | ||||||
107,239,667 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.2% | ||||||||
Digital Realty Trust, Inc. | 143,149 | 8,793,643 | ||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.6% | ||||||||
CBRE Group, Inc.(1) | 1,206,600 | 21,742,932 | ||||||
ROAD AND RAIL — 3.0% | ||||||||
Canadian Pacific Railway Ltd. | 269,700 | 24,828,582 | ||||||
Kansas City Southern | 1,132,200 | 91,096,812 | ||||||
115,925,394 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.4% | ||||||||
Avago Technologies Ltd. | 516,200 | 17,050,086 | ||||||
NXP Semiconductor NV(1) | 1,147,800 | 27,845,628 | ||||||
Xilinx, Inc. | 1,473,800 | 48,281,688 | ||||||
93,177,402 | ||||||||
SOFTWARE — 4.1% | ||||||||
Citrix Systems, Inc.(1) | 411,500 | 25,434,815 | ||||||
CommVault Systems, Inc.(1) | 345,500 | 21,583,385 | ||||||
NetSuite, Inc.(1) | 765,119 | 48,592,708 | ||||||
Nuance Communications, Inc.(1) | 1,135,900 | 25,285,134 | ||||||
Salesforce.com, Inc.(1) | 133,000 | 19,415,340 | ||||||
Splunk, Inc.(1) | 570,158 | 15,992,932 | ||||||
156,304,314 | ||||||||
SPECIALTY RETAIL — 10.0% | ||||||||
Cabela’s, Inc.(1) | 682,900 | 30,600,749 | ||||||
DSW, Inc., Class A | 447,100 | 27,983,989 | ||||||
Gap, Inc. (The) | 898,800 | 32,105,136 | ||||||
GNC Holdings, Inc. Class A | 1,101,100 | 42,579,537 | ||||||
Lumber Liquidators Holdings, Inc.(1) | 387,600 | 21,635,832 | ||||||
O’Reilly Automotive, Inc.(1) | 214,500 | 18,378,360 | ||||||
PetSmart, Inc. | 1,322,500 | 87,800,775 | ||||||
Ross Stores, Inc. | 677,100 | 41,269,245 | ||||||
Tractor Supply Co. | 358,100 | 34,463,544 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. | 490,000 | 45,187,800 | ||||||
382,004,967 |
13
Shares | Value |
TEXTILES, APPAREL AND LUXURY GOODS — 3.8% | ||||||||
Lululemon Athletica, Inc.(1) | 353,000 | $24,360,530 | ||||||
Michael Kors Holdings Ltd.(1) | 933,104 | 51,031,458 | ||||||
PVH Corp. | 292,900 | 32,216,071 | ||||||
Under Armour, Inc. Class A(1) | 438,900 | 22,936,914 | ||||||
Vera Bradley, Inc.(1) | 466,500 | 13,906,365 | ||||||
144,451,338 | ||||||||
TRADING COMPANIES AND DISTRIBUTORS — 1.0% | ||||||||
United Rentals, Inc.(1) | 906,000 | 36,837,960 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 1.8% | ||||||||
SBA Communications Corp., Class A(1) | 1,043,032 | 69,497,222 | ||||||
TOTAL COMMON STOCKS (Cost $2,797,302,573) | 3,738,882,812 | |||||||
Temporary Cash Investments — 2.7% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $44,015,164), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $43,128,231) | 43,127,955 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $44,117,494), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $43,128,195) | $43,127,955 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $18,320,437), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $17,964,311) | 17,964,231 | |||||||
SSgA U.S. Government Money Market Fund | 340,794 | 340,794 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $104,560,935) | 104,560,935 | |||||||
TOTAL INVESTMENT SECURITIES — 100.6% (Cost $2,901,863,508) | 3,843,443,747 | |||||||
OTHER ASSETS AND LIABILITIES — (0.6)% | (23,670,426 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $3,819,773,321 |
Forward Foreign Currency Exchange Contracts | |||||||||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||
14,311,004 | CAD for USD | UBS AG | 11/30/12 | $14,320,599 | $8,890 | ||||||
562,175 | CAD for USD | UBS AG | 11/30/12 | 562,552 | (1,034 | ) | |||||
27,578,959 | EUR for USD | UBS AG | 11/30/12 | 35,755,169 | (60,826 | ) | |||||
$50,638,320 | $(52,970 | ) |
(Value on Settlement Date $50,585,350)
Notes to Schedule of Investments
CAD = Canadian Dollar
EUR = Euro
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $2,901,863,508) | $3,843,443,747 | |||
Receivable for investments sold | 17,917,609 | |||
Receivable for capital shares sold | 5,880,258 | |||
Unrealized gain on forward foreign currency exchange contracts | 8,890 | |||
Dividends and interest receivable | 5,058,160 | |||
3,872,308,664 | ||||
Liabilities | ||||
Payable for investments purchased | 41,684,636 | |||
Payable for capital shares redeemed | 7,185,680 | |||
Unrealized loss on forward foreign currency exchange contracts | 61,860 | |||
Accrued management fees | 3,271,206 | |||
Distribution and service fees payable | 331,961 | |||
52,535,343 | ||||
Net Assets | $3,819,773,321 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $2,815,658,631 | |||
Accumulated net investment loss | (14,507,815 | ) | ||
Undistributed net realized gain | 77,096,422 | |||
Net unrealized appreciation | 941,526,083 | |||
$3,819,773,321 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $2,499,047,628 | 111,371,657 | $22.44 |
Institutional Class, $0.01 Par Value | $187,984,473 | 8,169,704 | $23.01 |
A Class, $0.01 Par Value | $972,795,387 | 44,744,284 | $21.74* |
B Class, $0.01 Par Value | $3,051,389 | 141,641 | $21.54 |
C Class, $0.01 Par Value | $117,580,478 | 5,851,341 | $20.09 |
R Class, $0.01 Par Value | $39,313,966 | 1,788,217 | $21.99 |
* | Maximum offering price $23.07 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $21,538) | $27,994,277 | |||
Interest | 63,594 | |||
28,057,871 | ||||
Expenses: | ||||
Management fees | 37,867,218 | |||
Distribution and service fees: | ||||
A Class | 2,481,327 | |||
B Class | 33,388 | |||
C Class | 1,194,763 | |||
R Class | 184,259 | |||
Directors’ fees and expenses | 187,987 | |||
Other expenses | 343 | |||
41,949,285 | ||||
Net investment income (loss) | (13,891,414 | ) | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 100,867,361 | |||
Foreign currency transactions | 1,947,991 | |||
102,815,352 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 244,313,494 | |||
Translation of assets and liabilities in foreign currencies | (5,077 | ) | ||
244,308,417 | ||||
Net realized and unrealized gain (loss) | 347,123,769 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $333,232,355 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $(13,891,414 | ) | $(16,186,409 | ) | ||||
Net realized gain (loss) | 102,815,352 | 237,705,159 | ||||||
Change in net unrealized appreciation (depreciation) | 244,308,417 | (77,938,722 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 333,232,355 | 143,580,028 | ||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (190,310,717 | ) | 620,667,351 | |||||
Net increase (decrease) in net assets | 142,921,638 | 764,247,379 | ||||||
Net Assets | ||||||||
Beginning of period | 3,676,851,683 | 2,912,604,304 | ||||||
End of period | $3,819,773,321 | $3,676,851,683 | ||||||
Accumulated undistributed net investment income (loss) | $(14,507,815 | ) | $49,020 |
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. 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 stocks of medium-sized and smaller companies that management believes will increase in value over time.
The fund offers 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 2009. 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, 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $2,681,981,371 and $2,889,964,972, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 400,000,000 | 400,000,000 | ||||||||||||||
Sold | 19,486,686 | $426,699,628 | 48,523,754 | $1,050,372,668 | ||||||||||||
Redeemed | (24,914,434 | ) | (542,065,205 | ) | (29,959,321 | ) | (630,455,954 | ) | ||||||||
(5,427,748 | ) | (115,365,577 | ) | 18,564,433 | 419,916,714 | |||||||||||
Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||||||
Sold | 2,555,946 | 57,612,871 | 3,643,181 | 79,017,867 | ||||||||||||
Redeemed | (1,849,797 | ) | (41,541,916 | ) | (2,055,324 | ) | (44,025,654 | ) | ||||||||
706,149 | 16,070,955 | 1,587,857 | 34,992,213 | |||||||||||||
A Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 10,998,704 | 231,930,600 | 19,843,309 | 411,532,985 | ||||||||||||
Redeemed | (15,090,587 | ) | (318,897,294 | ) | (13,979,401 | ) | (286,376,262 | ) | ||||||||
(4,091,883 | ) | (86,966,694 | ) | 5,863,908 | 125,156,723 | |||||||||||
B Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||||||
Sold | 1,456 | 31,946 | 16,596 | 339,707 | ||||||||||||
Redeemed | (39,468 | ) | (846,918 | ) | (49,419 | ) | (1,021,747 | ) | ||||||||
(38,012 | ) | (814,972 | ) | (32,823 | ) | (682,040 | ) | |||||||||
C Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||||||
Sold | 1,184,385 | 23,287,065 | 2,703,485 | 52,590,539 | ||||||||||||
Redeemed | (1,565,557 | ) | (30,740,596 | ) | (1,336,721 | ) | (25,564,825 | ) | ||||||||
(381,172 | ) | (7,453,531 | ) | 1,366,764 | 27,025,714 | |||||||||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||||||||
Sold | 835,511 | 17,682,981 | 1,116,361 | 23,766,845 | ||||||||||||
Redeemed | (632,717 | ) | (13,463,879 | ) | (453,977 | ) | (9,508,818 | ) | ||||||||
202,794 | 4,219,102 | 662,384 | 14,258,027 | |||||||||||||
Net increase (decrease) | (9,029,872 | ) | $(190,310,717 | ) | 28,012,523 | $620,667,351 |
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 | $3,478,169,550 | — | — | |||||||||
Foreign Common Stocks | 192,126,304 | $68,586,958 | — | |||||||||
Temporary Cash Investments | 340,794 | 104,220,141 | — | |||||||||
Total Value of Investment Securities | $3,670,636,648 | $172,807,099 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(52,970 | ) | — |
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 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, 2012, is disclosed on the Statement of Assets and Liabilities as an asset of $8,890 in unrealized gain on forward foreign currency exchange contracts and a liability of $61,860 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2012, the effect of foreign currency risk derivative instruments on the Statement of Operations was $1,872,306 in net realized gain (loss) on foreign currency transactions and $(3,950) 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 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, 2012 and October 31, 2011.
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $2,904,917,190 | |||
Gross tax appreciation of investments | $977,588,263 | |||
Gross tax depreciation of investments | (39,061,706 | ) | ||
Net tax appreciation (depreciation) of investments | $938,526,557 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(1,186 | ) | ||
Net tax appreciation (depreciation) | $938,525,371 | |||
Undistributed ordinary income | — | |||
Accumulated long-term gains | $80,150,104 | |||
Late-year ordinary loss deferral | $(14,560,785 | ) |
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.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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 | ||||||||||||||||||||||||||||||||||||||
2012 | $20.51 | (0.06 | ) | 1.99 | 1.93 | — | — | — | $22.44 | 9.41 | % | 1.01 | % | (0.28 | )% | 72 | % | $2,499,048 | ||||||||||||||||||||
2011 | $19.21 | (0.07 | ) | 1.37 | 1.30 | — | — | — | $20.51 | 6.77 | % | 1.01 | % | (0.35 | )% | 95 | % | $2,395,881 | ||||||||||||||||||||
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 | ||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||
2012 | $20.99 | (0.01 | ) | 2.03 | 2.02 | — | — | — | $23.01 | 9.62 | % | 0.81 | % | (0.08 | )% | 72 | % | $187,984 | ||||||||||||||||||||
2011 | $19.62 | (0.03 | ) | 1.40 | 1.37 | — | — | — | $20.99 | 6.98 | % | 0.81 | % | (0.15 | )% | 95 | % | $156,681 | ||||||||||||||||||||
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 | ||||||||||||||||
A Class | ||||||||||||||||||||||||||||||||||||||
2012 | $19.92 | (0.11 | ) | 1.93 | 1.82 | — | — | — | $21.74 | 9.08 | % | 1.26 | % | (0.53 | )% | 72 | % | $972,795 | ||||||||||||||||||||
2011 | $18.70 | (0.12 | ) | 1.34 | 1.22 | — | — | — | $19.92 | 6.58 | % | 1.26 | % | (0.60 | )% | 95 | % | $973,051 | ||||||||||||||||||||
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 |
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 | ||||||||||||||||||||||||||||||||||||||
2012 | $19.89 | (0.27 | ) | 1.92 | 1.65 | — | — | — | $21.54 | 8.30 | % | 2.01 | % | (1.28 | )% | 72 | % | $3,051 | ||||||||||||||||||||
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 | ||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||||
2012 | $18.55 | (0.25 | ) | 1.79 | 1.54 | — | — | — | $20.09 | 8.30 | % | 2.01 | % | (1.28 | )% | 72 | % | $117,580 | ||||||||||||||||||||
2011 | $17.55 | (0.26 | ) | 1.26 | 1.00 | — | — | — | $18.55 | 5.75 | % | 2.01 | % | (1.35 | )% | 95 | % | $115,641 | ||||||||||||||||||||
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 | ||||||||||||||||
R Class | ||||||||||||||||||||||||||||||||||||||
2012 | $20.20 | (0.16 | ) | 1.95 | 1.79 | — | — | — | $21.99 | 8.86 | % | 1.51 | % | (0.78 | )% | 72 | % | $39,314 | ||||||||||||||||||||
2011 | $19.01 | (0.18 | ) | 1.37 | 1.19 | — | — | — | $20.20 | 6.26 | % | 1.51 | % | (0.85 | )% | 95 | % | $32,023 | ||||||||||||||||||||
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 |
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. |
See Notes to Financial Statements.
26
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, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
27
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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 time horizons.
32
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
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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76905 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among theindustry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | AMVIX | 12.03% | -5.38% | 6.40% | 2.65% | 11/30/99 |
Russell 3000 Index | — | 14.75% | 0.59% | 7.47% | 2.67% | — |
Institutional Class | AVDIX | 12.18% | -5.18% | 6.60% | 1.32% | 8/1/00 |
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
1.25% | 1.05% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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
Performance Summary
Veedot returned 12.03%* for the 12 months ended October 31, 2012, compared with its benchmark, the Russell 3000 Index, which returned 14.75% 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 ongoing challenges of a tepid global economic recovery and continued sovereign debt concerns in Europe. Price momentum, a factor that the Veedot team looks for in portfolio holdings, came in and out of favor against a backdrop of high volatility during the reporting period. In this environment, Veedot’s highly systematic investment process delivered positive portfolio returns but lagged its benchmark.
Within the portfolio, stock selection in the information technology, industrials, and energy sectors accounted for the bulk of underperformance relative to Veedot’s benchmark. Those relative losses were partially offset by relative gains in the health care, materials, and consumer staples sectors.
Information Technology Drove Underperformance
The information technology sector was the largest source of Veedot’s underperformance relative to the benchmark, and the only sector from which the portfolio derived negative absolute results. Within the sector, a position in Japanese lens and camera manufacturer Canon detracted as the company’s performance lagged the market.
Within the software industry group, the portfolio held a position in Mitek Systems, a provider of Remote Deposit Capture used in mobile check deposit and other applications. The company’s share price sank in the period as it became involved in a lawsuit regarding patent infringement. Elsewhere in the sector, positioning in the computers and peripherals group detracted from performance versus the benchmark.
Also in the sector, though, China-based SouFun Holdings contributed. The company, which operates a real estate internet portal, increased its guidance for 2012 earnings.
Industrials, Energy Lagged
Within the industrials sector, a position in Pitney Bowes detracted from relative results. The provider of integrated mail services and processing equipment reported disappointing earnings as mail volume declined in favor of digital alternatives. Holdings in the air freight and logistics group also detracted, including an overweight stake in C.H. Robinson Worldwide, whose earnings declined as higher oil prices squeezed profit margins.
In the energy sector, underperformance was largely attributable to the oil, gas, and consumable fuels group. Here, the portfolio held positions in several non-benchmark companies that underperformed.
*All fund returns referenced in this commentary are for Investor Class shares.
6
Health Care, Materials, Consumer Staples Contributed
In the health care sector, the portfolio held an overweight stake in biotechnology company Pharmasset, which represented the largest individual contributor to relative returns. The maker of drugs for the treatment of Chronic Hepatitis C virus (HCV) was acquired by Gilead Sciences at a substantial premium over the company’s share price before the acquisition deal was struck. An overweight position in biopharmaceutical company Pharmacyclics also added meaningfully to performance versus the benchmark. The developer of blood cancer treatments reported better-than-expected earnings and saw a significant jump in its share price.
The materials sector was a source of relative outperformance. Here, Veedot held a number of positions in the metals and mining group that outpaced benchmark returns. In the chemicals group, the portfolio was rewarded for an overweight stake in Flotek Industries. The supplier of drilling and production-related services grew revenues and delivered better-than-expected earnings as it benefited from rising oil prices.
Within the consumer staples sector, retailer Wal-Mart contributed to absolute and relative returns. The company’s earnings rose as it attracted price-conscious shoppers in a difficult economic environment. Holdings in the food products group also added meaningfully to relative results.
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, conditions for growth and momentum oriented investment styles remained difficult, but showed signs of improvement. In this environment, the Veedot portfolio delivered solid results. 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, 2012 | |
Top Ten Holdings | % of net assets |
Wal-Mart Stores, Inc. | 3.3% |
Ocwen Financial Corp. | 1.8% |
Lockheed Martin Corp. | 1.4% |
Abbott Laboratories | 1.3% |
SouFun Holdings Ltd. ADR | 1.3% |
Childrens Place Retail Stores, Inc. (The) | 1.3% |
McKesson Corp. | 1.3% |
UGI Corp. | 1.3% |
Plains All American Pipeline LP | 1.3% |
CNO Financial Group, Inc. | 1.2% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 11.2% |
Health Care Providers and Services | 7.8% |
Food and Staples Retailing | 6.0% |
Semiconductors and Semiconductor Equipment | 5.8% |
Aerospace and Defense | 5.3% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 85.1% |
Foreign Common Stocks* | 14.1% |
Total Common Stocks | 99.2% |
Temporary Cash Investments | 1.2% |
Other Assets and Liabilities | (0.4)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $1,020.70 | $6.45 | 1.27% |
Institutional Class | $1,000 | $1,021.80 | $5.44 | 1.07% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.75 | $6.44 | 1.27% |
Institutional Class | $1,000 | $1,019.76 | $5.43 | 1.07% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 99.2% | ||||||||
AEROSPACE AND DEFENSE — 5.3% | ||||||||
Boeing Co. (The) | 10,167 | $716,163 | ||||||
General Dynamics Corp. | 11,600 | 789,728 | ||||||
Lockheed Martin Corp. | 10,877 | 1,018,849 | ||||||
Northrop Grumman Corp. | 9,551 | 656,058 | ||||||
Raytheon Co. | 11,369 | 643,031 | ||||||
3,823,829 | ||||||||
AIR FREIGHT AND LOGISTICS — 1.0% | ||||||||
United Parcel Service, Inc., Class B | 10,206 | 747,589 | ||||||
AIRLINES — 1.0% | ||||||||
Alaska Air Group, Inc.(1) | 19,849 | 759,026 | ||||||
BIOTECHNOLOGY — 0.5% | ||||||||
Medivation, Inc.(1) | 6,583 | 336,523 | ||||||
COMMERCIAL BANKS — 1.9% | ||||||||
Banco Macro SA ADR(1) | 51,952 | 701,871 | ||||||
Bank of Hawaii Corp. | 7,710 | 340,474 | ||||||
F.N.B. Corp. | 30,653 | 328,907 | ||||||
1,371,252 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 2.6% | ||||||||
Portfolio Recovery Associates, Inc.(1) | 4,216 | 441,204 | ||||||
Stericycle, Inc.(1) | 7,808 | 739,886 | ||||||
Waste Management, Inc. | 20,662 | 676,474 | ||||||
1,857,564 | ||||||||
COMMUNICATIONS EQUIPMENT — 1.1% | ||||||||
Arris Group, Inc.(1) | 44,817 | 615,786 | ||||||
Research In Motion Ltd.(1) | 21,710 | 172,160 | ||||||
787,946 | ||||||||
COMPUTERS AND PERIPHERALS — 3.3% | ||||||||
Apple, Inc. | 1,214 | 722,452 | ||||||
Dell, Inc. | 78,574 | 725,238 | ||||||
Hewlett-Packard Co. | 38,834 | 537,851 | ||||||
Seagate Technology plc | 14,454 | 394,883 | ||||||
2,380,424 | ||||||||
CONSUMER FINANCE — 0.8% | ||||||||
Credit Acceptance Corp.(1) | 7,543 | 615,886 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 1.1% | ||||||||
PHH Corp.(1) | 36,843 | 766,703 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.9% | ||||||||
BCE, Inc. | 12,442 | 543,218 | ||||||
Neutral Tandem, Inc. | 23,429 | 108,242 | ||||||
651,460 | ||||||||
ELECTRIC UTILITIES — 1.4% | ||||||||
NextEra Energy, Inc. | 9,750 | 683,085 | ||||||
Southern Co. | 7,497 | 351,159 | ||||||
1,034,244 | ||||||||
ELECTRICAL EQUIPMENT — 1.1% | ||||||||
Emerson Electric Co. | 16,045 | 777,059 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.0% | ||||||||
SYNNEX Corp.(1) | 22,947 | 743,253 | ||||||
TE Connectivity Ltd. | 22,565 | 726,142 | ||||||
1,469,395 | ||||||||
FOOD AND STAPLES RETAILING — 6.0% | ||||||||
CVS Caremark Corp. | 18,263 | 847,403 | ||||||
Safeway, Inc. | 19,858 | 323,884 | ||||||
Wal-Mart Stores, Inc. | 31,500 | 2,363,130 | ||||||
Walgreen Co. | 24,000 | 845,520 | ||||||
4,379,937 | ||||||||
FOOD PRODUCTS — 2.9% | ||||||||
Campbell Soup Co. | 20,672 | 729,101 | ||||||
General Mills, Inc. | 20,489 | 821,199 | ||||||
Kellogg Co. | 10,403 | 544,285 | ||||||
2,094,585 | ||||||||
GAS UTILITIES — 1.3% | ||||||||
UGI Corp. | 28,623 | 924,237 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.0% | ||||||||
Becton, Dickinson and Co. | 9,653 | 730,539 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 7.8% | ||||||||
AmerisourceBergen Corp. | 19,904 | 785,014 | ||||||
Amsurg Corp.(1) | 11,713 | 334,055 | ||||||
Cardinal Health, Inc. | 20,758 | 853,776 | ||||||
Humana, Inc. | 10,664 | 792,015 | ||||||
McKesson Corp. | 9,951 | 928,528 | ||||||
Tenet Healthcare Corp.(1) | 14,806 | 349,422 | ||||||
UnitedHealth Group, Inc. | 14,130 | 791,280 | ||||||
WellPoint, Inc. | 13,335 | 817,169 | ||||||
5,651,259 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 1.4% | ||||||||
McDonald’s Corp. | 8,144 | 706,899 | ||||||
Multimedia Games Holding Co., Inc.(1) | 17,395 | 276,581 | ||||||
983,480 | ||||||||
HOUSEHOLD DURABLES — 1.0% | ||||||||
PulteGroup, Inc.(1) | 42,380 | 734,869 | ||||||
INSURANCE — 5.0% | ||||||||
ACE Ltd. | 9,242 | 726,883 | ||||||
Alleghany Corp.(1) | 2,158 | 750,121 | ||||||
CNO Financial Group, Inc. | 94,548 | 905,770 |
11
Shares | Value | |||||||
Marsh & McLennan Cos., Inc. | 19,953 | $679,001 | ||||||
MetLife, Inc. | 9,124 | 323,811 | ||||||
Unum Group | 10,730 | 217,604 | ||||||
3,603,190 | ||||||||
INTERNET SOFTWARE AND SERVICES — 2.1% | ||||||||
Demand Media, Inc.(1) | 25,403 | 216,688 | ||||||
SouFun Holdings Ltd. ADR | 53,734 | 970,973 | ||||||
ValueClick, Inc.(1) | 19,025 | 317,147 | ||||||
1,504,808 | ||||||||
IT SERVICES — 2.0% | ||||||||
CACI International, Inc., Class A(1) | 11,405 | 575,154 | ||||||
International Business Machines Corp. | 1,635 | 318,056 | ||||||
MAXIMUS, Inc. | 9,837 | 542,806 | ||||||
1,436,016 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.7% | ||||||||
Smith & Wesson Holding Corp.(1) | 51,551 | 494,890 | ||||||
MACHINERY — 1.0% | ||||||||
Caterpillar, Inc. | 8,573 | 727,076 | ||||||
MEDIA — 3.4% | ||||||||
Cablevision Systems Corp., Class A | 35,343 | 615,675 | ||||||
Madison Square Garden Co. (The), Class A(1) | 12,545 | 516,352 | ||||||
Time Warner Cable, Inc. | 5,474 | 542,528 | ||||||
Viacom, Inc., Class B | 15,630 | 801,350 | ||||||
2,475,905 | ||||||||
METALS AND MINING — 3.6% | ||||||||
AngloGold Ashanti Ltd. ADR | 18,383 | 624,654 | ||||||
Barrick Gold Corp. | 19,401 | 785,741 | ||||||
New Gold, Inc.(1) | 49,555 | 581,280 | ||||||
Newmont Mining Corp. | 11,115 | 606,323 | ||||||
2,597,998 | ||||||||
MULTI-UTILITIES — 1.2% | ||||||||
Consolidated Edison, Inc. | 12,148 | 733,496 | ||||||
MDU Resources Group, Inc. | 7,725 | 167,864 | ||||||
901,360 | ||||||||
MULTILINE RETAIL — 2.8% | ||||||||
Dollar General Corp.(1) | 15,835 | 769,898 | ||||||
Macy’s, Inc. | 12,267 | 467,004 | ||||||
Target Corp. | 11,968 | 762,960 | ||||||
1,999,862 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 11.2% | ||||||||
BreitBurn Energy Partners LP | 38,035 | 766,786 | ||||||
Chevron Corp. | 7,594 | 836,935 | ||||||
Cloud Peak Energy, Inc.(1) | 4,192 | 88,451 | ||||||
Devon Energy Corp. | 11,384 | 662,663 | ||||||
Enerplus Corp. | 41,363 | 665,117 | ||||||
Exxon Mobil Corp. | 9,588 | 874,138 | ||||||
Kinder Morgan Energy Partners LP | 2,904 | 242,949 | ||||||
Kinder Morgan, Inc. | 20,780 | 721,274 | ||||||
MarkWest Energy Partners LP | 7,191 | 389,968 | ||||||
Occidental Petroleum Corp. | 8,570 | 676,687 | ||||||
Plains All American Pipeline LP | 20,032 | 909,052 | ||||||
SandRidge Energy, Inc.(1) | 111,951 | 696,335 | ||||||
Valero Energy Corp. | 11,002 | 320,158 | ||||||
Vanguard Natural Resources LLC | 7,852 | 233,361 | ||||||
8,083,874 | ||||||||
PHARMACEUTICALS — 1.3% | ||||||||
Abbott Laboratories | 14,928 | 978,083 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 5.0% | ||||||||
BioMed Realty Trust, Inc. | 31,634 | 604,842 | ||||||
Campus Crest Communities, Inc. | 68,371 | 758,235 | ||||||
CommonWealth REIT | 7,504 | 102,880 | ||||||
DuPont Fabros Technology, Inc. | 30,502 | 654,573 | ||||||
Essex Property Trust, Inc. | 4,972 | 745,800 | ||||||
Regency Centers Corp. | 15,415 | 740,228 | ||||||
3,606,558 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 5.8% | ||||||||
Applied Materials, Inc. | 68,010 | 720,906 | ||||||
Cabot Microelectronics Corp. | 24,227 | 721,965 | ||||||
Intel Corp. | 33,927 | 733,671 | ||||||
STMicroelectronics NV | 100,549 | 592,234 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 46,714 | 742,753 | ||||||
United Microelectronics Corp. ADR | 380,906 | 716,103 | ||||||
4,227,632 | ||||||||
SOFTWARE — 1.0% | ||||||||
Microsoft Corp. | 26,764 | 763,711 | ||||||
SPECIALTY RETAIL — 3.2% | ||||||||
Childrens Place Retail Stores, Inc. (The)(1) | 16,343 | 954,922 | ||||||
Genesco, Inc.(1) | 11,013 | 631,045 | ||||||
Ross Stores, Inc. | 11,931 | 727,194 | ||||||
2,313,161 | ||||||||
THRIFTS AND MORTGAGE FINANCE — 1.8% | ||||||||
Ocwen Financial Corp.(1) | 33,007 | 1,273,080 | ||||||
TOBACCO — 1.0% | ||||||||
Lorillard, Inc. | 6,323 | 733,531 |
12
Shares | Value |
WIRELESS TELECOMMUNICATION SERVICES — 1.7% | ||||||||
China Mobile Ltd. ADR | 15,456 | $856,108 | ||||||
VimpelCom Ltd. ADR | 36,273 | 399,728 | ||||||
1,255,836 | ||||||||
TOTAL COMMON STOCKS (Cost $69,716,638) | 71,854,377 | |||||||
Temporary Cash Investments — 1.2% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% – 2.00%, 1/31/16 – 6/30/16, valued at $374,074), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $366,536) | 366,534 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% – 3.75%, 8/15/41 – 2/15/42, valued at $374,944), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $366,536) | 366,534 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $155,701), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $152,675) | 152,674 | |||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $885,742) | 885,742 | |||||||
TOTAL INVESTMENT SECURITIES — 100.4% (Cost $70,602,380) | 72,740,119 | |||||||
OTHER ASSETS AND LIABILITIES — (0.4)% | (270,584 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $72,469,535 |
Geographic Diversification | |
(as a % of net assets) | |
United States | 85.1% |
Canada | 3.7% |
Switzerland | 2.8% |
Taiwan (Republic of China) | 2.0% |
People’s Republic of China | 1.4% |
Hong Kong | 1.2% |
Argentina | 1.0% |
South Africa | 0.9% |
Ireland | 0.6% |
Netherlands | 0.5% |
Cash and Equivalents* | 0.8% |
*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, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $70,602,380) | $72,740,119 | |||
Receivable for investments sold | 9,104,491 | |||
Receivable for capital shares sold | 7,109 | |||
Dividends and interest receivable | 85,235 | |||
81,936,954 | ||||
Liabilities | ||||
Payable for investments purchased | 9,016,026 | |||
Payable for capital shares redeemed | 366,396 | |||
Accrued management fees | 78,205 | |||
Other liabilities | 6,792 | |||
9,467,419 | ||||
Net Assets | $72,469,535 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $94,166,871 | |||
Undistributed net investment income | 893,721 | |||
Accumulated net realized loss | (24,728,796 | ) | ||
Net unrealized appreciation | 2,137,739 | |||
$72,469,535 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $72,311,094 | 10,484,605 | $6.90 |
Institutional Class, $0.01 Par Value | $158,441 | 22,545 | $7.03 |
See Notes to Financial Statements.
14
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $30,473) | $1,964,678 | |||
Interest | 568 | |||
1,965,246 | ||||
Expenses: | ||||
Management fees | 941,318 | |||
Directors’ fees and expenses | 2,770 | |||
Other expenses | 7,358 | |||
951,446 | ||||
Net investment income (loss) | 1,013,800 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 5,596,664 | |||
Foreign currency transactions | 5,053 | |||
5,601,717 | ||||
Change in net unrealized appreciation (depreciation) on investments | 1,553,975 | |||
Net realized and unrealized gain (loss) | 7,155,692 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $8,169,492 |
See Notes to Financial Statements.
15
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $1,013,800 | $661,634 | ||||||
Net realized gain (loss) | 5,601,717 | 20,605,823 | ||||||
Change in net unrealized appreciation (depreciation) | 1,553,975 | (12,997,900 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 8,169,492 | 8,269,557 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (1,049,869 | ) | (95,981 | ) | ||||
Institutional Class | (2,838 | ) | (9,897 | ) | ||||
Decrease in net assets from distributions | (1,052,707 | ) | (105,878 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (7,672,085 | ) | (16,567,847 | ) | ||||
Redemption Fees | ||||||||
Increase in net assets from redemption fees | 4,869 | 2,072 | ||||||
Net increase (decrease) in net assets | (550,431 | ) | (8,402,096 | ) | ||||
Net Assets | ||||||||
Beginning of period | 73,019,966 | 81,422,062 | ||||||
End of period | $72,469,535 | $73,019,966 | ||||||
Undistributed net investment income | $893,721 | $516,856 |
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. 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 using an approach to common stock investing developed by American Century Investments. This approach relies heavily on quantitative tools to identify attractive investment opportunities, regardless of company size, industry type or geographic location, on a disciplined, consistent basis.
The fund offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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. 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 2009. 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.
18
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 60 days. The fee may not be applicable to all classes. The redemption fee is retained by the fund and helps cover transaction costs that long-term investors may bear when the fund sells securities to meet investor redemptions. Prior to November 14, 2011, the redemption fee applied to shares held less than 180 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $190,930,194 and $198,610,288, respectively.
19
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||||||
Sold | 1,064,167 | $7,149,708 | 609,907 | $3,792,990 | ||||||||||||
Issued in reinvestment of distributions | 164,796 | 1,018,441 | 15,435 | 93,224 | ||||||||||||
Redeemed | (2,398,214 | ) | (15,808,396 | ) | (2,786,705 | ) | (17,345,567 | ) | ||||||||
(1,169,251 | ) | (7,640,247 | ) | (2,161,363 | ) | (13,459,353 | ) | |||||||||
Institutional Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||||||||
Sold | 6,618 | 44,677 | 33,847 | 215,520 | ||||||||||||
Issued in reinvestment of distributions | 451 | 2,838 | 1,612 | 9,897 | ||||||||||||
Redeemed | (11,136 | ) | (79,353 | ) | (524,367 | ) | (3,333,911 | ) | ||||||||
(4,067 | ) | (31,838 | ) | (488,908 | ) | (3,108,494 | ) | |||||||||
Net increase (decrease) | (1,173,318 | ) | $(7,672,085 | ) | (2,650,271 | ) | $(16,567,847 | ) |
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 | $61,654,529 | — | — | |||||||||
Foreign Common Stocks | 10,199,848 | — | — | |||||||||
Temporary Cash Investments | — | $885,742 | — | |||||||||
Total Value of Investment Securities | $71,854,377 | $885,742 | — |
20
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.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $1,052,707 | $105,878 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $70,658,268 | |||
Gross tax appreciation of investments | $4,373,769 | |||
Gross tax depreciation of investments | (2,291,918 | ) | ||
Net tax appreciation (depreciation) of investments | $2,081,851 | |||
Undistributed ordinary income | $893,721 | |||
Accumulated short-term capital losses | $(24,672,908 | ) |
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.
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 $(1,988,145) and $(22,684,763) expire in 2017 and 2018, respectively.
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: | 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 | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $6.25 | 0.09 | 0.65 | 0.74 | (0.09 | ) | $6.90 | 12.03 | % | 1.26 | % | 1.35 | % | 257 | % | $72,311 | ||||||||||||||||||||||||||||
2011 | $5.68 | 0.05 | 0.53 | 0.58 | (0.01 | ) | $6.25 | 10.16 | % | 1.25 | % | 0.82 | % | 280 | % | $72,851 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $6.37 | 0.10 | 0.66 | 0.76 | (0.10 | ) | $7.03 | 12.18 | % | 1.06 | % | 1.55 | % | 257 | % | $158 | ||||||||||||||||||||||||||||
2011 | $5.78 | 0.06 | 0.55 | 0.61 | (0.02 | ) | $6.37 | 10.55 | % | 1.05 | % | 1.02 | % | 280 | % | $169 | ||||||||||||||||||||||||||||
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 |
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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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, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
23
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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.
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.
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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, 2012.
For corporate taxpayers, the fund hereby designates $1,052,707, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 as qualified for the corporate dividends received deduction.
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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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76903 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity — Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCVX | 7.32% | -4.73% | 7.55% | 8.81% | 11/25/83 |
Russell Midcap Growth Index | — | 9.09% | 1.55% | 10.03% | N/A(1) | — |
Institutional Class | TWVIX | 7.53% | -4.53% | 7.77% | 5.03% | 11/14/96 |
A Class(2) No sales charge* With sales charge* | TWVAX | 7.01% 0.85% | -4.96% -6.09% | 7.29% 6.66% | 4.08% 3.70% | 10/2/96 |
C Class | AVNCX | 6.25% | — | — | 7.94% | 3/1/10 |
R Class | AVTRX | 6.73% | -5.21% | — | 2.62% | 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) | Benchmark data first available 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.
5
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.03% | 0.83% | 1.28% | 2.03% | 1.53% |
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.
6
Performance Summary
Vista returned 7.32%* for the 12 months ended October 31, 2012. By comparison, the Russell Midcap Growth Index (the fund’s benchmark), returned 9.09%.
In terms of Vista’s absolute returns during the fiscal year, the health care and consumer discretionary sectors contributed most. Energy was the only major sector to post negative absolute results. Relative to the benchmark, stock selection made the materials and industrial sectors the leading detractors. Positioning among telecommunication services, energy, and information technology shares contributed most to relative performance.
Stocks Positive but Volatile
Equity markets in recent years have tended to trade in broad “risk on/risk off” moves as perceptions of macroeconomic and market conditions changed. These sorts of conditions typically result in higher correlations between individual securities—that is, stocks tend to go up and down together with comparatively little differentiation among them. This makes it comparatively more difficult for active portfolio managers to outperform. However, despite the uncertain economic and market conditions, we have seen no shortage of attractive companies demonstrating accelerating earnings growth.
Materials, Industrials Detracted Most
In the materials sector, it hurt relative results to be underrepresented in a number of shares that did well during the fiscal year. Good examples were paint companies Sherwin-Williams and PPG Industries—two stocks to which Vista had less exposure than the benchmark—which outperformed as the housing sector improved.
In the industrial sector, a number of Vista’s holdings were affected by investor uncertainty around corporate earnings growth and pricing power resulting from worries about the health of the global economy. The leading detractor here was mining equipment manufacturer Joy Global, which suffered from declining metals prices and slower economic growth. In the electrical equipment industry group, Polypore, which manufactures lithium-ion separators used in electric vehicles, was hurt over competitor concern.
Among other leading individual detractors was information security software company Check Point Software Technologies. Check Point underperformed after announcing slower-than-expected license revenue growth, which the company attributed to a pause in orders ahead of a new operating system launch. China-based Focus Media Holding underperformed as a result of a critical third party research report.
*All fund returns referenced in this commentary are for Investor Class shares.
7
Contributions Broad Based
Looking at positive contributors to relative results, stock selection and allocation decisions drove outperformance in the telecommunication services sector. The leading contributor in this space was cellular tower operator SBA Communications. The company continues to benefit from a long-running trend toward the build-out of data networks for mobile phones.
Elsewhere, stock selection in the energy and information technology sectors drove outperformance. In the energy space, positioning in the oil, gas, and consumable fuels industry contributed most. Here, stock choices had a positive effect, and it helped to be underweight this comparatively poor-performing industry segment. Among information technology stocks, the IT services and semiconductor industries were sources of strength. A key contributor in the sector was business software provider NetSuite, which reported better-than-expected results and did very well late in the fiscal year.
The leading individual contributor in the portfolio for the fiscal year was pharmacy benefit manager SXC Health Solutions, which announced the acquisition of Catalyst Health Solutions in April 2012. The portfolio held positions in both SXC and Catalyst, and they each posted strong returns. The merger provides the combined entity, subsequently renamed Catamaran, with increased scale to target larger potential clients.
A number of other key contributors resided in the consumer discretionary sector, including PetSmart and Ulta Salon Cosmetics & Fragrance. Pet products retailer PetSmart reported improvement in same store sales, margins, and other key business metrics, while the stock further benefited from an aggressive share buyback plan. Ulta enjoyed attractive store growth and same store sales comparisons, as well as seeing its business mix evolve toward higher margin products. It also helped to own high-growth international retailer Michael Kors, which outperformed during the fiscal year following its initial public offering thanks to brand strength and exposure to luxury spending.
Commitment to Process
Vista’s investment process focuses on medium- and smaller-sized companies with accelerating growth rates and share price momentum. Within the process, in the current market environment, our team is placing increasing emphasis on the identification of companies benefiting from enduring secular—as opposed to cyclical—growth trends. Such secular trends are often the result of larger technological, social, or economic change that can last several years or more. Examples of secular changes underway at present are trends toward mobile and cloud computing, among others. Secular growers are particularly appealing investments because they offer more sustainable, enduring rates of earnings acceleration across the economic cycle. We believe that smart risk-taking and active investing in such companies will generate attractive absolute and relative investment performance over time.
8
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Alliance Data Systems Corp. | 3.0% |
Catamaran Corp. | 2.4% |
Whole Foods Market, Inc. | 2.3% |
SBA Communications Corp., Class A | 2.2% |
Kansas City Southern | 2.1% |
Teradata Corp. | 1.9% |
PetSmart, Inc. | 1.8% |
Tractor Supply Co. | 1.7% |
Alexion Pharmaceuticals, Inc. | 1.7% |
Cabot Oil & Gas Corp. | 1.7% |
Top Five Industries | % of net assets |
Specialty Retail | 10.7% |
IT Services | 5.3% |
Chemicals | 4.6% |
Biotechnology | 3.6% |
Food and Staples Retailing | 3.5% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 91.5% |
Foreign Common Stocks* | 6.2% |
Total Common Stocks | 97.7% |
Temporary Cash Investments | 2.6% |
Other Assets and Liabilities | (0.3)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $952.60 | $4.91 | 1.00% |
Institutional Class | $1,000 | $953.50 | $3.93 | 0.80% |
A Class | $1,000 | $950.90 | $6.13 | 1.25% |
C Class | $1,000 | $947.70 | $9.79 | 2.00% |
R Class | $1,000 | $949.80 | $7.35 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.11 | $5.08 | 1.00% |
Institutional Class | $1,000 | $1,021.12 | $4.06 | 0.80% |
A Class | $1,000 | $1,018.85 | $6.34 | 1.25% |
C Class | $1,000 | $1,015.08 | $10.13 | 2.00% |
R Class | $1,000 | $1,017.60 | $7.61 | 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 366, to reflect the one-half year period. |
11
Shares | Value | |||||||
Common Stocks — 97.7% | ||||||||
AEROSPACE AND DEFENSE — 1.8% | ||||||||
B/E Aerospace, Inc.(1) | 214,000 | $9,649,260 | ||||||
TransDigm Group, Inc. | 117,000 | 15,585,570 | ||||||
25,234,830 | ||||||||
AUTO COMPONENTS — 1.4% | ||||||||
BorgWarner, Inc.(1) | 127,000 | 8,359,140 | ||||||
Delphi Automotive plc(1) | 364,000 | 11,444,160 | ||||||
19,803,300 | ||||||||
AUTOMOBILES — 0.6% | ||||||||
Harley-Davidson, Inc. | 169,000 | 7,902,440 | ||||||
BEVERAGES — 1.3% | ||||||||
Beam, Inc. | 117,000 | 6,500,520 | ||||||
Dr Pepper Snapple Group, Inc. | 166,000 | 7,113,100 | ||||||
Monster Beverage Corp.(1) | 106,000 | 4,735,020 | ||||||
18,348,640 | ||||||||
BIOTECHNOLOGY — 3.6% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 257,000 | 23,227,660 | ||||||
Grifols SA(1) | 279,000 | 9,677,103 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 67,000 | 5,250,120 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 75,000 | 10,672,500 | ||||||
48,827,383 | ||||||||
BUILDING PRODUCTS — 0.9% | ||||||||
Fortune Brands Home & Security, Inc.(1) | 410,000 | 11,660,400 | ||||||
CAPITAL MARKETS — 2.1% | ||||||||
Affiliated Managers Group, Inc.(1) | 145,000 | 18,342,500 | ||||||
KKR & Co. LP | 663,000 | 9,978,150 | ||||||
28,320,650 | ||||||||
CHEMICALS — 4.6% | ||||||||
Airgas, Inc. | 124,000 | 11,032,280 | ||||||
Celanese Corp. | 110,000 | 4,178,900 | ||||||
Cytec Industries, Inc. | 130,000 | 8,946,600 | ||||||
Eastman Chemical Co. | 241,000 | 14,276,840 | ||||||
FMC Corp. | 345,000 | 18,464,400 | ||||||
Sherwin-Williams Co. (The) | 46,000 | 6,558,680 | ||||||
63,457,700 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.2% | ||||||||
Stericycle, Inc.(1) | 177,000 | 16,772,520 | ||||||
COMMUNICATIONS EQUIPMENT — 0.5% | ||||||||
Palo Alto Networks, Inc.(1) | 125,000 | 6,872,500 | ||||||
CONSTRUCTION AND ENGINEERING — 1.9% | ||||||||
Chicago Bridge & Iron Co. NV New York Shares | 194,000 | 7,284,700 | ||||||
KBR, Inc. | 220,000 | 6,129,200 | ||||||
Quanta Services, Inc.(1) | 501,000 | 12,990,930 | ||||||
26,404,830 | ||||||||
CONSTRUCTION MATERIALS — 0.2% | ||||||||
Eagle Materials, Inc. | 55,000 | 2,913,350 | ||||||
CONSUMER FINANCE — 1.6% | ||||||||
Discover Financial Services | 533,000 | 21,853,000 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.7% | ||||||||
McGraw-Hill Cos., Inc. (The) | 172,000 | 9,508,160 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.7% | ||||||||
tw telecom, inc., Class A(1) | 353,000 | 8,990,910 | ||||||
ELECTRICAL EQUIPMENT — 0.5% | ||||||||
AMETEK, Inc. | 193,000 | 6,861,150 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.4% | ||||||||
Trimble Navigation Ltd.(1) | 406,000 | 19,155,080 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.6% | ||||||||
Atwood Oceanics, Inc.(1) | 171,000 | 8,173,800 | ||||||
National Oilwell Varco, Inc. | 112,000 | 8,254,400 | ||||||
Oceaneering International, Inc. | 220,000 | 11,512,600 | ||||||
Oil States International, Inc.(1) | 115,000 | 8,406,500 | ||||||
36,347,300 | ||||||||
FOOD AND STAPLES RETAILING — 3.5% | ||||||||
Costco Wholesale Corp. | 91,000 | 8,957,130 | ||||||
Fresh Market, Inc. (The)(1) | 119,000 | 6,748,490 | ||||||
Whole Foods Market, Inc. | 337,000 | 31,924,010 | ||||||
47,629,630 | ||||||||
FOOD PRODUCTS — 2.7% | ||||||||
Hain Celestial Group, Inc. (The)(1) | 132,000 | 7,629,600 | ||||||
McCormick & Co., Inc. | 182,000 | 11,214,840 | ||||||
Mead Johnson Nutrition Co. | 289,000 | 17,819,740 | ||||||
36,664,180 | ||||||||
GAS UTILITIES — 1.1% | ||||||||
ONEOK, Inc. | 310,000 | 14,663,000 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 3.1% | ||||||||
Cooper Cos., Inc. (The) | 95,000 | 9,118,100 | ||||||
Edwards Lifesciences Corp.(1) | 70,000 | 6,078,100 | ||||||
IDEXX Laboratories, Inc.(1) | 118,000 | 11,351,600 | ||||||
Intuitive Surgical, Inc.(1) | 13,000 | 7,048,860 | ||||||
Mettler-Toledo International, Inc.(1) | 57,000 | 9,654,090 | ||||||
43,250,750 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.4% | ||||||||
Catamaran Corp.(1) | 687,000 | 32,398,920 | ||||||
Express Scripts Holding Co.(1) | 232,000 | 14,277,280 | ||||||
46,676,200 |
12
Shares | Value | |||||||
HEALTH CARE TECHNOLOGY — 0.9% | ||||||||
Cerner Corp.(1) | 161,000 | $12,266,590 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 1.6% | ||||||||
Dunkin’ Brands Group, Inc. | 207,000 | 6,417,000 | ||||||
Panera Bread Co., Class A(1) | 43,000 | 7,251,520 | ||||||
Royal Caribbean Cruises Ltd. | 61,000 | 2,053,870 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 133,000 | 6,896,050 | ||||||
22,618,440 | ||||||||
HOUSEHOLD DURABLES — 1.7% | ||||||||
Lennar Corp., Class A | 268,000 | 10,041,960 | ||||||
Toll Brothers, Inc.(1) | 395,000 | 13,038,950 | ||||||
23,080,910 | ||||||||
HOUSEHOLD PRODUCTS — 1.0% | ||||||||
Church & Dwight Co., Inc. | 265,000 | 13,451,400 | ||||||
INSURANCE — 0.1% | ||||||||
Cincinnati Financial Corp. | 51,000 | 2,031,840 | ||||||
INTERNET AND CATALOG RETAIL — 1.3% | ||||||||
Expedia, Inc. | 133,000 | 7,866,950 | ||||||
priceline.com, Inc.(1) | 18,000 | 10,327,860 | ||||||
18,194,810 | ||||||||
INTERNET SOFTWARE AND SERVICES — 2.0% | ||||||||
Equinix, Inc.(1) | 33,000 | 5,953,530 | ||||||
LinkedIn Corp., Class A(1) | 85,000 | 9,089,050 | ||||||
Rackspace Hosting, Inc.(1) | 194,000 | 12,355,860 | ||||||
27,398,440 | ||||||||
IT SERVICES — 5.3% | ||||||||
Alliance Data Systems Corp.(1) | 288,000 | 41,198,400 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 99,000 | 6,598,350 | ||||||
Teradata Corp.(1) | 374,000 | 25,547,940 | ||||||
73,344,690 | ||||||||
MACHINERY — 2.5% | ||||||||
Chart Industries, Inc.(1) | 124,000 | 8,777,960 | ||||||
Joy Global, Inc. | 107,000 | 6,682,150 | ||||||
Trinity Industries, Inc. | 245,000 | 7,663,600 | ||||||
Valmont Industries, Inc. | 82,000 | 11,078,200 | ||||||
34,201,910 | ||||||||
MEDIA — 2.3% | ||||||||
CBS Corp., Class B | 274,000 | 8,877,600 | ||||||
Liberty Global, Inc. Class A(1) | 124,000 | 7,443,720 | ||||||
Scripps Networks Interactive, Inc. Class A | 110,000 | 6,679,200 | ||||||
Sirius XM Radio, Inc.(1) | 3,129,000 | 8,761,200 | ||||||
31,761,720 | ||||||||
METALS AND MINING — 0.6% | ||||||||
Carpenter Technology Corp. | 163,000 | 7,923,430 | ||||||
MULTILINE RETAIL — 1.1% | ||||||||
Dollar Tree, Inc.(1) | 178,000 | 7,096,860 | ||||||
Family Dollar Stores, Inc. | 126,000 | 8,310,960 | ||||||
15,407,820 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 3.2% | ||||||||
Cabot Oil & Gas Corp. | 493,000 | 23,161,140 | ||||||
Concho Resources, Inc.(1) | 149,000 | 12,831,880 | ||||||
Kodiak Oil & Gas Corp.(1) | 819,000 | 7,567,560 | ||||||
43,560,580 | ||||||||
PHARMACEUTICALS — 2.7% | ||||||||
Perrigo Co. | 194,000 | 22,311,940 | ||||||
Watson Pharmaceuticals, Inc.(1) | 174,000 | 14,955,300 | ||||||
37,267,240 | ||||||||
PROFESSIONAL SERVICES — 0.5% | ||||||||
IHS, Inc. Class A(1) | 74,000 | 6,244,860 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.4% | ||||||||
Digital Realty Trust, Inc. | 173,000 | 10,627,390 | ||||||
Ventas, Inc. | 139,000 | 8,794,530 | ||||||
19,421,920 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.9% | ||||||||
CBRE Group, Inc.(1) | 606,000 | 10,920,120 | ||||||
Realogy Holdings Corp.(1) | 43,587 | 1,549,082 | ||||||
12,469,202 | ||||||||
ROAD AND RAIL — 3.0% | ||||||||
Canadian Pacific Railway Ltd. | 104,000 | 9,574,240 | ||||||
Genesee & Wyoming, Inc. Class A(1) | 49,000 | 3,551,030 | ||||||
Kansas City Southern | 357,000 | 28,724,220 | ||||||
41,849,490 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.7% | ||||||||
ARM Holdings plc | 1,046,000 | 11,225,078 | ||||||
Avago Technologies Ltd. | 271,000 | 8,951,130 | ||||||
NXP Semiconductor NV(1) | 171,000 | 4,148,460 | ||||||
Xilinx, Inc. | 404,000 | 13,235,040 | ||||||
37,559,708 | ||||||||
SOFTWARE — 3.0% | ||||||||
Citrix Systems, Inc.(1) | 289,000 | 17,863,090 | ||||||
CommVault Systems, Inc.(1) | 22,000 | 1,374,340 | ||||||
NetSuite, Inc.(1) | 248,000 | 15,750,480 | ||||||
Splunk, Inc.(1) | 229,000 | 6,423,450 | ||||||
41,411,360 | ||||||||
SPECIALTY RETAIL — 10.7% | ||||||||
Cabela’s, Inc.(1) | 228,000 | 10,216,680 | ||||||
DSW, Inc., Class A | 207,000 | 12,956,130 | ||||||
Gap, Inc. (The) | 222,000 | 7,929,840 |
13
Shares | Value |
GNC Holdings, Inc. Class A | 401,000 | $15,506,670 | ||||||
Lumber Liquidators Holdings, Inc.(1) | 110,000 | 6,140,200 | ||||||
O’Reilly Automotive, Inc.(1) | 84,000 | 7,197,120 | ||||||
PetSmart, Inc. | 368,000 | 24,431,520 | ||||||
Ross Stores, Inc. | 251,000 | 15,298,450 | ||||||
Sally Beauty Holdings, Inc.(1) | 285,000 | 6,862,800 | ||||||
Tractor Supply Co. | 244,000 | 23,482,560 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. | 178,000 | 16,415,160 | ||||||
146,437,130 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 3.3% | ||||||||
Lululemon Athletica, Inc.(1) | 112,000 | 7,729,120 | ||||||
Michael Kors Holdings Ltd.(1) | 279,000 | 15,258,510 | ||||||
PVH Corp. | 76,000 | 8,359,240 | ||||||
Under Armour, Inc. Class A(1) | 118,000 | 6,166,680 | ||||||
VF Corp. | 47,000 | 7,354,560 | ||||||
44,868,110 | ||||||||
TOBACCO — 0.5% | ||||||||
Lorillard, Inc. | 61,000 | 7,076,610 | ||||||
TRADING COMPANIES AND DISTRIBUTORS — 1.8% | ||||||||
Fastenal Co. | 209,000 | 9,342,300 | ||||||
United Rentals, Inc.(1) | 394,000 | 16,020,040 | ||||||
25,362,340 | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 2.2% | ||||||||
SBA Communications Corp., Class A(1) | 448,000 | 29,850,240 | ||||||
TOTAL COMMON STOCKS (Cost $1,046,073,992) | 1,343,178,693 | |||||||
Temporary Cash Investments — 2.6% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% – 2.00%, 1/31/16 – 6/30/16, valued at $15,027,499), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $14,724,685) | $14,724,591 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% – 3.75%, 8/15/41 – 2/15/42, valued at $15,062,436), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $14,724,674) | 14,724,592 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $6,254,898), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $6,133,310) | 6,133,283 | |||||||
SSgA U.S. Government Money Market Fund | 24 | 24 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $35,582,490) | 35,582,490 | |||||||
TOTAL INVESTMENT SECURITIES — 100.3% (Cost $1,081,656,482) | 1,378,761,183 | |||||||
OTHER ASSETS AND LIABILITIES — (0.3)% | (4,228,636 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $1,374,532,547 |
Forward Foreign Currency Exchange Contracts | |||||||||||||
Contracts to Buy | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||||
168,929 | GBP for USD | Credit Suisse AG | 11/30/12 | $272,583 | $1,985 | ||||||||
(Value on Settlement Date $270,598) | |||||||||||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |||||||||
6,120,842 | EUR for USD | UBS AG | 11/30/12 | $7,935,460 | $(13,500 | ) | |||||||
6,005,871 | GBP for USD | Credit Suisse AG | 11/30/12 | 9,691,046 | (24,297 | ) | |||||||
$17,626,506 | $(37,797 | ) | |||||||||||
(Value on Settlement Date $17,588,709) |
Notes to Schedule of Investments
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $1,081,656,482) | $1,378,761,183 | |||
Foreign currency holdings, at value (cost of $28,075) | 28,189 | |||
Receivable for investments sold | 10,979,722 | |||
Receivable for capital shares sold | 1,043,799 | |||
Unrealized gain on forward foreign currency exchange contracts | 1,985 | |||
Dividends and interest receivable | 1,867,479 | |||
1,392,682,357 | ||||
Liabilities | ||||
Payable for investments purchased | 15,880,975 | |||
Payable for capital shares redeemed | 1,027,596 | |||
Unrealized loss on forward foreign currency exchange contracts | 37,797 | |||
Accrued management fees | 1,177,270 | |||
Distribution and service fees payable | 26,172 | |||
18,149,810 | ||||
Net Assets | $1,374,532,547 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $1,161,159,681 | |||
Accumulated net investment loss | (2,816,763 | ) | ||
Accumulated net realized loss | (80,919,901 | ) | ||
Net unrealized appreciation | 297,109,530 | |||
$1,374,532,547 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $1,201,141,468 | 69,465,537 | $17.29 |
Institutional Class, $0.01 Par Value | $65,754,988 | 3,684,241 | $17.85 |
A Class, $0.01 Par Value | $94,622,392 | 5,681,423 | $16.65* |
C Class, $0.01 Par Value | $80,636 | 4,789 | $16.84 |
R Class, $0.01 Par Value | $12,933,063 | 776,156 | $16.66 |
*Maximum offering price $17.67 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $15,930) | $10,978,716 | |||
Interest | 20,915 | |||
10,999,631 | ||||
Expenses: | ||||
Management fees | 14,165,052 | |||
Distribution and service fees: | ||||
A Class | 271,041 | |||
C Class | 823 | |||
R Class | 81,341 | |||
Directors’ fees and expenses | 57,843 | |||
Other expenses | 31 | |||
14,576,131 | ||||
Net investment income (loss) | (3,576,500 | ) | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 100,461,098 | |||
Futures contract transactions | (3,584,516 | ) | ||
Foreign currency transactions | 222,447 | |||
97,099,029 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | (2,474,966 | ) | ||
Translation of assets and liabilities in foreign currencies | 168,989 | |||
(2,305,977 | ) | |||
Net realized and unrealized gain (loss) | 94,793,052 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $91,216,552 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $(3,576,500 | ) | $(9,139,148 | ) | ||||
Net realized gain (loss) | 97,099,029 | 342,241,037 | ||||||
Change in net unrealized appreciation (depreciation) | (2,305,977 | ) | (169,580,733 | ) | ||||
Net increase (decrease) in net assets resulting from operations | 91,216,552 | 163,521,156 | ||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (312,325,379 | ) | (695,555,495 | ) | ||||
Net increase (decrease) in net assets | (221,108,827 | ) | (532,034,339 | ) | ||||
Net Assets | ||||||||
Beginning of period | 1,595,641,374 | 2,127,675,713 | ||||||
End of period | $1,374,532,547 | $1,595,641,374 | ||||||
Accumulated undistributed net investment income (loss) | $(2,816,763 | ) | $232,336 |
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 stocks of medium-sized and smaller companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2009. 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, 2012 are detailed in the Statement of Operations.
20
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., 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 issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 16% of the shares of the fund. These funds do not invest in the fund for the purpose of exercising management or control.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $1,008,361,991 and $1,343,720,829, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | ||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||
Investor Class/Shares Authorized | 750,000,000 | 750,000,000 | |||||||||||||
Sold | 4,873,333 | $81,177,047 | 8,621,805 | $143,273,101 | |||||||||||
Redeemed | (20,339,527 | ) | (324,033,168 | ) | (39,205,210 | ) | (673,000,417 | ) | |||||||
(15,466,194 | ) | (242,856,121 | ) | (30,583,405 | ) | (529,727,316 | ) | ||||||||
Institutional Class/Shares Authorized | 80,000,000 | 80,000,000 | |||||||||||||
Sold | 886,541 | 15,318,015 | 1,888,308 | 31,910,361 | |||||||||||
Redeemed | (2,218,876 | ) | (39,285,626 | ) | (6,639,853 | ) | (114,083,570 | ) | |||||||
(1,332,335 | ) | (23,967,611 | ) | (4,751,545 | ) | (82,173,209 | ) | ||||||||
A Class/Shares Authorized | 310,000,000 | 310,000,000 | |||||||||||||
Sold | 1,022,625 | 16,651,054 | 2,133,309 | 34,631,696 | |||||||||||
Redeemed | (3,331,130 | ) | (54,130,918 | ) | (6,781,320 | ) | (109,933,117 | ) | |||||||
(2,308,505 | ) | (37,479,864 | ) | (4,648,011 | ) | (75,301,421 | ) | ||||||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | |||||||||||||
Sold | 238 | 3,918 | 3,649 | 62,747 | |||||||||||
Redeemed | (860 | ) | (14,472 | ) | (227 | ) | (3,470 | ) | |||||||
(622 | ) | (10,554 | ) | 3,422 | 59,277 | ||||||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | |||||||||||||
Sold | 158,086 | 2,624,418 | 269,541 | 4,389,911 | |||||||||||
Redeemed | (644,443 | ) | (10,635,647 | ) | (805,128 | ) | (12,802,737 | ) | |||||||
(486,357 | ) | (8,011,229 | ) | (535,587 | ) | (8,412,826 | ) | ||||||||
Net increase (decrease) | (19,594,013 | ) | $(312,325,379 | ) | (40,515,126 | ) | $(695,555,495 | ) |
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 | ||||||||||||
Domestic Common Stocks | $1,257,886,192 | — | — | |||||||||
Foreign Common Stocks | 64,390,320 | $20,902,181 | — | |||||||||
Temporary Cash Investments | 24 | 35,582,466 | — | |||||||||
Total Value of Investment Securities | $1,322,276,536 | $56,484,647 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(35,812 | ) | — |
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.
22
Foreign Currency Risk — The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by a fund may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency. A fund may enter into forward foreign currency exchange contracts to reduce a fund’s exposure to foreign currency exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by a fund and the resulting unrealized appreciation or depreciation are determined daily. Realized gain or loss is recorded upon the termination of the contract. Net realized and unrealized gains or losses occurring during the holding period of forward foreign currency exchange contracts are a component of net realized gain (loss) on 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 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, 2012 | ||||||||||
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 | $1,985 | Unrealized loss on forward foreign currency exchange contracts | $37,797 | ||||||
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2012 | ||||||||||
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 | $(3,584,516 | ) | Change in net unrealized appreciation (depreciation) on futures contracts | — | |||||
Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | 191,802 | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $192,191 | ||||||
$(3,392,714 | ) | $192,191 |
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.
23
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, 2012 and October 31, 2011.
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $1,085,843,743 | |||
Gross tax appreciation of investments | $318,291,203 | |||
Gross tax depreciation of investments | (25,373,763 | ) | ||
Net tax appreciation (depreciation) of investments | $292,917,440 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $40,641 | |||
Net tax appreciation (depreciation) | $292,958,081 | |||
Undistributed ordinary income | — | |||
Accumulated short-term capital losses | $(76,732,640 | ) | ||
Late-year ordinary loss deferral | $(2,852,575 | ) |
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 foreign currency exchange contracts.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
24
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(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $16.11 | (0.04 | ) | 1.22 | 1.18 | — | $17.29 | 7.32 | % | 1.00 | % | (0.23 | )% | 71 | % | $1,201,141 | ||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $16.60 | (0.01 | ) | 1.26 | 1.25 | — | $17.85 | 7.53 | % | 0.80 | % | (0.03 | )% | 71 | % | $65,755 | ||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||
A Class(4) | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $15.56 | (0.08 | ) | 1.17 | 1.09 | — | $16.65 | 7.01 | % | 1.25 | % | (0.48 | )% | 71 | % | $94,622 | ||||||||||||||||||||||||||||
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 |
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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(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $15.85 | (0.21 | ) | 1.20 | 0.99 | — | $16.84 | 6.25 | % | 2.00 | % | (1.23 | )% | 71 | % | $81 | ||||||||||||||||||||||||||||
2011 | $15.15 | (0.25 | ) | 0.95 | 0.70 | — | $15.85 | 4.62 | % | 2.00 | % | (1.44 | )% | 90 | % | $86 | ||||||||||||||||||||||||||||
2010(5) | $13.73 | (0.14 | ) | 1.56 | 1.42 | — | $15.15 | 10.34 | % | 2.01 | %(6) | (1.51 | )%(6) | 132 | %(7) | $30 | ||||||||||||||||||||||||||||
R Class | ||||||||||||||||||||||||||||||||||||||||||||
2012 | $15.60 | (0.12 | ) | 1.18 | 1.06 | — | $16.66 | 6.73 | % | 1.50 | % | (0.73 | )% | 71 | % | $12,933 | ||||||||||||||||||||||||||||
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 |
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) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
(4) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class. |
(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. |
See Notes to Financial Statements.
26
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, 2012, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the 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, 2012, 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, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 19, 2012
27
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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
32
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
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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76904 1212
ANNUAL REPORT OCTOBER 31, 2012
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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
Stocks Advanced in a Volatile Year
U.S. equities produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Institutional Class | ACLTX | 10.33% | 1.81% | 5.47% | 5/12/06 |
Russell 1000 Growth Index | — | 13.02% | 1.95% | 4.83%(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 0.78% |
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.
5
Performance Summary
NT Growth returned 10.33% in the 12 months ended October 31, 2012. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 13.02%.
In terms of NT Growth’s absolute returns, health care shares contributed most. No sector detracted in absolute terms. Relative to the benchmark, stock selection made the information technology (IT) sector the leading detractor. Stock choices meant health care shares contributed most to relative performance.
IT Detracted Most
Information technology stocks detracted most from performance relative to the Russell 1000 Growth Index. The sector was hit by worries about exposure to Europe and potential slowdown in the U.S. going forward. In the technology sector, stock selection made computers and peripherals firms the leading detractors. It hurt to hold a stake in storage hardware provider NetApp, which reported in-line results during the period but lowered its forward outlook because of a slowdown in the financial and government sectors. We reduced the position, but still believe NetApp will continue to gain market share from competitors Hewlett-Packard, Hitachi, and IBM.
Other notable detractors in the sector were communication equipment maker Cisco Systems and semiconductor company Marvell Technology Group. Cisco actually gained market share and reported solid results, but the company lowered forward earnings guidance marginally after evaluating the macroeconomic environment here and abroad. Similarly, Marvell Technology declined on concerns about its exposure to hard disk drives and Chinese handsets. We eliminated the position.
Industrials Detracted
A number of NT Growth’s industrial holdings were affected by investor uncertainty around corporate earnings growth and pricing power resulting from worries about a slowdown in the global economy. In addition, the portfolio tended to be underweight the sector because our analysis showed these companies to have high but declining margins amid slowing growth. The leading detractor in this space was capital equipment manufacturer Terex. We eliminated the position when we saw signs of a poor pricing environment for the company’s products.
Another notable individual detractor was auto component manufacturer BorgWarner, which underperformed as a result of weakness in Europe and slower automotive build rates in China.
Health Care Led Contributors
In the health care sector, the top contribution came from life sciences tools companies, led by a stake in Illumina. The maker of research and diagnostic tools received a buyout offer from Roche, valuing the company at a significant premium. In addition, it helped to hold a stake in pharmaceutical benefit manager Express Scripts, which acquired Medco Health Solutions during
6
the period. Other key individual contributors in the health care sector were biotechnology firm Gilead Sciences and medical equipment and supplies maker ResMed. Gilead made progress on its development of therapies for Hepatitis C, while ResMed benefited from regulatory changes that are likely to drive increased demand for its products used in the treatment of sleep apnea.
Telecommunication shares also contributed to performance due to stock selection and an overweight position among wireless telecommunication providers. The leading contributor for the fiscal year was cellular tower operator Crown Castle International. The company continues to benefit from a long-running trend by cellular network providers such as AT&T and Verizon to add capacity to their networks to handle increasing voice and data traffic.
In the energy sector, the portfolio’s outperformance was driven by stock selection decisions. It benefited performance to have little or no exposure to many of the poorest-performing stocks in the sector during the period, including equipment and services firms Halliburton and Baker Hughes, and oil and gas companies Peabody Energy and Consol Energy. However, these gains were partially offset by a stake in Occidental Petroleum, as concerns about the pace of the firm’s development program weighed on the shares.
Among other notable individual contributors were stakes in specialty retailers Lowe’s and Home Depot. These stocks benefited from the home building and remodeling recovery evident during the fiscal year.
Current Positioning
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, 2012, the consumer staples, energy, and telecommunication services sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in industrial, consumer discretionary, and materials shares. Information technology shares were the portfolio’s single largest sector allocation on an absolute basis.
7
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 7.7% |
Coca-Cola Co. (The) | 3.2% |
Microsoft Corp. | 2.6% |
Google, Inc., Class A | 2.5% |
PepsiCo, Inc. | 2.5% |
International Business Machines Corp. | 2.4% |
Wal-Mart Stores, Inc. | 2.2% |
Oracle Corp. | 2.2% |
Schlumberger Ltd. | 2.2% |
Amazon.com, Inc. | 1.8% |
Top Five Industries | % of net assets |
Computers and Peripherals | 9.9% |
Beverages | 6.7% |
Software | 6.2% |
Pharmaceuticals | 5.5% |
Aerospace and Defense | 5.3% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.1% |
Exchange-Traded Funds | 0.4% |
Total Equity Exposure | 99.5% |
Temporary Cash Investments | 1.7% |
Other Assets and Liabilities | (1.2)% |
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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class | $1,000 | $968.80 | $3.81 | 0.77% |
Hypothetical | ||||
Institutional Class | $1,000 | $1,021.27 | $3.91 | 0.77% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
10
Shares | Value | |||||||
Common Stocks — 99.1% | ||||||||
AEROSPACE AND DEFENSE — 5.3% | ||||||||
Boeing Co. (The) | 59,767 | $4,209,987 | ||||||
Hexcel Corp.(1) | 74,057 | 1,892,897 | ||||||
Honeywell International, Inc. | 167,001 | 10,227,141 | ||||||
Precision Castparts Corp. | 26,955 | 4,665,102 | ||||||
Textron, Inc. | 144,460 | 3,641,837 | ||||||
United Technologies Corp. | 113,661 | 8,883,744 | ||||||
33,520,708 | ||||||||
AIR FREIGHT AND LOGISTICS — 1.1% | ||||||||
United Parcel Service, Inc., Class B | 91,159 | 6,677,397 | ||||||
AUTO COMPONENTS — 0.3% | ||||||||
Autoliv, Inc. | 29,252 | 1,684,915 | ||||||
AUTOMOBILES — 0.7% | ||||||||
Harley-Davidson, Inc. | 91,299 | 4,269,141 | ||||||
BEVERAGES — 6.7% | ||||||||
Beam, Inc. | 53,267 | 2,959,515 | ||||||
Brown-Forman Corp., Class B | 26,116 | 1,672,991 | ||||||
Coca-Cola Co. (The) | 548,349 | 20,387,616 | ||||||
Monster Beverage Corp.(1) | 46,969 | 2,098,105 | ||||||
PepsiCo, Inc. | 227,388 | 15,744,345 | ||||||
42,862,572 | ||||||||
BIOTECHNOLOGY — 2.2% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 25,105 | 2,268,990 | ||||||
Amgen, Inc. | 44,574 | 3,857,657 | ||||||
Gilead Sciences, Inc.(1) | 119,006 | 7,992,443 | ||||||
14,119,090 | ||||||||
CHEMICALS — 2.5% | ||||||||
Agrium, Inc. | 34,064 | 3,595,114 | ||||||
Monsanto Co. | 114,952 | 9,893,919 | ||||||
Rockwood Holdings, Inc. | 49,097 | 2,253,552 | ||||||
15,742,585 | ||||||||
COMMERCIAL BANKS — 1.4% | ||||||||
SunTrust Banks, Inc. | 174,343 | 4,742,129 | ||||||
Wells Fargo & Co. | 122,304 | 4,120,422 | ||||||
8,862,551 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.5% | ||||||||
Tyco International Ltd. | 119,879 | 3,221,149 | ||||||
COMMUNICATIONS EQUIPMENT — 2.1% | ||||||||
Cisco Systems, Inc. | 166,231 | 2,849,199 | ||||||
Palo Alto Networks, Inc.(1) | 31,333 | 1,722,688 | ||||||
QUALCOMM, Inc. | 97,545 | 5,713,699 | ||||||
Riverbed Technology, Inc.(1) | 165,210 | 3,051,429 | ||||||
13,337,015 | ||||||||
COMPUTERS AND PERIPHERALS — 9.9% | ||||||||
Apple, Inc. | 82,452 | 49,067,185 | ||||||
EMC Corp.(1) | 399,838 | 9,764,044 | ||||||
NetApp, Inc.(1) | 151,555 | 4,076,830 | ||||||
62,908,059 | ||||||||
DISTRIBUTORS — 0.4% | ||||||||
LKQ Corp.(1) | 119,124 | 2,488,500 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.1% | ||||||||
Verizon Communications, Inc. | 151,597 | 6,767,290 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.3% | ||||||||
Trimble Navigation Ltd.(1) | 47,038 | 2,219,253 | ||||||
ENERGY EQUIPMENT AND SERVICES — 3.2% | ||||||||
Core Laboratories NV | 19,142 | 1,984,260 | ||||||
Oceaneering International, Inc. | 90,052 | 4,712,421 | ||||||
Schlumberger Ltd. | 196,726 | 13,678,359 | ||||||
20,375,040 | ||||||||
FOOD AND STAPLES RETAILING — 4.3% | ||||||||
Costco Wholesale Corp. | 75,615 | 7,442,784 | ||||||
CVS Caremark Corp. | 55,594 | 2,579,562 | ||||||
Wal-Mart Stores, Inc. | 185,127 | 13,888,228 | ||||||
Whole Foods Market, Inc. | 37,121 | 3,516,472 | ||||||
27,427,046 | ||||||||
FOOD PRODUCTS — 1.8% | ||||||||
Annie’s, Inc.(1) | 20,497 | 809,631 | ||||||
Hershey Co. (The) | 45,488 | 3,131,849 | ||||||
Kraft Foods Group, Inc.(1) | 78,538 | 3,571,908 | ||||||
Mead Johnson Nutrition Co. | 67,192 | 4,143,059 | ||||||
11,656,447 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.7% | ||||||||
Cooper Cos., Inc. (The) | 17,092 | 1,640,490 | ||||||
Covidien plc | 35,647 | 1,958,803 | ||||||
DENTSPLY International, Inc. | 42,369 | 1,560,874 | ||||||
Edwards Lifesciences Corp.(1) | 26,154 | 2,270,952 | ||||||
IDEXX Laboratories, Inc.(1) | 8,894 | 855,603 | ||||||
ResMed, Inc. | 55,473 | 2,215,591 | ||||||
10,502,313 | ||||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.3% | ||||||||
AmerisourceBergen Corp. | 150,395 | 5,931,579 | ||||||
DaVita, Inc.(1) | 22,231 | 2,501,432 | ||||||
Express Scripts Holding Co.(1) | 99,085 | 6,097,691 | ||||||
14,530,702 |
11
Shares | Value | |||||||
HOTELS, RESTAURANTS AND LEISURE — 2.3% | ||||||||
Marriott International, Inc. Class A | 107,260 | $3,912,845 | ||||||
McDonald’s Corp. | 55,823 | 4,845,436 | ||||||
Starbucks Corp. | 125,835 | 5,775,827 | ||||||
14,534,108 | ||||||||
HOUSEHOLD DURABLES — 1.2% | ||||||||
Mohawk Industries, Inc.(1) | 39,907 | 3,331,037 | ||||||
PulteGroup, Inc.(1) | 245,064 | 4,249,410 | ||||||
7,580,447 | ||||||||
HOUSEHOLD PRODUCTS — 1.7% | ||||||||
Church & Dwight Co., Inc. | 19,767 | 1,003,373 | ||||||
Colgate-Palmolive Co. | 95,738 | 10,048,660 | ||||||
11,052,033 | ||||||||
INDUSTRIAL CONGLOMERATES — 1.0% | ||||||||
Danaher Corp. | 116,799 | 6,042,012 | ||||||
INSURANCE — 0.7% | ||||||||
Travelers Cos., Inc. (The) | 66,900 | 4,745,886 | ||||||
INTERNET AND CATALOG RETAIL — 1.8% | ||||||||
Amazon.com, Inc.(1) | 50,290 | 11,708,518 | ||||||
INTERNET SOFTWARE AND SERVICES — 4.0% | ||||||||
eBay, Inc.(1) | 201,470 | 9,728,986 | ||||||
Google, Inc., Class A(1) | 23,184 | 15,759,788 | ||||||
25,488,774 | ||||||||
IT SERVICES — 4.8% | ||||||||
Automatic Data Processing, Inc. | 95,910 | 5,542,639 | ||||||
International Business Machines Corp. | 79,487 | 15,462,606 | ||||||
MasterCard, Inc., Class A | 20,217 | 9,318,622 | ||||||
30,323,867 | ||||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.2% | ||||||||
Waters Corp.(1) | 16,221 | 1,327,040 | ||||||
MACHINERY — 1.4% | ||||||||
Deere & Co. | 36,565 | 3,124,114 | ||||||
Illinois Tool Works, Inc. | 90,873 | 5,573,241 | ||||||
8,697,355 | ||||||||
MEDIA — 3.7% | ||||||||
CBS Corp., Class B | 97,800 | 3,168,720 | ||||||
Comcast Corp., Class A | 283,431 | 10,631,497 | ||||||
Scripps Networks Interactive, Inc. Class A | 63,123 | 3,832,828 | ||||||
Viacom, Inc., Class B | 117,225 | 6,010,126 | ||||||
23,643,171 | ||||||||
METALS AND MINING — 0.3% | ||||||||
Nucor Corp. | 54,620 | 2,191,900 | ||||||
MULTI-UTILITIES — 0.3% | ||||||||
DTE Energy Co. | 33,317 | 2,068,986 | ||||||
MULTILINE RETAIL — 1.3% | ||||||||
Dollar General Corp.(1) | 84,776 | 4,121,809 | ||||||
Macy’s, Inc. | 112,710 | 4,290,870 | ||||||
8,412,679 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 2.5% | ||||||||
EOG Resources, Inc. | 55,276 | 6,439,101 | ||||||
Noble Energy, Inc. | 57,588 | 5,471,436 | ||||||
Occidental Petroleum Corp. | 46,743 | 3,690,827 | ||||||
15,601,364 | ||||||||
PERSONAL PRODUCTS — 0.7% | ||||||||
Estee Lauder Cos., Inc. (The), Class A | 71,451 | 4,402,811 | ||||||
PHARMACEUTICALS — 5.5% | ||||||||
Abbott Laboratories | 158,240 | 10,367,885 | ||||||
Allergan, Inc. | 84,363 | 7,585,921 | ||||||
Bristol-Myers Squibb Co. | 130,088 | 4,325,426 | ||||||
Eli Lilly & Co. | 46,423 | 2,257,550 | ||||||
Johnson & Johnson | 149,504 | 10,587,873 | ||||||
35,124,655 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.5% | ||||||||
American Campus Communities, Inc. | 59,033 | 2,674,785 | ||||||
Simon Property Group, Inc. | 45,312 | 6,896,940 | ||||||
9,571,725 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.4% | ||||||||
CBRE Group, Inc.(1) | 129,100 | 2,326,382 | ||||||
ROAD AND RAIL — 1.6% | ||||||||
Union Pacific Corp. | 85,257 | 10,489,169 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.1% | ||||||||
Broadcom Corp., Class A | 158,401 | 4,995,176 | ||||||
Intel Corp. | 213,312 | 4,612,872 | ||||||
Linear Technology Corp. | 121,705 | 3,804,498 | ||||||
Teradyne, Inc.(1) | 60,824 | 889,247 | ||||||
Xilinx, Inc. | 169,062 | 5,538,471 | ||||||
19,840,264 | ||||||||
SOFTWARE — 6.2% | ||||||||
Cadence Design Systems, Inc.(1) | 256,956 | 3,253,063 | ||||||
CommVault Systems, Inc.(1) | 26,860 | 1,677,944 | ||||||
Microsoft Corp. | 585,273 | 16,700,765 | ||||||
Oracle Corp. | 445,171 | 13,822,560 | ||||||
ServiceNow, Inc.(1) | 37,533 | 1,150,386 | ||||||
Splunk, Inc.(1) | 58,670 | 1,645,693 | ||||||
Workday, Inc.(1) | 18,897 | 916,505 | ||||||
39,166,916 |
12
Shares | Value |
SPECIALTY RETAIL — 3.2% | ||||||||
GNC Holdings, Inc. Class A | 99,798 | $3,859,189 | ||||||
Home Depot, Inc. (The) | 74,514 | 4,573,669 | ||||||
Lowe’s Cos., Inc. | 202,474 | 6,556,108 | ||||||
Tractor Supply Co. | 16,673 | 1,604,609 | ||||||
Urban Outfitters, Inc.(1) | 100,988 | 3,611,331 | ||||||
20,204,906 | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 1.9% | ||||||||
Crown Castle International Corp.(1) | 98,249 | 6,558,121 | ||||||
SBA Communications Corp., Class A(1) | 87,530 | 5,832,124 | ||||||
12,390,245 | ||||||||
TOTAL COMMON STOCKS (Cost $531,489,706) | 630,106,986 | |||||||
Exchange-Traded Funds — 0.4% | ||||||||
iShares Russell 1000 Growth Index Fund (Cost $2,395,935) | 36,869 | 2,387,268 | ||||||
Temporary Cash Investments — 1.7% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $4,561,008), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $4,469,101) | 4,469,072 |
Value | ||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $4,571,611), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $4,469,097) | 4,469,072 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $1,898,429), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $1,861,529) | 1,861,521 | |||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $10,799,665) | 10,799,665 | |||
TOTAL INVESTMENT SECURITIES — 101.2% (Cost $544,685,306) | 643,293,919 | |||
OTHER ASSETS AND LIABILITIES — (1.2)% | (7,387,454 | ) | ||
TOTAL NET ASSETS — 100.0% | $635,906,465 |
Notes to Schedule of Investments
(1) | Non-income producing. |
See Notes to Financial Statements.
13
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $544,685,306) | $643,293,919 | |||
Receivable for investments sold | 2,682,724 | |||
Receivable for capital shares sold | 117,610 | |||
Dividends and interest receivable | 410,269 | |||
646,504,522 | ||||
Liabilities | ||||
Payable for investments purchased | 10,188,653 | |||
Accrued management fees | 409,404 | |||
10,598,057 | ||||
Net Assets | $635,906,465 | |||
Institutional Class Capital Shares, $0.01 Par Value | ||||
Shares authorized | 150,000,000 | |||
Shares outstanding | 49,979,951 | |||
Net Asset Value Per Share | $12.72 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $521,282,039 | |||
Undistributed net investment income | 2,938,469 | |||
Undistributed net realized gain | 13,076,385 | |||
Net unrealized appreciation | 98,609,572 | |||
$635,906,465 |
See Notes to Financial Statements.
14
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $2,870) | $8,234,119 | |||
Interest | 7,101 | |||
8,241,220 | ||||
Expenses: | ||||
Management fees | 4,265,215 | |||
Directors’ fees and expenses | 20,398 | |||
4,285,613 | ||||
Net investment income (loss) | 3,955,607 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 18,717,619 | |||
Futures contract transactions | (142,001 | ) | ||
Foreign currency transactions | (245 | ) | ||
18,575,373 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 26,570,566 | |||
Translation of assets and liabilities in foreign currencies | (200 | ) | ||
26,570,366 | ||||
Net realized and unrealized gain (loss) | 45,145,739 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $49,101,346 |
See Notes to Financial Statements.
15
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $3,955,607 | $3,241,841 | ||||||
Net realized gain (loss) | 18,575,373 | 18,719,430 | ||||||
Change in net unrealized appreciation (depreciation) | 26,570,366 | 6,731,577 | ||||||
Net increase (decrease) in net assets resulting from operations | 49,101,346 | 28,692,848 | ||||||
Distributions to Shareholders | ||||||||
From net investment income | (3,102,332 | ) | (2,311,137 | ) | ||||
From net realized gains | (11,931,445 | ) | — | |||||
Decrease in net assets from distributions | (15,033,777 | ) | (2,311,137 | ) | ||||
Capital Share Transactions | ||||||||
Proceeds from shares sold | 204,409,917 | 112,894,557 | ||||||
Proceeds from reinvestment of distributions | 15,033,777 | 2,311,137 | ||||||
Payments for shares redeemed | (79,449,649 | ) | (20,159,480 | ) | ||||
Net increase (decrease) in net assets from capital share transactions | 139,994,045 | 95,046,214 | ||||||
Net increase (decrease) in net assets | 174,061,614 | 121,427,925 | ||||||
Net Assets | ||||||||
Beginning of period | 461,844,851 | 340,416,926 | ||||||
End of period | $635,906,465 | $461,844,851 | ||||||
Undistributed net investment income | $2,938,469 | $2,208,459 | ||||||
Transactions in Shares of the Fund | ||||||||
Sold | 16,207,107 | 9,513,850 | ||||||
Issued in reinvestment of distributions | 1,326,900 | 196,358 | ||||||
Redeemed | (6,301,169 | ) | (1,751,186 | ) | ||||
Net increase (decrease) in shares of the fund | 11,232,838 | 7,959,022 |
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 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 stocks 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.
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. 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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2009. 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, 2012 was 0.77%.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc., 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. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. These funds do not invest in the fund for the purpose of exercising management or control.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $610,311,059 and $478,042,550, 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 | $630,106,986 | — | — | |||||||||
Exchange-Traded Funds | 2,387,268 | — | — | |||||||||
Temporary Cash Investments | — | $10,799,665 | — | |||||||||
Total Value of Investment Securities | $632,494,254 | $10,799,665 | — |
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.
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, 2012, the effect of equity price risk derivative instruments on the Statement of Operations was $(142,001) in net realized gain (loss) on futures contract transactions.
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $3,102,332 | $2,311,137 | ||||||
Long-term capital gains | $11,931,445 | — |
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.
20
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $552,646,489 | |||
Gross tax appreciation of investments | $97,584,889 | |||
Gross tax depreciation of investments | (6,937,459 | ) | ||
Net tax appreciation (depreciation) of investments | $90,647,430 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $960 | |||
Net tax appreciation (depreciation) | $90,648,390 | |||
Undistributed ordinary income | $2,938,469 | |||
Accumulated long-term gains | $21,037,567 |
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.
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 | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | $11.92 | 0.09 | 1.09 | 1.18 | (0.08 | ) | (0.30 | ) | (0.38 | ) | $12.72 | 10.33 | % | 0.77 | % | 0.71 | % | 87 | % | $635,906 | ||||||||||||||||||||||||||||||||
2011 | $11.06 | 0.09 | 0.85 | 0.94 | (0.08 | ) | — | (0.08 | ) | $11.92 | 8.48 | % | 0.78 | % | 0.78 | % | 95 | % | $461,845 | |||||||||||||||||||||||||||||||||
2010 | $9.34 | 0.06 | 1.71 | 1.77 | (0.05 | ) | — | (0.05 | ) | $11.06 | 18.94 | % | 0.79 | % | 0.63 | % | 95 | % | $340,417 | |||||||||||||||||||||||||||||||||
2009 | $8.13 | 0.06 | 1.21 | 1.27 | (0.06 | ) | — | (0.06 | ) | $9.34 | 15.88 | % | 0.80 | % | 0.67 | % | 132 | % | $208,337 | |||||||||||||||||||||||||||||||||
2008 | $12.87 | 0.04 | (4.19 | ) | (4.15 | ) | (0.03 | ) | (0.56 | ) | (0.59 | ) | $8.13 | (33.68 | )% | 0.80 | % | 0.38 | % | 136 | % | $83,440 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
22
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, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
23
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
24
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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | None |
25
Officers
The following table presents certain information about the executive officers of the funds. Each officer serves as an officer for each of the 15 investment companies in the American Century family of funds, unless otherwise noted. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. The mailing address for each officer listed below is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Offices with the Funds | Principal Occupation(s) During the Past Five Years | ||
Jonathan S. Thomas (1963) | Director and President since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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 and/or peer groups of similarly-managed funds, over different
28
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, 2012.
For corporate taxpayers, the fund hereby designates $3,102,332, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 as qualified for the corporate dividends received deduction.
The fund hereby designates $11,931,445, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2012.
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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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76907 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among theindustry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
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Stocks Advanced in a Volatile Year
U.S. equities produced solid gains during a sometimes volatile 12 months ended October 31, 2012. Stocks began the period with gains, buoyed by continued improvement in the economy and corporate earnings. The unemployment rate fell to its lowest level in three years by February 2012, while consumer confidence and the housing sector both showed clear signs of recovery. Equity investors also got some promising news out of Europe, as the European Central Bank provided support for the Continent’s banking sector.
However, stocks declined sharply from about April to June. Evidence of slowing economic activity in the U.S. and increasing turmoil in Europe weighed on investor confidence. Indeed, austerity policies and high rates of joblessness weighed on growth, with many European countries in recession at some point during 2012. Nevertheless, equity markets finished the fiscal year with a sharp rebound after the economic data, particularly in the U.S., turned out to be not as bad as feared.
Value Outperformed Growth, Large Outperformed Small
In that environment, value-oriented shares outperformed growth 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 positive, but widely divergent, reflecting the volatile nature of the reporting period. For example, traditionally economically sensitive sectors such as energy, materials, and industrials lagged amid the uncertain outlook for global growth. Stocks with exposure to powerful themes, such as mobile and cloud computing and wireless communication, did well. Indeed, telecommunication services was the top-performing sector in both the Russell 1000 and Midcap Growth indices, driven by gains among wireless providers.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
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Total Returns as of October 31, 2012 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCIX | 11.50% | 1.08% | 5.55% | 12.02% | 6/30/71(1) |
Russell 1000 Growth Index | — | 13.02% | 1.95% | 7.15% | N/A(2) | — |
Institutional Class | TWSIX | 11.73% | 1.29% | 5.76% | 5.02% | 3/13/97 |
A Class(3) No sales charge* With sales charge* | TWCAX | 11.22% 4.83% | 0.83% -0.36% | 5.29% 4.67% | 3.34% 2.94% | 8/8/97 |
C Class | ACSLX | 10.37% | 0.08% | — | 5.07% | 1/31/03 |
R Class | ASERX | 10.92% | 0.58% | — | 3.04% | 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 data first available 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.
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Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2002 |
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 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 11.50%* for the 12 months ended October 31, 2012, compared with the 13.02% return of its benchmark, the Russell 1000 Growth Index, and the 15.21%** 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 tepid global economic recovery and continued sovereign debt concerns in Europe. Despite this challenging environment, Select delivered solid results for the period.
Select derived positive absolute results from every sector in which it invested. Relative to the benchmark, security selection in the consumer discretionary and industrials sectors accounted for the bulk of Select’s underperformance. Stock selection in the information technology, consumer staples, and health care sectors added to relative returns.
Consumer Discretionary, Industrials Detracted
Select’s consumer discretionary holdings collectively underperformed benchmark returns for the sector. In particular, a position in retail company J.C. Penney Co. detracted. In its effort to transform the company from a discount retailer to a uniquely positioned company, the new management team underestimated the challenges related to change in customer behavior and had several execution missteps. As a result, the financial performance deteriorated further.
An overweight position in Fossil also detracted from results versus the benchmark. The watch retailer, which had been a top contributor early in the period with solid performance in the domestic market and tremendous growth in international countries, saw its share price decline as it lowered guidance due to weakness in Europe. Handbag retailer Coach underperformed, as it experienced disappointing sales results.
A position in Netflix hurt relative performance. The company reported a loss in the first quarter of 2012 due to higher costs of entering foreign markets and less-than-expected subscriber growth forecasted for the future. The position was eliminated. Also in the consumer discretionary sector, the portfolio held an underweight allocation to the media industry, a decision that hurt relative results. As optimism grew about the economic environment, advertising spending grew, helping companies in the industry group.
The industrials sector was a source of underperformance, largely attributable to stock selection in the electrical equipment industry group. Positioning in the aerospace and defense group also curbed relative results.
*All fund returns referenced in this commentary are for Investor Class shares.
**The S&P 500 Index average annual returns were 0.36% and 6.91% for the five- and 10-year periods ended October 31, 2012, respectively.
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Information Technology, Consumer Staples, Health Care Helped
The information technology sector was the largest source of relative outperformance. Here, an overweight position in Apple added significantly to results, as the company unveiled its much-anticipated iPhone 5 in September, selling more than five million units in its debut weekend. Apple also won a patent lawsuit against Samsung, their major rival in the smart phone market. Also in the sector, stock selection in the semiconductor group helped results versus the benchmark.
The consumer staples sector added to absolute and relative results. Here, the portfolio benefited from positioning in the beverages group, including alcoholic beverage distributor Diageo. The company benefited from its emerging market sales along with higher profitability, and has produced steady, high growth among the lower growth staples companies. Holdings in the personal products group also contributed.
In the health care sector, Select was rewarded for its overweight position in Gilead Sciences. The company made progress on its development of therapies for Hepatitis C. Several positions among health care providers also benefited returns relative to the benchmark.
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 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.
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OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Apple, Inc. | 9.7% |
Google, Inc., Class A | 4.6% |
Gilead Sciences, Inc. | 2.9% |
Costco Wholesale Corp. | 2.6% |
Philip Morris International, Inc. | 2.6% |
Teradata Corp. | 2.5% |
Monsanto Co. | 2.4% |
EMC Corp. | 2.4% |
TJX Cos., Inc. (The) | 2.3% |
MasterCard, Inc., Class A | 2.3% |
Top Five Industries | % of net assets |
Computers and Peripherals | 12.1% |
Internet Software and Services | 6.2% |
Biotechnology | 5.7% |
Specialty Retail | 5.1% |
IT Services | 4.8% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 93.3% |
Foreign Common Stocks* | 5.0% |
Total Common Stocks | 98.3% |
Temporary Cash Investments | 1.8% |
Other Assets and Liabilities | (0.1)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Investor Class | $1,000 | $978.20 | $4.97 | 1.00% |
Institutional Class | $1,000 | $979.10 | $3.98 | 0.80% |
A Class | $1,000 | $977.00 | $6.21 | 1.25% |
C Class | $1,000 | $973.30 | $9.92 | 2.00% |
R Class | $1,000 | $975.60 | $7.45 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.11 | $5.08 | 1.00% |
Institutional Class | $1,000 | $1,021.12 | $4.06 | 0.80% |
A Class | $1,000 | $1,018.85 | $6.34 | 1.25% |
C Class | $1,000 | $1,015.08 | $10.13 | 2.00% |
R Class | $1,000 | $1,017.60 | $7.61 | 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 366, to reflect the one-half year period. |
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Shares | Value | |||||||
Common Stocks — 98.3% | ||||||||
AEROSPACE AND DEFENSE — 2.8% | ||||||||
General Dynamics Corp. | 383,100 | $26,081,448 | ||||||
Rockwell Collins, Inc. | 520,000 | 27,861,600 | ||||||
53,943,048 | ||||||||
AIR FREIGHT AND LOGISTICS — 1.8% | ||||||||
United Parcel Service, Inc., Class B | 476,000 | 34,867,000 | ||||||
BEVERAGES — 1.9% | ||||||||
Diageo plc | 1,309,695 | 37,430,425 | ||||||
BIOTECHNOLOGY — 5.7% | ||||||||
Biogen Idec, Inc.(1) | 251,900 | 34,817,618 | ||||||
Gilead Sciences, Inc.(1) | 831,101 | 55,816,743 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 414,400 | 19,990,656 | ||||||
110,625,017 | ||||||||
CAPITAL MARKETS — 1.9% | ||||||||
Franklin Resources, Inc. | 279,800 | 35,758,440 | ||||||
CHEMICALS — 3.6% | ||||||||
Monsanto Co. | 548,000 | 47,166,360 | ||||||
Potash Corp. of Saskatchewan, Inc. | 576,200 | 23,261,194 | ||||||
70,427,554 | ||||||||
COMMUNICATIONS EQUIPMENT — 2.1% | ||||||||
QUALCOMM, Inc. | 685,600 | 40,159,020 | ||||||
COMPUTERS AND PERIPHERALS — 12.1% | ||||||||
Apple, Inc. | 316,600 | 188,408,660 | ||||||
EMC Corp.(1) | 1,880,700 | 45,926,694 | ||||||
234,335,354 | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 1.9% | ||||||||
CME Group, Inc. | 174,900 | 9,782,157 | ||||||
Hong Kong Exchanges and Clearing Ltd. | 601,508 | 9,926,758 | ||||||
JPMorgan Chase & Co. | 418,900 | 17,459,752 | ||||||
37,168,667 | ||||||||
ELECTRICAL EQUIPMENT — 1.5% | ||||||||
Emerson Electric Co. | 589,900 | 28,568,857 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.8% | ||||||||
Diamond Offshore Drilling, Inc. | 143,800 | 9,956,712 | ||||||
National Oilwell Varco, Inc. | 192,900 | 14,216,730 | ||||||
Schlumberger Ltd. | 428,300 | 29,779,699 | ||||||
53,953,141 | ||||||||
FOOD AND STAPLES RETAILING — 3.2% | ||||||||
Costco Wholesale Corp. | 511,500 | 50,346,945 | ||||||
PriceSmart, Inc. | 148,200 | 12,299,118 | ||||||
62,646,063 | ||||||||
FOOD PRODUCTS — 2.2% | ||||||||
Hershey Co. (The) | 202,700 | 13,955,895 | ||||||
Mead Johnson Nutrition Co. | 361,600 | 22,296,256 | ||||||
Smart Balance, Inc.(1) | 439,000 | 5,224,100 | ||||||
41,476,251 | ||||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.2% | ||||||||
Intuitive Surgical, Inc.(1) | 43,400 | 23,532,348 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 4.0% | ||||||||
Express Scripts Holding Co.(1) | 559,200 | 34,413,168 | ||||||
UnitedHealth Group, Inc. | 781,200 | 43,747,200 | ||||||
78,160,368 | ||||||||
HOTELS, RESTAURANTS AND LEISURE — 1.5% | ||||||||
McDonald’s Corp. | 325,000 | 28,210,000 | ||||||
HOUSEHOLD DURABLES — 0.7% | ||||||||
Harman International Industries, Inc. | 320,400 | 13,434,372 | ||||||
INSURANCE — 1.2% | ||||||||
Travelers Cos., Inc. (The) | 331,000 | 23,481,140 | ||||||
INTERNET AND CATALOG RETAIL — 1.7% | ||||||||
Amazon.com, Inc.(1) | 138,400 | 32,222,288 | ||||||
INTERNET SOFTWARE AND SERVICES — 6.2% | ||||||||
Baidu, Inc. ADR(1) | 195,100 | 20,801,562 | ||||||
Facebook, Inc. Class A(1) | 322,400 | 6,807,476 | ||||||
Google, Inc., Class A(1) | 131,700 | 89,525,709 | ||||||
Responsys, Inc.(1) | 307,300 | 2,747,262 | ||||||
119,882,009 | ||||||||
IT SERVICES — 4.8% | ||||||||
MasterCard, Inc., Class A | 96,700 | 44,571,931 | ||||||
Teradata Corp.(1) | 691,300 | 47,222,703 | ||||||
91,794,634 | ||||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.8% | ||||||||
Hasbro, Inc. | 453,900 | 16,335,861 | ||||||
MACHINERY — 4.3% | ||||||||
Graco, Inc. | 308,600 | 14,831,316 | ||||||
Nordson Corp. | 279,900 | 16,522,497 | ||||||
Parker-Hannifin Corp. | 411,700 | 32,384,322 | ||||||
Xylem, Inc. | 774,400 | 18,786,944 | ||||||
82,525,079 | ||||||||
MEDIA — 2.1% | ||||||||
Walt Disney Co. (The) | 829,100 | 40,683,937 | ||||||
METALS AND MINING — 0.5% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 247,200 | 9,611,136 | ||||||
MULTILINE RETAIL — 0.5% | ||||||||
J.C. Penney Co., Inc. | 379,700 | 9,116,597 |
12
Shares | Value | |||||||
OIL, GAS AND CONSUMABLE FUELS — 2.9% | ||||||||
Exxon Mobil Corp. | 333,700 | $30,423,429 | ||||||
Occidental Petroleum Corp. | 322,400 | 25,456,704 | ||||||
55,880,133 | ||||||||
PERSONAL PRODUCTS — 2.2% | ||||||||
Estee Lauder Cos., Inc. (The), Class A | 697,500 | 42,979,950 | ||||||
PHARMACEUTICALS — 3.3% | ||||||||
Allergan, Inc. | 343,200 | 30,860,544 | ||||||
Bristol-Myers Squibb Co. | 811,800 | 26,992,350 | ||||||
Teva Pharmaceutical Industries Ltd. ADR | 128,100 | 5,177,802 | ||||||
63,030,696 | ||||||||
PROFESSIONAL SERVICES — 1.0% | ||||||||
IHS, Inc. Class A(1) | 123,200 | 10,396,848 | ||||||
Verisk Analytics, Inc. Class A(1) | 175,300 | 8,940,300 | ||||||
19,337,148 | ||||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.3% | ||||||||
American Tower Corp. | 335,300 | 25,244,737 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.0% | ||||||||
Broadcom Corp., Class A | 884,800 | 27,902,168 | ||||||
Linear Technology Corp. | 969,900 | 30,319,074 | ||||||
58,221,242 | ||||||||
SOFTWARE — 2.2% | ||||||||
Microsoft Corp. | 292,000 | 8,332,220 | ||||||
Oracle Corp. | 1,109,200 | 34,440,660 | ||||||
42,772,880 | ||||||||
SPECIALTY RETAIL — 5.1% | ||||||||
AutoZone, Inc.(1) | 55,800 | 20,925,000 | ||||||
Limited Brands, Inc. | 672,900 | 32,225,181 | ||||||
TJX Cos., Inc. (The) | 1,076,800 | 44,827,184 | ||||||
97,977,365 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 1.7% | ||||||||
Coach, Inc. | 488,700 | 27,391,635 | ||||||
Tumi Holdings, Inc.(1) | 258,600 | 5,792,640 | ||||||
33,184,275 | ||||||||
TOBACCO — 2.6% | ||||||||
Philip Morris International, Inc. | 559,700 | 49,567,032 | ||||||
TOTAL COMMON STOCKS (Cost $1,253,657,342) | 1,898,544,064 | |||||||
Temporary Cash Investments — 1.8% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% – 2.00%, 1/31/16 – 6/30/16, valued at $14,179,837), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $13,894,105) | 13,894,016 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% – 3.75%, 8/15/41 – 2/15/42, valued at $14,212,803), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $13,894,092) | 13,894,015 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $5,902,075), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $5,787,347) | 5,787,321 | |||||||
SSgA U.S. Government Money Market Fund | 61,238 | 61,238 | ||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $33,636,590) | 33,636,590 | |||||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $1,287,293,932) | 1,932,180,654 | |||||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (1,331,113 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $1,930,849,541 |
13
Forward Foreign Currency Exchange Contracts | |||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
19,587,471 | GBP for USD | Credit Suisse AG | 11/30/12 | $31,606,257 | $(79,243) |
(Value on Settlement Date $31,527,014)
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.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $1,287,293,932) | $1,932,180,654 | |||
Foreign currency holdings, at value (cost of $707,449) | 712,131 | |||
Receivable for capital shares sold | 997,452 | |||
Dividends and interest receivable | 1,123,226 | |||
1,935,013,463 | ||||
Liabilities | ||||
Payable for investments purchased | 1,129,842 | |||
Payable for capital shares redeemed | 1,258,198 | |||
Unrealized loss on forward foreign currency exchange contracts | 79,243 | |||
Accrued management fees | 1,681,315 | |||
Distribution and service fees payable | 15,324 | |||
4,163,922 | ||||
Net Assets | $1,930,849,541 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $1,403,429,384 | |||
Undistributed net investment income | 8,629,252 | |||
Accumulated net realized loss | (126,021,256 | ) | ||
Net unrealized appreciation | 644,812,161 | |||
$1,930,849,541 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $1,861,545,483 | 42,773,590 | $43.52 |
Institutional Class, $0.01 Par Value | $16,828,100 | 382,096 | $44.04 |
A Class, $0.01 Par Value | $45,354,679 | 1,058,437 | $42.85* |
C Class, $0.01 Par Value | $5,665,619 | 139,035 | $40.75 |
R Class, $0.01 Par Value | $1,455,660 | 33,961 | $42.86 |
*Maximum offering price $45.46 (net asset value divided by 0.9425).
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $86,477) | $26,824,161 | |||
Interest | 24,166 | |||
26,848,327 | ||||
Expenses: | ||||
Management fees | 19,014,710 | |||
Distribution and service fees: | ||||
A Class | 91,025 | |||
C Class | 27,975 | |||
R Class | 3,539 | |||
Directors’ fees and expenses | 71,594 | |||
Other expenses | 162 | |||
19,209,005 | ||||
Net investment income (loss) | 7,639,322 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 50,271,841 | |||
Foreign currency transactions | 917,240 | |||
51,189,081 | ||||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 142,308,002 | |||
Translation of assets and liabilities in foreign currencies | 99,729 | |||
142,407,731 | ||||
Net realized and unrealized gain (loss) | 193,596,812 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $201,236,134 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $7,639,322 | $4,688,472 | ||||||
Net realized gain (loss) | 51,189,081 | 39,129,701 | ||||||
Change in net unrealized appreciation (depreciation) | 142,407,731 | 138,891,678 | ||||||
Net increase (decrease) in net assets resulting from operations | 201,236,134 | 182,709,851 | ||||||
Distributions to Shareholders | ||||||||
From net investment income: | ||||||||
Investor Class | (4,659,009 | ) | (5,930,534 | ) | ||||
Institutional Class | (23,035 | ) | (25,646 | ) | ||||
A Class | (7,931 | ) | (17,175 | ) | ||||
Decrease in net assets from distributions | (4,689,975 | ) | (5,973,355 | ) | ||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets from capital share transactions | (61,750,287 | ) | (130,244,559 | ) | ||||
Net increase (decrease) in net assets | 134,795,872 | 46,491,937 | ||||||
Net Assets | ||||||||
Beginning of period | 1,796,053,669 | 1,749,561,732 | ||||||
End of period | $1,930,849,541 | $1,796,053,669 | ||||||
Undistributed net investment income | $8,629,252 | $4,867,506 |
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. 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 investing primarily in stocks of larger-sized companies that management believes will increase in value over time.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee. On October 21, 2011, all outstanding B Class shares were converted to A Class shares and the fund discontinued offering the B Class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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 2009. 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, 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, 2012 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, 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, 2012 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., 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.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $319,850,395 and $375,030,367, respectively.
20
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2012 | Year ended October 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 300,000,000 | 300,000,000 | ||||||||||||||
Sold | 2,187,738 | $93,774,628 | 1,326,866 | $51,400,404 | ||||||||||||
Issued in reinvestment of distributions | 117,261 | 4,458,282 | 150,928 | 5,679,445 | ||||||||||||
Redeemed | (4,641,009 | ) | (195,137,515 | ) | (4,831,149 | ) | (187,400,425 | ) | ||||||||
(2,336,010 | ) | (96,904,605 | ) | (3,353,355 | ) | (130,320,576 | ) | |||||||||
Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||||||
Sold | 285,373 | 12,571,675 | 32,761 | 1,267,331 | ||||||||||||
Issued in reinvestment of distributions | 596 | 22,905 | 670 | 25,466 | ||||||||||||
Redeemed | (33,480 | ) | (1,449,400 | ) | (30,754 | ) | (1,223,056 | ) | ||||||||
252,489 | 11,145,180 | 2,677 | 69,741 | |||||||||||||
A Class/Shares Authorized | 75,000,000 | 75,000,000 | ||||||||||||||
Sold | 614,826 | 25,736,761 | 163,231 | 6,203,697 | ||||||||||||
Issued in reinvestment of distributions | 209 | 7,821 | 454 | 16,873 | ||||||||||||
Redeemed | (194,157 | ) | (8,068,061 | ) | (116,745 | ) | (4,454,011 | ) | ||||||||
420,878 | 17,676,521 | 46,940 | 1,766,559 | |||||||||||||
B Class/Shares Authorized | N/A | 25,000,000 | ||||||||||||||
Sold | 1,180 | 44,854 | ||||||||||||||
Redeemed | (53,880 | ) | (1,958,733 | ) | ||||||||||||
(52,700 | ) | (1,913,879 | ) | |||||||||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||||||
Sold | 135,986 | 5,492,534 | 9,157 | 319,498 | ||||||||||||
Redeemed | (12,415 | ) | (502,300 | ) | (5,253 | ) | (194,203 | ) | ||||||||
123,571 | 4,990,234 | 3,904 | 125,295 | |||||||||||||
R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 34,430 | 1,429,554 | 1,023 | 40,053 | ||||||||||||
Redeemed | (2,001 | ) | (87,171 | ) | (303 | ) | (11,752 | ) | ||||||||
32,429 | 1,342,383 | 720 | 28,301 | |||||||||||||
Net increase (decrease) | (1,506,643 | ) | $(61,750,287 | ) | (3,351,814 | ) | $(130,244,559 | ) |
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 | $1,801,946,323 | — | — | |||||||||
Foreign Common Stocks | 49,240,558 | $47,357,183 | — | |||||||||
Temporary Cash Investments | 61,238 | 33,575,352 | — | |||||||||
Total Value of Investment Securities | $1,851,248,119 | $80,932,535 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(79,243 | ) | — |
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 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, 2012, is disclosed on the Statement of Assets and Liabilities as a liability of $79,243 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2012, the effect of foreign currency risk derivative instruments on the Statement of Operations was $912,088 in net realized gain (loss) on foreign currency transactions and $101,288 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, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | $4,689,975 | $5,973,355 | ||||||
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, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $1,290,459,793 | |||
Gross tax appreciation of investments | $659,575,935 | |||
Gross tax depreciation of investments | (17,855,074 | ) | ||
Net tax appreciation (depreciation) of investments | $641,720,861 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $4,682 | |||
Net tax appreciation (depreciation) | $641,725,543 | |||
Undistributed ordinary income | $8,550,009 | |||
Accumulated short-term capital losses | $(122,855,395 | ) |
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 foreign currency exchange contracts.
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 $(102,366,341) and $(20,489,054) expire in 2017 and 2018, respectively.
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 | ||||||||||||||||||||||||||||||||||||||
2012 | $39.14 | 0.17 | 4.31 | 4.48 | (0.10 | ) | — | (0.10 | ) | $43.52 | 11.50 | % | 1.00 | % | 0.41 | % | 17 | % | $1,861,545 | |||||||||||||||||||
2011 | $35.54 | 0.10 | 3.62 | 3.72 | (0.12 | ) | — | (0.12 | ) | $39.14 | 10.49 | % | 1.00 | % | 0.26 | % | 17 | % | $1,765,718 | |||||||||||||||||||
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 | |||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||
2012 | $39.60 | 0.24 | 4.38 | 4.62 | (0.18 | ) | — | (0.18 | ) | $44.04 | 11.73 | % | 0.80 | % | 0.61 | % | 17 | % | $16,828 | |||||||||||||||||||
2011 | $35.95 | 0.18 | 3.67 | 3.85 | (0.20 | ) | — | (0.20 | ) | $39.60 | 10.73 | % | 0.80 | % | 0.46 | % | 17 | % | $5,133 | |||||||||||||||||||
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 | |||||||||||||||||
A Class | ||||||||||||||||||||||||||||||||||||||
2012 | $38.54 | 0.06 | 4.26 | 4.32 | (0.01 | ) | — | (0.01 | ) | $42.85 | 11.22 | % | 1.25 | % | 0.16 | % | 17 | % | $45,355 | |||||||||||||||||||
2011 | $34.99 | — | (3) | 3.58 | 3.58 | (0.03 | ) | — | (0.03 | ) | $38.54 | 10.23 | % | 1.25 | % | 0.01 | % | 17 | % | $24,573 | ||||||||||||||||||
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 |
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For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total From Investment Operations | Net Investment Income | Net Realized Gains | Total Distributions | Net Asset Value, End of Period | Total Return(2) | Operating Expenses | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||||
2012 | $36.92 | (0.25 | ) | 4.08 | 3.83 | — | — | — | $40.75 | 10.37 | % | 2.00 | % | (0.59 | )% | 17 | % | $5,666 | ||||||||||||||||||||
2011 | $33.74 | (0.28 | ) | 3.46 | 3.18 | — | — | — | $36.92 | 9.43 | % | 2.00 | % | (0.74 | )% | 17 | % | $571 | ||||||||||||||||||||
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 | ||||||||||||||||
R Class | ||||||||||||||||||||||||||||||||||||||
2012 | $38.64 | (0.06 | ) | 4.28 | 4.22 | — | — | — | $42.86 | 10.92 | % | 1.50 | % | (0.09 | )% | 17 | % | $1,456 | ||||||||||||||||||||
2011 | $35.14 | (0.08 | ) | 3.58 | 3.50 | — | — | — | $38.64 | 9.96 | % | 1.50 | % | (0.24 | )% | 17 | % | $59 | ||||||||||||||||||||
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 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
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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, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
26
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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
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, 2012.
For corporate taxpayers, the fund hereby designates $4,689,975, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2012 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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76895 1212
ANNUAL REPORT OCTOBER 31, 2012
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 | 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 | 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 12 months ended October 31, 2012. Our report offers investment performance, market analysis, 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 fund returns, including key factors that affected fund performance. For additional, updated insights, we encourage you to visit our website, americancentury.com.
Favorable Fiscal-Year Returns for Most U.S. Stock and Bond Benchmarks
In a period fraught with concerns about factors such as the global economic recovery, European financial system stability, and the U.S. political picture, the 12-month returns for U.S. investors were generally favorable.
Both U.S. stocks and bonds rallied for much of the period, with U.S. equities generally outperforming their non-U.S. counterparts. The S&P 500 Index advanced 15.21%, compared with 4.61% for the MSCI EAFE (Europe, Australasia, Far East) Index. The Barclays U.S. Aggregate Bond Index returned 5.25%, and the 10-year U.S. Treasury note returned 7.47%, according to Barclays.
As it turned out, the overseas setbacks and the coordinated monetary policy response provided by prominent central banks around the world ultimately proved beneficial to the U.S. capital markets. Both U.S. stocks and bonds generally benefited from global investors’ trust in the U.S. financial system and from declining interest rates, helped by central bank purchases of government securities. The 10-year U.S. Treasury yield fell to a record low during the period, finishing at 1.69%.
The U.S. economy showed signs of improvement during the fiscal year, particularly the long-depressed housing market. However, the outlook for 2013 remains guarded, as the fragile recovery remains vulnerable to fiscal and financial factors that could trigger further slowdowns and market volatility.
Under these conditions, we continue to believe in a disciplined, diversified, long-term investment approach, using both stocks and bonds—as appropriate—for meeting financial goals. We appreciate your continued trust in us in this challenging environment.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
2
Dear Fellow Shareholders,
The board has once again completed its annual review of the advisory contract between the American Century Investments mutual funds overseen by the board and the funds’ advisor, American Century Investment Management, Inc. This process, often referred to as the 15(c) review, involves the independent directors considering all of the material monitored throughout the year and evaluating a wide range of factors to determine whether the management fee paid by each fund to the advisor is reasonable.
The independent directors’ rationale for this decision is provided in detail in this, or in a previous, report. However, there are several highlights that should be of interest to all shareholders.
• | Fund performance and client service continue to be rated among the industry’s best. |
• | Target date and other asset allocation products continue to successfully gather assets and industry acclaim. |
• | Compliance programs continue to function successfully with no issues impacting shareholder interests. |
• | Fees were found to be within an acceptable competitive range, with minor fee waivers being negotiated on five funds. |
Knowing that most shareholders are long term investors, the board was particularly pleased with our succession planning review. Talented professionals are being added within portfolio management and experienced managers have been added to the senior management team.
Overall it was a very positive review for the American Century Investments mutual funds during a challenging market environment.
Best personal regards,
Don Pratt
3
By David Hollond, Chief Investment Officer, U.S. Growth Equity — Mid & Small Cap
Stocks Gained Amid Volatility
The U.S. stock market generated positive results for the 12-month period ended October 31, 2012, although it endured significant volatility along the way. As the reporting period began, stocks were in the midst of a rebound. Investors grew optimistic as signs of improving economic activity quashed recession fears; in particular, job growth began to exceed expectations, driving the unemployment rate to its lowest level in three years by February 2012. Another positive factor was promising news out of Europe, as the European Central Bank provided favorable long-term financing to the debt markets and support for the Continent’s banking sector.
The optimism proved to be short-lived, as headwinds returned to the equity market. Evidence of slowing economic activity in the U.S. and adverse developments in Europe—including political turmoil in Greece and troubled banks in Spain—weighed on investor confidence, sending stocks down sharply.
Late in the period, stocks reversed course once again. The Federal Reserve announced a third round of quantitative easing measures, as well as an extension of its near-zero interest rate policy until 2015. The European Central Bank, meanwhile, announced a plan under which it would purchase bonds to support financially troubled debt markets in Europe. These measures, as well as others taken by central banks around the world, helped to restore investor confidence and drive markets upward, despite some concerns about slowing corporate profits and the looming U.S. fiscal cliff.
As the table below illustrates, large-cap issues generated the strongest returns for the reporting period, outpacing mid- and small-cap shares. Value stocks outpaced growth shares across the market capitalization spectrum.
From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the telecommunication services sector fared the best. Health care, financials, consumer discretionary, and consumer staples all finished ahead of the Russell 3000 Index. On the other side, the energy and information technology sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2012 | ||||
Russell 1000 Index (Large-Cap) | 14.97% | Russell 2000 Index (Small-Cap) | 12.08% | |
Russell 1000 Growth Index | 13.02% | Russell 2000 Growth Index | 9.70% | |
Russell 1000 Value Index | 16.89% | Russell 2000 Value Index | 14.47% | |
Russell Midcap Index | 12.15% | |||
Russell Midcap Growth Index | 9.09% | |||
Russell Midcap Value Index | 14.99% |
4
Total Returns as of October 31, 2012 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Institutional Class | ACLWX | 7.59% | -4.22% | 1.22% | 5/12/06 |
Russell Midcap Growth Index | — | 9.09% | 1.55% | 3.94%(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 0.83% |
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.
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 7.59% for the 12 months ended October 31, 2012. By comparison, the Russell Midcap Growth Index (the fund’s benchmark), returned 9.09%.
In terms of NT Vista’s absolute returns during the fiscal year, the health care and consumer discretionary sectors contributed most. Energy was the only major sector to post negative absolute results. Relative to the benchmark, stock selection made the materials and industrial sectors the leading detractors. Positioning among telecommunication services, energy, and information technology shares contributed most to relative performance.
Stocks Positive but Volatile
Equity markets in recent years have tended to trade in broad “risk on/risk off” moves as perceptions of macroeconomic and market conditions changed. These sorts of conditions typically result in higher correlations between individual securities—that is, stocks tend to go up and down together with comparatively little differentiation among them. This makes it comparatively more difficult for active portfolio managers to outperform. However, despite the uncertain economic and market conditions, we have seen no shortage of attractive companies demonstrating accelerating earnings growth.
Materials, Industrials Detracted Most
In the materials sector, it hurt relative results to be underrepresented in a number of shares that did well during the fiscal year. Good examples were paint companies Sherwin-Williams and PPG Industries—two stocks to which NT Vista had less exposure than the benchmark—which outperformed as the housing sector improved.
In the industrial sector, a number of NT Vista’s holdings were affected by investor uncertainty around corporate earnings growth and pricing power resulting from worries about the health of the global economy. The leading detractor here was mining equipment manufacturer Joy Global, which suffered from declining metals prices and slower economic growth. In the electrical equipment industry group, Polypore, which manufactures lithium-ion separators used in electric vehicles, was hurt over competitor concern.
Among other leading individual detractors was information security software company Check Point Software Technologies. Check Point underperformed after announcing slower-than-expected license revenue growth, which the company attributed to a pause in orders ahead of a new operating system launch. China-based Focus Media Holding underperformed as a result of a critical third party research report.
Contributions Broad Based
Looking at positive contributors to relative results, stock selection and allocation decisions drove outperformance in the telecommunication services sector. The leading contributor in this space was cellular tower operator SBA Communications. The company continues to benefit from a long-running trend toward the build-out of data networks for mobile phones.
6
Elsewhere, stock selection in the energy and information technology sectors drove outperformance. In the energy space, positioning in the oil, gas, and consumable fuels industry contributed most. Here, stock choices had a positive effect, and it helped to be underweight this comparatively poor-performing industry segment. Among information technology stocks, the IT services and semiconductor industries were sources of strength. A key contributor in the sector was business software provider NetSuite, which reported better-than-expected results and did very well late in the fiscal year.
The leading individual contributor in the portfolio for the fiscal year was pharmacy benefit manager SXC Health Solutions, which announced the acquisition of Catalyst Health Solutions in April 2012. The portfolio held positions in both SXC and Catalyst, and they each posted strong returns. The merger provides the combined entity, subsequently renamed Catamaran, with increased scale to target larger potential clients.
A number of other key contributors resided in the consumer discretionary sector, including PetSmart and Ulta Salon Cosmetics & Fragrance. Pet products retailer PetSmart reported improvement in same store sales, margins, and other key business metrics, while the stock further benefited from an aggressive share buyback plan. Ulta enjoyed attractive store growth and same store sales comparisons, as well as seeing its business mix evolve toward higher margin products. It also helped to own high-growth international retailer Michael Kors, which outperformed during the fiscal year following its initial public offering thanks to brand strength and exposure to luxury spending.
Commitment to Process
NT Vista’s investment process focuses on medium-and smaller-sized companies with accelerating growth rates and share price momentum. Within the process, in the current market environment, our team is placing increasing emphasis on the identification of companies benefiting from enduring secular—as opposed to cyclical—growth trends. Such secular trends are often the result of larger technological, social, or economic change that can last several years or more. Examples of secular changes underway at present are trends toward mobile and cloud computing, among others. Secular growers are particularly appealing investments because they offer more sustainable, enduring rates of earnings acceleration across the economic cycle. We believe that smart risk-taking and active investing in such companies will generate attractive absolute and relative investment performance over time.
7
OCTOBER 31, 2012 | |
Top Ten Holdings | % of net assets |
Alliance Data Systems Corp. | 3.0% |
Catamaran Corp. | 2.4% |
Whole Foods Market, Inc. | 2.3% |
SBA Communications Corp., Class A | 2.2% |
Kansas City Southern | 2.1% |
Teradata Corp. | 1.9% |
PetSmart, Inc. | 1.8% |
Tractor Supply Co. | 1.7% |
Alexion Pharmaceuticals, Inc. | 1.7% |
Cabot Oil & Gas Corp. | 1.7% |
Top Five Industries | % of net assets |
Specialty Retail | 10.7% |
IT Services | 5.3% |
Chemicals | 4.6% |
Biotechnology | 3.6% |
Food and Staples Retailing | 3.5% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 91.5% |
Foreign Common Stocks* | 6.2% |
Total Common Stocks | 97.7% |
Temporary Cash Investments | 4.1% |
Other Assets and Liabilities | (1.8)% |
*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, 2012 to October 31, 2012.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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 5/1/12 | Ending Account Value 10/31/12 | Expenses Paid During Period(1) 5/1/12 – 10/31/12 | Annualized Expense Ratio(1) | |
Actual | ||||
Institutional Class | $1,000 | $954.10 | $3.98 | 0.81% |
Hypothetical | ||||
Institutional Class | $1,000 | $1,021.06 | $4.12 | 0.81% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 366, to reflect the one-half year period. |
10
Shares | Value | |||||||
Common Stocks — 97.7% | ||||||||
AEROSPACE AND DEFENSE — 1.9% | ||||||||
B/E Aerospace, Inc.(1) | 46,600 | $2,101,194 | ||||||
TransDigm Group, Inc. | 25,600 | 3,410,176 | ||||||
5,511,370 | ||||||||
AUTO COMPONENTS — 1.4% | ||||||||
BorgWarner, Inc.(1) | 27,702 | 1,823,346 | ||||||
Delphi Automotive plc(1) | 79,200 | 2,490,048 | ||||||
4,313,394 | ||||||||
AUTOMOBILES — 0.6% | ||||||||
Harley-Davidson, Inc. | 36,800 | 1,720,768 | ||||||
BEVERAGES — 1.3% | ||||||||
Beam, Inc. | 25,400 | 1,411,224 | ||||||
Dr Pepper Snapple Group, Inc. | 36,100 | 1,546,885 | ||||||
Monster Beverage Corp.(1) | 23,000 | 1,027,410 | ||||||
3,985,519 | ||||||||
BIOTECHNOLOGY — 3.6% | ||||||||
Alexion Pharmaceuticals, Inc.(1) | 55,965 | 5,058,117 | ||||||
Grifols SA(1) | 59,800 | 2,074,160 | ||||||
Onyx Pharmaceuticals, Inc.(1) | 14,600 | 1,144,056 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 16,300 | 2,319,490 | ||||||
10,595,823 | ||||||||
BUILDING PRODUCTS — 0.9% | ||||||||
Fortune Brands Home & Security, Inc.(1) | 89,200 | 2,536,848 | ||||||
CAPITAL MARKETS — 2.1% | ||||||||
Affiliated Managers Group, Inc.(1) | 31,700 | 4,010,050 | ||||||
KKR & Co. LP | 144,300 | 2,171,715 | ||||||
6,181,765 | ||||||||
CHEMICALS — 4.6% | ||||||||
Airgas, Inc. | 26,800 | 2,384,396 | ||||||
Celanese Corp. | 23,900 | 907,961 | ||||||
Cytec Industries, Inc. | 28,300 | 1,947,606 | ||||||
Eastman Chemical Co. | 52,800 | 3,127,872 | ||||||
FMC Corp. | 74,700 | 3,997,944 | ||||||
Sherwin-Williams Co. (The) | 10,000 | 1,425,800 | ||||||
13,791,579 | ||||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.2% | ||||||||
Stericycle, Inc.(1) | 38,600 | 3,657,736 | ||||||
COMMUNICATIONS EQUIPMENT — 0.5% | ||||||||
Palo Alto Networks, Inc.(1) | 27,273 | 1,499,470 | ||||||
CONSTRUCTION AND ENGINEERING — 1.9% | ||||||||
Chicago Bridge & Iron Co. NV New York Shares | 42,200 | 1,584,610 | ||||||
KBR, Inc. | 47,900 | 1,334,494 | ||||||
Quanta Services, Inc.(1) | 109,100 | 2,828,963 | ||||||
5,748,067 | ||||||||
CONSTRUCTION MATERIALS — 0.2% | ||||||||
Eagle Materials, Inc. | 12,000 | 635,640 | ||||||
CONSUMER FINANCE — 1.6% | ||||||||
Discover Financial Services | 116,100 | 4,760,100 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.7% | ||||||||
McGraw-Hill Cos., Inc. (The) | 37,400 | 2,067,472 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.7% | ||||||||
tw telecom, inc., Class A(1) | 76,800 | 1,956,096 | ||||||
ELECTRICAL EQUIPMENT — 0.5% | ||||||||
AMETEK, Inc. | 42,000 | 1,493,100 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.4% | ||||||||
Trimble Navigation Ltd.(1) | 88,600 | 4,180,148 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.7% | ||||||||
Atwood Oceanics, Inc.(1) | 37,200 | 1,778,160 | ||||||
National Oilwell Varco, Inc. | 24,200 | 1,783,540 | ||||||
Oceaneering International, Inc. | 47,900 | 2,506,607 | ||||||
Oil States International, Inc.(1) | 25,000 | 1,827,500 | ||||||
7,895,807 | ||||||||
FOOD AND STAPLES RETAILING — 3.5% | ||||||||
Costco Wholesale Corp. | 19,800 | 1,948,914 | ||||||
Fresh Market, Inc. (The)(1) | 25,900 | 1,468,789 | ||||||
Whole Foods Market, Inc. | 73,200 | 6,934,236 | ||||||
10,351,939 | ||||||||
FOOD PRODUCTS — 2.7% | ||||||||
Hain Celestial Group, Inc. (The)(1) | 28,800 | 1,664,640 | ||||||
McCormick & Co., Inc. | 39,600 | 2,440,152 | ||||||
Mead Johnson Nutrition Co. | 62,500 | 3,853,750 | ||||||
7,958,542 | ||||||||
GAS UTILITIES — 1.1% | ||||||||
ONEOK, Inc. | 67,700 | 3,202,210 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 3.2% | ||||||||
Cooper Cos., Inc. (The) | 20,700 | 1,986,786 | ||||||
Edwards Lifesciences Corp.(1) | 15,200 | 1,319,816 | ||||||
IDEXX Laboratories, Inc.(1) | 25,600 | 2,462,720 | ||||||
Intuitive Surgical, Inc.(1) | 2,800 | 1,518,216 | ||||||
Mettler-Toledo International, Inc.(1) | 12,300 | 2,083,251 | ||||||
9,370,789 |
11
Shares | Value | |||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.4% | ||||||||
Catamaran Corp.(1) | 149,000 | $7,026,840 | ||||||
Express Scripts Holding Co.(1) | 50,600 | 3,113,924 | ||||||
10,140,764 | ||||||||
HEALTH CARE TECHNOLOGY — 0.9% | ||||||||
Cerner Corp.(1) | 35,000 | 2,666,650 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 1.6% | ||||||||
Dunkin’ Brands Group, Inc. | 45,100 | 1,398,100 | ||||||
Panera Bread Co., Class A(1) | 9,300 | 1,568,352 | ||||||
Royal Caribbean Cruises Ltd. | 13,300 | 447,811 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 28,800 | 1,493,280 | ||||||
4,907,543 | ||||||||
HOUSEHOLD DURABLES — 1.7% | ||||||||
Lennar Corp., Class A | 58,300 | 2,184,501 | ||||||
Toll Brothers, Inc.(1) | 86,200 | 2,845,462 | ||||||
5,029,963 | ||||||||
HOUSEHOLD PRODUCTS — 1.0% | ||||||||
Church & Dwight Co., Inc. | 58,000 | 2,944,080 | ||||||
INSURANCE — 0.1% | ||||||||
Cincinnati Financial Corp. | 11,100 | 442,224 | ||||||
INTERNET AND CATALOG RETAIL — 1.3% | ||||||||
Expedia, Inc. | 29,000 | 1,715,350 | ||||||
priceline.com, Inc.(1) | 3,900 | 2,237,703 | ||||||
3,953,053 | ||||||||
INTERNET SOFTWARE AND SERVICES — 2.0% | ||||||||
Equinix, Inc.(1) | 7,100 | 1,280,911 | ||||||
LinkedIn Corp., Class A(1) | 18,500 | 1,978,205 | ||||||
Rackspace Hosting, Inc.(1) | 42,000 | 2,674,980 | ||||||
5,934,096 | ||||||||
IT SERVICES — 5.3% | ||||||||
Alliance Data Systems Corp.(1) | 62,200 | 8,897,710 | ||||||
Cognizant Technology Solutions Corp., Class A(1) | 21,500 | 1,432,975 | ||||||
Teradata Corp.(1) | 81,500 | 5,567,265 | ||||||
15,897,950 | ||||||||
MACHINERY — 2.5% | ||||||||
Chart Industries, Inc.(1) | 26,900 | 1,904,251 | ||||||
Joy Global, Inc. | 23,300 | 1,455,085 | ||||||
Trinity Industries, Inc. | 53,300 | 1,667,224 | ||||||
Valmont Industries, Inc. | 17,800 | 2,404,780 | ||||||
7,431,340 | ||||||||
MEDIA — 2.3% | ||||||||
CBS Corp., Class B | 59,300 | 1,921,320 | ||||||
Liberty Global, Inc. Class A(1) | 26,900 | 1,614,807 | ||||||
Scripps Networks Interactive, Inc. Class A | 23,900 | 1,451,208 | ||||||
Sirius XM Radio, Inc.(1) | 680,900 | 1,906,520 | ||||||
6,893,855 | ||||||||
METALS AND MINING — 0.6% | ||||||||
Carpenter Technology Corp. | 35,500 | 1,725,655 | ||||||
MULTILINE RETAIL — 1.1% | ||||||||
Dollar Tree, Inc.(1) | 38,700 | 1,542,969 | ||||||
Family Dollar Stores, Inc. | 27,300 | 1,800,708 | ||||||
3,343,677 | ||||||||
OIL, GAS AND CONSUMABLE FUELS — 3.2% | ||||||||
Cabot Oil & Gas Corp. | 107,500 | 5,050,350 | ||||||
Concho Resources, Inc.(1) | 32,600 | 2,807,512 | ||||||
Kodiak Oil & Gas Corp.(1) | 178,200 | 1,646,568 | ||||||
9,504,430 | ||||||||
PHARMACEUTICALS — 2.7% | ||||||||
Perrigo Co. | 42,300 | 4,864,923 | ||||||
Watson Pharmaceuticals, Inc.(1) | 38,100 | 3,274,695 | ||||||
8,139,618 | ||||||||
PROFESSIONAL SERVICES — 0.5% | ||||||||
IHS, Inc. Class A(1) | 16,070 | 1,356,147 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.4% | ||||||||
Digital Realty Trust, Inc. | 37,645 | 2,312,532 | ||||||
Ventas, Inc. | 30,300 | 1,917,081 | ||||||
4,229,613 | ||||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.9% | ||||||||
CBRE Group, Inc.(1) | 131,800 | 2,375,036 | ||||||
Realogy Holdings Corp.(1) | 9,004 | 320,002 | ||||||
2,695,038 | ||||||||
ROAD AND RAIL — 3.1% | ||||||||
Canadian Pacific Railway Ltd. | 22,600 | 2,080,556 | ||||||
Genesee & Wyoming, Inc. Class A(1) | 10,735 | 777,966 | ||||||
Kansas City Southern | 77,800 | 6,259,788 | ||||||
9,118,310 | ||||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.7% | ||||||||
ARM Holdings plc | 224,200 | 2,405,987 | ||||||
Avago Technologies Ltd. | 58,900 | 1,945,467 | ||||||
NXP Semiconductor NV(1) | 37,200 | 902,472 | ||||||
Xilinx, Inc. | 88,100 | 2,886,156 | ||||||
8,140,082 | ||||||||
SOFTWARE — 3.0% | ||||||||
Citrix Systems, Inc.(1) | 62,900 | 3,887,849 | ||||||
CommVault Systems, Inc.(1) | 4,800 | 299,856 |
12
Shares | Value |
NetSuite, Inc.(1) | 54,200 | $3,442,242 | ||||||
Splunk, Inc.(1) | 49,809 | 1,397,143 | ||||||
9,027,090 | ||||||||
SPECIALTY RETAIL — 10.7% | ||||||||
Cabela’s, Inc.(1) | 49,600 | 2,222,576 | ||||||
DSW, Inc., Class A | 45,300 | 2,835,327 | ||||||
Gap, Inc. (The) | 48,300 | 1,725,276 | ||||||
GNC Holdings, Inc. Class A | 87,479 | 3,382,813 | ||||||
Lumber Liquidators Holdings, Inc.(1) | 23,900 | 1,334,098 | ||||||
O’Reilly Automotive, Inc.(1) | 18,300 | 1,567,944 | ||||||
PetSmart, Inc. | 80,110 | 5,318,503 | ||||||
Ross Stores, Inc. | 54,800 | 3,340,060 | ||||||
Sally Beauty Holdings, Inc.(1) | 61,700 | 1,485,736 | ||||||
Tractor Supply Co. | 53,200 | 5,119,968 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. | 38,900 | 3,587,358 | ||||||
31,919,659 | ||||||||
TEXTILES, APPAREL AND LUXURY GOODS — 3.3% | ||||||||
Lululemon Athletica, Inc.(1) | 24,300 | 1,676,943 | ||||||
Michael Kors Holdings Ltd.(1) | 60,760 | 3,322,964 | ||||||
PVH Corp. | 16,500 | 1,814,835 | ||||||
Under Armour, Inc. Class A(1) | 25,600 | 1,337,856 | ||||||
VF Corp. | 10,200 | 1,596,096 | ||||||
9,748,694 | ||||||||
TRADING COMPANIES AND DISTRIBUTORS — 1.9% | ||||||||
Fastenal Co. | 45,500 | 2,033,850 | ||||||
United Rentals, Inc.(1) | 86,000 | 3,496,760 | ||||||
5,530,610 | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 2.2% | ||||||||
SBA Communications Corp., Class A(1) | 97,502 | 6,496,558 | ||||||
TOTAL COMMON STOCKS (Cost $237,015,644) | 290,630,881 | |||||||
Temporary Cash Investments — 4.1% | ||||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.50% - 2.00%, 1/31/16 - 6/30/16, valued at $5,099,257), in a joint trading account at 0.23%, dated 10/31/12, due 11/1/12 (Delivery value $4,996,503) | 4,996,471 | |||||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 3.125% - 3.75%, 8/15/41 - 2/15/42, valued at $5,111,112), in a joint trading account at 0.20%, dated 10/31/12, due 11/1/12 (Delivery value $4,996,500) | 4,996,472 | |||||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 4.625%, 2/15/40, valued at $2,122,464), in a joint trading account at 0.16%, dated 10/31/12, due 11/1/12 (Delivery value $2,081,211) | 2,081,202 | |||||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $12,074,145) | 12,074,145 | |||||||
TOTAL INVESTMENT SECURITIES — 101.8% (Cost $249,089,789) | 302,705,026 | |||||||
OTHER ASSETS AND LIABILITIES — (1.8)% | (5,275,651 | ) | ||||||
TOTAL NET ASSETS — 100.0% | $297,429,375 |
Forward Foreign Currency Exchange Contracts | |||||
Contracts to Buy | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
36,208 | GBP for USD | Credit Suisse AG | 11/30/12 | $58,425 | $425 |
(Value on Settlement Date $58,000) | |||||
Contracts to Sell | Counterparty | Settlement Date | Value | Unrealized Gain (Loss) | |
1,311,922 | EUR for USD | UBS AG | 11/30/12 | $1,700,862 | $(2,893) |
1,287,300 | GBP for USD | Credit Suisse AG | 11/30/12 | 2,077,182 | (5,208) |
$3,778,044 | $(8,101) | ||||
(Value on Settlement Date $3,769,943) |
13
Notes to Schedule of Investments
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
14
OCTOBER 31, 2012 | ||||
Assets | ||||
Investment securities, at value (cost of $249,089,789) | $302,705,026 | |||
Receivable for investments sold | 2,046,699 | |||
Receivable for capital shares sold | 1,522 | |||
Unrealized gain on forward foreign currency exchange contracts | 425 | |||
Dividends and interest receivable | 353,319 | |||
305,106,991 | ||||
Liabilities | ||||
Payable for investments purchased | 7,466,919 | |||
Unrealized loss on forward foreign currency exchange contracts | 8,101 | |||
Accrued management fees | 198,857 | |||
Other liabilities | 3,739 | |||
7,677,616 | ||||
Net Assets | $297,429,375 | |||
Institutional Class Capital Shares, $0.01 Par Value | ||||
Shares authorized | 150,000,000 | |||
Shares outstanding | 28,034,162 | |||
Net Asset Value Per Share | $10.61 | |||
Net Assets Consist of: | ||||
Capital (par value and paid-in surplus) | $248,027,878 | |||
Accumulated net investment loss | (36,846 | ) | ||
Accumulated net realized loss | (4,169,517 | ) | ||
Net unrealized appreciation | 53,607,860 | |||
$297,429,375 |
See Notes to Financial Statements.
15
YEAR ENDED OCTOBER 31, 2012 | ||||
Investment Income (Loss) | ||||
Income: | ||||
Dividends (net of foreign taxes withheld of $2,937) | $2,009,688 | |||
Interest | 5,758 | |||
2,015,446 | ||||
Expenses: | ||||
Management fees | 2,065,395 | |||
Directors’ fees and expenses | 9,475 | |||
Other expenses | 3,801 | |||
2,078,671 | ||||
Net investment income (loss) | (63,225 | ) | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investment transactions | (1,565,648 | ) | ||
Futures contract transactions | (212,977 | ) | ||
Foreign currency transactions | 703 | |||
(1,777,922 | ) | |||
Change in net unrealized appreciation (depreciation) on: | ||||
Investments | 19,888,864 | |||
Translation of assets and liabilities in foreign currencies | 18,523 | |||
19,907,387 | ||||
Net realized and unrealized gain (loss) | 18,129,465 | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $18,066,240 |
See Notes to Financial Statements.
16
YEARS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011 | ||||||||
Increase (Decrease) in Net Assets | October 31, 2012 | October 31, 2011 | ||||||
Operations | ||||||||
Net investment income (loss) | $(63,225 | ) | $(508,657 | ) | ||||
Net realized gain (loss) | (1,777,922 | ) | 9,902,344 | |||||
Change in net unrealized appreciation (depreciation) | 19,907,387 | 634,957 | ||||||
Net increase (decrease) in net assets resulting from operations | 18,066,240 | 10,028,644 | ||||||
Distributions to Shareholders | ||||||||
From net realized gains | (3,557,528 | ) | — | |||||
Capital Share Transactions | ||||||||
Proceeds from shares sold | 98,603,911 | 65,778,540 | ||||||
Proceeds from reinvestment of distributions | 3,557,528 | — | ||||||
Payments for shares redeemed | (34,300,835 | ) | (22,050,710 | ) | ||||
Net increase (decrease) in net assets from capital share transactions | 67,860,604 | 43,727,830 | ||||||
Net increase (decrease) in net assets | 82,369,316 | 53,756,474 | ||||||
Net Assets | ||||||||
Beginning of period | 215,060,059 | 161,303,585 | ||||||
End of period | $297,429,375 | $215,060,059 | ||||||
Accumulated undistributed net investment income (loss) | $(36,846 | ) | $31,336 | |||||
Transactions in Shares of the Fund | ||||||||
Sold | 9,510,793 | 6,541,903 | ||||||
Issued in reinvestment of distributions | 375,663 | — | ||||||
Redeemed | (3,298,873 | ) | (2,177,130 | ) | ||||
Net increase (decrease) in shares of the fund | 6,587,583 | 4,364,773 |
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. 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 stocks of medium-sized and smaller 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
18
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.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. The fund is no longer subject to examination by tax authorities for years prior to 2009. 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
19
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., 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. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. These funds do not invest in the fund for the purpose of exercising management or control.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2012 were $292,150,305 and $232,578,153, 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). |
20
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
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 | $272,147,674 | — | — | |||||||||
Foreign Common Stocks | 14,003,060 | $4,480,147 | — | |||||||||
Temporary Cash Investments | — | 12,074,145 | — | |||||||||
Total Value of Investment Securities | $286,150,734 | $16,554,292 | — | |||||||||
Other Financial Instruments | ||||||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $(7,676 | ) | — |
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 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.
21
Value of Derivative Instruments as of October 31, 2012
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 | $425 | Unrealized loss on forward foreign currency exchange contracts | $8,101 |
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2012
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 | $(212,977) | Change in net unrealized appreciation (depreciation) on futures contracts | — | |
Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (4,038) | Change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $21,721 | |
$(217,015) | $21,721 |
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.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions Paid From | ||||||||
Ordinary income | — | — | ||||||
Long-term capital gains | $3,557,528 | — |
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.
22
As of October 31, 2012, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $251,799,034 | |||
Gross tax appreciation of investments | $55,620,038 | |||
Gross tax depreciation of investments | (4,714,046 | ) | ||
Net tax appreciation (depreciation) of investments | $50,905,992 | |||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $298 | |||
Net tax appreciation (depreciation) | $50,906,290 | |||
Undistributed ordinary income | — | |||
Accumulated short-term capital losses | $(1,460,271 | ) | ||
Late-year ordinary loss deferral | $(44,522 | ) |
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 foreign currency exchange contracts.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers may be carried forward for an unlimited period. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
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(3) | Net Investment Income (Loss) | Portfolio Turnover Rate | Net Assets, End of Period (in thousands) | ||||||||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | $10.03 | — | (4) | 0.74 | 0.74 | — | (0.16 | ) | (0.16 | ) | $10.61 | 7.59 | % | 0.81 | % | (0.02 | )% | 92 | % | $297,429 | ||||||||||||||||||||||||||||||||
2011 | $9.44 | (0.03 | ) | 0.62 | 0.59 | — | — | — | $10.03 | 6.25 | % | 0.80 | % | (0.27 | )% | 115 | % | $215,060 | ||||||||||||||||||||||||||||||||||
2010 | $7.50 | (0.02 | ) | 1.96 | 1.94 | — | (4) | — | — | (4) | $9.44 | 26.05 | % | 0.80 | % | (0.26 | )% | 152 | % | $161,304 | ||||||||||||||||||||||||||||||||
2009 | $7.62 | (0.02 | ) | (0.10 | ) | (0.12 | ) | — | — | — | $7.50 | (1.71 | )% | 0.80 | % | (0.35 | )% | 190 | % | $91,237 | ||||||||||||||||||||||||||||||||
2008 | $13.42 | (0.04 | ) | (5.73 | ) | (5.77 | ) | — | (0.03 | ) | (0.03 | ) | $7.62 | (43.09 | )% | 0.81 | % | (0.35 | )% | 183 | % | $40,136 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | Ratio of operating expenses to average net assets does not include any fees and expenses of the acquired funds. |
(4) | Per-share amount was less than $0.005. |
See Notes to Financial Statements.
24
The Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Vista Fund, one of the funds constituting American Century Mutual Funds, Inc. (the “Corporation”) as of October 31, 2012, and the related statement of operations for the year then ended, the statement 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, 2012, 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, 2012, 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 19, 2012
25
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The 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 an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is an “interested person” because he currently serves as Executive Vice President of ACC.
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 table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name (Year of Birth) | Position(s) Held with Funds | Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen by Director | Other Directorships Held During Past 5 Years | |||||
Independent Directors | ||||||||||
Thomas A. Brown (1940) | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 66 | None | |||||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 66 | None | |||||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 66 | None | |||||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 66 | Saia, Inc. (2002 to 2012) and Entertainment Properties Trust | |||||
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) | 66 | None |
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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 | ||||||||||
M. Jeannine Strandjord (1945) | Director | Since 1994 | Retired | 66 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |||||
John R. Whitten (1946) | Director | Since 2008 | Retired | 66 | Rudolph Technologies, Inc. | |||||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 66 | Applied Industrial Technologies, Inc. (2001 to 2010) | |||||
Interested Directors | ||||||||||
Barry Fink (1955) | Director and Executive Vice President | Since 2012 (Executive Vice President since 2007) | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | 66 | None | |||||
Jonathan S. Thomas (1963) | Director and President | Since 2007 | President and Chief Executive Officer, ACC (March 2007 to present). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | 108 | 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). Also serves as Chief Executive Officer and Manager, ACS; Executive Vice President, ACIM; Director, ACC, ACIM and other ACC subsidiaries | ||
Barry Fink (1955) | Director since 2012 and Executive Vice President since 2007 | Executive Vice President, ACC (September 2007 to present); President, ACS (October 2007 to present); Chief Operating Officer, ACC (September 2007 to November 2012). Also serves as Manager, ACS | ||
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). 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 | ||
C. Jean Wade (1964) | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | ||
Robert J. Leach (1966) | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | ||
David H. Reinmiller (1963) | Vice President since 2000 | Attorney, ACC (January 1994 to present); Associate General Counsel, ACC (January 2001 to present). Also serves as Vice President, ACIM and ACS | ||
Ward D. Stauffer (1960) | Secretary since 2005 | Attorney, ACC (June 2003 to present) |
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 21, 2012, 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
30
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.
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.
34
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $3,557,528, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2012.
The fund hereby designates $41,782, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2011. The fund utilized earnings and profits of $41,782 distributed to shareholders on redemption of shares as part of the dividends paid deduction.
35
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.
©2012 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-76908 1212
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, Andrea C. Hall and Stephen E. Yates 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 2011: $285,752
FY 2012: $296,263
(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 2011: $0 FY 2012: $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 2011: $0 FY 2012: $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 2011: $0
FY 2012: $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 2011: $0
FY 2012: $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 2011: $0 FY 2012: $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 2011: $0 FY 2012: $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 2011: $67,680
FY 2012: $68,768
(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 28, 2012 | |||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Jonathan S. Thomas | ||
Name: | Jonathan S. Thomas | ||
Title: | President | ||
(principal executive officer) | |||
Date: | December 28, 2012 |
By: | /s/ C. Jean Wade | ||
Name: | C. Jean Wade | ||
Title: | Vice President, Treasurer, and | ||
Chief Financial Officer | |||
(principal financial officer) | |||
Date: | December 28, 2012 |