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: | 10-31-2013 |
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT | OCTOBER 31, 2013
All Cap Growth Fund
Table of Contents |
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.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity — Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWGTX | 25.72% | 15.62% | 10.87%(1) | 11.61% | 11/25/83 |
Russell 3000 Growth Index | — | 29.16% | 17.64% | 7.81% | 9.81%(2) | — |
Institutional Class | ACAJX | 25.98% | — | — | 23.68% | 9/30/11 |
A Class No sales charge* With sales charge* | ACAQX
| 25.42% 18.22% | — — | — — | 23.14% 19.71% | 9/30/11
|
C Class | ACAHX | 24.45% | — | — | 22.20% | 9/30/11 |
R Class | ACAWX | 25.12% | — | — | 22.83% | 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/allcapgrowth.jpg)
*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.
Portfolio Commentary |
Portfolio Managers: David Hollond, Michael Orndorff, and Marcus Scott
Performance Summary
All Cap Growth returned 25.72%* for the 12 months ended October 31, 2013, lagging the 29.16% 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. Price momentum and acceleration, two factors that the All Cap Growth team looks for in portfolio holdings, returned to favor during the reporting period.
Although All Cap Growth delivered solid returns and derived positive results from every sector in which it invested, its performance lagged that of the benchmark. Within the portfolio, stock decisions in the health care, energy, and materials sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the information technology, consumer discretionary, and financials sectors partially offset those relative losses.
Health Care Led Underperformance
The health care sector was a key source of relative underperformance due largely to stock decisions among health care providers and pharmaceuticals companies. Pharmacy benefit manager Catamaran was a meaningful individual detractor. The company lost some of its legacy business as Walgreens shifted its employees to a private exchange rather than provide coverage options. Walgreens is a small part of Catamaran’s customer base and is a less profitable business. The investment team is interested in the company’s relationship with Cigna, which should provide higher margins due to the use of generic drugs in the Cigna pipeline. A position in pharmacy benefits manager Express Scripts also detracted significantly.
Pharmaceutical company Allergan trimmed relative results. The company’s shares sold off after it announced it would delay final studies for its drugs designed to treat age-related medical conditions, such as macular degeneration. Also hurting its share price, the company has several drugs going off-patent in an environment in which the FDA has cleared the path for generic drugs to come to market quickly and easily.
Energy, Materials Lagged
In the energy sector, the energy equipment and services segment was a meaningful source of underperformance. A position in energy equipment company National Oilwell Varco hurt relative returns as it experienced a choppy North American market.
The materials sector was also a source of underperformance as holdings with ties to commodities, including Freeport-Mc-Mo-Ran, detracted amid concerns that rising interest rates would weaken commodities prices.
*All fund returns referenced in this commentary are for Investor Class shares.
In terms of individual holdings, a position in Apple represented the largest detractor from returns versus its benchmark. The company missed analysts’ expectations for sales of its iPhone and achieved lower-than-expected margins.
Information Technology Contributed
The information technology sector was a significant source of relative gains. Within the IT services industry group, it was beneficial for the portfolio to be underrepresented in shares of IBM, which suffered from slower hardware sales. In the internet software and services group segment, Facebook was a top contributing security. Its social media advertising model has proven effective, and investors are now realizing the value of the company.
LinkedIn was also a meaningful contributor to relative gains. Although the company warned that margins would be squeezed as it spends to expand engagement on the web site, LinkedIn continued to gain market share in the recruiter market and benefited from self-service advertising. Elsewhere in the sector, stock decisions in the software and semiconductor groups also added to relative results.
Consumer Discretionary, Financials Added
Positive contributors in the consumer discretionary space included Starbucks, which was not affected by the slowdown that others in the retail space encountered. The company continued to benefit from lower coffee bean prices and posted strong same-store-sales growth. An overweight position in priceline.com also contributed meaningfully. The online travel firm enjoyed accelerating bookings levels and gained market share.
In the financials sector, the portfolio avoided the real estate investment trust (REIT) segment. This allocation decision benefited relative performance as these companies collectively underperformed the benchmark. Stock selection among commercial banks also contributed to relative returns.
Outlook
All Cap Growth’s investment process focuses on companies of all sizes with accelerating revenue and earnings growth rates that are also exhibiting share-price strength. This process has faced unprecedented headwinds in recent reporting periods, but market conditions began to favor these types of companies during the course of the reporting period. We believe such a portfolio can outperform All Cap Growth’s peers and its benchmark, the Russell 3000 Growth Index, over time.
As of October 31, 2013, we saw attractive opportunities in home-related sectors (particularly remodeling-focused stocks such as Lumber Liquidators), media companies, the energy renaissance (represented by companies such as Pioneer Natural Resources and MasTec), and information technology-focused companies that are disruptors/displacers (such as LinkedIn), that are taking the place of more traditional providers.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Google, Inc. Class A | 3.6% |
Apple, Inc. | 3.2% |
Canadian Pacific Railway Ltd. New York Shares | 3.1% |
Costco Wholesale Corp. | 3.0% |
Twenty-First Century Fox, Inc. | 3.0% |
Facebook, Inc., Class A | 2.6% |
Verizon Communications, Inc. | 2.5% |
Electronic Arts, Inc. | 2.4% |
Lowe’s Cos., Inc. | 2.1% |
Catamaran Corp. | 2.1% |
Top Five Industries | % of net assets |
Internet Software and Services | 8.4% |
Food and Staples Retailing | 6.7% |
Specialty Retail | 5.9% |
Road and Rail | 5.6% |
Software | 5.6% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 92.7% |
Foreign Common Stocks* | 6.9% |
Total Common Stocks | 99.6% |
Temporary Cash Investments | 0.5% |
Other Assets and Liabilities | (0.1)% |
*Includes depositary shares, dual listed securities and foreign ordinary shares. |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,151.60 | $5.42 | 1.00% |
Institutional Class | $1,000 | $1,153.20 | $4.34 | 0.80% |
A Class | $1,000 | $1,150.50 | $6.78 | 1.25% |
C Class | $1,000 | $1,145.90 | $10.82 | 2.00% |
R Class | $1,000 | $1,149.10 | $8.13 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 99.6% | ||||||
AEROSPACE AND DEFENSE — 1.9% | ||||||
Precision Castparts Corp. | 61,503 | $ 15,587,935 | ||||
TransDigm Group, Inc. | 33,584 | 4,883,450 | ||||
20,471,385 | ||||||
AUTOMOBILES — 2.0% | ||||||
Ford Motor Co. | 458,285 | 7,841,257 | ||||
Harley-Davidson, Inc. | 101,977 | 6,530,607 | ||||
Tesla Motors, Inc.(1) | 50,313 | 8,047,061 | ||||
22,418,925 | ||||||
BEVERAGES — 1.7% | ||||||
Brown-Forman Corp., Class B | 65,598 | 4,787,342 | ||||
Constellation Brands, Inc., Class A(1) | 207,000 | 13,517,100 | ||||
18,304,442 | ||||||
BIOTECHNOLOGY — 5.0% | ||||||
Aegerion Pharmaceuticals, Inc.(1) | 42,800 | 3,544,696 | ||||
Biogen Idec, Inc.(1) | 27,200 | 6,641,968 | ||||
Celgene Corp.(1) | 68,600 | 10,186,414 | ||||
Gilead Sciences, Inc.(1) | 288,391 | 20,472,877 | ||||
Grifols SA | 130,847 | 5,366,142 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 30,409 | 8,745,629 | ||||
54,957,726 | ||||||
BUILDING PRODUCTS — 0.9% | ||||||
Fortune Brands Home & Security, Inc. | 119,200 | 5,135,136 | ||||
Lennox International, Inc. | 61,685 | 4,815,131 | ||||
9,950,267 | ||||||
CAPITAL MARKETS — 1.0% | ||||||
Charles Schwab Corp. (The) | 239,400 | 5,422,410 | ||||
Lazard Ltd., Class A | 145,759 | 5,633,585 | ||||
11,055,995 | ||||||
CHEMICALS — 3.7% | ||||||
FMC Corp. | 91,847 | 6,682,788 | ||||
Monsanto Co. | 208,862 | 21,905,446 | ||||
Sherwin-Williams Co. (The) | 63,066 | 11,856,408 | ||||
40,444,642 | ||||||
COMMERCIAL BANKS — 1.1% | ||||||
East West Bancorp., Inc. | 137,927 | 4,646,761 | ||||
SVB Financial Group(1) | 79,649 | 7,628,781 | ||||
12,275,542 | ||||||
COMMUNICATIONS EQUIPMENT — 2.7% | ||||||
Cisco Systems, Inc. | 440,251 | 9,905,647 | ||||
Palo Alto Networks, Inc.(1) | 109,686 | 4,624,362 | ||||
QUALCOMM, Inc. | 213,258 | 14,815,033 | ||||
29,345,042 | ||||||
COMPUTERS AND PERIPHERALS — 4.4% | ||||||
Apple, Inc. | 66,560 | 34,767,616 | ||||
NetApp, Inc. | 360,871 | 14,005,403 | ||||
48,773,019 | ||||||
CONSTRUCTION AND ENGINEERING — 2.0% | ||||||
MasTec, Inc.(1) | 323,991 | 10,357,992 | ||||
Quanta Services, Inc.(1) | 373,584 | 11,285,973 | ||||
21,643,965 | ||||||
CONSUMER FINANCE — 1.5% | ||||||
Discover Financial Services | 324,580 | 16,839,210 | ||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.5% | ||||||
Verizon Communications, Inc. | 547,234 | 27,640,789 | ||||
ELECTRICAL EQUIPMENT — 0.5% | ||||||
Acuity Brands, Inc. | 56,000 | 5,628,560 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.7% | ||||||
FLIR Systems, Inc. | 255,283 | 7,270,460 | ||||
ENERGY EQUIPMENT AND SERVICES — 3.3% | ||||||
Atwood Oceanics, Inc.(1) | 53,953 | 2,866,523 | ||||
Frank’s International NV(1) | 112,629 | 3,445,321 | ||||
Halliburton Co. | 221,100 | 11,724,933 | ||||
Schlumberger Ltd. | 195,400 | 18,312,888 | ||||
36,349,665 | ||||||
FOOD AND STAPLES RETAILING — 6.7% | ||||||
Costco Wholesale Corp. | 278,801 | 32,898,518 | ||||
Natural Grocers by Vitamin Cottage, Inc.(1) | 108,926 | 4,346,147 | ||||
Sprouts Farmers Market, Inc.(1) | 31,226 | 1,438,270 | ||||
Wal-Mart Stores, Inc. | 85,841 | 6,588,297 | ||||
Walgreen Co. | 122,700 | 7,268,748 | ||||
Whole Foods Market, Inc. | 339,342 | 21,422,660 | ||||
73,962,640 | ||||||
FOOD PRODUCTS — 0.6% | ||||||
Mondelez International, Inc. Class A | 208,700 | 7,020,668 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.6% | ||||||
Cooper Cos., Inc. (The) | 40,311 | 5,208,584 | ||||
Teleflex, Inc. | 132,937 | 12,254,133 | ||||
17,462,717 |
Shares | Value | |||||
HEALTH CARE PROVIDERS AND SERVICES — 3.2% | ||||||
Catamaran Corp.(1) | 481,484 | $ 22,610,489 | ||||
Express Scripts Holding Co.(1) | 163,185 | 10,202,326 | ||||
Surgical Care Affiliates, Inc.(1) | 72,399 | 1,900,474 | ||||
34,713,289 | ||||||
HEALTH CARE TECHNOLOGY† | ||||||
Veeva Systems, Inc. Class A(1) | 12,998 | 505,752 | ||||
HOTELS, RESTAURANTS AND LEISURE — 2.9% | ||||||
Chipotle Mexican Grill, Inc.(1) | 10,800 | 5,691,276 | ||||
Noodles & Co.(1) | 126,224 | 5,527,349 | ||||
Starbucks Corp. | 259,469 | 21,029,962 | ||||
32,248,587 | ||||||
HOUSEHOLD DURABLES — 0.4% | ||||||
Mohawk Industries, Inc.(1) | 33,800 | 4,475,796 | ||||
INTERNET AND CATALOG RETAIL — 3.9% | ||||||
Amazon.com, Inc.(1) | 45,490 | 16,559,725 | ||||
Ctrip.com International Ltd. ADR(1) | 55,300 | 3,000,025 | ||||
priceline.com, Inc.(1) | 16,991 | 17,905,625 | ||||
TripAdvisor, Inc.(1) | 64,300 | 5,318,253 | ||||
42,783,628 | ||||||
INTERNET SOFTWARE AND SERVICES — 8.4% | ||||||
CoStar Group, Inc.(1) | 21,464 | 3,798,913 | ||||
Criteo SA ADR(1) | 14,805 | 522,765 | ||||
Facebook, Inc., Class A(1) | 561,402 | 28,216,065 | ||||
Google, Inc. Class A(1) | 38,087 | 39,251,700 | ||||
LinkedIn Corp., Class A(1) | 77,624 | 17,362,160 | ||||
Rocket Fuel, Inc.(1) | 15,194 | 775,502 | ||||
Xoom Corp.(1) | 79,378 | 2,361,495 | ||||
92,288,600 | ||||||
IT SERVICES — 3.6% | ||||||
Alliance Data Systems Corp.(1) | 89,821 | 21,292,966 | ||||
MasterCard, Inc., Class A | 25,953 | 18,610,897 | ||||
39,903,863 | ||||||
LIFE SCIENCES TOOLS AND SERVICES — 0.6% | ||||||
Covance, Inc.(1) | 76,718 | 6,847,849 | ||||
MACHINERY — 2.9% | ||||||
Flowserve Corp. | 152,398 | 10,587,089 | ||||
Middleby Corp.(1) | 33,600 | 7,649,040 | ||||
Pentair Ltd. | 116,200 | 7,795,858 | ||||
WABCO Holdings, Inc.(1) | 72,700 | 6,228,936 | ||||
32,260,923 | ||||||
MEDIA — 4.5% | ||||||
AMC Networks, Inc.(1) | 71,809 | 5,033,093 | ||||
Time Warner, Inc. | 170,057 | 11,689,718 | ||||
Twenty-First Century Fox, Inc. | 955,300 | 32,556,624 | ||||
49,279,435 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 0.8% | ||||||
Antero Resources Corp.(1) | 101,911 | 5,756,952 | ||||
Cobalt International Energy, Inc.(1) | 107,400 | 2,492,754 | ||||
8,249,706 | ||||||
PHARMACEUTICALS — 2.2% | ||||||
Johnson & Johnson | 170,100 | 15,752,961 | ||||
Zoetis, Inc. | 261,215 | 8,270,067 | ||||
24,023,028 | ||||||
ROAD AND RAIL — 5.6% | ||||||
Canadian Pacific Railway Ltd. New York Shares | 237,113 | 33,923,757 | ||||
Kansas City Southern | 159,082 | 19,331,645 | ||||
Union Pacific Corp. | 58,500 | 8,856,900 | ||||
62,112,302 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.0% | ||||||
ARM Holdings plc | 393,496 | 6,217,827 | ||||
NXP Semiconductor NV(1) | 101,100 | 4,258,332 | ||||
10,476,159 | ||||||
SOFTWARE — 5.6% | ||||||
CommVault Systems, Inc.(1) | 112,193 | 8,760,029 | ||||
Electronic Arts, Inc.(1) | 993,600 | 26,082,000 | ||||
NetSuite, Inc.(1) | 136,603 | 13,780,511 | ||||
Splunk, Inc.(1) | 101,733 | 6,379,676 | ||||
VMware, Inc., Class A(1) | 75,100 | 6,104,128 | ||||
61,106,344 | ||||||
SPECIALTY RETAIL — 5.9% | ||||||
Home Depot, Inc. (The) | 103,169 | 8,035,833 | ||||
Lowe’s Cos., Inc. | 466,122 | 23,203,553 | ||||
Lumber Liquidators Holdings, Inc.(1) | 83,000 | 9,477,770 | ||||
O’Reilly Automotive, Inc.(1) | 36,100 | 4,469,541 | ||||
Restoration Hardware Holdings, Inc.(1) | 49,683 | 3,464,893 | ||||
TJX Cos., Inc. (The) | 275,654 | 16,757,007 | ||||
65,408,597 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.8% | ||||||
Fifth & Pacific Cos., Inc.(1) | 126,900 | 3,361,581 | ||||
Michael Kors Holdings Ltd.(1) | 68,568 | 5,276,308 | ||||
8,637,889 |
Shares | Value | |||||
TOBACCO — 2.6% | ||||||
Altria Group, Inc. | 195,164 | $ 7,265,956 | ||||
Philip Morris International, Inc. | 236,602 | 21,085,970 | ||||
28,351,926 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.9% | ||||||
SBA Communications Corp., Class A(1) | 109,372 | 9,566,769 | ||||
TOTAL COMMON STOCKS (Cost $734,510,198) | 1,095,056,101 | |||||
Temporary Cash Investments — 0.5% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $1,199,766), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $1,177,617) | 1,177,615 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $1,442,718), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $1,413,140) | 1,413,139 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $1,442,438), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $1,413,140) | $ 1,413,139 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $1,442,446), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $1,413,141) | 1,413,139 | |||||
SSgA U.S. Government Money Market Fund | 392,417 | 392,417 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $5,809,449) | 5,809,449 | |||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $740,319,647) | 1,100,865,550 | |||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (1,490,864 | ) | ||||
TOTAL NET ASSETS — 100.0% | $1,099,374,686 |
Forward Foreign Currency Exchange Contracts | ||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||||||||
USD | 3,918,934 | EUR | 2,841,506 | UBS AG | 11/29/13 | $60,668 | ||||||
USD | 118,079 | EUR | 86,850 | UBS AG | 11/29/13 | 153 | ||||||
USD | 4,581,016 | GBP | 2,834,647 | Credit Suisse AG | 11/29/13 | 36,796 | ||||||
USD | 144,231 | GBP | 90,012 | Credit Suisse AG | 11/29/13 | (67 | ) | |||||
$97,550 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $740,319,647) | $1,100,865,550 | ||
Foreign currency holdings, at value (cost of $56,844) | 58,385 | ||
Receivable for investments sold | 4,352,298 | ||
Receivable for capital shares sold | 371,200 | ||
Unrealized gain on forward foreign currency exchange contracts | 97,617 | ||
Dividends and interest receivable | 553,819 | ||
1,106,298,869 | |||
Liabilities | |||
Payable for investments purchased | 5,721,999 | ||
Payable for capital shares redeemed | 277,905 | ||
Unrealized loss on forward foreign currency exchange contracts | 67 | ||
Accrued management fees | 917,164 | ||
Distribution and service fees payable | 7,048 | ||
6,924,183 | |||
Net Assets | $1,099,374,686 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $600,600,926 | ||
Distributions in excess of net investment income | (97,550 | ) | |
Undistributed net realized gain | 138,226,316 | ||
Net unrealized appreciation | 360,644,994 | ||
$1,099,374,686 |
Net assets | Shares outstanding | Net asset value per share | ||||||
Investor Class, $0.01 Par Value | $1,081,599,053 | 30,353,567 | $35.63 | |||||
Institutional Class, $0.01 Par Value | $109,848 | 3,072 | $35.76 | |||||
A Class, $0.01 Par Value | $8,516,743 | 240,137 | $35.47 | * | ||||
C Class, $0.01 Par Value | $3,320,572 | 94,977 | $34.96 | |||||
R Class, $0.01 Par Value | $5,828,470 | 165,126 | $35.30 |
*Maximum offering price $37.63 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $58,676) | $ 14,042,226 | ||
Interest | 4,183 | ||
14,046,409 | |||
Expenses: | |||
Management fees | 10,179,497 | ||
Distribution and service fees: | |||
A Class | 27,806 | ||
C Class | 25,658 | ||
R Class | 13,888 | ||
Directors’ fees and expenses | 35,309 | ||
Other expenses | 135 | ||
10,282,293 | |||
Net investment income (loss) | 3,764,116 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 146,488,455 | ||
Foreign currency transactions | (486,500 | ) | |
146,001,955 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 86,333,052 | ||
Translation of assets and liabilities in foreign currencies | 108,472 | ||
86,441,524 | |||
Net realized and unrealized gain (loss) | 232,443,479 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $236,207,595 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $3,764,116 | $376,319 | ||||
Net realized gain (loss) | 146,001,955 | 67,135,793 | ||||
Change in net unrealized appreciation (depreciation) | 86,441,524 | 35,926,811 | ||||
Net increase (decrease) in net assets resulting from operations | 236,207,595 | 103,438,923 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (2,987,737 | ) | — | |||
Institutional Class | (460 | ) | — | |||
A Class | (23,405 | ) | — | |||
C Class | (653 | ) | — | |||
R Class | (2,856 | ) | — | |||
From net realized gains: | ||||||
Investor Class | (64,330,394 | ) | (23,595,114 | ) | ||
Institutional Class | (8,390 | ) | (705 | ) | ||
A Class | (650,947 | ) | (705 | ) | ||
C Class | (145,569 | ) | (1,880 | ) | ||
R Class | (112,134 | ) | (705 | ) | ||
Decrease in net assets from distributions | (68,262,545 | ) | (23,599,109 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (44,384,524 | ) | (39,887,723 | ) | ||
Net increase (decrease) in net assets | 123,560,526 | 39,952,091 | ||||
Net Assets | ||||||
Beginning of period | 975,814,160 | 935,862,069 | ||||
End of period | $1,099,374,686 | $975,814,160 | ||||
Distributions in excess of net investment income | $(97,550 | ) | $(200,949 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. All Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $611,238,039 and $715,017,122, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 1,333,460 | $41,078,263 | 1,442,712 | $43,890,074 | ||||||||
Issued in reinvestment of distributions | 2,273,872 | 65,874,089 | 873,776 | 23,207,496 | ||||||||
Redeemed | (4,842,756 | ) | (151,874,064 | ) | (4,078,501 | ) | (121,343,490 | ) | ||||
(1,235,424 | ) | (44,921,712 | ) | (1,762,013 | ) | (54,245,920 | ) | |||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 3,302 | 101,354 | 1,317 | 40,379 | ||||||||
Issued in reinvestment of distributions | 305 | 8,850 | 27 | 705 | ||||||||
Redeemed | (2,550 | ) | (81,844 | ) | (316 | ) | (9,915 | ) | ||||
1,057 | 28,360 | 1,028 | 31,169 | |||||||||
A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 150,961 | 4,648,002 | 396,764 | 12,260,804 | ||||||||
Issued in reinvestment of distributions | 22,308 | 644,487 | 27 | 705 | ||||||||
Redeemed | (306,496 | ) | (10,032,622 | ) | (24,414 | ) | (751,345 | ) | ||||
(133,227 | ) | (4,740,133 | ) | 372,377 | 11,510,164 | |||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 38,907 | 1,224,286 | 68,891 | 2,084,611 | ||||||||
Issued in reinvestment of distributions | 4,234 | 121,389 | 71 | 1,880 | ||||||||
Redeemed | (14,351 | ) | (451,908 | ) | (3,762 | ) | (115,245 | ) | ||||
28,790 | 893,767 | 65,200 | 1,971,246 | |||||||||
R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 156,475 | 4,980,335 | 32,043 | 986,202 | ||||||||
Issued in reinvestment of distributions | 3,990 | 114,990 | 27 | 705 | ||||||||
Redeemed | (23,884 | ) | (740,131 | ) | (4,512 | ) | (141,289 | ) | ||||
136,581 | 4,355,194 | 27,558 | 845,618 | |||||||||
Net increase (decrease) | (1,202,223 | ) | $(44,384,524 | ) | (1,295,850 | ) | $(39,887,723 | ) |
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 | $1,019,156,764 | — | — | ||||||
Foreign Common Stocks | 64,315,368 | $11,583,969 | — | ||||||
Temporary Cash Investments | 392,417 | 5,417,032 | — | ||||||
Total Value of Investment Securities | $1,083,864,549 | $17,001,001 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $97,550 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $97,617 in unrealized gain on forward foreign currency exchange contracts and a liability of $67 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(450,754) in net realized gain (loss) on foreign currency transactions and $106,931 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.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $3,015,111 | — | ||||
Long-term capital gains | $65,247,434 | $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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $739,767,956 | ||
Gross tax appreciation of investments | $364,535,364 | ||
Gross tax depreciation of investments | (3,437,770 | ) | |
Net tax appreciation (depreciation) of investments | $361,097,594 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $1,543 | ||
Net tax appreciation (depreciation) | $361,099,137 | ||
Undistributed ordinary income | $12,016,581 | ||
Accumulated long-term gains | $125,658,042 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to return of capital dividends received.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||||
Net Asset | Net | Net Realized | Total From | Net | Net | Total | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |||||||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||||||||
2013 | $30.44 | 0.12 | 7.22 | 7.34 | (0.10 | ) | (2.05 | ) | (2.15 | ) | $35.63 | 25.72 | % | 1.00 | % | 0.38 | % | 60 | % | $1,081,599 | |||||||||||||||||||
2012 | $28.06 | 0.01 | 3.08 | 3.09 | — | (0.71 | ) | (0.71 | ) | $30.44 | 11.40 | % | 1.00 | % | 0.04 | % | 55 | % | $961,562 | ||||||||||||||||||||
2011 | $26.07 | (0.02 | ) | 2.01 | 1.99 | — | — | — | $28.06 | 7.63 | % | 1.00 | % | (0.08 | )% | 75 | % | $935,751 | |||||||||||||||||||||
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 | ||||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $30.50 | 0.16 | 7.26 | 7.42 | (0.11 | ) | (2.05 | ) | (2.16 | ) | $35.76 | 25.98 | % | 0.80 | % | 0.58 | % | 60 | % | $110 | |||||||||||||||||||
2012 | $28.06 | 0.09 | 3.06 | 3.15 | — | (0.71 | ) | (0.71 | ) | $30.50 | 11.62 | % | 0.80 | % | 0.24 | % | 55 | % | $61 | ||||||||||||||||||||
2011(3) | $25.32 | (0.01 | ) | 2.75 | 2.74 | — | — | — | $28.06 | 10.82 | % | 0.80% | (4) | (0.28 | )%(4) | 75% | (5) | $28 | |||||||||||||||||||||
A Class | |||||||||||||||||||||||||||||||||||||||
2013 | $30.36 | 0.04 | 7.19 | 7.23 | (0.07 | ) | (2.05 | ) | (2.12 | ) | $35.47 | 25.42 | % | 1.25 | % | 0.13 | % | 60 | % | $8,517 | |||||||||||||||||||
2012 | $28.05 | (0.02 | ) | 3.04 | 3.02 | — | (0.71 | ) | (0.71 | ) | $30.36 | 11.15 | % | 1.25 | % | (0.21 | )% | 55 | % | $11,334 | |||||||||||||||||||
2011(3) | $25.32 | (0.02 | ) | 2.75 | 2.73 | — | — | — | $28.05 | 10.78 | % | 1.25% | (4) | (0.73 | )%(4) | 75% | (5) | $28 | |||||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||||
2013 | $30.11 | (0.20 | ) | 7.11 | 6.91 | (0.01 | ) | (2.05 | ) | (2.06 | ) | $34.96 | 24.45 | % | 2.00 | % | (0.62 | )% | 60 | % | $3,321 | ||||||||||||||||||
2012 | $28.03 | (0.25 | ) | 3.04 | 2.79 | — | (0.71 | ) | (0.71 | ) | $30.11 | 10.32 | % | 2.00 | % | (0.96 | )% | 55 | % | $1,993 | |||||||||||||||||||
2011(3) | $25.32 | (0.03 | ) | 2.74 | 2.71 | — | — | — | $28.03 | 10.70 | % | 2.00% | (4) | (1.48 | )%(4) | 75% | (5) | $28 |
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 | Net | Net Realized | Total From | Net | Net | Total | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |||||||||||||||||||||||||||
R Class | |||||||||||||||||||||||||||||||||||||||
2013 | $30.27 | (0.09 | ) | 7.22 | 7.13 | (0.05 | ) | (2.05 | ) | (2.10 | ) | $35.30 | 25.12 | % | 1.50 | % | (0.12 | )% | 60 | % | $5,828 | ||||||||||||||||||
2012 | $28.04 | (0.08 | ) | 3.02 | 2.94 | — | (0.71 | ) | (0.71 | ) | $30.27 | 10.86 | % | 1.50 | % | (0.46 | )% | 55 | % | $864 | |||||||||||||||||||
2011(3) | $25.32 | (0.02 | ) | 2.74 | 2.72 | — | — | — | $28.04 | 10.74 | % | 1.50% | (4) | (0.98 | )%(4) | 75% | (5) | $28 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | 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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of All Cap Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
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) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to (November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $3,015,111, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $72,076,578, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
The fund hereby designates $680,709 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871.
The fund utilized earnings and profits of $7,644,196 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80463 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Balanced Fund
Table of Contents |
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 | 31 |
Statement of Operations | 32 |
Statement of Changes in Net Assets | 33 |
Notes to Financial Statements | 34 |
Financial Highlights | 39 |
Report of Independent Registered Public Accounting Firm | 40 |
Management | 41 |
Approval of Management Agreement | 44 |
Additional Information | 49 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/wittman.jpg)
By Scott Wittman, Chief Investment Officer, Asset Allocation and Disciplined Equity
U.S. Stocks Rallied to Post Double-Digit Gains
Stock market performance remained robust during the 12-month period ended October 31, 2013, with all major market indices posting strong double-digit gains. Despite persistent concerns about weak global growth and U.S. fiscal policy, investors largely focused on central bank stimulus measures, marginally improving U.S. economic data, and relatively healthy corporate earnings, which fueled stock market optimism.
Prior to the reporting period, the Federal Reserve (the Fed) announced its third quantitative easing program (QE3), which became an $85 billion, open-ended monthly bond-buying effort. This unprecedented program, combined with largely favorable corporate earnings, significant housing market gains, and modest improvements in the labor market, generally helped keep stocks and other riskier assets in favor.
Overall, small-cap stocks outperformed their mid- and large-cap counterparts. We believe this reflected the market’s risk preferences and greater optimism in U.S. economic growth prospects versus the broad global economy.
Fed Policy Drove Bond Market Sentiment
The investment-grade U.S. bond market generally struggled during the 12-month period. Uncertainty around future Fed policy dominated the market backdrop, particularly in the second half of the period.
Beginning in spring 2013, modest economic gains led to fears the Fed would end QE3 sooner than expected. The Fed helped fuel those fears, indicating it may start tapering its monthly bond purchases later in the year. In response, yields soared and total returns tumbled as investors expected the Fed to begin tapering after its September policy meeting. But Fed policymakers quickly backed down, announcing they would continue the current pace of bond buying until economic gains appear sustainable.
This news sparked a turnaround among Treasuries and other fixed-income securities, but the late-period gains weren’t sufficient to offset previous losses. Overall, Treasury yields increased, leading to negative total returns and underperformance relative to broad investment-grade bond market averages. In addition, “risk-on” sentiment generally prevailed throughout the period, which put further pressure on lower-yielding, higher-quality securities.
U.S. Market Returns | ||||
For the 12 months ended October 31, 2013 | ||||
U.S. Stock Indices | Barclays U.S. Bond Market Indices | |||
Russell 1000 Index (large-cap) | 28.40% | MBS (mortgage-backed securities) | -0.36% | |
Russell Midcap Index | 33.79% | Aggregate (multi-sector) | -1.08% | |
Russell 2000 Index (small-cap) | 36.28% | Corporate (investment-grade) | -1.40% | |
Treasury | -1.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWBIX | 15.21% | 11.39% | 6.69% | 8.15% | 10/20/88 |
Blended index(1) | — | 15.17% | 11.83% | 6.66% | 9.05%(2) | — |
S&P 500 Index | — | 27.18% | 15.16% | 7.45% | 10.04%(2) | — |
Barclays U.S. Aggregate Bond Index | — | -1.08% | 6.08% | 4.77% | 6.82%(2) | — |
Institutional Class | ABINX | 15.49% | 11.62% | 6.90% | 4.81% | 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/balanced.jpg)
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
0.91% | 0.71% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the indices do not.
Portfolio Commentary |
Equity Portfolio Managers: Bill Martin and Claudia Musat
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, and Brian Howell
Performance Summary
Balanced returned 15.21%* for the fiscal year ended October 31, 2013. 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 15.17%.
The 12-month returns for both the fund and its benchmark reflected double-digit gains in the U.S. equity market, but a decline for the U.S. bond market. Within Balanced, the equity portion outperformed its benchmark, while the fixed income component underperformed its benchmark.
Stock Component Posted Strong Gain
The equity portion of Balanced outperformed the 27.18% return of the S&P 500 Index for the 12-month period. The portfolio’s stock selection process incorporates factors of value, quality, growth, and momentum while minimizing unintended bets along industries and other risk characteristics. The portfolio’s quality- and value-oriented signals were most beneficial to excess returns. Growth insights also bolstered returns in a number of sectors, while momentum signals were largely unrewarded. Stock selection in industrials and consumer staples were key sources of outperformance, while positioning in consumer discretionary weighed on relative results.
Industrials sector outperformance was driven primarily by positioning among aerospace and defense companies, as well as by machinery holdings. Airplane manufacturer Boeing was a top contributor thanks to increased aircraft orders from airlines replacing their aging fleets. Among machinery holdings, mobile hydraulic manufacturer Sauer-Danfoss appreciated nearly 30% on takeover news at the end of 2012, bolstering results.
Consumer staples, particularly holdings in food and staples retailers, also outperformed. Supermarket chain store operator Safeway, which was added to the portfolio in April 2013, soared on higher-than-expected revenue guidance and analyst upgrades. Chain drug store Rite Aid also outperformed thanks to higher-than-expected earnings from a rise in same-store pharmacy sales.
Other beneficial equity positions included videogame retailer GameStop, which climbed on solid earnings in its mobile sales, and in anticipation of sales of new gaming consoles expected to come to market late this year. Exposure to oil refiner Valero Energy, particularly during the first part of the period when crude oil refinery input prices increased, also boosted results.
Stock selection in consumer discretionary, particularly among media companies and internet retailers, had the most significant negative impact on performance. Online travel site Expedia’s return lagged the overall market due in large part to intense competition from rival priceline.com. Not owning a number of internet retailers that appreciated during the period, such as Amazon.com and priceline.com, also hurt results.
*All fund returns referenced in this commentary are for Investor Class shares.
Although no single media holding imparted a large negative impact, small detraction across a number of companies led the industry to be the greatest overall detractor in the equity portion. Elsewhere, owning less than the benchmark weighting in Gilead Sciences, a biopharmaceutical manufacturer, hurt results after the company’s stock price more than doubled during the period. Other detractors included silver and gold miner Coeur Mining, which declined on softening precious metals prices, and semiconductor manufacturer Broadcom, which fell after releasing lower-than expected revenue guidance due to slowing smartphone sales.
Fixed-Income Portion Declined
The fixed-income component of Balanced underperformed the -1.08% return of the Barclays U.S. Aggregate Bond Index for the 12-month period.
The portfolio’s yield curve positioning was the primary source of underperformance. The steep increases in long-term bond yields that occurred from May to September led to a steepening of the yield curve, as rates on longer-maturity securities increased more quickly than rates on shorter-maturity securities. The portfolio’s overweight position in longer-term bonds (in the 10- to 20-year maturity range) during that period weighed on performance. Later, we reduced our exposure to longer-maturity bonds, and missed some of the gains that occurred when bonds rallied in September and October (after the Fed’s taper delay and in conjunction with the partial government shutdown).
Sector allocation also detracted from relative returns. An overweight allocation to underperforming Treasury inflation-protected securities (TIPS) weighed on returns during the second quarter of 2013. We liquidated this position in June. Security selection in the securitized sector was also a detractor, as certain mortgage-backed securities (MBS) and adjustable-rate mortgages held in the portfolio underperformed the MBS positions in the benchmark.
On the positive side, the portfolio’s underweight position in Treasuries, and corresponding overweight in spread sectors, was beneficial as Treasuries generally underperformed during the 12-month period. Security selection in the credit sector also helped returns. A small out-of-benchmark (represented in the portfolio but not the benchmark) position in high-yield corporate bonds lifted relative results. High-yield corporates outperformed most fixed-income sectors during the period as investors’ “risk-on” sentiment prevailed.
Outlook
Uncertainty surrounding the U.S. economic recovery and the timing of the Fed’s expected monetary policy changes remain the key factors likely to impact stock and bond markets in the near term. We believe the slow and steady growth seen in the U.S. is likely to continue, although rising mortgage rates represent an economic hurdle. While gradual improvements in employment have helped consumers, conditions in the corporate sector have moderated with slowing earnings and revenue growth rates. 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. We adhere to our process regardless of the market environment, allowing us to take advantage of opportunities presented by market inefficiencies.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Common Stocks | % of net assets |
Apple, Inc. | 2.1% |
Google, Inc., Class A | 1.6% |
Microsoft Corp. | 1.5% |
Johnson & Johnson | 1.5% |
Pfizer, Inc. | 1.3% |
AT&T, Inc. | 1.2% |
Exxon Mobil Corp. | 1.1% |
Citigroup, Inc. | 1.0% |
Merck & Co., Inc. | 0.9% |
Oracle Corp. | 0.9% |
Top Five Common Stocks Industries | % of net assets |
Pharmaceuticals | 4.9% |
Oil, Gas and Consumable Fuels | 3.9% |
Computers and Peripherals | 3.6% |
Insurance | 3.2% |
Aerospace and Defense | 3.1% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 60.1% |
U.S. Treasury Securities | 12.1% |
U.S. Government Agency Mortgage-Backed Securities | 10.6% |
Corporate Bonds | 9.8% |
Commercial Mortgage-Backed Securities | 1.6% |
Collateralized Mortgage Obligations | 1.5% |
U.S. Government Agency Securities | 0.6% |
Sovereign Governments and Agencies | 0.6% |
Municipal Securities | 0.4% |
Asset-Backed Securities | —* |
Temporary Cash Investments | 2.9% |
Other Assets and Liabilities | (0.2)% |
*Category is less than 0.05% of total net assets. | |
Key Fixed-Income Portfolio Statistics | |
Weighted Average Life | 6.7 years |
Average Duration (effective) | 5.1 years |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,059.40 | $4.67 | 0.90% |
Institutional Class | $1,000 | $1,060.40 | $3.64 | 0.70% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.67 | $4.58 | 0.90% |
Institutional Class | $1,000 | $1,021.68 | $3.57 | 0.70% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares/ Principal Amount | Value | |||||
Common Stocks — 60.1% | ||||||
AEROSPACE AND DEFENSE — 3.1% | ||||||
Alliant Techsystems, Inc. | 17,927 | $ 1,951,713 | ||||
Boeing Co. (The) | 48,172 | 6,286,446 | ||||
Esterline Technologies Corp.(1) | 2,970 | 238,075 | ||||
Exelis Inc. | 12,756 | 210,346 | ||||
General Dynamics Corp. | 26,143 | 2,264,768 | ||||
Honeywell International, Inc. | 63,839 | 5,536,757 | ||||
Northrop Grumman Corp. | 25,234 | 2,712,907 | ||||
Raytheon Co. | 56,913 | 4,687,924 | ||||
23,888,936 | ||||||
BEVERAGES — 0.8% | ||||||
Coca-Cola Co. (The) | 21,634 | 856,057 | ||||
PepsiCo, Inc. | 65,356 | 5,495,786 | ||||
6,351,843 | ||||||
BIOTECHNOLOGY — 1.6% | ||||||
Amgen, Inc. | 51,933 | 6,024,228 | ||||
Biogen Idec, Inc.(1) | 11,735 | 2,865,570 | ||||
Myriad Genetics, Inc.(1) | 63,879 | 1,557,370 | ||||
United Therapeutics Corp.(1) | 19,633 | 1,737,913 | ||||
12,185,081 | ||||||
CAPITAL MARKETS — 0.7% | ||||||
Federated Investors, Inc., Class B | 32,861 | 891,190 | ||||
Goldman Sachs Group, Inc. (The) | 13,199 | 2,123,191 | ||||
Morgan Stanley | 78,572 | 2,257,374 | ||||
5,271,755 | ||||||
CHEMICALS — 2.0% | ||||||
Dow Chemical Co. (The) | 120,559 | 4,758,464 | ||||
LyondellBasell Industries NV, Class A | 59,022 | 4,403,041 | ||||
NewMarket Corp. | 2,700 | 840,672 | ||||
PPG Industries, Inc. | 25,550 | 4,664,919 | ||||
Sigma-Aldrich Corp. | 8,040 | 694,897 | ||||
15,361,993 | ||||||
COMMERCIAL BANKS — 0.6% | ||||||
Wells Fargo & Co. | 104,566 | 4,463,923 | ||||
COMMERCIAL SERVICES AND SUPPLIES — 0.1% | ||||||
Deluxe Corp. | 17,600 | 828,784 | ||||
COMMUNICATIONS EQUIPMENT — 1.7% | ||||||
Cisco Systems, Inc. | 307,663 | 6,922,417 | ||||
QUALCOMM, Inc. | 87,072 | 6,048,892 | ||||
12,971,309 | ||||||
COMPUTERS AND PERIPHERALS — 3.6% | ||||||
Apple, Inc. | 31,127 | 16,259,189 | ||||
EMC Corp. | 200,298 | 4,821,173 | ||||
Hewlett-Packard Co. | 149,684 | 3,647,799 | ||||
Seagate Technology plc | 25,015 | 1,217,730 | ||||
Western Digital Corp. | 21,905 | 1,525,245 | ||||
27,471,136 | ||||||
CONSUMER FINANCE — 0.9% | ||||||
American Express Co. | 53,167 | 4,349,061 | ||||
Cash America International, Inc. | 58,591 | 2,311,415 | ||||
6,660,476 | ||||||
CONTAINERS AND PACKAGING — 0.8% | ||||||
Owens-Illinois, Inc.(1) | 56,066 | 1,782,338 | ||||
Packaging Corp. of America | 63,073 | 3,928,186 | ||||
Silgan Holdings, Inc. | 4,333 | 195,288 | ||||
Sonoco Products Co. | 14,401 | 585,257 | ||||
6,491,069 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 2.3% | ||||||
Bank of America Corp. | 69,012 | 963,407 | ||||
Berkshire Hathaway, Inc., Class B(1) | 20,035 | 2,305,628 | ||||
Citigroup, Inc. | 158,565 | 7,734,801 | ||||
JPMorgan Chase & Co. | 47,014 | 2,423,102 | ||||
Moody’s Corp. | 31,576 | 2,231,160 | ||||
MSCI, Inc., Class A(1) | 56,356 | 2,297,634 | ||||
17,955,732 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.3% | ||||||
AT&T, Inc. | 251,586 | 9,107,413 | ||||
CenturyLink, Inc. | 74,617 | 2,526,532 | ||||
Verizon Communications, Inc. | 115,932 | 5,855,725 | ||||
17,489,670 | ||||||
ELECTRIC UTILITIES — 0.5% | ||||||
Edison International | 78,126 | 3,830,518 | ||||
ELECTRICAL EQUIPMENT — 1.3% | ||||||
Emerson Electric Co. | 77,903 | 5,217,164 | ||||
Rockwell Automation, Inc. | 40,438 | 4,464,759 | ||||
9,681,923 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.4% | ||||||
TE Connectivity Ltd. | 57,736 | 2,972,827 | ||||
ENERGY EQUIPMENT AND SERVICES — 0.9% | ||||||
Helmerich & Payne, Inc. | 25,495 | 1,977,137 | ||||
Nabors Industries Ltd. | 218,298 | 3,815,849 | ||||
RPC, Inc. | 56,533 | 1,036,815 | ||||
6,829,801 |
Shares/ Principal Amount | Value | |||||
FOOD AND STAPLES RETAILING — 0.9% | ||||||
Kroger Co. (The) | 100,678 | $ 4,313,046 | ||||
Safeway, Inc. | 3,450 | 120,405 | ||||
Wal-Mart Stores, Inc. | 2,527 | 193,947 | ||||
Walgreen Co. | 38,391 | 2,274,283 | ||||
6,901,681 | ||||||
FOOD PRODUCTS — 1.7% | ||||||
Archer-Daniels-Midland Co. | 120,014 | 4,908,573 | ||||
General Mills, Inc. | 86,675 | 4,370,153 | ||||
Tyson Foods, Inc., Class A | 127,473 | 3,527,178 | ||||
12,805,904 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.8% | ||||||
Abbott Laboratories | 143,725 | 5,253,149 | ||||
Becton Dickinson and Co. | 40,273 | 4,233,900 | ||||
Medtronic, Inc. | 95,411 | 5,476,591 | ||||
St. Jude Medical, Inc. | 81,445 | 4,674,129 | ||||
Stryker Corp. | 21,288 | 1,572,332 | ||||
21,210,101 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 1.1% | ||||||
Bally Technologies, Inc.(1) | 48,809 | 3,569,890 | ||||
Cracker Barrel Old Country Store, Inc. | 11,489 | 1,262,297 | ||||
International Game Technology | 184,010 | 3,459,388 | ||||
8,291,575 | ||||||
HOUSEHOLD DURABLES — 0.9% | ||||||
Newell Rubbermaid, Inc. | 102,938 | 3,050,053 | ||||
Whirlpool Corp. | 25,901 | 3,781,805 | ||||
6,831,858 | ||||||
HOUSEHOLD PRODUCTS — 1.4% | ||||||
Energizer Holdings, Inc. | 35,349 | 3,468,090 | ||||
Kimberly-Clark Corp. | 37,440 | 4,043,520 | ||||
Procter & Gamble Co. (The) | 36,893 | 2,979,110 | ||||
10,490,720 | ||||||
INDUSTRIAL CONGLOMERATES — 1.2% | ||||||
Danaher Corp. | 67,272 | 4,849,638 | ||||
General Electric Co. | 159,800 | 4,177,172 | ||||
9,026,810 | ||||||
INSURANCE — 3.2% | ||||||
Aflac, Inc. | 75,573 | 4,910,734 | ||||
American International Group, Inc. | 114,960 | 5,937,684 | ||||
Amtrust Financial Services, Inc. | 46,810 | 1,795,632 | ||||
Arch Capital Group Ltd.(1) | 10,851 | 628,924 | ||||
First American Financial Corp. | 46,459 | 1,201,430 | ||||
Old Republic International Corp. | 18,692 | 313,839 | ||||
Protective Life Corp. | 18,018 | 830,269 | ||||
Reinsurance Group of America, Inc. | 23,296 | 1,658,209 | ||||
RenaissanceRe Holdings Ltd. | 36,323 | 3,403,828 | ||||
StanCorp Financial Group, Inc. | 3,110 | 183,179 | ||||
Torchmark Corp. | 13,248 | 965,249 | ||||
Travelers Cos., Inc. (The) | 35,584 | 3,070,899 | ||||
24,899,876 | ||||||
INTERNET AND CATALOG RETAIL — 0.3% | ||||||
Expedia, Inc. | 44,158 | 2,600,023 | ||||
INTERNET SOFTWARE AND SERVICES — 1.6% | ||||||
Google, Inc., Class A(1) | 12,021 | 12,388,602 | ||||
IT SERVICES — 1.3% | ||||||
Accenture plc, Class A | 35,406 | 2,602,341 | ||||
Amdocs Ltd. | 11,763 | 452,287 | ||||
International Business Machines Corp. | 39,224 | 7,029,333 | ||||
10,083,961 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.7% | ||||||
Hasbro, Inc. | 77,453 | 4,000,447 | ||||
Mattel, Inc. | 29,770 | 1,320,895 | ||||
5,321,342 | ||||||
MACHINERY — 0.5% | ||||||
Crane Co. | 20,513 | 1,302,575 | ||||
Dover Corp. | 12,386 | 1,136,911 | ||||
Snap-On, Inc. | 16,622 | 1,729,852 | ||||
4,169,338 | ||||||
MEDIA — 0.7% | ||||||
Time Warner, Inc. | 80,640 | 5,543,194 | ||||
MULTILINE RETAIL — 1.0% | ||||||
Dillard’s, Inc., Class A | 40,985 | 3,359,950 | ||||
Target Corp. | 64,459 | 4,176,299 | ||||
7,536,249 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.9% | ||||||
Anadarko Petroleum Corp. | 21,434 | 2,042,446 | ||||
Chevron Corp. | 27,431 | 3,290,623 | ||||
ConocoPhillips | 26,123 | 1,914,816 | ||||
Exxon Mobil Corp. | 90,564 | 8,116,346 | ||||
Gran Tierra Energy, Inc.(1) | 50,407 | 382,589 | ||||
Marathon Petroleum Corp. | 61,200 | 4,385,592 | ||||
Phillips 66 | 54,021 | 3,480,573 | ||||
Valero Energy Corp. | 77,642 | 3,196,521 | ||||
Western Refining, Inc. | 95,138 | 3,070,103 | ||||
29,879,609 |
Shares/ Principal Amount | Value |
PERSONAL PRODUCTS — 0.2% | ||||||
Avon Products, Inc. | 72,390 | $ 1,266,825 | ||||
PHARMACEUTICALS — 4.9% | ||||||
AbbVie, Inc. | 46,051 | 2,231,171 | ||||
Allergan, Inc. | 24,855 | 2,252,111 | ||||
Eli Lilly & Co. | 96,091 | 4,787,254 | ||||
Endo Health Solutions, Inc.(1) | 6,712 | 293,516 | ||||
Johnson & Johnson | 120,934 | 11,199,698 | ||||
Merck & Co., Inc. | 158,754 | 7,158,218 | ||||
Pfizer, Inc. | 327,868 | 10,058,990 | ||||
37,980,958 | ||||||
PROFESSIONAL SERVICES — 0.1% | ||||||
Manpowergroup, Inc. | 14,183 | 1,107,692 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 0.7% | ||||||
Broadcom Corp., Class A | 62,604 | 1,672,779 | ||||
Intel Corp. | 2,314 | 56,531 | ||||
Texas Instruments, Inc. | 80,052 | 3,368,588 | ||||
5,097,898 | ||||||
SOFTWARE — 3.0% | ||||||
Activision Blizzard, Inc. | 135,695 | 2,257,965 | ||||
CA, Inc. | 82,616 | 2,623,884 | ||||
Microsoft Corp. | 325,704 | 11,513,636 | ||||
Oracle Corp. | 211,604 | 7,088,734 | ||||
23,484,219 | ||||||
SPECIALTY RETAIL — 2.9% | ||||||
Buckle, Inc. (The) | 12,624 | 617,819 | ||||
GameStop Corp., Class A | 34,254 | 1,877,804 | ||||
Gap, Inc. (The) | 90,062 | 3,331,393 | ||||
Home Depot, Inc. (The) | 87,136 | 6,787,023 | ||||
Lowe’s Cos., Inc. | 99,997 | 4,977,851 | ||||
PetSmart, Inc. | 8,284 | 602,744 | ||||
Staples, Inc. | 234,860 | 3,785,943 | ||||
21,980,577 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.9% | ||||||
Hanesbrands, Inc. | 54,982 | 3,745,374 | ||||
Ralph Lauren Corp. | 20,006 | 3,313,794 | ||||
7,059,168 | ||||||
THRIFTS AND MORTGAGE FINANCE — 0.4% | ||||||
Ocwen Financial Corp.(1) | 57,411 | 3,228,221 | ||||
TOBACCO — 0.2% | ||||||
Philip Morris International, Inc. | 7,896 | 703,691 | ||||
Universal Corp. | 17,933 | 950,987 | ||||
1,654,678 | ||||||
TOTAL COMMON STOCKS (Cost $358,962,255) | 461,547,855 | |||||
U.S. Treasury Securities — 12.1% | ||||||
U.S. Treasury Bonds, 5.50%, 8/15/28 | $ 420,000 | $ 541,045 | ||||
U.S. Treasury Bonds, 5.25%, 2/15/29 | 489,000 | 615,567 | ||||
U.S. Treasury Bonds, 5.375%, 2/15/31 | 3,750,000 | 4,819,043 | ||||
U.S. Treasury Bonds, 4.375%, 11/15/39 | 2,000,000 | 2,288,438 | ||||
U.S. Treasury Bonds, 4.375%, 5/15/41 | 1,850,000 | 2,113,481 | ||||
U.S. Treasury Bonds, 3.125%, 11/15/41 | 1,500,000 | 1,367,696 | ||||
U.S. Treasury Bonds, 2.75%, 11/15/42 | 2,180,000 | 1,824,217 | ||||
U.S. Treasury Bonds, 3.125%, 2/15/43 | 2,550,000 | 2,308,347 | ||||
U.S. Treasury Bonds, 2.875%, 5/15/43 | 300,000 | 257,250 | ||||
U.S. Treasury Notes, 0.75%, 12/15/13 | 1,500,000 | 1,501,289 | ||||
U.S. Treasury Notes, 1.25%, 2/15/14 | 1,300,000 | 1,304,417 | ||||
U.S. Treasury Notes, 1.25%, 3/15/14 | 1,000,000 | 1,004,277 | ||||
U.S. Treasury Notes, 0.50%, 8/15/14 | 3,000,000 | 3,008,907 | ||||
U.S. Treasury Notes, 0.50%, 10/15/14 | 2,000,000 | 2,006,914 | ||||
U.S. Treasury Notes, 0.25%, 5/31/15 | 7,000,000 | 7,002,051 | ||||
U.S. Treasury Notes, 0.375%, 11/15/15(2) | 1,200,000 | 1,201,266 | ||||
U.S. Treasury Notes, 1.375%, 11/30/15 | 1,750,000 | 1,788,008 | ||||
U.S. Treasury Notes, 2.125%, 12/31/15 | 8,750,000 | 9,086,674 | ||||
U.S. Treasury Notes, 0.375%, 1/15/16 | 7,200,000 | 7,202,534 | ||||
U.S. Treasury Notes, 0.50%, 6/15/16 | 3,000,000 | 3,002,460 | ||||
U.S. Treasury Notes, 0.50%, 7/31/17 | 500,000 | 492,754 | ||||
U.S. Treasury Notes, 0.75%, 10/31/17 | 1,500,000 | 1,486,113 | ||||
U.S. Treasury Notes, 1.875%, 10/31/17 | 3,300,000 | 3,415,114 | ||||
U.S. Treasury Notes, 0.875%, 1/31/18 | 4,500,000 | 4,461,327 | ||||
U.S. Treasury Notes, 2.625%, 4/30/18 | 875,000 | 931,123 |
Shares/ Principal Amount | Value |
U.S. Treasury Notes, 1.375%, 7/31/18 | $12,930,000 | $ 13,011,821 | ||||
U.S. Treasury Notes, 1.375%, 9/30/18 | 2,500,000 | 2,509,375 | ||||
U.S. Treasury Notes, 1.25%, 10/31/18 | 9,000,000 | 8,970,120 | ||||
U.S. Treasury Notes, 1.375%, 11/30/18 | 200,000 | 200,375 | ||||
U.S. Treasury Notes, 1.75%, 5/15/23 | 3,300,000 | 3,080,989 | ||||
TOTAL U.S. TREASURY SECURITIES (Cost $93,129,397) | 92,802,992 | |||||
U.S. Government Agency Mortgage-Backed Securities(3) — 10.6% | ||||||
ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 1.4% | ||||||
FHLMC, VRN, 1.76%, 11/15/13 | 240,892 | 243,070 | ||||
FHLMC, VRN, 1.85%, 11/15/13 | 578,448 | 586,094 | ||||
FHLMC, VRN, 1.97%, 11/15/13 | 342,433 | 349,016 | ||||
FHLMC, VRN, 1.98%, 11/15/13 | 445,199 | 453,613 | ||||
FHLMC, VRN, 2.07%, 11/15/13 | 777,004 | 787,543 | ||||
FHLMC, VRN, 2.36%, 11/15/13 | 932,642 | 931,264 | ||||
FHLMC, VRN, 2.37%, 11/15/13 | 972,778 | 969,917 | ||||
FHLMC, VRN, 2.42%, 11/15/13 | 215,061 | 228,017 | ||||
FHLMC, VRN, 2.57%, 11/15/13 | 144,605 | 150,349 | ||||
FHLMC, VRN, 2.64%, 11/15/13 | 142,560 | 152,180 | ||||
FHLMC, VRN, 2.89%, 11/15/13 | 218,793 | 223,840 | ||||
FHLMC, VRN, 3.24%, 11/15/13 | 131,815 | 139,237 | ||||
FHLMC, VRN, 3.28%, 11/15/13 | 523,200 | 541,126 | ||||
FHLMC, VRN, 3.80%, 11/15/13 | 257,856 | 271,092 | ||||
FHLMC, VRN, 4.04%, 11/15/13 | 226,918 | 240,574 | ||||
FHLMC, VRN, 4.36%, 11/15/13 | 679,815 | 707,611 | ||||
FHLMC, VRN, 5.18%, 11/15/13 | 148,266 | 154,913 | ||||
FHLMC, VRN, 5.37%, 11/15/13 | 206,431 | 216,772 | ||||
FHLMC, VRN, 5.78%, 11/15/13 | 436,707 | 454,122 | ||||
FHLMC, VRN, 5.95%, 11/15/13 | 574,909 | 609,425 | ||||
FHLMC, VRN, 6.14%, 11/15/13 | 192,960 | 204,545 | ||||
FNMA, VRN, 2.40%, 11/25/13 | 61,623 | 65,340 | ||||
FNMA, VRN, 2.70%, 11/25/13 | 452,465 | 459,033 | ||||
FNMA, VRN, 3.32%, 11/25/13 | 212,620 | 221,212 | ||||
FNMA, VRN, 3.36%, 11/25/13 | 190,005 | 202,506 | ||||
FNMA, VRN, 3.79%, 11/25/13 | 353,362 | 373,003 | ||||
FNMA, VRN, 3.92%, 11/25/13 | 278,703 | 294,541 | ||||
FNMA, VRN, 3.94%, 11/25/13 | 125,218 | 132,934 | ||||
FNMA, VRN, 5.39%, 11/25/13 | 268,083 | 288,541 | ||||
10,651,430 | ||||||
FIXED-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES — 9.2% | ||||||
FHLMC, 4.50%, 1/1/19 | 349,058 | 369,103 | ||||
FHLMC, 6.50%, 1/1/28 | 34,071 | 39,354 | ||||
FHLMC, 5.50%, 12/1/33 | 305,965 | 336,504 | ||||
FHLMC, 5.00%, 7/1/35 | 2,832,691 | 3,071,584 | ||||
FHLMC, 5.50%, 1/1/38 | 456,639 | 494,298 | ||||
FHLMC, 6.00%, 8/1/38 | 94,197 | 103,186 | ||||
FHLMC, 4.00%, 4/1/41 | 1,171,306 | 1,235,914 | ||||
FHLMC, 6.50%, 7/1/47 | 22,804 | 24,404 | ||||
FNMA, 6.00%, 1/1/14 | 456 | 458 | ||||
FNMA, 6.00%, 4/1/14 | 5,407 | 5,445 | ||||
FNMA, 4.50%, 5/1/19 | 310,503 | 330,518 | ||||
FNMA, 4.50%, 5/1/19 | 118,451 | 126,119 | ||||
FNMA, 5.00%, 9/1/20 | 615,466 | 661,091 | ||||
FNMA, 6.50%, 1/1/28 | 21,311 | 23,556 | ||||
FNMA, 6.50%, 1/1/29 | 48,285 | 54,397 | ||||
FNMA, 7.50%, 7/1/29 | 113,103 | 129,917 | ||||
FNMA, 7.50%, 9/1/30 | 27,718 | 32,953 | ||||
FNMA, 5.00%, 7/1/31 | 1,474,227 | 1,635,459 | ||||
FNMA, 6.50%, 9/1/31 | 37,248 | 41,656 | ||||
FNMA, 7.00%, 9/1/31 | 14,233 | 16,140 | ||||
FNMA, 6.50%, 1/1/32 | 83,229 | 96,686 | ||||
FNMA, 6.50%, 8/1/32 | 53,920 | 60,833 | ||||
FNMA, 5.50%, 6/1/33 | 166,143 | 182,351 | ||||
FNMA, 5.50%, 7/1/33 | 304,387 | 333,166 | ||||
FNMA, 5.50%, 8/1/33 | 522,600 | 571,451 | ||||
FNMA, 5.50%, 9/1/33 | 333,630 | 369,539 | ||||
FNMA, 5.00%, 11/1/33 | 961,749 | 1,049,748 | ||||
FNMA, 5.00%, 4/1/35 | 1,454,135 | 1,581,566 | ||||
FNMA, 4.50%, 9/1/35 | 680,521 | 729,832 | ||||
FNMA, 5.00%, 2/1/36 | 932,154 | 1,013,904 | ||||
FNMA, 5.50%, 4/1/36 | 374,708 | 409,197 | ||||
FNMA, 5.50%, 5/1/36 | 728,377 | 795,517 | ||||
FNMA, 5.00%, 11/1/36 | 2,456,702 | 2,668,291 | ||||
FNMA, 5.50%, 2/1/37 | 197,716 | 215,725 | ||||
FNMA, 6.00%, 7/1/37 | 1,652,041 | 1,804,524 | ||||
FNMA, 6.50%, 8/1/37 | 225,163 | 243,130 | ||||
FNMA, 5.00%, 4/1/40 | 2,358,856 | 2,577,955 | ||||
FNMA, 4.50%, 8/1/40 | 3,002,048 | 3,217,123 | ||||
FNMA, 4.50%, 9/1/40 | 4,611,636 | 4,955,526 | ||||
FNMA, 3.50%, 1/1/41 | 2,410,015 | 2,473,587 | ||||
FNMA, 4.00%, 1/1/41 | 1,823,219 | 1,928,736 | ||||
FNMA, 4.50%, 1/1/41 | 1,508,663 | 1,622,469 | ||||
FNMA, 4.50%, 2/1/41 | 1,133,251 | 1,216,565 | ||||
FNMA, 4.00%, 5/1/41 | 2,438,808 | 2,574,852 | ||||
FNMA, 4.50%, 7/1/41 | 828,158 | 889,967 |
Shares/ Principal Amount | Value |
FNMA, 4.50%, 9/1/41 | $ 948,183 | $ 1,017,803 | ||||
FNMA, 4.00%, 12/1/41 | 1,986,084 | 2,097,260 | ||||
FNMA, 4.00%, 1/1/42 | 1,699,139 | 1,793,440 | ||||
FNMA, 4.00%, 1/1/42 | 1,196,652 | 1,262,116 | ||||
FNMA, 4.00%, 3/1/42 | 1,658,239 | 1,750,815 | ||||
FNMA, 3.50%, 5/1/42 | 3,083,970 | 3,166,632 | ||||
FNMA, 3.50%, 6/1/42 | 934,937 | 960,214 | ||||
FNMA, 3.50%, 9/1/42 | 3,030,222 | 3,115,478 | ||||
FNMA, 3.00%, 11/1/42 | 2,166,014 | 2,141,583 | ||||
FNMA, 6.50%, 8/1/47 | 43,703 | 47,072 | ||||
FNMA, 6.50%, 8/1/47 | 47,904 | 51,547 | ||||
FNMA, 6.50%, 9/1/47 | 157,448 | 169,359 | ||||
FNMA, 6.50%, 9/1/47 | 5,620 | 6,047 | ||||
FNMA, 6.50%, 9/1/47 | 16,630 | 17,884 | ||||
FNMA, 6.50%, 9/1/47 | 51,209 | 55,073 | ||||
FNMA, 6.50%, 9/1/47 | 16,130 | 17,339 | ||||
GNMA, 7.00%, 4/20/26 | 81,395 | 93,066 | ||||
GNMA, 7.50%, 8/15/26 | 45,110 | 54,158 | ||||
GNMA, 7.00%, 2/15/28 | 14,102 | 14,450 | ||||
GNMA, 7.50%, 2/15/28 | 17,645 | 18,199 | ||||
GNMA, 7.00%, 12/15/28 | 23,452 | 24,607 | ||||
GNMA, 7.00%, 5/15/31 | 91,772 | 108,963 | ||||
GNMA, 5.50%, 11/15/32 | 369,906 | 406,812 | ||||
GNMA, 4.00%, 1/20/41 | 2,062,954 | 2,208,231 | ||||
GNMA, 4.50%, 5/20/41 | 1,261,829 | 1,370,294 | ||||
GNMA, 4.50%, 6/15/41 | 1,004,149 | 1,097,996 | ||||
GNMA, 4.00%, 12/15/41 | 2,055,325 | 2,192,270 | ||||
GNMA, 3.50%, 6/20/42 | 2,149,122 | 2,234,904 | ||||
GNMA, 3.50%, 7/20/42 | 1,046,069 | 1,087,822 | ||||
70,895,730 | ||||||
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $80,299,414) | 81,547,160 | |||||
Corporate Bonds — 9.8% | ||||||
AEROSPACE AND DEFENSE — 0.1% | ||||||
L-3 Communications Corp., 4.75%, 7/15/20 | 90,000 | 95,096 | ||||
Lockheed Martin Corp., 4.25%, 11/15/19 | 250,000 | 273,861 | ||||
Raytheon Co., 2.50%, 12/15/22 | 210,000 | 194,610 | ||||
United Technologies Corp., 6.05%, 6/1/36 | 250,000 | 301,155 | ||||
United Technologies Corp., 5.70%, 4/15/40 | 120,000 | 140,376 | ||||
United Technologies Corp., 4.50%, 6/1/42 | 30,000 | 29,689 | ||||
1,034,787 | ||||||
AUTOMOBILES — 0.2% | ||||||
American Honda Finance Corp., 2.50%, 9/21/15(4) | 220,000 | 227,239 | ||||
American Honda Finance Corp., 1.50%, 9/11/17(4) | 70,000 | 69,837 | ||||
American Honda Finance Corp., 2.125%, 10/10/18 | 150,000 | 151,209 | ||||
Daimler Finance North America LLC, 1.30%, 7/31/15(4) | 200,000 | 201,298 | ||||
Daimler Finance North America LLC, 2.625%, 9/15/16(4) | 210,000 | 217,225 | ||||
Ford Motor Co., 4.75%, 1/15/43 | 40,000 | 37,337 | ||||
Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 210,000 | 232,887 | ||||
Ford Motor Credit Co. LLC, 8.125%, 1/15/20 | 150,000 | 190,393 | ||||
Ford Motor Credit Co. LLC, 5.875%, 8/2/21 | 440,000 | 504,720 | ||||
1,832,145 | ||||||
BEVERAGES — 0.3% | ||||||
Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/19 | 510,000 | 646,402 | ||||
Anheuser-Busch InBev Worldwide, Inc., 2.50%, 7/15/22 | 230,000 | 216,958 | ||||
Coca-Cola Co. (The), 1.80%, 9/1/16 | 180,000 | 185,554 | ||||
Dr Pepper Snapple Group, Inc., 2.90%, 1/15/16 | 60,000 | 62,343 | ||||
PepsiCo, Inc., 2.75%, 3/1/23 | 110,000 | 103,872 | ||||
Pernod-Ricard SA, 2.95%, 1/15/17(4) | 180,000 | 187,919 | ||||
SABMiller Holdings, Inc., 2.45%, 1/15/17(4) | 330,000 | 340,967 | ||||
SABMiller Holdings, Inc., 3.75%, 1/15/22(4) | 200,000 | 205,341 | ||||
1,949,356 | ||||||
BIOTECHNOLOGY — 0.1% | ||||||
Amgen, Inc., 2.125%, 5/15/17 | 140,000 | 142,983 | ||||
Amgen, Inc., 4.10%, 6/15/21 | 100,000 | 104,633 | ||||
Amgen, Inc., 5.375%, 5/15/43 | 250,000 | 260,541 | ||||
Celgene Corp., 3.25%, 8/15/22 | 110,000 | 105,645 | ||||
Gilead Sciences, Inc., 4.40%, 12/1/21 | 220,000 | 237,927 | ||||
851,729 |
Shares/ Principal Amount | Value |
CAPITAL MARKETS — 0.1% | ||||||
Ameriprise Financial, Inc., 4.00%, 10/15/23 | $ 140,000 | $ 143,882 | ||||
Bear Stearns Cos. LLC (The), 6.40%, 10/2/17 | 330,000 | 386,183 | ||||
Jefferies Group, Inc., 5.125%, 4/13/18 | 110,000 | 118,911 | ||||
648,976 | ||||||
CHEMICALS — 0.1% | ||||||
Ashland, Inc., 4.75%, 8/15/22 | 100,000 | 96,500 | ||||
Dow Chemical Co. (The), 2.50%, 2/15/16 | 110,000 | 114,037 | ||||
Dow Chemical Co. (The), 4.25%, 11/15/20 | 100,000 | 107,024 | ||||
Eastman Chemical Co., 2.40%, 6/1/17 | 50,000 | 50,855 | ||||
Eastman Chemical Co., 3.60%, 8/15/22 | 248,000 | 242,617 | ||||
Ecolab, Inc., 4.35%, 12/8/21 | 250,000 | 265,693 | ||||
LyondellBasell Industries NV, 5.00%, 4/15/19 | 200,000 | 224,083 | ||||
1,100,809 | ||||||
COMMERCIAL BANKS — 0.7% | ||||||
Bank of America N.A., 5.30%, 3/15/17 | 870,000 | 966,677 | ||||
Bank of Montreal, MTN, 1.45%, 4/9/18 | 120,000 | 118,560 | ||||
Bank of Nova Scotia, 2.55%, 1/12/17 | 150,000 | 156,394 | ||||
Barclays Bank plc, 5.14%, 10/14/20 | 100,000 | 106,825 | ||||
BB&T Corp., MTN, 5.70%, 4/30/14 | 60,000 | 61,537 | ||||
BB&T Corp., MTN, 3.20%, 3/15/16 | 170,000 | 178,436 | ||||
BB&T Corp., MTN, 2.05%, 6/19/18 | 100,000 | 100,247 | ||||
Capital One Financial Corp., 1.00%, 11/6/15 | 90,000 | 89,872 | ||||
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, 3.875%, 2/8/22 | 430,000 | 438,249 | ||||
HBOS plc, MTN, 6.75%, 5/21/18(4) | 100,000 | 112,937 | ||||
HSBC Bank plc, 3.50%, 6/28/15(4) | 140,000 | 146,545 | ||||
Intesa Sanpaolo SpA, 3.875%, 1/16/18 | 40,000 | 40,842 | ||||
JPMorgan Chase Bank N.A., 5.875%, 6/13/16 | 250,000 | 279,657 | ||||
KFW, 4.125%, 10/15/14 | 240,000 | 248,925 | ||||
KFW, 2.00%, 6/1/16 | 260,000 | 269,693 | ||||
KFW, 2.00%, 10/4/22 | 300,000 | 282,925 | ||||
Royal Bank of Scotland plc (The), 4.375%, 3/16/16 | 250,000 | 267,994 | ||||
SunTrust Banks, Inc., 3.60%, 4/15/16 | 50,000 | 53,064 | ||||
SunTrust Banks, Inc., 2.35%, 11/1/18 | 40,000 | 40,197 | ||||
Toronto-Dominion Bank (The), 2.375%, 10/19/16 | 210,000 | 218,551 | ||||
U.S. Bancorp., 3.44%, 2/1/16 | 120,000 | 125,614 | ||||
U.S. Bancorp., MTN, 3.00%, 3/15/22 | 110,000 | 109,002 | ||||
U.S. Bancorp., MTN, 2.95%, 7/15/22 | 60,000 | 57,092 | ||||
Wachovia Bank N.A., 4.80%, 11/1/14 | 251,000 | 261,628 | ||||
Wells Fargo & Co., 3.68%, 6/15/16 | 140,000 | 149,505 | ||||
Wells Fargo & Co., 5.625%, 12/11/17 | 20,000 | 23,145 | ||||
Wells Fargo & Co., MTN, 2.10%, 5/8/17 | 20,000 | 20,566 | ||||
Wells Fargo & Co., MTN, 4.60%, 4/1/21 | 410,000 | 452,296 | ||||
5,376,975 | ||||||
COMMERCIAL SERVICES AND SUPPLIES† | ||||||
Republic Services, Inc., 3.80%, 5/15/18 | 70,000 | 74,825 | ||||
Republic Services, Inc., 3.55%, 6/1/22 | 220,000 | 217,212 | ||||
292,037 | ||||||
COMMUNICATIONS EQUIPMENT — 0.1% | ||||||
Apple, Inc., 1.00%, 5/3/18 | 160,000 | 155,495 | ||||
Apple, Inc., 2.40%, 5/3/23 | 240,000 | 219,676 | ||||
CC Holdings GS V LLC / Crown Castle GS III Corp., 3.85%, 4/15/23 | 60,000 | 57,048 | ||||
Cisco Systems, Inc., 5.90%, 2/15/39 | 130,000 | 151,960 | ||||
584,179 | ||||||
COMPUTERS AND PERIPHERALS — 0.1% | ||||||
Dell, Inc., 2.30%, 9/10/15 | 90,000 | 90,385 | ||||
Dell, Inc., 3.10%, 4/1/16 | 40,000 | 40,259 | ||||
Hewlett-Packard Co., 4.30%, 6/1/21 | 240,000 | 239,168 | ||||
Seagate HDD Cayman, 4.75%, 6/1/23(4) | 240,000 | 234,600 | ||||
604,412 |
Shares/ Principal Amount | Value |
CONSTRUCTION MATERIALS† | ||||||
Owens Corning, 4.20%, 12/15/22 | $ 160,000 | $ 159,111 | ||||
CONSUMER FINANCE — 0.3% | ||||||
American Express Centurion Bank, MTN, 6.00%, 9/13/17 | 250,000 | 291,143 | ||||
American Express Co., 1.55%, 5/22/18 | 220,000 | 217,015 | ||||
American Express Credit Corp., 1.30%, 7/29/16 | 180,000 | 181,530 | ||||
American Express Credit Corp., MTN, 2.75%, 9/15/15 | 200,000 | 207,559 | ||||
American Express Credit Corp., MTN, 2.375%, 3/24/17 | 100,000 | 103,912 | ||||
Capital One Bank USA N.A., 3.375%, 2/15/23 | 250,000 | 238,656 | ||||
Discover Bank, 2.00%, 2/21/18 | 250,000 | 247,426 | ||||
Equifax, Inc., 3.30%, 12/15/22 | 140,000 | 132,845 | ||||
GLP Capital LP / GLP Financing II, Inc., 4.875%, 11/1/20(4) | 170,000 | 171,700 | ||||
PNC Bank N.A., 6.00%, 12/7/17 | 290,000 | 336,650 | ||||
2,128,436 | ||||||
CONTAINERS AND PACKAGING† | ||||||
Ball Corp., 6.75%, 9/15/20 | 120,000 | 131,100 | ||||
Ball Corp., 4.00%, 11/15/23 | 130,000 | 120,413 | ||||
251,513 | ||||||
DIVERSIFIED CONSUMER SERVICES† | ||||||
Catholic Health Initiatives, 1.60%, 11/1/17 | 45,000 | 44,146 | ||||
Catholic Health Initiatives, 2.95%, 11/1/22 | 110,000 | 102,507 | ||||
Johns Hopkins University, 4.08%, 7/1/53 | 45,000 | 40,811 | ||||
187,464 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 1.6% | ||||||
Bank of America Corp., 4.50%, 4/1/15 | 260,000 | 272,921 | ||||
Bank of America Corp., 3.75%, 7/12/16 | 400,000 | 425,848 | ||||
Bank of America Corp., 6.50%, 8/1/16 | 480,000 | 545,626 | ||||
Bank of America Corp., 5.75%, 12/1/17 | 320,000 | 366,126 | ||||
Bank of America Corp., 5.625%, 7/1/20 | 110,000 | 126,200 | ||||
Bank of America Corp., 5.70%, 1/24/22 | 220,000 | 252,880 | ||||
BNP Paribas SA, MTN, 2.70%, 8/20/18 | 120,000 | 122,974 | ||||
Citigroup, Inc., 4.75%, 5/19/15 | 34,000 | 35,919 | ||||
Citigroup, Inc., 4.45%, 1/10/17 | 100,000 | 108,793 | ||||
Citigroup, Inc., 5.50%, 2/15/17 | 50,000 | 55,519 | ||||
Citigroup, Inc., 6.125%, 11/21/17 | 680,000 | 789,816 | ||||
Citigroup, Inc., 1.75%, 5/1/18 | 370,000 | 364,128 | ||||
Citigroup, Inc., 4.50%, 1/14/22 | 560,000 | 598,581 | ||||
Citigroup, Inc., 4.05%, 7/30/22 | 70,000 | 69,368 | ||||
Deutsche Bank AG, VRN, 4.30%, 5/24/23 | 200,000 | 183,721 | ||||
General Electric Capital Corp., 2.25%, 11/9/15 | 200,000 | 205,806 | ||||
General Electric Capital Corp., 5.30%, 2/11/21 | 40,000 | 44,599 | ||||
General Electric Capital Corp., MTN, 5.00%, 1/8/16 | 200,000 | 217,874 | ||||
General Electric Capital Corp., MTN, 2.30%, 4/27/17 | 420,000 | 433,184 | ||||
General Electric Capital Corp., MTN, 5.625%, 9/15/17 | 450,000 | 517,135 | ||||
General Electric Capital Corp., MTN, 6.00%, 8/7/19 | 870,000 | 1,030,583 | ||||
General Electric Capital Corp., MTN, 4.65%, 10/17/21 | 120,000 | 131,564 | ||||
Goldman Sachs Group, Inc. (The), 2.375%, 1/22/18 | 290,000 | 291,881 | ||||
Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 530,000 | 541,654 | ||||
Goldman Sachs Group, Inc. (The), 5.75%, 1/24/22 | 460,000 | 522,309 | ||||
Goldman Sachs Group, Inc. (The), 6.75%, 10/1/37 | 130,000 | 142,372 | ||||
Goldman Sachs Group, Inc. (The), MTN, 5.375%, 3/15/20 | 110,000 | 123,844 | ||||
HSBC Holdings plc, 5.10%, 4/5/21 | 230,000 | 256,493 | ||||
HSBC Holdings plc, 4.00%, 3/30/22 | 90,000 | 93,291 | ||||
JPMorgan Chase & Co., 6.00%, 1/15/18 | 520,000 | 601,848 | ||||
JPMorgan Chase & Co., 4.625%, 5/10/21 | 460,000 | 499,191 | ||||
JPMorgan Chase & Co., 3.25%, 9/23/22 | 120,000 | 116,084 | ||||
Morgan Stanley, 4.75%, 3/22/17 | 130,000 | 142,554 | ||||
Morgan Stanley, 5.75%, 1/25/21 | 100,000 | 114,630 |
Shares/ Principal Amount | Value |
Morgan Stanley, 4.875%, 11/1/22 | $ 50,000 | $ 51,546 | ||||
Morgan Stanley, 3.75%, 2/25/23 | 190,000 | 187,877 | ||||
Morgan Stanley, MTN, 6.625%, 4/1/18 | 690,000 | 809,825 | ||||
Morgan Stanley, MTN, 5.625%, 9/23/19 | 150,000 | 171,325 | ||||
Royal Bank of Scotland Group plc, 6.125%, 12/15/22 | 90,000 | 93,338 | ||||
UBS AG (Stamford Branch), 5.875%, 12/20/17 | 321,000 | 372,459 | ||||
12,031,686 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.5% | ||||||
AT&T, Inc., 2.625%, 12/1/22 | 290,000 | 260,652 | ||||
AT&T, Inc., 6.55%, 2/15/39 | 410,000 | 457,800 | ||||
AT&T, Inc., 4.30%, 12/15/42 | 130,000 | 108,874 | ||||
British Telecommunications plc, 5.95%, 1/15/18 | 270,000 | 311,067 | ||||
CenturyLink, Inc., Series Q, 6.15%, 9/15/19 | 140,000 | 148,750 | ||||
Deutsche Telekom International Finance BV, 2.25%, 3/6/17(4) | 250,000 | 255,727 | ||||
Deutsche Telekom International Finance BV, 6.75%, 8/20/18 | 210,000 | 252,980 | ||||
Orange SA, 4.125%, 9/14/21 | 120,000 | 123,911 | ||||
Telecom Italia Capital SA, 7.00%, 6/4/18 | 30,000 | 33,003 | ||||
Telefonica Emisiones SAU, 5.88%, 7/15/19 | 160,000 | 179,894 | ||||
Telefonica Emisiones SAU, 5.46%, 2/16/21 | 100,000 | 106,167 | ||||
Verizon Communications, Inc., 3.65%, 9/14/18 | 530,000 | 564,147 | ||||
Verizon Communications, Inc., 4.50%, 9/15/20 | 130,000 | 140,858 | ||||
Verizon Communications, Inc., 5.15%, 9/15/23 | 350,000 | 380,325 | ||||
Verizon Communications, Inc., 6.40%, 9/15/33 | 250,000 | 283,672 | ||||
Verizon Communications, Inc., 7.35%, 4/1/39 | 140,000 | 174,651 | ||||
Verizon Communications, Inc., 4.75%, 11/1/41 | 150,000 | 138,545 | ||||
Verizon Communications, Inc., 6.55%, 9/15/43 | 100,000 | 116,369 | ||||
Windstream Corp., 7.875%, 11/1/17 | 60,000 | 68,925 | ||||
4,106,317 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS† | ||||||
Jabil Circuit, Inc., 7.75%, 7/15/16 | 200,000 | 229,500 | ||||
Jabil Circuit, Inc., 5.625%, 12/15/20 | 50,000 | 52,750 | ||||
282,250 | ||||||
ENERGY EQUIPMENT AND SERVICES — 0.1% | ||||||
Ensco plc, 3.25%, 3/15/16 | 120,000 | 125,870 | ||||
Ensco plc, 4.70%, 3/15/21 | 130,000 | 140,622 | ||||
Transocean, Inc., 5.05%, 12/15/16 | 40,000 | 44,089 | ||||
Transocean, Inc., 2.50%, 10/15/17 | 140,000 | 141,406 | ||||
Transocean, Inc., 6.50%, 11/15/20 | 100,000 | 113,585 | ||||
Transocean, Inc., 6.375%, 12/15/21 | 50,000 | 56,404 | ||||
Weatherford International Ltd., 9.625%, 3/1/19 | 120,000 | 153,234 | ||||
775,210 | ||||||
FOOD AND STAPLES RETAILING — 0.2% | ||||||
CVS Caremark Corp., 2.75%, 12/1/22 | 170,000 | 159,228 | ||||
Delhaize Group SA, 4.125%, 4/10/19 | 125,000 | 130,260 | ||||
Kroger Co. (The), 6.40%, 8/15/17 | 200,000 | 231,364 | ||||
Kroger Co. (The), 5.15%, 8/1/43 | 70,000 | 69,623 | ||||
Safeway, Inc., 4.75%, 12/1/21 | 70,000 | 69,656 | ||||
Wal-Mart Stores, Inc., 2.55%, 4/11/23 | 50,000 | 47,005 | ||||
Wal-Mart Stores, Inc., 5.875%, 4/5/27 | 468,000 | 576,338 | ||||
Wal-Mart Stores, Inc., 5.625%, 4/15/41 | 110,000 | 125,873 | ||||
Walgreen Co., 1.80%, 9/15/17 | 90,000 | 90,595 | ||||
Walgreen Co., 3.10%, 9/15/22 | 240,000 | 229,307 | ||||
1,729,249 | ||||||
FOOD PRODUCTS — 0.1% | ||||||
Kellogg Co., 4.45%, 5/30/16 | 200,000 | 217,758 | ||||
Kraft Foods Group, Inc., 6.125%, 8/23/18 | 81,000 | 95,758 | ||||
Kraft Foods Group, Inc., 5.00%, 6/4/42 | 220,000 | 221,829 |
Shares/ Principal Amount | Value |
Mondelez International, Inc., 6.50%, 2/9/40 | $ 140,000 | $ 167,142 | ||||
Tyson Foods, Inc., 4.50%, 6/15/22 | 50,000 | 51,929 | ||||
754,416 | ||||||
GAS UTILITIES — 0.5% | ||||||
El Paso Corp., 7.25%, 6/1/18 | 150,000 | 170,612 | ||||
El Paso Pipeline Partners Operating Co. LLC, 6.50%, 4/1/20 | 210,000 | 244,968 | ||||
Enbridge Energy Partners LP, 6.50%, 4/15/18 | 130,000 | 151,608 | ||||
Enbridge Energy Partners LP, 5.20%, 3/15/20 | 100,000 | 109,474 | ||||
Energy Transfer Partners LP, 4.15%, 10/1/20 | 200,000 | 207,817 | ||||
Energy Transfer Partners LP, 3.60%, 2/1/23 | 120,000 | 114,672 | ||||
Energy Transfer Partners LP, 6.50%, 2/1/42 | 180,000 | 197,650 | ||||
Enterprise Products Operating LLC, 3.70%, 6/1/15 | 150,000 | 156,608 | ||||
Enterprise Products Operating LLC, 6.30%, 9/15/17 | 300,000 | 348,635 | ||||
Enterprise Products Operating LLC, 4.85%, 3/15/44 | 150,000 | 144,341 | ||||
Enterprise Products Operating LLC, VRN, 7.03%, 1/15/18 | 170,000 | 188,022 | ||||
Kinder Morgan Energy Partners LP, 6.85%, 2/15/20 | 170,000 | 204,237 | ||||
Kinder Morgan Energy Partners LP, 3.95%, 9/1/22 | 170,000 | 168,820 | ||||
Kinder Morgan Energy Partners LP, 6.50%, 9/1/39 | 130,000 | 146,533 | ||||
Magellan Midstream Partners LP, 6.55%, 7/15/19 | 150,000 | 179,653 | ||||
Magellan Midstream Partners LP, 5.15%, 10/15/43 | 190,000 | 194,505 | ||||
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., 4.50%, 7/15/23 | 150,000 | 146,250 | ||||
Plains All American Pipeline LP/PAA Finance Corp., 3.95%, 9/15/15 | 40,000 | 42,306 | ||||
Plains All American Pipeline LP/PAA Finance Corp., 3.65%, 6/1/22 | 310,000 | 309,909 | ||||
Sunoco Logistics Partners Operations LP, 3.45%, 1/15/23 | 190,000 | 179,581 | ||||
TransCanada PipeLines Ltd., 2.50%, 8/1/22 | 200,000 | 187,009 | ||||
Williams Cos., Inc. (The), 3.70%, 1/15/23 | 50,000 | 46,039 | ||||
Williams Partners LP, 4.125%, 11/15/20 | 200,000 | 206,420 | ||||
4,045,669 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES† | ||||||
Baxter International, Inc., 3.20%, 6/15/23 | 80,000 | 78,865 | ||||
Medtronic, Inc., 2.75%, 4/1/23 | 200,000 | 190,014 | ||||
268,879 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 0.2% | ||||||
Aetna, Inc., 2.75%, 11/15/22 | 130,000 | 121,702 | ||||
Express Scripts Holding Co., 2.65%, 2/15/17 | 510,000 | 529,640 | ||||
Express Scripts Holding Co., 7.25%, 6/15/19 | 170,000 | 209,494 | ||||
NYU Hospitals Center, 4.43%, 7/1/42 | 90,000 | 76,789 | ||||
UnitedHealth Group, Inc., 2.875%, 3/15/23 | 130,000 | 123,521 | ||||
UnitedHealth Group, Inc., 4.25%, 3/15/43 | 120,000 | 110,633 | ||||
Universal Health Services, Inc., 7.125%, 6/30/16 | 160,000 | 180,800 | ||||
WellPoint, Inc., 3.125%, 5/15/22 | 100,000 | 96,013 | ||||
WellPoint, Inc., 3.30%, 1/15/23 | 70,000 | 67,441 | ||||
1,516,033 | ||||||
HOTELS, RESTAURANTS AND LEISURE† | ||||||
Royal Caribbean Cruises Ltd., 5.25%, 11/15/22 | 160,000 | 160,800 | ||||
Wyndham Worldwide Corp., 2.95%, 3/1/17 | 110,000 | 112,834 | ||||
273,634 | ||||||
HOUSEHOLD DURABLES — 0.1% | ||||||
D.R. Horton, Inc., 3.625%, 2/15/18 | 170,000 | 171,913 | ||||
D.R. Horton, Inc., 5.75%, 8/15/23 | 110,000 | 114,331 | ||||
Lennar Corp., 4.75%, 12/15/17 | 110,000 | 116,050 | ||||
Mohawk Industries, Inc., 3.85%, 2/1/23 | 100,000 | 97,103 | ||||
Toll Brothers Finance Corp., 6.75%, 11/1/19 | 100,000 | 113,250 | ||||
612,647 |
Shares/ Principal Amount | Value |
INDUSTRIAL CONGLOMERATES — 0.1% | ||||||
Bombardier, Inc., 5.75%, 3/15/22(4) | $ 80,000 | $ 80,600 | ||||
General Electric Co., 5.25%, 12/6/17 | 230,000 | 263,246 | ||||
General Electric Co., 2.70%, 10/9/22 | 110,000 | 105,725 | ||||
General Electric Co., 4.125%, 10/9/42 | 90,000 | 83,400 | ||||
532,971 | ||||||
INSURANCE — 0.5% | ||||||
Allstate Corp. (The), 4.50%, 6/15/43 | 80,000 | 79,670 | ||||
American International Group, Inc., 6.40%, 12/15/20 | 220,000 | 264,236 | ||||
American International Group, Inc., 4.875%, 6/1/22 | 330,000 | 361,713 | ||||
American International Group, Inc., MTN, 5.85%, 1/16/18 | 210,000 | 242,776 | ||||
Berkshire Hathaway Finance Corp., 4.25%, 1/15/21 | 140,000 | 151,869 | ||||
Berkshire Hathaway Finance Corp., 3.00%, 5/15/22 | 90,000 | 88,508 | ||||
Berkshire Hathaway, Inc., 4.50%, 2/11/43 | 220,000 | 212,854 | ||||
Genworth Holdings, Inc., 7.20%, 2/15/21 | 70,000 | 82,606 | ||||
Hartford Financial Services Group, Inc., 5.125%, 4/15/22 | 220,000 | 246,385 | ||||
Hartford Financial Services Group, Inc., 5.95%, 10/15/36 | 50,000 | 57,789 | ||||
ING U.S., Inc., 5.50%, 7/15/22 | 140,000 | 153,949 | ||||
ING U.S., Inc., 5.70%, 7/15/43(4) | 160,000 | 169,632 | ||||
Liberty Mutual Group, Inc., 4.95%, 5/1/22(4) | 60,000 | 63,520 | ||||
Liberty Mutual Group, Inc., 6.50%, 5/1/42(4) | 70,000 | 78,430 | ||||
Lincoln National Corp., 6.25%, 2/15/20 | 160,000 | 189,005 | ||||
Markel Corp., 4.90%, 7/1/22 | 190,000 | 203,204 | ||||
Markel Corp., 3.625%, 3/30/23 | 100,000 | 96,749 | ||||
MetLife, Inc., 6.75%, 6/1/16 | 150,000 | 171,997 | ||||
MetLife, Inc., 1.76%, 12/15/17 | 90,000 | 90,226 | ||||
MetLife, Inc., 4.125%, 8/13/42 | 110,000 | 100,475 | ||||
Metropolitan Life Global Funding I, 3.00%, 1/10/23(4) | 200,000 | 193,059 | ||||
Principal Financial Group, Inc., 3.30%, 9/15/22 | 70,000 | 68,815 | ||||
Prudential Financial, Inc., MTN, 7.375%, 6/15/19 | 100,000 | 124,525 | ||||
Prudential Financial, Inc., MTN, 5.375%, 6/21/20 | 70,000 | 79,906 | ||||
Prudential Financial, Inc., MTN, 5.625%, 5/12/41 | 220,000 | 244,133 | ||||
Travelers Cos., Inc. (The), 4.60%, 8/1/43 | 100,000 | 101,871 | ||||
WR Berkley Corp., 4.625%, 3/15/22 | 130,000 | 135,967 | ||||
4,053,869 | ||||||
IT SERVICES — 0.1% | ||||||
Fidelity National Information Services, Inc., 5.00%, 3/15/22 | 100,000 | 102,998 | ||||
Fidelity National Information Services, Inc., 3.50%, 4/15/23 | 110,000 | 100,704 | ||||
International Business Machines Corp., 1.95%, 7/22/16 | 410,000 | 423,372 | ||||
627,074 | ||||||
LIFE SCIENCES TOOLS AND SERVICES† | ||||||
Thermo Fisher Scientific, Inc., 3.60%, 8/15/21 | 140,000 | 139,771 | ||||
MACHINERY — 0.1% | ||||||
Caterpillar Financial Services Corp., MTN, 2.85%, 6/1/22 | 220,000 | 213,077 | ||||
Deere & Co., 5.375%, 10/16/29 | 200,000 | 224,746 | ||||
437,823 | ||||||
MEDIA — 0.6% | ||||||
CBS Corp., 3.375%, 3/1/22 | 120,000 | 117,445 | ||||
CBS Corp., 4.85%, 7/1/42 | 60,000 | 55,830 | ||||
Comcast Corp., 5.90%, 3/15/16 | 339,000 | 378,897 | ||||
Comcast Corp., 6.40%, 5/15/38 | 230,000 | 279,863 | ||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 4.75%, 10/1/14 | 155,000 | 160,725 | ||||
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 5.00%, 3/1/21 | 250,000 | 262,420 | ||||
Discovery Communications LLC, 5.625%, 8/15/19 | 90,000 | 104,135 | ||||
Discovery Communications LLC, 3.25%, 4/1/23 | 100,000 | 95,577 | ||||
DISH DBS Corp., 7.125%, 2/1/16 | 50,000 | 55,375 |
Shares/ Principal Amount | Value |
Lamar Media Corp., 9.75%, 4/1/14 | $ 150,000 | $ 155,625 | ||||
NBCUniversal Media LLC, 5.15%, 4/30/20 | 90,000 | 103,017 | ||||
NBCUniversal Media LLC, 4.375%, 4/1/21 | 380,000 | 414,622 | ||||
NBCUniversal Media LLC, 2.875%, 1/15/23 | 120,000 | 115,946 | ||||
News America, Inc., 3.00%, 9/15/22 | 140,000 | 133,839 | ||||
News America, Inc., 6.90%, 8/15/39 | 150,000 | 181,455 | ||||
Omnicom Group, Inc., 3.625%, 5/1/22 | 50,000 | 48,895 | ||||
Qwest Corp., 7.50%, 10/1/14 | 200,000 | 211,386 | ||||
SBA Telecommunications, Inc., 8.25%, 8/15/19 | 78,000 | 84,923 | ||||
Time Warner Cable, Inc., 6.75%, 7/1/18 | 240,000 | 270,780 | ||||
Time Warner Cable, Inc., 4.50%, 9/15/42 | 120,000 | 90,211 | ||||
Time Warner, Inc., 3.15%, 7/15/15 | 140,000 | 145,737 | ||||
Time Warner, Inc., 4.875%, 3/15/20 | 110,000 | 121,834 | ||||
Time Warner, Inc., 3.40%, 6/15/22 | 70,000 | 69,257 | ||||
Time Warner, Inc., 7.70%, 5/1/32 | 200,000 | 256,270 | ||||
Time Warner, Inc., 5.375%, 10/15/41 | 100,000 | 102,484 | ||||
Viacom, Inc., 4.375%, 9/15/14 | 150,000 | 154,800 | ||||
Viacom, Inc., 4.50%, 3/1/21 | 110,000 | 116,145 | ||||
Viacom, Inc., 3.125%, 6/15/22 | 90,000 | 85,421 | ||||
Virgin Media Secured Finance plc, 6.50%, 1/15/18 | 200,000 | 208,500 | ||||
Walt Disney Co. (The), MTN, 2.35%, 12/1/22 | 130,000 | 121,418 | ||||
4,702,832 | ||||||
METALS AND MINING — 0.2% | ||||||
AngloGold Ashanti Holdings plc, 5.375%, 4/15/20 | 40,000 | 38,367 | ||||
ArcelorMittal, 5.75%, 8/5/20 | 120,000 | 126,900 | ||||
Barrick North America Finance LLC, 4.40%, 5/30/21 | 130,000 | 125,021 | ||||
Freeport-McMoRan Copper & Gold, Inc., 3.875%, 3/15/23 | 70,000 | 66,357 | ||||
Newmont Mining Corp., 3.50%, 3/15/22 | 20,000 | 17,763 | ||||
Newmont Mining Corp., 6.25%, 10/1/39 | 120,000 | 109,228 | ||||
Southern Copper Corp., 5.25%, 11/8/42 | 60,000 | 49,892 | ||||
Teck Resources Ltd., 5.375%, 10/1/15 | 70,000 | 75,527 | ||||
Teck Resources Ltd., 3.15%, 1/15/17 | 110,000 | 114,058 | ||||
Vale Overseas Ltd., 5.625%, 9/15/19 | 310,000 | 341,394 | ||||
Vale Overseas Ltd., 4.625%, 9/15/20 | 260,000 | 270,343 | ||||
Xstrata Canada Financial Corp., 4.95%, 11/15/21(4) | 110,000 | 112,531 | ||||
1,447,381 | ||||||
MULTI-UTILITIES — 0.6% | ||||||
CenterPoint Energy Houston Electric LLC, 3.55%, 8/1/42 | 70,000 | 60,089 | ||||
CMS Energy Corp., 4.25%, 9/30/15 | 160,000 | 168,462 | ||||
CMS Energy Corp., 8.75%, 6/15/19 | 180,000 | 232,294 | ||||
Consolidated Edison Co. of New York, Inc., 3.95%, 3/1/43 | 90,000 | 82,046 | ||||
Constellation Energy Group, Inc., 5.15%, 12/1/20 | 80,000 | 86,570 | ||||
Consumers Energy Co., 2.85%, 5/15/22 | 50,000 | 49,019 | ||||
Consumers Energy Co., 3.375%, 8/15/23 | 50,000 | 50,294 | ||||
Dominion Gas Holdings LLC, 3.55%, 11/1/23(4) | 50,000 | 50,109 | ||||
Dominion Resources, Inc., 6.40%, 6/15/18 | 190,000 | 225,515 | ||||
Dominion Resources, Inc., 2.75%, 9/15/22 | 210,000 | 197,720 | ||||
Dominion Resources, Inc., 4.90%, 8/1/41 | 130,000 | 130,086 | ||||
DPL, Inc., 6.50%, 10/15/16 | 250,000 | 270,625 | ||||
Duke Energy Corp., 6.30%, 2/1/14 | 100,000 | 101,369 | ||||
Duke Energy Corp., 3.95%, 9/15/14 | 130,000 | 133,780 | ||||
Duke Energy Corp., 1.625%, 8/15/17 | 150,000 | 150,286 | ||||
Duke Energy Corp., 3.55%, 9/15/21 | 90,000 | 92,022 | ||||
Duke Energy Florida, Inc., 6.35%, 9/15/37 | 110,000 | 135,953 | ||||
Edison International, 3.75%, 9/15/17 | 130,000 | 138,149 |
Shares/ Principal Amount | Value |
Exelon Generation Co. LLC, 5.20%, 10/1/19 | $ 150,000 | $ 164,142 | ||||
Exelon Generation Co. LLC, 4.00%, 10/1/20 | 120,000 | 120,979 | ||||
Exelon Generation Co. LLC, 5.60%, 6/15/42 | 70,000 | 67,436 | ||||
FirstEnergy Corp., 4.25%, 3/15/23 | 100,000 | 93,420 | ||||
Florida Power Corp., 3.85%, 11/15/42 | 220,000 | 195,480 | ||||
Georgia Power Co., 4.30%, 3/15/42 | 70,000 | 64,450 | ||||
Ipalco Enterprises, Inc., 5.00%, 5/1/18 | 50,000 | 52,500 | ||||
Nisource Finance Corp., 4.45%, 12/1/21 | 70,000 | 72,701 | ||||
Nisource Finance Corp., 5.25%, 2/15/43 | 70,000 | 68,418 | ||||
Nisource Finance Corp., 5.65%, 2/1/45 | 100,000 | 103,809 | ||||
Northern States Power Co., 3.40%, 8/15/42 | 70,000 | 58,684 | ||||
Pacific Gas & Electric Co., 5.80%, 3/1/37 | 60,000 | 66,604 | ||||
Pacific Gas & Electric Co., 4.45%, 4/15/42 | 50,000 | 46,601 | ||||
PacifiCorp, 6.00%, 1/15/39 | 110,000 | 132,357 | ||||
Progress Energy, Inc., 3.15%, 4/1/22 | 90,000 | 88,083 | ||||
Public Service Company of Colorado, 4.75%, 8/15/41 | 50,000 | 52,170 | ||||
Sempra Energy, 6.50%, 6/1/16 | 200,000 | 226,801 | ||||
Sempra Energy, 2.875%, 10/1/22 | 100,000 | 93,470 | ||||
Southern Power Co., 5.15%, 9/15/41 | 40,000 | 40,322 | ||||
Xcel Energy, Inc., 4.80%, 9/15/41 | 50,000 | 49,654 | ||||
4,212,469 | ||||||
MULTILINE RETAIL — 0.1% | ||||||
Macy’s Retail Holdings, Inc., 3.875%, 1/15/22 | 180,000 | 180,008 | ||||
Macy’s Retail Holdings, Inc., 4.375%, 9/1/23 | 70,000 | 71,268 | ||||
Target Corp., 4.00%, 7/1/42 | 120,000 | 108,150 | ||||
359,426 | ||||||
OFFICE ELECTRONICS† | ||||||
Xerox Corp., 2.95%, 3/15/17 | 80,000 | 82,451 | ||||
OIL, GAS AND CONSUMABLE FUELS — 0.7% | ||||||
Anadarko Petroleum Corp., 5.95%, 9/15/16 | 40,000 | 45,214 | ||||
Anadarko Petroleum Corp., 6.45%, 9/15/36 | 90,000 | 106,213 | ||||
Apache Corp., 2.625%, 1/15/23 | 260,000 | 242,751 | ||||
Apache Corp., 4.75%, 4/15/43 | 40,000 | 39,406 | ||||
BP Capital Markets plc, 3.20%, 3/11/16 | 120,000 | 126,277 | ||||
BP Capital Markets plc, 2.25%, 11/1/16 | 180,000 | 186,146 | ||||
BP Capital Markets plc, 4.50%, 10/1/20 | 100,000 | 109,790 | ||||
BP Capital Markets plc, 2.75%, 5/10/23 | 100,000 | 93,559 | ||||
Chevron Corp., 2.43%, 6/24/20 | 80,000 | 79,853 | ||||
ConocoPhillips, 5.75%, 2/1/19 | 240,000 | 282,289 | ||||
ConocoPhillips Holding Co., 6.95%, 4/15/29 | 40,000 | 51,527 | ||||
Denbury Resources, Inc., 4.625%, 7/15/23 | 110,000 | 102,025 | ||||
Devon Energy Corp., 1.875%, 5/15/17 | 60,000 | 60,506 | ||||
Devon Energy Corp., 5.60%, 7/15/41 | 140,000 | 148,195 | ||||
EOG Resources, Inc., 5.625%, 6/1/19 | 150,000 | 176,177 | ||||
EOG Resources, Inc., 4.10%, 2/1/21 | 130,000 | 139,030 | ||||
Hess Corp., 6.00%, 1/15/40 | 80,000 | 89,153 | ||||
Marathon Petroleum Corp., 3.50%, 3/1/16 | 210,000 | 221,305 | ||||
Newfield Exploration Co., 6.875%, 2/1/20 | 200,000 | 215,000 | ||||
Noble Energy, Inc., 4.15%, 12/15/21 | 150,000 | 157,871 | ||||
Peabody Energy Corp., 7.375%, 11/1/16 | 40,000 | 45,200 | ||||
Pemex Project Funding Master Trust, 6.625%, 6/15/35 | 50,000 | 54,500 | ||||
Petro-Canada, 6.80%, 5/15/38 | 110,000 | 134,321 | ||||
Petrobras International Finance Co. - Pifco, 5.75%, 1/20/20 | 200,000 | 212,192 | ||||
Petrobras International Finance Co. - Pifco, 5.375%, 1/27/21 | 310,000 | 316,647 |
Shares/ Principal Amount | Value |
Petroleos Mexicanos, 6.00%, 3/5/20 | $ 120,000 | $ 135,300 | ||||
Petroleos Mexicanos, 4.875%, 1/24/22 | 80,000 | 83,400 | ||||
Petroleos Mexicanos, 3.50%, 1/30/23 | 60,000 | 55,800 | ||||
Petroleos Mexicanos, 5.50%, 6/27/44 | 50,000 | 47,000 | ||||
Phillips 66, 4.30%, 4/1/22 | 230,000 | 239,146 | ||||
Pioneer Natural Resources Co., 3.95%, 7/15/22 | 190,000 | 193,918 | ||||
Shell International Finance BV, 2.375%, 8/21/22 | 130,000 | 121,797 | ||||
Shell International Finance BV, 3.625%, 8/21/42 | 140,000 | 121,858 | ||||
Shell International Finance BV, 4.55%, 8/12/43 | 130,000 | 130,095 | ||||
Statoil ASA, 2.45%, 1/17/23 | 190,000 | 176,642 | ||||
Statoil ASA, 3.95%, 5/15/43 | 50,000 | 45,416 | ||||
Talisman Energy, Inc., 7.75%, 6/1/19 | 170,000 | 201,157 | ||||
Tesoro Corp., 5.375%, 10/1/22 | 50,000 | 49,750 | ||||
Total Capital Canada Ltd., 2.75%, 7/15/23 | 120,000 | 113,947 | ||||
Total Capital SA, 2.125%, 8/10/18 | 140,000 | 142,051 | ||||
5,292,424 | ||||||
PAPER AND FOREST PRODUCTS — 0.1% | ||||||
Domtar Corp., 4.40%, 4/1/22 | 120,000 | 116,920 | ||||
Georgia-Pacific LLC, 5.40%, 11/1/20(4) | 350,000 | 396,152 | ||||
International Paper Co., 6.00%, 11/15/41 | 130,000 | 142,596 | ||||
655,668 | ||||||
PHARMACEUTICALS — 0.3% | ||||||
AbbVie, Inc., 1.75%, 11/6/17 | 300,000 | 301,128 | ||||
Actavis, Inc., 1.875%, 10/1/17 | 220,000 | 219,607 | ||||
Actavis, Inc., 4.625%, 10/1/42 | 60,000 | 55,498 | ||||
Bristol-Myers Squibb Co., 3.25%, 8/1/42 | 80,000 | 65,128 | ||||
GlaxoSmithKline Capital plc, 2.85%, 5/8/22 | 250,000 | 244,006 | ||||
Merck & Co., Inc., 2.40%, 9/15/22 | 250,000 | 234,231 | ||||
Merck & Co., Inc., 3.60%, 9/15/42 | 140,000 | 119,845 | ||||
Mylan, Inc., 3.125%, 1/15/23(4) | 120,000 | 110,208 | ||||
Roche Holdings, Inc., 6.00%, 3/1/19(4) | 419,000 | 501,040 | ||||
Roche Holdings, Inc., 7.00%, 3/1/39(4) | 70,000 | 94,645 | ||||
Sanofi, 4.00%, 3/29/21 | 95,000 | 102,019 | ||||
Watson Pharmaceuticals, Inc., 5.00%, 8/15/14 | 260,000 | 268,712 | ||||
2,316,067 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.3% | ||||||
American Tower Corp., 5.05%, 9/1/20 | 90,000 | 95,182 | ||||
American Tower Corp., 4.70%, 3/15/22 | 120,000 | 121,037 | ||||
BRE Properties, Inc., 3.375%, 1/15/23 | 60,000 | 56,898 | ||||
DDR Corp., 4.75%, 4/15/18 | 230,000 | 250,399 | ||||
Essex Portfolio LP, 3.625%, 8/15/22 | 150,000 | 144,637 | ||||
Essex Portfolio LP, 3.25%, 5/1/23 | 50,000 | 46,635 | ||||
HCP, Inc., 3.75%, 2/1/16 | 200,000 | 210,575 | ||||
Health Care REIT, Inc., 2.25%, 3/15/18 | 50,000 | 49,953 | ||||
Health Care REIT, Inc., 3.75%, 3/15/23 | 130,000 | 124,981 | ||||
Health Care REIT, Inc., 4.50%, 1/15/24 | 110,000 | 111,528 | ||||
Host Hotels & Resorts LP, 3.75%, 10/15/23 | 100,000 | 95,011 | ||||
Kilroy Realty LP, 3.80%, 1/15/23 | 190,000 | 181,117 | ||||
ProLogis LP, 4.25%, 8/15/23 | 140,000 | 141,930 | ||||
Reckson Operating Partnership LP, 6.00%, 3/31/16 | 125,000 | 136,091 | ||||
Simon Property Group LP, 5.75%, 12/1/15 | 160,000 | 174,560 | ||||
Ventas Realty LP/Ventas Capital Corp., 3.125%, 11/30/15 | 95,000 | 99,180 | ||||
Ventas Realty LP/Ventas Capital Corp., 4.00%, 4/30/19 | 100,000 | 106,097 | ||||
Ventas Realty LP/Ventas Capital Corp., 4.75%, 6/1/21 | 120,000 | 128,228 | ||||
WEA Finance LLC, 4.625%, 5/10/21(4) | 90,000 | 95,881 | ||||
2,369,920 |
Shares/ Principal Amount | Value |
ROAD AND RAIL — 0.2% | ||||||
Burlington Northern Santa Fe LLC, 3.60%, 9/1/20 | $ 176,000 | $ 183,419 | ||||
Burlington Northern Santa Fe LLC, 5.05%, 3/1/41 | 60,000 | 61,206 | ||||
Burlington Northern Santa Fe LLC, 4.45%, 3/15/43 | 180,000 | 167,580 | ||||
CSX Corp., 4.25%, 6/1/21 | 150,000 | 159,748 | ||||
CSX Corp., 3.70%, 11/1/23 | 180,000 | 179,940 | ||||
Norfolk Southern Corp., 3.25%, 12/1/21 | 200,000 | 199,662 | ||||
Penske Truck Leasing Co. LP / PTL Finance Corp., 2.875%, 7/17/18(4) | 40,000 | 40,266 | ||||
Union Pacific Corp., 4.00%, 2/1/21 | 100,000 | 106,368 | ||||
Union Pacific Corp., 4.75%, 9/15/41 | 150,000 | 151,716 | ||||
1,249,905 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT† | ||||||
Intel Corp., 1.35%, 12/15/17 | 140,000 | 139,262 | ||||
SOFTWARE — 0.1% | ||||||
Intuit, Inc., 5.75%, 3/15/17 | 254,000 | 284,168 | ||||
Oracle Corp., 2.50%, 10/15/22 | 260,000 | 244,121 | ||||
Oracle Corp., 3.625%, 7/15/23 | 280,000 | 282,990 | ||||
811,279 | ||||||
SPECIALTY RETAIL — 0.1% | ||||||
Home Depot, Inc. (The), 5.95%, 4/1/41 | 360,000 | 426,731 | ||||
Staples, Inc., 4.375%, 1/12/23 | 120,000 | 116,642 | ||||
United Rentals North America, Inc., 5.75%, 7/15/18 | 140,000 | 150,850 | ||||
694,223 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.1% | ||||||
Hanesbrands, Inc., 6.375%, 12/15/20 | 100,000 | 109,000 | ||||
L Brands, Inc., 6.90%, 7/15/17 | 100,000 | 114,750 | ||||
PVH Corp., 4.50%, 12/15/22 | 120,000 | 114,900 | ||||
338,650 | ||||||
TOBACCO — 0.1% | ||||||
Altria Group, Inc., 9.25%, 8/6/19 | 127,000 | 169,656 | ||||
Altria Group, Inc., 2.85%, 8/9/22 | 270,000 | 251,148 | ||||
Philip Morris International, Inc., 4.125%, 5/17/21 | 180,000 | 192,137 | ||||
612,941 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.1% | ||||||
Alltel Corp., 7.875%, 7/1/32 | 50,000 | 66,313 | ||||
America Movil SAB de CV, 5.00%, 3/30/20 | 110,000 | 120,936 | ||||
America Movil SAB de CV, 3.125%, 7/16/22 | 310,000 | 292,557 | ||||
Cellco Partnership/Verizon Wireless Capital LLC, 8.50%, 11/15/18 | 180,000 | 231,784 | ||||
Vodafone Group plc, 5.625%, 2/27/17 | 110,000 | 124,135 | ||||
Vodafone Group plc, 2.50%, 9/26/22 | 70,000 | 63,565 | ||||
899,290 | ||||||
TOTAL CORPORATE BONDS (Cost $73,429,960) | 75,373,615 | |||||
Commercial Mortgage-Backed Securities(3) — 1.6% | ||||||
Banc of America Commercial Mortgage, Inc., Series 2004-1, Class A4 SEQ, 4.76%, 11/10/39 | 115,222 | 115,546 | ||||
Banc of America Commercial Mortgage, Inc., Series 2004-6, Class A3 SEQ, 4.51%, 12/10/42 | 23,426 | 23,511 | ||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class A4, VRN, 5.12%, 11/1/13 | 350,000 | 373,575 | ||||
Banc of America Commercial Mortgage, Inc., Series 2005-5, Class AM, VRN, 5.18%, 11/1/13 | 300,000 | 323,483 | ||||
Bank of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2012-PARK, Class A SEQ, 2.96%, 12/10/30(4) | 500,000 | 481,562 | ||||
BB-UBS Trust, Series 2012-SHOW, Class A SEQ, 3.43%, 11/5/36(4) | 450,000 | 428,192 | ||||
CenterPoint Energy Transition Bond Co. LLC, Series 2012-1, Class A2 SEQ, 2.16%, 10/15/21 | 240,000 | 241,870 | ||||
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2005-CD1, Class AM, VRN, 5.22%, 11/1/13 | 275,000 | 295,757 |
Shares/ Principal Amount | Value |
Commercial Mortgage Pass-Through Certificates, Series 2004-LB2A, Class A4 SEQ, 4.72%, 3/10/39 | $ 176,618 | $ 177,017 | ||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2004-C2, Class A2, VRN, 5.42%, 11/1/13 | 409,869 | 412,965 | ||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, VRN, 4.80%, 11/1/13 | 480,000 | 495,710 | ||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class AJ, VRN, 4.86%, 11/1/13 | 158,000 | 164,451 | ||||
GS Mortgage Securities Corp. II, Series 2004-GG2, Class A6 SEQ, VRN, 5.40%, 11/1/13 | 544,543 | 553,570 | ||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4 SEQ, 4.76%, 7/10/39 | 345,000 | 360,167 | ||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A SEQ, 4.75%, 7/10/39 | 1,000,000 | 1,044,100 | ||||
GS Mortgage Securities Corp. II, Series 2012-ALOH, Class A SEQ, 3.55%, 4/10/34(4) | 525,000 | 528,182 | ||||
Irvine Core Office Trust, Series 2013-IRV, Class A2 SEQ, VRN, 3.17%, 11/10/13(4) | 850,000 | 814,473 | ||||
LB-UBS Commercial Mortgage Trust, Series 2004-C1, Class A4 SEQ, 4.57%, 1/15/31 | 162,541 | 164,752 | ||||
LB-UBS Commercial Mortgage Trust, Series 2004-C2, Class A4 SEQ, 4.37%, 3/15/36 | 443,796 | 445,974 | ||||
LB-UBS Commercial Mortgage Trust, Series 2004-C4, Class A4, VRN, 5.52%, 11/11/13 | 300,000 | 304,289 | ||||
LB-UBS Commercial Mortgage Trust, Series 2004-C8, Class AJ, VRN, 4.86%, 11/11/13 | 125,000 | 129,643 | ||||
LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class A4 SEQ, 4.95%, 9/15/30 | 900,000 | 945,407 | ||||
LB-UBS Commercial Mortgage Trust, Series 2005-C5, Class AM, VRN, 5.02%, 11/11/13 | 400,000 | 426,206 | ||||
LB-UBS Commercial Mortgage Trust, Series 2005-C7, Class AM, VRN, 5.26%, 11/11/13 | 425,000 | 458,672 | ||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2012-C6, Class A4 SEQ, 2.86%, 11/15/45 | 500,000 | 483,612 | ||||
Morgan Stanley Capital I, Series 2005-HQ6, Class A2A SEQ, 4.88%, 8/13/42 | 25,210 | 25,246 | ||||
Morgan Stanley Capital I, Series 2005-T17, Class A5 SEQ, 4.78%, 12/13/41 | 784,933 | 807,990 | ||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A3 SEQ, 4.50%, 10/15/41 | 20,750 | 20,930 | ||||
Wachovia Bank Commercial Mortgage Trust, Series 2004-C15, Class A4 SEQ, 4.80%, 10/15/41 | 1,100,000 | 1,131,465 | ||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $12,373,156) | 12,178,317 | |||||
Collateralized Mortgage Obligations(3) — 1.5% | ||||||
PRIVATE SPONSOR COLLATERALIZED ORTGAGE OBLIGATIONS — 1.4% | ||||||
ABN Amro Mortgage Corp., Series 2003-4, Class A4, 5.50%, 3/25/33 | 58,233 | 60,457 | ||||
Banc of America Alternative Loan Trust, Series 2007-2, Class 2A4, 5.75%, 6/25/37 | 487,922 | 363,669 | ||||
Banc of America Mortgage Securities, Inc., Series 2004-7, Class 7A1, 5.00%, 8/25/19 | 67,926 | 69,718 | ||||
Banc of America Mortgage Securities, Inc., Series 2005-1, Class 1A15, 5.50%, 2/25/35 | 250,000 | 256,621 | ||||
Chase Mortgage Finance Corp., Series 2006-S4, Class A3, 6.00%, 12/25/36 | 114,265 | 111,608 | ||||
Citigroup Mortgage Loan Trust, Inc., Series 2004-UST1, Class A4, VRN, 2.29%, 11/1/13 | 396,722 | 400,797 |
Shares/ Principal Amount | Value |
Citigroup Mortgage Loan Trust, Inc., Series 2005-4, Class A, VRN, 5.27%, 11/1/13 | $ 302,576 | $ 297,763 | ||||
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2005-17, Class 1A11, 5.50%, 9/25/35 | 17,789 | 17,465 | ||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-AR28, Class 2A1, VRN, 2.57%, 11/1/13 | 333,142 | 329,948 | ||||
First Horizon Mortgage Pass-Through Trust, Series 2005-AR3, Class 4A1, VRN, 5.25%, 11/1/13 | 201,596 | 199,117 | ||||
GSR Mortgage Loan Trust, Series 2005-AR1, Class 3A1, VRN, 2.82%, 11/1/13 | 218,543 | 216,465 | ||||
GSR Mortgage Loan Trust, Series 2005-AR6, Class 2A1, VRN, 2.65%, 11/1/13 | 487,079 | 484,932 | ||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 1A1, VRN, 5.24%, 11/1/13 | 269,429 | 277,578 | ||||
JPMorgan Mortgage Trust, Series 2005-A4, Class 2A1, VRN, 2.78%, 11/1/13 | 126,007 | 124,515 | ||||
JPMorgan Mortgage Trust, Series 2006-A3, Class 7A1, VRN, 2.89%, 11/1/13 | 538,315 | 531,052 | ||||
JPMorgan Mortgage Trust, Series 2013-1, Class 2A2 SEQ, VRN, 2.50%, 11/1/13(4) | 244,904 | 237,674 | ||||
MASTR Adjustable Rate Mortgages Trust, Series 2004-13, Class 3A7, VRN, 2.62%, 11/1/13 | 505,328 | 523,717 | ||||
MASTR Asset Securitization Trust, Series 2003-10, Class 3A1, 5.50%, 11/25/33 | 119,451 | 127,552 | ||||
Merrill Lynch Mortgage Investors Trust, Series 2005-A2, Class A1, VRN, 2.56%, 11/1/13 | 638,362 | 631,164 | ||||
PHHMC Mortgage Pass-Through Certificates, Series 2007-6, Class A1, VRN, 5.65%, 11/1/13 | 132,830 | 137,910 | ||||
Sequoia Mortgage Trust, Series 2012-1, Class 1A1, VRN, 2.87%, 11/1/13 | 183,968 | 183,375 | ||||
Wells Fargo Mortgage Backed Securities 2005-AR10 Trust, Series 2005-AR10, Class 2A17, VRN, 2.63%, 11/1/13 | 773,429 | 783,133 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-1, Class A10, 5.50%, 2/25/34 | 194,176 | 204,882 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-4, Class A9, 5.50%, 5/25/34 | 120,689 | 126,346 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-K, Class 2A6, VRN, 4.74%, 11/1/13 | 202,635 | 203,942 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2004-Z, Class 2A2, VRN, 2.62%, 11/1/13 | 357,227 | 361,452 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-17, Class 1A1, 5.50%, 1/25/36 | 246,528 | 248,742 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR14, Class A1, VRN, 5.34%, 11/1/13 | 106,551 | 109,815 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 1A1, VRN, 2.68%, 11/1/13 | 219,276 | 223,444 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR16, Class 3A2, VRN, 2.66%, 11/1/13 | 245,769 | 250,490 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2005-AR2, Class 3A1, VRN, 2.66%, 11/1/13 | 180,526 | 184,013 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-10, Class A4 SEQ, 6.00%, 8/25/36 | 311,244 | 319,168 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2006-13, Class A5, 6.00%, 10/25/36 | 328,088 | 332,313 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-13, Class A1, 6.00%, 9/25/37 | 195,047 | 195,448 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-14, Class 2A2, 5.50%, 10/25/22 | 337,744 | 352,100 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-16, Class 1A1, 6.00%, 12/28/37 | 188,737 | 197,717 |
Shares/ Principal Amount | Value |
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-9, Class 1A8, 5.50%, 7/25/37 | $ 138,154 | $ 141,101 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2007-AR10, Class 1A1, VRN, 6.06%, 11/1/13 | 177,030 | 175,238 | ||||
Wells Fargo Mortgage-Backed Securities Trust, Series 2008-1, Class 4A1, 5.75%, 2/25/38 | 706,567 | 728,502 | ||||
10,720,943 | ||||||
U.S. GOVERNMENT AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS — 0.1% | ||||||
FHLMC, Series 2926, Class EW SEQ, 5.00%, 1/15/25 | 561,167 | 615,529 | ||||
FHLMC, Series 77, Class H, 8.50%, 9/15/20 | 50,577 | 55,032 | ||||
670,561 | ||||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $11,413,303) | 11,391,504 | |||||
U.S. Government Agency Securities — 0.6% | ||||||
FHLMC, 2.375%, 1/13/22 | 1,870,000 | 1,835,846 | ||||
FNMA, 6.625%, 11/15/30 | 2,090,000 | 2,828,702 | ||||
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (Cost $4,656,108) | 4,664,548 | |||||
Sovereign Governments and Agencies — 0.6% | ||||||
BRAZIL — 0.1% | ||||||
Brazilian Government International Bond, 5.875%, 1/15/19 | 490,000 | 567,665 | ||||
Brazilian Government International Bond, 4.875%, 1/22/21 | 20,000 | 21,800 | ||||
589,465 | ||||||
CANADA — 0.1% | ||||||
Province of Ontario Canada, 5.45%, 4/27/16 | 150,000 | 167,563 | ||||
Province of Ontario Canada, 1.00%, 7/22/16 | 150,000 | 151,070 | ||||
Province of Ontario Canada, 1.60%, 9/21/16 | 110,000 | 112,551 | ||||
431,184 | ||||||
CHILE† | ||||||
Chile Government International Bond, 3.25%, 9/14/21 | 100,000 | 101,875 | ||||
Chile Government International Bond, 3.625%, 10/30/42 | 100,000 | 84,750 | ||||
186,625 | ||||||
COLOMBIA† | ||||||
Colombia Government International Bond, 4.375%, 7/12/21 | 310,000 | 329,065 | ||||
ITALY† | ||||||
Italy Government International Bond, 6.875%, 9/27/23 | 80,000 | 97,873 | ||||
MEXICO — 0.2% | ||||||
Mexico Government International Bond, 5.625%, 1/15/17 | 90,000 | 101,205 | ||||
Mexico Government International Bond, MTN, 5.95%, 3/19/19 | 420,000 | 489,930 | ||||
Mexico Government International Bond, 5.125%, 1/15/20 | 330,000 | 372,900 | ||||
Mexico Government International Bond, 4.00%, 10/2/23 | 100,000 | 101,675 | ||||
Mexico Government International Bond, 6.05%, 1/11/40 | 50,000 | 56,875 | ||||
Mexico Government International Bond, MTN, 4.75%, 3/8/44 | 160,000 | 150,800 | ||||
1,273,385 | ||||||
PERU† | ||||||
Peruvian Government International Bond, 6.55%, 3/14/37 | 70,000 | 83,755 | ||||
Peruvian Government International Bond, 5.625%, 11/18/50 | 120,000 | 126,720 | ||||
210,475 | ||||||
PHILIPPINES — 0.1% | ||||||
Philippine Government International Bond, 4.00%, 1/15/21 | 300,000 | 320,625 | ||||
Philippine Government International Bond, 6.375%, 10/23/34 | 100,000 | 121,750 | ||||
442,375 |
Shares/ Principal Amount | Value |
POLAND† | ||||||
Poland Government International Bond, 5.125%, 4/21/21 | $ 140,000 | $ 154,875 | ||||
Poland Government International Bond, 3.00%, 3/17/23 | 140,000 | 130,970 | ||||
285,845 | ||||||
SOUTH KOREA — 0.1% | ||||||
Export-Import Bank of Korea, 3.75%, 10/20/16 | 160,000 | 170,505 | ||||
Korea Development Bank (The), 3.25%, 3/9/16 | 130,000 | 135,573 | ||||
Korea Development Bank (The), 4.00%, 9/9/16 | 110,000 | 117,473 | ||||
423,551 | ||||||
TURKEY† | ||||||
Turkey Government International Bond, 3.25%, 3/23/23 | 200,000 | 176,750 | ||||
URUGUAY† | ||||||
Uruguay Government International Bond, 4.125%, 11/20/45 | 70,000 | 58,275 | ||||
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES (Cost $4,329,071) | 4,504,868 | |||||
Municipal Securities — 0.4% | ||||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 5.94%, 2/15/47 | 50,000 | 51,149 | ||||
American Municipal Power-Ohio, Inc., Rev., (Building Bonds), 7.50%, 2/15/50 | 75,000 | 91,379 | ||||
Bay Area Toll Authority Toll Bridge Rev., Series 2010 S1, (Building Bonds), 6.92%, 4/1/40 | 135,000 | 167,513 | ||||
California GO, (Building Bonds), 7.55%, 4/1/39 | 100,000 | 135,830 | ||||
California GO, (Building Bonds), 7.30%, 10/1/39 | 110,000 | 144,675 | ||||
California GO, (Building Bonds), 7.60%, 11/1/40 | 80,000 | 109,962 | ||||
Illinois GO, (Taxable Pension), 5.10%, 6/1/33 | 245,000 | 223,626 | ||||
Los Angeles Community College District GO, Series 2010 D, (Election of 2008), 6.68%, 8/1/36 | 100,000 | 120,675 | ||||
Los Angeles Department of Water & Power Rev., (Building Bonds), 5.72%, 7/1/39 | 60,000 | 66,252 | ||||
Metropolitan Transportation Authority Rev., Series 2010 C1, (Building Bonds), 6.69%, 11/15/40 | 105,000 | 128,127 | ||||
Metropolitan Transportation Authority Rev., Series 2010 E, (Building Bonds), 6.81%, 11/15/40 | 60,000 | 74,197 | ||||
Missouri Highways & Transportation Commission Rev., (Building Bonds), 5.45%, 5/1/33 | 130,000 | 142,558 | ||||
New Jersey State Turnpike Authority Rev., Series 2009 F, (Building Bonds), 7.41%, 1/1/40 | 200,000 | 267,070 | ||||
New Jersey State Turnpike Authority Rev., Series 2010 A, (Building Bonds), 7.10%, 1/1/41 | 95,000 | 122,722 | ||||
New York GO, Series 2010 F1, (Building Bonds), 6.27%, 12/1/37 | 95,000 | 112,015 | ||||
Ohio Water Development Authority Pollution Control Rev., Series 2010 B2, (Building Bonds), 4.88%, 12/1/34 | 110,000 | 112,093 | ||||
Oregon State Department of Transportation Highway User Tax Rev., Series 2010 A, (Building Bonds), 5.83%, 11/15/34 | 70,000 | 82,034 | ||||
Port Authority of New York & New Jersey Rev., 4.93%, 10/1/51 | 50,000 | 49,022 | ||||
Port Authority of New York & New Jersey Rev., 4.46%, 10/1/62 | 245,000 | 217,452 | ||||
Rutgers State University Rev., Series 2010 H, (Building Bonds), 5.67%, 5/1/40 | 205,000 | 227,058 | ||||
Sacramento Municipal Utility District Electric Rev., Series 2010 W, (Building Bonds), 6.16%, 5/15/36 | 210,000 | 230,780 | ||||
Salt River Agricultural Improvement & Power District Electric Rev., Series 2010 A, (Building Bonds), 4.84%, 1/1/41 | 95,000 | 98,270 |
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 | $ 118,505 | ||||
Santa Clara Valley Transportation Authority Sales Tax Rev., Series 2010 A, (Building Bonds), 5.88%, 4/1/32 | 120,000 | 135,791 | ||||
Texas GO, (Building Bonds), 5.52%, 4/1/39 | 50,000 | 57,860 | ||||
Washington GO, Series 2010 F, (Building Bonds), 5.14%, 8/1/40 | 20,000 | 21,381 | ||||
TOTAL MUNICIPAL SECURITIES (Cost $3,036,630) | 3,307,996 | |||||
Asset-Backed Securities(3)† | ||||||
US Airways 2013-1 Class A Pass Through Trust, 3.95%, 5/15/27 (Cost $171,591) | $ 170,000 | $ 161,500 | ||||
Temporary Cash Investments — 2.9% | ||||||
SSgA U.S. Government Money Market Fund | 19,827,031 | 19,827,031 | ||||
U.S. Treasury Bills, 0.08%, 11/21/13(5) | $ 2,500,000 | 2,499,968 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $22,326,927) | 22,326,999 | |||||
TOTAL INVESTMENT SECURITIES — 100.2% (Cost $664,127,812) | 769,807,354 | |||||
OTHER ASSETS AND LIABILITIES — (0.2)% | (1,280,709 | ) | ||||
TOTAL NET ASSETS — 100.0% | $768,526,645 |
Futures Contracts | |||||||||
Contracts Sold | Expiration Date | Underlying Face | Unrealized Gain (Loss) | ||||||
22 | U.S. Treasury 5-Year Notes | December 2013 | $2,677,125 | $(13,628 | ) | ||||
18 | U.S. Treasury 10-Year Notes | December 2013 | 2,292,469 | (40,822 | ) | ||||
7 | U.S. Treasury Ultra Long Bonds | December 2013 | 1,008,656 | (34,504 | ) | ||||
$5,978,250 | $(88,954 | ) |
Notes to Schedule of Investments
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
GO = General Obligation
MTN = Medium Term Note
SEQ = Sequential Payer
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is effective at the period end.
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
(2) | Security, or a portion thereof, has been pledged at the custodian bank or with a broker for margin requirements on futures contracts. At the period end, the aggregate value of securities pledged was $85,090. |
(3) | Final maturity date indicated, unless otherwise noted. |
(4) | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional investors. The aggregate value of these securities at the period end was $6,847,491, which represented 0.9% of total net assets. |
(5) | The rate indicated is the yield to maturity at purchase. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $664,127,812) | $769,807,354 | ||
Receivable for investments sold | 323,069 | ||
Receivable for capital shares sold | 412,075 | ||
Receivable for variation margin on futures contracts | 1,984 | ||
Dividends and interest receivable | 2,260,551 | ||
772,805,033 | |||
Liabilities | |||
Payable for investments purchased | 3,464,470 | ||
Payable for capital shares redeemed | 246,568 | ||
Accrued management fees | 567,350 | ||
4,278,388 | |||
Net Assets | $768,526,645 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $606,452,654 | ||
Undistributed net investment income | 1,368,993 | ||
Undistributed net realized gain | 55,114,410 | ||
Net unrealized appreciation | 105,590,588 | ||
$768,526,645 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $721,522,591 | 37,599,614 | $19.19 |
Institutional Class, $0.01 Par Value | $47,004,054 | 2,448,315 | $19.20 |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $49,066) | $10,533,587 | ||
Interest | 7,342,903 | ||
17,876,490 | |||
Expenses: | |||
Management fees | 6,248,568 | ||
Directors’ fees and expenses | 24,646 | ||
Other expenses | 1,044 | ||
6,274,258 | |||
Net investment income (loss) | 11,602,232 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 60,291,666 | ||
Futures contract transactions | 232,436 | ||
Foreign currency transactions | (318 | ) | |
60,523,784 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 26,893,116 | ||
Futures contracts | (88,954 | ) | |
26,804,162 | |||
Net realized and unrealized gain (loss) | 87,327,946 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $98,930,178 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $ 11,602,232 | $ 10,258,424 | ||||
Net realized gain (loss) | 60,523,784 | 29,164,383 | ||||
Change in net unrealized appreciation (depreciation) | 26,804,162 | 21,132,912 | ||||
Net increase (decrease) in net assets resulting from operations | 98,930,178 | 60,555,719 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (11,454,141 | ) | (10,409,930 | ) | ||
Institutional Class | (788,061 | ) | (354,593 | ) | ||
From net realized gains: | ||||||
Investor Class | (16,097,790 | ) | — | |||
Institutional Class | (533,588 | ) | — | |||
Decrease in net assets from distributions | (28,873,580 | ) | (10,764,523 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | 69,327,289 | 57,785,933 | ||||
Net increase (decrease) in net assets | 139,383,887 | 107,577,129 | ||||
Net Assets | ||||||
Beginning of period | 629,142,758 | 521,565,629 | ||||
End of period | $768,526,645 | $629,142,758 | ||||
Undistributed net investment income | $1,368,993 | $950,504 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Balanced Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth and current income by investing approximately 60% of its assets in equity securities and the remainder in bonds and other fixed-income securities.
The fund offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Inflation adjustments related to inflation-linked debt securities are reflected as interest income.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
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. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income, if any, are generally declared and paid quarterly. Distributions from net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
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, 2013 was 0.90% for the Investor Class and 0.70% for the Institutional Class.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases of investment securities, excluding short-term investments, for the year ended October 31, 2013 totaled $600,016,993, of which $170,670,972 represented U.S. Treasury and Government Agency obligations.
Sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 totaled $554,156,978, of which $136,510,202 represented U.S. Treasury and Government Agency obligations.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 250,000,000 | 250,000,000 | ||||||||||
Sold | 7,246,923 | $ 130,710,357 | 7,196,145 | $121,112,372 | ||||||||
Issued in reinvestment of distributions | 1,539,480 | 26,889,632 | 604,809 | 10,152,195 | ||||||||
Redeemed | (6,197,053 | ) | (111,531,308 | ) | (4,855,798 | ) | (81,892,325 | ) | ||||
2,589,350 | 46,068,681 | 2,945,156 | 49,372,242 | |||||||||
Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||
Sold | 2,962,875 | 53,420,395 | 984,145 | 16,394,969 | ||||||||
Issued in reinvestment of distributions | 74,578 | 1,321,649 | 21,031 | 354,593 | ||||||||
Redeemed | (1,718,592 | ) | (31,483,436 | ) | (485,585 | ) | (8,335,871 | ) | ||||
1,318,861 | 23,258,608 | 519,591 | 8,413,691 | |||||||||
Net increase (decrease) | 3,908,211 | $ 69,327,289 | 3,464,747 | $ 57,785,933 |
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 | $461,547,855 | — | — | ||||||
U.S. Treasury Securities | — | $ 92,802,992 | — | ||||||
U.S. Government Agency Mortgage-Backed Securities | — | 81,547,160 | — | ||||||
Corporate Bonds | — | 75,373,615 | — | ||||||
Commercial Mortgage-Backed Securities | — | 12,178,317 | — | ||||||
Collateralized Mortgage Obligations | — | 11,391,504 | — | ||||||
U.S. Government Agency Securities | — | 4,664,548 | — | ||||||
Sovereign Governments and Agencies | — | 4,504,868 | — | ||||||
Municipal Securities | — | 3,307,996 | — | ||||||
Asset-Backed Securities | — | 161,500 | — | ||||||
Temporary Cash Investments | 19,827,031 | 2,499,968 | — | ||||||
Total Value of Investment Securities | $481,374,886 | $288,432,468 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Futures Contracts | $(88,954 | ) | — | — |
7. Derivative Instruments
Interest Rate Risk — The fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The value of bonds generally declines as interest rates rise. A fund may enter into futures contracts based on a bond index or a specific underlying security. A fund may purchase futures contracts to gain exposure to increases in market value or sell futures contracts to protect against a decline in market value. Upon entering into a futures contract, a fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet requirements. Subsequent payments (variation margin) are made or received daily, in cash, by a fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. A fund recognizes a realized gain or loss when the futures contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of net realized gain (loss) on futures contract transactions and change in net unrealized appreciation (depreciation) on futures contracts, respectively. One of the risks of entering into futures contracts is the possibility
that the change in value of the contract may not correlate with the changes in value of the underlying securities. The fund purchased and sold interest rate risk derivative instruments throughout the reporting period and the instruments held at period end as disclosed on the Schedule of Investments are indicative of the fund’s typical volume.
The value of interest rate risk derivative instruments as of October 31, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $1,984 in receivable for variation margin on futures contracts.* For the year ended October 31, 2013, the effect of interest rate risk derivative instruments on the Statement of Operations was $232,436 in net realized gain (loss) on futures contract transactions and $(88,954) in change in net unrealized appreciation (depreciation) on futures contracts.
*Included in the unrealized gain (loss) on futures contracts as reported in the Schedule of Investments.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $12,230,900 | $10,764,523 | ||||
Long-term capital gains | $16,642,680 | — |
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $666,986,523 | ||
Gross tax appreciation of investments | $108,856,158 | ||
Gross tax depreciation of investments | (6,035,327 | ) | |
Net tax appreciation (depreciation) of investments | $102,820,831 | ||
Other book-to-tax adjustments | $(84,742 | ) | |
Undistributed ordinary income | $25,740,053 | ||
Accumulated long-term gains | $33,597,849 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. Other book-to-tax adjustments are attributable primarily to the tax deferral of losses on straddle positions.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net | Net | Total From Investment Operations | Net | Net | Total Distributions | Net Asset Value, | Total | Operating Expenses | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||||||||
2013 | $17.41 | 0.30 | 2.25 | 2.55 | (0.31 | ) | (0.46 | ) | (0.77 | ) | $19.19 | 15.21 | % | 0.90 | % | 1.64 | % | 81 | % | $721,523 | |||||||||||||||||||
2012 | $15.96 | 0.29 | 1.47 | 1.76 | (0.31 | ) | — | (0.31 | ) | $17.41 | 11.12 | % | 0.90 | % | 1.75 | % | 82 | % | $609,476 | ||||||||||||||||||||
2011 | $15.02 | 0.29 | 0.94 | 1.23 | (0.29 | ) | — | (0.29 | ) | $15.96 | 8.26 | % | 0.90 | % | 1.84 | % | 87 | % | $511,829 | ||||||||||||||||||||
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 | ||||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $17.41 | 0.32 | 2.28 | 2.60 | (0.35 | ) | (0.46 | ) | (0.81 | ) | $19.20 | 15.49 | % | 0.70 | % | 1.84 | % | 81 | % | $47,004 | |||||||||||||||||||
2012 | $15.96 | 0.32 | 1.47 | 1.79 | (0.34 | ) | — | (0.34 | ) | $17.41 | 11.34 | % | 0.70 | % | 1.95 | % | 82 | % | $19,667 | ||||||||||||||||||||
2011 | $15.02 | 0.32 | 0.94 | 1.26 | (0.32 | ) | — | (0.32 | ) | $15.96 | 8.48 | % | 0.70 | % | 2.04 | % | 87 | % | $9,736 | ||||||||||||||||||||
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 |
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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Balanced Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
Thomas A. Brown | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. | 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 | |
Maryanne L. | 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. | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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 or the fiscal year ended October 31, 2013.
For corporate taxpayers, the fund hereby designates $10,698,403, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $16,642,680, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
Notes |
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80459 1312
ANNUAL REPORT | OCTOBER 31, 2013
Capital Value Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/davidson.jpg)
By Phil Davidson, Chief Investment Officer, U.S. Value Equity
U.S. Stocks Rallied to Post Double-Digit Gains
Stock market performance remained robust during the 12-month period ended October 31, 2013, with all major market indices posting strong double-digit gains. Despite persistent concerns about weak global growth and U.S. fiscal policy, investors largely focused on central bank stimulus measures, marginally improving U.S. economic data, and relatively healthy corporate earnings, which fueled stock market optimism.
Prior to the reporting period, the Federal Reserve (the Fed) announced its third quantitative easing program (QE3), which ultimately became an $85 billion, open-ended monthly bond-buying effort. This unprecedented program, combined with largely favorable corporate earnings, significant housing market gains, and modest improvements in the labor market, generally helped keep stocks and other riskier assets in favor.
Overall, small-cap stocks outperformed their mid- and large-cap counterparts. We believe this reflected the market’s risk preferences and greater optimism in U.S. economic growth prospects versus the broad global economy.
Fed Policy Challenging for Rate-Sensitive Sectors
Although all major sectors of the domestic stock market advanced during the 12-month period, interest-rate-sensitive segments, including real estate investment trusts (REITs), utilities, and telecommunication services, generally underperformed the broad market averages. This primarily was due to uncertainty surrounding future Fed policy, which dominated the market backdrop, particularly in the second half of the period.
Beginning in spring 2013, modest economic gains led to fears the Fed would end QE3 sooner than expected. The Fed helped fuel those fears, indicating it may start tapering its monthly bond purchases later in the year. In response, interest rates soared as investors expected the Fed to begin tapering after its September policy meeting. But Fed policymakers quickly backed down, announcing they would continue the current pace of bond buying until economic gains appear sustainable.
This news sparked a turnaround among REITs and other interest-rate-sensitive stocks, but the late-period gains weren’t sufficient to offset previous underperformance. In addition, the preference for riskier assets generally prevailed throughout the period, which put further pressure on higher-quality, yield-generating securities.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | ACTIX | 25.67%(1) | 12.88%(1) | 6.32%(1) | 5.79%(1) | 3/31/99 |
Russell 1000 Value Index | — | 28.29% | 14.05% | 7.80% | 5.88% | — |
Institutional Class | ACPIX | 26.00%(1) | 13.15%(1) | 6.53%(1) | 5.71%(1) | 3/1/02 |
A Class(2) No sales charge* With sales charge* | ACCVX | 25.51%(1) 18.28%(1) | 12.65%(1) 11.34%(1) | 6.05%(1) 5.42%(1) | 7.00%(1) 6.39%(1) | 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) | Returns would have been lower if a portion of the management fee had not been waived. |
(2) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class and did not have a front-end sales charge. Performance prior to that date has been adjusted to reflect this charge. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/capitalvalue.jpg)
*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.
Portfolio Commentary |
Portfolio Managers: Brendan Healy and Matt Titus
Performance Summary
Capital Value returned 25.67%* for the 12 months ended October 31, 2013. By comparison, its benchmark, the Russell 1000 Value Index, returned 28.29%. The fund’s return reflects operating expenses, while the index’s returns do not.
The U.S. equity market posted strong gains during the reporting period, supported by the Federal Reserve’s (Fed) extraordinary monetary stimulus. Investors generally favored riskier, lower-quality securities until May 22, 2013 when stocks sold off after Fed Chairman Ben Bernanke told Congress that an end to the Fed’s quantitative easing programs was possible if economic conditions improved. Higher-quality stocks came into favor and higher-yielding assets, such as real estate investment trusts (REITs) and utilities, declined as interest rates edged up. As the Fed sought to calm fears about the ending of stimulus measures, stocks rallied. In mid-August, however, they dropped sharply on positive economic data, which suggested the Fed might announce tapering as soon as September. Lower-yielding, riskier names held up best during the sell-off and outperformed in the rebound that followed. In September, the Fed surprised the markets by making no changes to its quantitative easing programs. Lower-quality stocks continued to outperform and higher-yielding assets rallied as investors anticipated a longer period of low interest rates. Even partisan wrangling over the debt ceiling during October did not dampen investors’ enthusiasm. In this environment, mid-cap stocks outperformed large-cap stocks. Capital Value underperformed its benchmark, largely because of security selection. Positions in the information technology, energy, and consumer discretionary sectors detracted from relative performance. The portfolio benefited from investments in the financials, utilities, materials, and industrials sectors.
Information Technology Detracted
Though an overweight position relative to the benchmark in information technology—the strongest-performing sector in the benchmark—added to relative returns, the portfolio was hampered overall by security selection. In the computers and peripherals industry, an underweight position in Hewlett-Packard (HP) detracted from relative returns. After reporting better-than-expected cash flow, HP’s stock price rebounded sharply from the losses it had suffered during 2012. Among software makers, an investment in Oracle dampened results. Although Oracle’s database business continues to grow at a reasonable rate and its hardware segment improved, the company’s new application license sales were lackluster. Oracle faced geographic headwinds in Asia and South America and is competing against some new cloud-based application providers.
Energy Slowed Performance
In the energy sector, stock selection detracted from relative returns. More specifically, the portfolio was hampered by its complement of large integrated energy companies, including an overweight position in Exxon Mobil and an investment in Royal Dutch Shell.
*All fund returns referenced in this commentary are for Investor Class shares.
Consumer Discretionary Dampened Results
Security selection overall detracted from relative results in the consumer discretionary sector. In particular, the portfolio’s mix of multiline retailers slowed relative performance. Although consumers saw little growth in their disposable income, they generally spent more on higher-ticket items than on apparel. Capital Value was overweight Target, which reported weak comparable-store sales. Target also had weaker-than-expected sales from its expansion into the Canadian market.
Financials Contributed Positively
In financials, advantageous subsector allocation and security selection added significantly to relative performance. The portfolio had no exposure to REITs, which have benefited from low interest rates and have been attractive to investors because of their high dividend yields. However, the team has believed for some time that they are generally overvalued by the market. As interest rates increased, REITs underperformed. Also, the portfolio’s holdings in the capital markets industry—particularly overweight positions in Ameriprise Financial and BlackRock—enhanced relative returns. Ameriprise Financial, which provides financial planning, asset management, and insurance services, has a solid return on capital and benefited from the strength of the equity market. BlackRock reported a jump in profits and strong revenue growth as it added to its assets under management.
Utilities and Materials Added Value
In utilities, the weakest-performing sector in the benchmark, the portfolio benefited from its underweight position. Utilities stocks tend to be sensitive to changes in interest rates.
Within materials, security selection among metals and mining stocks added to relative performance. For example, the portfolio had no exposure to gold miner Newmont Mining. A sharp drop in gold prices during the reporting period hurt Newmont’s profitability.
Industrials Provided Notable Contributor
In the industrials sector, the portfolio benefited from an overweight position in Southwest Airlines. The leading low-cost airline has performed well amid industry consolidation.
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, 2013, Capital Value is broadly diversified, with ongoing overweight positions in the information technology, energy, and health care sectors. Our valuation work is also directing us toward smaller relative weightings in utilities and financials. In addition, we are still finding value opportunities among mega-cap stocks and have maintained our bias toward them.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Exxon Mobil Corp. | 4.7% |
Chevron Corp. | 3.7% |
General Electric Co. | 3.6% |
JPMorgan Chase & Co. | 3.4% |
Johnson & Johnson | 3.2% |
Wells Fargo & Co. | 2.9% |
Pfizer, Inc. | 2.9% |
Procter & Gamble Co. (The) | 2.7% |
Cisco Systems, Inc. | 2.5% |
Citigroup, Inc. | 2.4% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 13.3% |
Diversified Financial Services | 8.7% |
Pharmaceuticals | 8.3% |
Insurance | 6.9% |
Commercial Banks | 6.2% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.4% |
Temporary Cash Investments | 0.5% |
Other Assets and Liabilities | 0.1% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class (after waiver) | $1,000 | $1,102.30 | $5.30 | 1.00% |
Investor Class (before waiver) | $1,000 | $1,102.30(2) | $5.83 | 1.10% |
Institutional Class (after waiver) | $1,000 | $1,103.40 | $4.24 | 0.80% |
Institutional Class (before waiver) | $1,000 | $1,103.40(2) | $4.77 | 0.90% |
A Class (after waiver) | $1,000 | $1,101.30 | $6.62 | 1.25% |
A Class (before waiver) | $1,000 | $1,101.30(2) | $7.15 | 1.35% |
Hypothetical | ||||
Investor Class (after waiver) | $1,000 | $1,020.16 | $5.09 | 1.00% |
Investor Class (before waiver) | $1,000 | $1,019.66 | $5.60 | 1.10% |
Institutional Class (after waiver) | $1,000 | $1,021.17 | $4.08 | 0.80% |
Institutional Class (before waiver) | $1,000 | $1,020.67 | $4.58 | 0.90% |
A Class (after waiver) | $1,000 | $1,018.90 | $6.36 | 1.25% |
A Class (before waiver) | $1,000 | $1,018.40 | $6.87 | 1.35% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value assumes the return earned after waiver and would have been lower if a portion of the management fee had not been waived. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 99.4% | ||||||
AEROSPACE AND DEFENSE — 2.1% | ||||||
General Dynamics Corp. | 11,630 | $ 1,007,507 | ||||
Honeywell International, Inc. | 6,050 | 524,717 | ||||
Raytheon Co. | 9,240 | 761,099 | ||||
Textron, Inc. | 25,750 | 741,342 | ||||
3,034,665 | ||||||
AIRLINES — 0.4% | ||||||
Southwest Airlines Co. | 36,110 | 621,814 | ||||
AUTO COMPONENTS — 0.2% | ||||||
Autoliv, Inc. | 3,610 | 322,120 | ||||
AUTOMOBILES — 1.2% | ||||||
Ford Motor Co. | 105,610 | 1,806,987 | ||||
BEVERAGES — 0.4% | ||||||
PepsiCo, Inc. | 6,360 | 534,812 | ||||
BIOTECHNOLOGY — 0.5% | ||||||
Amgen, Inc. | 3,710 | 430,360 | ||||
Gilead Sciences, Inc.(1) | 4,600 | 326,554 | ||||
756,914 | ||||||
CAPITAL MARKETS — 4.4% | ||||||
Ameriprise Financial, Inc. | 14,650 | 1,472,911 | ||||
Bank of New York Mellon Corp. (The) | 28,230 | 897,714 | ||||
BlackRock, Inc. | 4,920 | 1,479,985 | ||||
Goldman Sachs Group, Inc. (The) | 12,070 | 1,941,580 | ||||
Morgan Stanley | 19,300 | 554,489 | ||||
6,346,679 | ||||||
CHEMICALS — 0.8% | ||||||
E.I. du Pont de Nemours & Co. | 3,780 | 231,336 | ||||
LyondellBasell Industries NV, Class A | 13,078 | 975,619 | ||||
1,206,955 | ||||||
COMMERCIAL BANKS — 6.2% | ||||||
KeyCorp | 33,000 | 413,490 | ||||
PNC Financial Services Group, Inc. (The) | 26,850 | 1,974,281 | ||||
U.S. Bancorp | 63,070 | 2,356,295 | ||||
Wells Fargo & Co. | 100,100 | 4,273,269 | ||||
9,017,335 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.1% | ||||||
ADT Corp. (The) | 22,850 | 991,004 | ||||
Tyco International Ltd. | 14,860 | 543,133 | ||||
1,534,137 | ||||||
COMMUNICATIONS EQUIPMENT — 3.6% | ||||||
Cisco Systems, Inc. | 159,150 | 3,580,875 | ||||
F5 Networks, Inc.(1) | 2,130 | 173,616 | ||||
QUALCOMM, Inc. | 20,900 | 1,451,923 | ||||
5,206,414 | ||||||
COMPUTERS AND PERIPHERALS — 1.5% | ||||||
Apple, Inc. | 1,920 | 1,002,912 | ||||
NetApp, Inc. | 30,860 | 1,197,677 | ||||
2,200,589 | ||||||
CONSUMER FINANCE — 0.8% | ||||||
Capital One Financial Corp. | 17,150 | 1,177,691 | ||||
CONTAINERS AND PACKAGING — 0.2% | ||||||
Avery Dennison Corp. | 5,600 | 263,872 | ||||
DIVERSIFIED FINANCIAL SERVICES — 8.7% | ||||||
Bank of America Corp. | 134,510 | 1,877,760 | ||||
Berkshire Hathaway, Inc., Class B(1) | 21,040 | 2,421,283 | ||||
Citigroup, Inc. | 71,740 | 3,499,477 | ||||
JPMorgan Chase & Co. | 94,680 | 4,879,807 | ||||
12,678,327 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.3% | ||||||
AT&T, Inc. | 67,810 | 2,454,722 | ||||
CenturyLink, Inc. | 25,690 | 869,863 | ||||
3,324,585 | ||||||
ELECTRIC UTILITIES — 2.9% | ||||||
American Electric Power Co., Inc. | 18,250 | 854,830 | ||||
NV Energy, Inc. | 25,080 | 595,399 | ||||
Pinnacle West Capital Corp. | 14,490 | 811,875 | ||||
PPL Corp. | 29,440 | 901,747 | ||||
Xcel Energy, Inc. | 36,550 | 1,054,833 | ||||
4,218,684 | ||||||
ELECTRICAL EQUIPMENT — 0.9% | ||||||
Eaton Corp. plc | 19,220 | 1,356,163 | ||||
ENERGY EQUIPMENT AND SERVICES — 2.9% | ||||||
Baker Hughes, Inc. | 18,330 | 1,064,790 | ||||
National Oilwell Varco, Inc. | 23,980 | 1,946,696 | ||||
Schlumberger Ltd. | 13,050 | 1,223,046 | ||||
4,234,532 | ||||||
FOOD AND STAPLES RETAILING — 2.5% | ||||||
CVS Caremark Corp. | 28,930 | 1,801,182 | ||||
Kroger Co. (The) | 14,780 | 633,175 | ||||
Wal-Mart Stores, Inc. | 15,600 | 1,197,300 | ||||
3,631,657 |
Shares | Value | |||||
FOOD PRODUCTS — 0.4% | ||||||
Mondelez International, Inc. Class A | 15,650 | $ 526,466 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 3.0% | ||||||
Abbott Laboratories | 54,120 | 1,978,086 | ||||
Medtronic, Inc. | 41,950 | 2,407,930 | ||||
4,386,016 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 1.9% | ||||||
Aetna, Inc. | 15,350 | 962,445 | ||||
Premier, Inc., Class A(1) | 4,444 | 136,919 | ||||
Quest Diagnostics, Inc. | 7,380 | 442,136 | ||||
WellPoint, Inc. | 14,490 | 1,228,752 | ||||
2,770,252 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 0.7% | ||||||
Carnival Corp. | 27,890 | 966,389 | ||||
HOUSEHOLD PRODUCTS — 2.7% | ||||||
Procter & Gamble Co. (The) | 48,540 | 3,919,605 | ||||
INDUSTRIAL CONGLOMERATES — 3.6% | ||||||
General Electric Co. | 200,190 | 5,232,967 | ||||
INSURANCE — 6.9% | ||||||
Allstate Corp. (The) | 29,610 | 1,571,107 | ||||
American International Group, Inc. | 29,050 | 1,500,432 | ||||
Chubb Corp. (The) | 6,920 | 637,194 | ||||
Loews Corp. | 19,270 | 930,934 | ||||
MetLife, Inc. | 38,090 | 1,802,038 | ||||
Principal Financial Group, Inc. | 16,370 | 776,920 | ||||
Prudential Financial, Inc. | 16,350 | 1,330,726 | ||||
Travelers Cos., Inc. (The) | 16,530 | 1,426,539 | ||||
9,975,890 | ||||||
MACHINERY — 1.7% | ||||||
Caterpillar, Inc. | 7,230 | 602,693 | ||||
Ingersoll-Rand plc | 12,330 | 832,645 | ||||
PACCAR, Inc. | 18,310 | 1,018,036 | ||||
2,453,374 | ||||||
MEDIA — 3.0% | ||||||
CBS Corp., Class B | 9,660 | 571,292 | ||||
Comcast Corp., Class A | 27,250 | 1,296,555 | ||||
Time Warner Cable, Inc. | 6,410 | 770,161 | ||||
Time Warner, Inc. | 25,890 | 1,779,679 | ||||
4,417,687 | ||||||
METALS AND MINING — 1.2% | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 48,010 | 1,764,848 | ||||
MULTI-UTILITIES — 0.5% | ||||||
PG&E Corp. | 17,810 | 745,349 | ||||
MULTILINE RETAIL — 1.7% | ||||||
Macy’s, Inc. | 23,890 | 1,101,568 | ||||
Target Corp. | 20,130 | 1,304,223 | ||||
2,405,791 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 13.3% | ||||||
Apache Corp. | 19,580 | 1,738,704 | ||||
Chevron Corp. | 45,190 | 5,420,992 | ||||
Exxon Mobil Corp. | 75,630 | 6,777,961 | ||||
Marathon Petroleum Corp. | 9,720 | 696,535 | ||||
Occidental Petroleum Corp. | 24,890 | 2,391,431 | ||||
Royal Dutch Shell plc, Class A | 23,240 | 775,126 | ||||
Total SA ADR | 24,620 | 1,506,252 | ||||
19,307,001 | ||||||
PAPER AND FOREST PRODUCTS — 0.6% | ||||||
International Paper Co. | 19,890 | 887,293 | ||||
PHARMACEUTICALS — 8.3% | ||||||
Johnson & Johnson | 49,700 | 4,602,717 | ||||
Merck & Co., Inc. | 72,300 | 3,260,007 | ||||
Pfizer, Inc. | 138,720 | 4,255,930 | ||||
12,118,654 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.3% | ||||||
Brixmor Property Group, Inc.(1) | 7,071 | 146,016 | ||||
Camden Property Trust | 4,320 | 277,344 | ||||
423,360 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.0% | ||||||
Applied Materials, Inc. | 58,190 | 1,038,691 | ||||
Intel Corp. | 103,520 | 2,528,994 | ||||
Microchip Technology, Inc. | 18,630 | 800,345 | ||||
4,368,030 | ||||||
SOFTWARE — 2.1% | ||||||
Microsoft Corp. | 40,760 | 1,440,866 | ||||
Oracle Corp. | 48,070 | 1,610,345 | ||||
3,051,211 | ||||||
SPECIALTY RETAIL — 0.5% | ||||||
Lowe’s Cos., Inc. | 13,040 | 649,131 | ||||
TOBACCO — 0.4% | ||||||
Altria Group, Inc. | 14,200 | 528,666 | ||||
TOTAL COMMON STOCKS (Cost $96,440,829) | 144,372,912 |
Shares | Value |
Temporary Cash Investments — 0.5% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $153,501), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $150,667) | $ 150,667 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $184,585), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $180,800) | 180,800 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $184,549), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $180,801) | 180,801 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $184,550), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $180,801) | 180,801 | |||||
SSgA U.S. Government Money Market Fund | 50,222 | 50,222 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $743,291) | 743,291 | |||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $97,184,120) | 145,116,203 | |||||
OTHER ASSETS AND LIABILITIES — 0.1% | 212,631 | |||||
TOTAL NET ASSETS — 100.0% | $145,328,834 |
Forward Foreign Currency Exchange Contracts | ||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||
USD | 2,077,378 | EUR | 1,506,247 | UBS AG | 11/29/13 | $32,159 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $97,184,120) | $145,116,203 | ||
Foreign currency holdings, at value (cost of $13,810) | 13,861 | ||
Receivable for investments sold | 650,496 | ||
Receivable for capital shares sold | 32,954 | ||
Unrealized gain on forward foreign currency exchange contracts | 32,159 | ||
Dividends and interest receivable | 163,669 | ||
146,009,342 | |||
Liabilities | |||
Payable for investments purchased | 519,504 | ||
Payable for capital shares redeemed | 38,755 | ||
Accrued management fees | 121,595 | ||
Distribution and service fees payable | 654 | ||
680,508 | |||
Net Assets | $145,328,834 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ 98,897,341 | ||
Undistributed net investment income | 1,575,606 | ||
Accumulated net realized loss | (3,108,406 | ) | |
Net unrealized appreciation | 47,964,293 | ||
$145,328,834 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $138,884,439 | 16,312,122 | $8.51 |
Institutional Class, $0.01 Par Value | $3,289,183 | 385,175 | $8.54 |
A Class, $0.01 Par Value | $3,155,212 | 372,029 | $8.48* |
*Maximum offering price $9.00 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $17,664) | $ 3,596,662 | ||
Interest | 740 | ||
3,597,402 | |||
Expenses: | |||
Management fees | 1,480,154 | ||
Distribution and service fees — A Class | 7,234 | ||
Directors’ fees and expenses | 4,829 | ||
1,492,217 | |||
Fees waived | (135,179 | ) | |
1,357,038 | |||
Net investment income (loss) | 2,240,364 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 8,851,283 | ||
Foreign currency transactions | (134,002 | ) | |
8,717,281 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 19,732,626 | ||
Translation of assets and liabilities in foreign currencies | 35,745 | ||
19,768,371 | |||
Net realized and unrealized gain (loss) | 28,485,652 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $30,726,016 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $ 2,240,364 | $ 2,134,197 | ||||
Net realized gain (loss) | 8,717,281 | 8,223,662 | ||||
Change in net unrealized appreciation (depreciation) | 19,768,371 | 9,278,115 | ||||
Net increase (decrease) in net assets resulting from operations | 30,726,016 | 19,635,974 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (2,047,246 | ) | (2,040,255 | ) | ||
Institutional Class | (67,677 | ) | (69,034 | ) | ||
A Class | (47,388 | ) | (44,437 | ) | ||
Decrease in net assets from distributions | (2,162,311 | ) | (2,153,726 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (7,183,934 | ) | (11,665,672 | ) | ||
Net increase (decrease) in net assets | 21,379,771 | 5,816,576 | ||||
Net Assets | ||||||
Beginning of period | 123,949,063 | 118,132,487 | ||||
End of period | $145,328,834 | $123,949,063 | ||||
Undistributed net investment income | $1,575,606 | $1,638,687 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Capital Value Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class and the A Class. The A Class may incur an initial sales charge. 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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 0.900% to 1.100% for the Investor Class and A Class. The Institutional Class is 0.200% less at each point within the range. During the year ended October 31, 2013, 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, 2014, 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, 2013 was $128,880, $3,405 and $2,894 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, 2013 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, 2013 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $34,521,762 and $41,030,605, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 2,309,072 | $ 17,554,839 | 1,371,428 | $ 8,875,075 | ||||||||
Issued in reinvestment of distributions | 281,184 | 1,954,229 | 332,121 | 1,949,551 | ||||||||
Redeemed | (3,292,554 | ) | (25,061,231 | ) | (3,332,680 | ) | (21,270,073 | ) | ||||
(702,298 | ) | (5,552,163 | ) | (1,629,131 | ) | (10,445,447 | ) | |||||
Institutional Class/Shares Authorized | 15,000,000 | 15,000,000 | ||||||||||
Sold | 5,270 | 43,183 | 306,311 | 1,903,786 | ||||||||
Issued in reinvestment of distributions | 9,357 | 65,127 | 11,445 | 67,183 | ||||||||
Redeemed | (201,020 | ) | (1,492,099 | ) | (351,998 | ) | (2,267,771 | ) | ||||
(186,393 | ) | (1,383,789 | ) | (34,242 | ) | (296,802 | ) | |||||
A Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 159,663 | 1,241,709 | 101,370 | 650,478 | ||||||||
Issued in reinvestment of distributions | 6,716 | 46,609 | 7,540 | 44,259 | ||||||||
Redeemed | (201,014 | ) | (1,536,300 | ) | (261,248 | ) | (1,618,160 | ) | ||||
(34,635 | ) | (247,982 | ) | (152,338 | ) | (923,423 | ) | |||||
Net increase (decrease) | (923,326 | ) | $ (7,183,934 | ) | (1,815,711 | ) | $(11,665,672 | ) |
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 | $143,597,786 | $ 775,126 | — | ||||||
Temporary Cash Investments | 50,222 | 693,069 | — | ||||||
Total Value of Investment Securities | $143,648,008 | $1,468,195 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $32,159 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $32,159 in unrealized gain on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(134,406) in net realized gain (loss) on foreign currency transactions and $35,626 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $2,162,311 | $2,153,726 | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $99,362,833 | ||
Gross tax appreciation of investments | $45,849,049 | ||
Gross tax depreciation of investments | (95,679 | ) | |
Net tax appreciation (depreciation) of investments | $45,753,370 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $51 | ||
Net tax appreciation (depreciation) | $45,753,421 | ||
Undistributed ordinary income | $1,607,765 | ||
Accumulated short-term capital losses | $(929,693 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers expire in 2017.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning | Net | Net | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, | Total | Operating Expenses | Operating Expenses (before | Net | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||||||||
2013 | $6.89 | 0.13 | 1.61 | 1.74 | (0.12 | ) | $8.51 | 25.67 | % | 1.00 | % | 1.10 | % | 1.66 | % | 1.56 | % | 26 | % | $138,884 | |||||||||||||||||||
2012 | $5.96 | 0.11 | 0.93 | 1.04 | (0.11 | ) | $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 | ) | $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 | ) | $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 | ) | $5.32 | 6.85 | % | 1.10 | % | 1.10 | % | 2.33 | % | 2.33 | % | 19 | % | $158,431 | |||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $6.90 | 0.15 | 1.62 | 1.77 | (0.13 | ) | $8.54 | 26.00 | % | 0.80 | % | 0.90 | % | 1.86 | % | 1.76 | % | 26 | % | $3,289 | |||||||||||||||||||
2012 | $5.97 | 0.12 | 0.93 | 1.05 | (0.12 | ) | $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 | ) | $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 | ) | $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 | ) | $5.32 | 7.07 | % | 0.90 | % | 0.90 | % | 2.53 | % | 2.53 | % | 19 | % | $8,035 |
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 | Net | Net | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, | Total | Operating Expenses | Operating Expenses (before | Net | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
A Class(3) | |||||||||||||||||||||||||||||||||||||||
2013 | $6.87 | 0.11 | 1.62 | 1.73 | (0.12 | ) | $8.48 | 25.51 | % | 1.25 | % | 1.35 | % | 1.41 | % | 1.31 | % | 26 | % | $3,155 | |||||||||||||||||||
2012 | $5.95 | 0.10 | 0.92 | 1.02 | (0.10 | ) | $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 | ) | $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 | ) | $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 | ) | $5.30 | 6.59 | % | 1.35 | % | 1.35 | % | 2.08 | % | 2.08 | % | 19 | % | $4,881 |
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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capital Value Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
Thomas A. Brown | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. | 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 | |
Maryanne L. | 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. | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $2,162,311, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80466 1312
ANNUAL REPORT | OCTOBER 31, 2013
Focused Growth Fund
Table of Contents |
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.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
Investor Class | AFSIX | 24.93% | 14.58% | 6.89% | 2/28/05 |
Russell 1000 Growth Index | — | 28.30% | 17.50% | 7.90% | — |
Institutional Class | AFGNX | 25.06% | 14.81% | 5.57% | 9/28/07 |
A Class No sales charge* With sales charge* | AFGAX
| 24.53% 17.38% | 14.31% 12.97% | 5.11% 4.09% | 9/28/07
|
C Class | AFGCX | 23.65% | 13.44% | 4.32% | 9/28/07 |
R Class | AFGRX | 24.27% | 14.01% | 4.84% | 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.
Growth of $10,000 Over Life of Class |
$10,000 investment made February 28, 2005 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/focusedgrowth.jpg)
*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.
Portfolio Commentary |
Portfolio Managers: Greg Woodhams and Joe Reiland
Performance Summary
Focused Growth returned 24.93%* in the 12 months ended October 31, 2013. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 28.30% for the same period.
In terms of Focused Growth’s absolute returns, consumer discretionary shares contributed most. No sector detracted in absolute terms. Relative to the benchmark, stock selection made health care stocks the leading detractors. Stock choices meant information technology shares contributed most to relative performance.
Health Care Positioning Detracted Most
Positioning in the health care sector detracted most from relative results. In particular, it hurt to be underrepresented in biotechnology stocks, which made up one of the best-performing industries in the index for the 12 months. The portfolio had some exposure to these stocks but less than the benchmark. The leading individual detractor was pharmacy benefits manager Express Scripts, which underperformed due to uncertainty around the impact of recent health care reform.
Materials, Staples Also Underperformed
Stock selection decisions in the materials and consumer staples sectors detracted from relative performance. In the materials sector, positioning among chemicals companies hurt most, with agricultural products distributor Agrium the leading detractor. In the staples sector, stock choices among beverages and food and staples retailers detracted, led by stakes in Coca-Cola and PepsiCo.
Notable Individual Detractors
Another notable individual detractor was online travel provider Expedia, in which the portfolio held an overweight position. The investment team believed the company would realize greater efficiencies and profits as a result of its business model; unfortunately, that did not materialize, and the team eliminated the position. It also detracted from relative results to be underrepresented in shares of Facebook. In the computers and peripherals group, an overweight position in network storage company EMC Corp. declined as it lowered revenue guidance.
Information Technology Stocks Helped Most
The leading contribution to relative returns came from positioning in the information technology sector. It benefited relative performance to be underrepresented in shares of Apple and to have no exposure to IBM, both of which suffered from disappointing sales results. A position in MasterCard contributed to performance, as the electronic payment processor continued to benefit from the rising trend of electronic rather than cash transactions.
*All fund returns referenced in this commentary are for Investor Class shares.
Consumer Discretionary Stocks Also Were Notable Contributors
Consumer discretionary stocks made key contributions to performance. Entertainment company CBS did well thanks to rising licensing revenues for its content. In the hotels, restaurants, and leisure industry group, an overweight position in Starbucks contributed as the company did not appear to suffer from the slowdown that others in the retail space encountered. Starbucks continued to benefit from lower coffee bean prices and posted strong same-store-sales levels. Specialty retailer Lowe’s benefited from the rebound in homebuilding and remodeling activity.
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, 2013, the consumer discretionary, energy, and industrials sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in consumer staples, telecommunication services, and materials shares. Information technology shares were the portfolio’s single largest sector allocation on an absolute basis.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
PepsiCo, Inc. | 4.2% |
Google, Inc., Class A | 4.1% |
Schlumberger Ltd. | 4.1% |
Comcast Corp., Class A | 4.0% |
Apple, Inc. | 4.0% |
MasterCard, Inc., Class A | 3.7% |
Coca-Cola Co. (The) | 3.6% |
Honeywell International, Inc. | 3.4% |
Monsanto Co. | 3.2% |
Oracle Corp. | 3.1% |
Top Five Industries | % of net assets |
Media | 8.4% |
Beverages | 7.8% |
Computers and Peripherals | 6.2% |
Specialty Retail | 5.9% |
Aerospace and Defense | 5.6% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.2% |
Exchange-Traded Funds | 1.3% |
Total Equity Exposure | 98.5% |
Temporary Cash Investments | 1.5% |
Other Assets and Liabilities | —* |
*Category is less than 0.05% of total net assets.
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 - 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,121.20 | $5.35 | 1.00% |
Institutional Class | $1,000 | $1,121.90 | $4.28 | 0.80% |
A Class | $1,000 | $1,119.20 | $6.68 | 1.25% |
C Class | $1,000 | $1,115.70 | $10.67 | 2.00% |
R Class | $1,000 | $1,118.10 | $8.01 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.2% | ||||||
AEROSPACE AND DEFENSE — 5.6% | ||||||
Boeing Co. (The) | 1,881 | $245,470 | ||||
Honeywell International, Inc. | 6,901 | 598,524 | ||||
United Technologies Corp. | 1,282 | 136,213 | ||||
980,207 | ||||||
AIR FREIGHT AND LOGISTICS — 2.5% | ||||||
United Parcel Service, Inc., Class B | 4,557 | 447,680 | ||||
AUTOMOBILES — 1.6% | ||||||
Harley-Davidson, Inc. | 3,920 | 251,037 | ||||
Tesla Motors, Inc.(1) | 225 | 35,986 | ||||
287,023 | ||||||
BEVERAGES — 7.8% | ||||||
Coca-Cola Co. (The) | 16,108 | 637,393 | ||||
PepsiCo, Inc. | 8,743 | 735,199 | ||||
1,372,592 | ||||||
BIOTECHNOLOGY — 3.7% | ||||||
Alexion Pharmaceuticals, Inc.(1) | 1,689 | 207,662 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 1,538 | 442,329 | ||||
649,991 | ||||||
CAPITAL MARKETS — 0.9% | ||||||
Franklin Resources, Inc. | 2,920 | 157,271 | ||||
State Street Corp. | 124 | 8,689 | ||||
165,960 | ||||||
CHEMICALS — 3.8% | ||||||
LyondellBasell Industries NV, Class A | 1,522 | 113,541 | ||||
Monsanto Co. | 5,368 | 562,996 | ||||
676,537 | ||||||
COMMERCIAL BANKS — 2.4% | ||||||
SunTrust Banks, Inc. | 12,410 | 417,472 | ||||
COMMERCIAL SERVICES AND SUPPLIES — 0.8% | ||||||
Tyco International Ltd. | 3,678 | 134,431 | ||||
COMMUNICATIONS EQUIPMENT — 4.0% | ||||||
Cisco Systems, Inc. | 17,645 | 397,013 | ||||
QUALCOMM, Inc. | 4,409 | 306,293 | ||||
703,306 | ||||||
COMPUTERS AND PERIPHERALS — 6.2% | ||||||
Apple, Inc. | 1,342 | 700,994 | ||||
NetApp, Inc. | 7,925 | 307,569 | ||||
Seagate Technology plc | 1,660 | 80,809 | ||||
1,089,372 | ||||||
ELECTRICAL EQUIPMENT — 1.5% | ||||||
Rockwell Automation, Inc. | 2,373 | $262,003 | ||||
ENERGY EQUIPMENT AND SERVICES — 4.1% | ||||||
Schlumberger Ltd. | 7,676 | 719,395 | ||||
FOOD PRODUCTS — 1.7% | ||||||
Hershey Co. (The) | 1,729 | 171,586 | ||||
Mead Johnson Nutrition Co. | 1,242 | 101,422 | ||||
Pinnacle Foods, Inc. | 1,172 | 31,749 | ||||
304,757 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 0.6% | ||||||
Intuitive Surgical, Inc.(1) | 293 | 108,850 | ||||
HEALTH CARE PROVIDERS AND SERVICES — 4.6% | ||||||
Cardinal Health, Inc. | 6,258 | 367,094 | ||||
Express Scripts Holding Co.(1) | 7,046 | 440,516 | ||||
807,610 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.4% | ||||||
Marriott International, Inc. Class A | 2,825 | 127,351 | ||||
Starbucks Corp. | 3,711 | 300,777 | ||||
428,128 | ||||||
HOUSEHOLD DURABLES — 2.5% | ||||||
Mohawk Industries, Inc.(1) | 3,301 | 437,118 | ||||
INDUSTRIAL CONGLOMERATES — 0.2% | ||||||
Danaher Corp. | 505 | 36,405 | ||||
INSURANCE — 1.0% | ||||||
MetLife, Inc. | 3,689 | 174,527 | ||||
INTERNET SOFTWARE AND SERVICES — 4.8% | ||||||
Facebook, Inc., Class A(1) | 1,267 | 63,679 | ||||
Google, Inc., Class A(1) | 706 | 727,590 | ||||
LinkedIn Corp., Class A(1) | 285 | 63,746 | ||||
855,015 | ||||||
IT SERVICES — 3.7% | ||||||
MasterCard, Inc., Class A | 908 | 651,127 | ||||
MACHINERY — 1.5% | ||||||
Parker-Hannifin Corp. | 2,295 | 267,872 | ||||
MEDIA — 8.4% | ||||||
CBS Corp., Class B | 6,351 | 375,598 | ||||
Comcast Corp., Class A | 14,770 | 702,757 | ||||
Discovery Communications, Inc. Class C(1) | 4,798 | 396,842 | ||||
1,475,197 | ||||||
MULTILINE RETAIL — 2.4% | ||||||
Target Corp. | 6,629 | 429,493 |
Shares | Value |
OIL, GAS AND CONSUMABLE FUELS — 0.6% | ||||||
Noble Energy, Inc. | 1,370 | $102,654 | ||||
PHARMACEUTICALS — 3.3% | ||||||
AbbVie, Inc. | 8,400 | 406,980 | ||||
Allergan, Inc. | 2,006 | 181,764 | ||||
588,744 | ||||||
ROAD AND RAIL — 1.8% | ||||||
Union Pacific Corp. | 2,080 | 314,912 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.4% | ||||||
Freescale Semiconductor Ltd.(1) | 2,331 | 35,991 | ||||
Linear Technology Corp. | 9,489 | 390,377 | ||||
426,368 | ||||||
SOFTWARE — 4.2% | ||||||
Electronic Arts, Inc.(1) | 7,324 | 192,255 | ||||
Oracle Corp. | 16,262 | 544,777 | ||||
737,032 | ||||||
SPECIALTY RETAIL — 5.9% | ||||||
Best Buy Co., Inc. | 4,057 | 173,640 | ||||
GNC Holdings, Inc. Class A | 3,221 | 189,459 | ||||
Home Depot, Inc. (The) | 94 | 7,322 | ||||
Lowe’s Cos., Inc. | 10,625 | 528,912 | ||||
Urban Outfitters, Inc.(1) | 3,597 | 136,254 | ||||
1,035,587 | ||||||
TOBACCO — 0.3% | ||||||
Philip Morris International, Inc. | 497 | 44,293 | ||||
TOTAL COMMON STOCKS (Cost $12,387,550) | 17,131,658 | |||||
Exchange-Traded Funds — 1.3% | ||||||
iShares Russell 1000 Growth Index Fund (Cost $221,959) | 2,891 | 235,877 | ||||
Temporary Cash Investments — 1.5% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $55,771), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $54,742) | $54,742 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $67,065), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $65,690) | 65,690 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $67,052), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $65,690) | 65,690 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $67,052), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $65,690) | 65,690 | |||||
SSgA U.S. Government Money Market Fund | 18,241 | 18,241 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $270,053) | 270,053 | |||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $12,879,562) | 17,637,588 | |||||
OTHER ASSETS AND LIABILITIES† | (3,239 | ) | ||||
TOTAL NET ASSETS — 100.0% | $17,634,349 |
Notes to Schedule of Investments
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $12,879,562) | $17,637,588 | ||
Receivable for investments sold | 466,912 | ||
Receivable for capital shares sold | 1,697 | ||
Dividends and interest receivable | 6,611 | ||
18,112,808 | |||
Liabilities | |||
Payable for investments purchased | 435,998 | ||
Payable for capital shares redeemed | 26,930 | ||
Accrued management fees | 14,669 | ||
Distribution and service fees payable | 862 | ||
478,459 | |||
Net Assets | $17,634,349 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $11,077,520 | ||
Undistributed net investment income | 53,306 | ||
Undistributed net realized gain | 1,745,497 | ||
Net unrealized appreciation | 4,758,026 | ||
$17,634,349 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $15,664,177 | 1,051,955 | $14.89 |
Institutional Class, $0.01 Par Value | $34,796 | 2,333 | $14.91 |
A Class, $0.01 Par Value | $770,370 | 51,901 | $14.84* |
C Class, $0.01 Par Value | $433,947 | 29,987 | $14.47 |
R Class, $0.01 Par Value | $731,059 | 49,498 | $14.77 |
*Maximum offering price $15.75 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $380) | $280,239 | ||
Interest | 180 | ||
280,419 | |||
Expenses: | |||
Management fees | 170,853 | ||
Distribution and service fees: | |||
A Class | 2,119 | ||
C Class | 4,366 | ||
R Class | 3,159 | ||
Directors’ fees and expenses | 682 | ||
Other expenses | 77 | ||
181,256 | |||
Net investment income (loss) | 99,163 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 2,560,514 | ||
Change in net unrealized appreciation (depreciation) on investments | 1,112,666 | ||
Net realized and unrealized gain (loss) | 3,673,180 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $3,772,343 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $99,163 | $108,274 | ||||
Net realized gain (loss) | 2,560,514 | 830,859 | ||||
Change in net unrealized appreciation (depreciation) | 1,112,666 | 1,047,187 | ||||
Net increase (decrease) in net assets resulting from operations | 3,772,343 | 1,986,320 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (98,934 | ) | (78,796 | ) | ||
Institutional Class | (210 | ) | (183 | ) | ||
A Class | (5,216 | ) | (3,082 | ) | ||
C Class | (1,351 | ) | — | |||
R Class | (3,125 | ) | (358 | ) | ||
Decrease in net assets from distributions | (108,836 | ) | (82,419 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (2,130,667 | ) | (2,029,094 | ) | ||
Net increase (decrease) in net assets | 1,532,840 | (125,193 | ) | |||
Net Assets | ||||||
Beginning of period | 16,101,509 | 16,226,702 | ||||
End of period | $17,634,349 | $16,101,509 | ||||
Undistributed net investment income | $53,306 | $72,036 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Focused Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are typically valued at the closing price on the exchange where primarily traded or as of the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
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, 2013 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $12,192,077 and $14,321,992, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Investor Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||||||
Sold | 106,961 | $ 1,348,320 | 96,795 | $ 1,125,652 | ||||||||||||
Issued in reinvestment of distributions | 7,954 | 97,837 | 7,272 | 76,575 | ||||||||||||
Redeemed | (214,810 | ) | (2,875,301 | ) | (292,238 | ) | (3,410,412 | ) | ||||||||
(99,895 | ) | (1,429,144 | ) | (188,171 | ) | (2,208,185 | ) | |||||||||
Institutional Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Issued in reinvestment of distributions | 17 | 210 | 17 | 183 | ||||||||||||
A Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 1,156 | 14,867 | 46,218 | 566,025 | ||||||||||||
Issued in reinvestment of distributions | 414 | 5,093 | 272 | 2,868 | ||||||||||||
Redeemed | (64,494 | ) | (794,634 | ) | (29,073 | ) | (336,864 | ) | ||||||||
(62,924 | ) | (774,674 | ) | 17,417 | 232,029 | |||||||||||
C Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 19,412 | 246,001 | 3,149 | 35,864 | ||||||||||||
Issued in reinvestment of distributions | 86 | 1,041 | – | – | ||||||||||||
Redeemed | (15,979 | ) | (211,475 | ) | (9,600 | ) | (108,846 | ) | ||||||||
3,519 | 35,567 | (6,451 | ) | (72,982 | ) | |||||||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||||||
Sold | 2,708 | 36,786 | 3,022 | 36,167 | ||||||||||||
Issued in reinvestment of distributions | 255 | 3,125 | 34 | 358 | ||||||||||||
Redeemed | (198 | ) | (2,537 | ) | (1,415 | ) | (16,664 | ) | ||||||||
2,765 | 37,374 | 1,641 | 19,861 | |||||||||||||
Net increase (decrease) | (156,518 | ) | $(2,130,667 | ) | (175,547 | ) | $(2,029,094 | ) |
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 | $17,131,658 | — | — | ||||||
Exchange-Traded Funds | 235,877 | — | — | ||||||
Temporary Cash Investments | 18,241 | $251,812 | — | ||||||
Total Value of Investment Securities | $17,385,776 | $251,812 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $108,836 | $82,419 | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $12,931,542 | ||
Gross tax appreciation of investments | $ 4,776,323 | ||
Gross tax depreciation of investments | (70,277 | ) | |
Net tax appreciation (depreciation) of investments | $4,706,046 | ||
Undistributed ordinary income | $53,306 | ||
Accumulated long-term gains | $1,797,477 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||
Net | Net | Net Unrealized | Total From | Distributions | Net Asset | Total | Operating | Net Income | Portfolio | Net Assets, | |
Investor Class | |||||||||||
2013 | $12.00 | 0.08 | 2.89 | 2.97 | (0.08) | $14.89 | 24.93% | 1.00% | 0.64% | 73% | $15,664 |
2012 | $10.70 | 0.08 | 1.28 | 1.36 | (0.06) | $12.00 | 12.78% | 1.01% | 0.70% | 59% | $13,828 |
2011 | $10.17 | 0.06 | 0.53 | 0.59 | (0.06) | $10.70 | 5.76% | 1.00% | 0.54% | 91% | $14,335 |
2010 | $8.73 | 0.04 | 1.40 | 1.44 | —(3) | $10.17 | 16.54% | 1.02% | 0.38% | 66% | $12,739 |
2009 | $7.73 | 0.04 | 1.01 | 1.05 | (0.05) | $8.73 | 13.77% | 1.00% | 0.50% | 125% | $12,541 |
Institutional Class | |||||||||||
2013 | $12.01 | 0.11 | 2.88 | 2.99 | (0.09) | $14.91 | 25.06% | 0.80% | 0.84% | 73% | $35 |
2012 | $10.70 | 0.10 | 1.29 | 1.39 | (0.08) | $12.01 | 13.09% | 0.81% | 0.90% | 59% | $28 |
2011 | $10.17 | 0.08 | 0.53 | 0.61 | (0.08) | $10.70 | 5.98% | 0.80% | 0.74% | 91% | $25 |
2010 | $8.73 | 0.05 | 1.41 | 1.46 | (0.02) | $10.17 | 16.77% | 0.82% | 0.58% | 66% | $23 |
2009 | $7.73 | 0.05 | 1.01 | 1.06 | (0.06) | $8.73 | 14.00% | 0.80% | 0.70% | 125% | $20 |
A Class | |||||||||||
2013 | $11.99 | 0.05 | 2.88 | 2.93 | (0.08) | $14.84 | 24.53% | 1.25% | 0.39% | 73% | $770 |
2012 | $10.68 | 0.05 | 1.29 | 1.34 | (0.03) | $11.99 | 12.62% | 1.26% | 0.45% | 59% | $1,376 |
2011 | $10.15 | 0.04 | 0.52 | 0.56 | (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) | $8.74 | 13.48% | 1.25% | 0.25% | 125% | $373 |
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 | Net | Net Unrealized | Total From | Distributions | Net Asset | Total | Operating | Net Income | Portfolio | Net Assets, | |
C Class | |||||||||||
2013 | $11.75 | (0.05) | 2.82 | 2.77 | (0.05) | $14.47 | 23.65% | 2.00% | (0.36)% | 73% | $434 |
2012 | $10.52 | (0.03) | 1.26 | 1.23 | — | $11.75 | 11.69% | 2.01% | (0.30)% | 59% | $311 |
2011 | $10.05 | (0.05) | 0.52 | 0.47 | — | $10.52 | 4.68% | 2.00% | (0.46)% | 91% | $346 |
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 |
R Class | |||||||||||
2013 | $11.95 | 0.02 | 2.87 | 2.89 | (0.07) | $14.77 | 24.27% | 1.50% | 0.14% | 73% | $731 |
2012 | $10.65 | 0.02 | 1.29 | 1.31 | (0.01) | $11.95 | 12.29% | 1.51% | 0.20% | 59% | $558 |
2011 | $10.12 | 0.01 | 0.52 | 0.53 | —(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) | $8.73 | 13.19% | 1.50% | 0.00%(4) | 125% | $20 |
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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Focused Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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 | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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 | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $108,836, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $134,759, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
The fund utilized earnings and profits of $141,675 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
Notes |
Notes |
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80465 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Fundamental Equity Fund
Table of Contents |
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 | 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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | |||||
Average Annual Returns | |||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | |
A Class No sales charge* With sales charge* | AFDAX
| 25.51% 18.31% | 14.32% 12.99% | 8.63% 7.91% | 11/30/04
|
S&P 500 Index | — | 27.18% | 15.16% | 6.83% | — |
Investor Class | AFDIX | 25.83% | 14.59% | 8.50% | 7/29/05 |
Institutional Class | AFEIX | 26.06% | 14.84% | 8.72% | 7/29/05 |
B Class No sales charge* With sales charge* | AFDBX
| 24.56% 20.56% | 13.46% 13.34% | 7.80% 7.80% | 11/30/04
|
C Class | AFDCX | 24.54% | 13.45% | 7.81% | 11/30/04 |
R Class | AFDRX | 25.25% | 14.03% | 7.95% | 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.
Growth of $10,000 Over Life of Class |
$10,000 investment made November 30, 2004 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/fundamentalequity.jpg)
*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.
Portfolio Commentary |
Portfolio Managers: Greg Woodhams, Prescott LeGard, Justin Brown, and Joe Reiland
Performance Summary
Fundamental Equity returned 25.51%* for the 12 months ended October 31, 2013, compared with its benchmark, the S&P 500 Index, which returned 27.18%.
As discussed in the Market Perspective on page 4, equity indices gained during the reporting period, although they experienced volatility along the way. In this environment, Fundamental Equity delivered solid absolute returns but lagged its benchmark.
Within the portfolio, Fundamental Equity derived positive absolute returns from every sector in which it invested. Relative to the benchmark, security selection in the information technology sector accounted for the bulk of underperformance. Stock decisions in the energy and consumer discretionary sectors also detracted from relative returns. Stock selection in the industrials, consumer staples, and health care sectors contributed to relative results.
Information Technology Led Underperformance
The information technology sector was the largest source of underperformance versus the benchmark. Within the IT services industry group, it hurt to be overexposed to shares of IBM, which suffered from slower hardware sales. Stock selection in the computers and peripherals industry hindered performance. A key detractor in the group was network storage company EMC Corp., which declined as it lowered earnings guidance. Positioning within the semiconductors and semiconductor equipment group, as well as the internet software and services group, hurt relative results.
Energy, Consumer Discretionary Detracted
The energy sector was home to the portfolio’s largest individual detractor, an overweight position in Exxon Mobil. The oil and gas producer delivered lower-than-expected profits and declining revenues as production levels fell throughout the reporting period.
In the consumer discretionary space, a stake in online travel provider Expedia trimmed results. We believed the company would realize greater efficiencies and profits as a result of its business model; unfortunately, that did not materialize.
Within the specialty retail group, a position in Pier 1 Imports detracted. The company’s second quarter 2013 profit fell significantly due to poor marketing messaging around clearance and promotional activity, leading to lower store traffic.
Industrials Led Contributors
The industrials sector was home to some individual outperformers. An overweight position in Dover Corp. contributed meaningfully to relative results. The industrial products and equipment company reported second quarter 2013 earnings that exceeded expectations, and raised its full-year guidance for revenues. In
* | 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. |
the aerospace and defense group, an overweight position in Honeywell helped as the company reported better-than-expected results, thanks to greater cost controls and improving margins.
Consumer Staples, Health Care Helped
The consumer staples sector was a source of outperformance relative to the benchmark. In the food products group, effective stock decisions included an overweight position in Tyson Foods. Benefiting from strong demand, the food producer was able to offset rising input costs through higher pricing.
In the health care sector, the portfolio was rewarded for an overweight stake in AmerisourceBergen. The drug distributor’s earnings exceeded analysts’ expectations as it benefited from the on-boarding of the company’s new distribution with Walgreens and increased sales in its pharmaceutical division.
Apart from those sectors, media company Time Warner, Inc. was a leading individual contributor. The company benefited from higher advertising revenue and cable system fees among its TV networks.
Outlook
Fundamental Equity generally invests in larger-sized companies, although it may invest in companies of any size. The investment team uses a quantitative model that combines fundamental measures of a stock’s value and growth potential. The fund seeks to provide better returns than, and a dividend yield comparable to, its benchmark, the S&P 500 Index, without taking on significant additional risk. Regardless of market environment, we remain focused on our methodology of identifying attractively valued companies.
The portfolio’s sector and industry selection as well as capitalization range allocations are primarily a result of identifying what we believe to be superior individual securities. As of October 31, 2013, the industrials, consumer discretionary, and energy sectors were the portfolio’s largest overweight positions relative to the benchmark. The most notable sector underweight positions were in financials and staples stocks. Information technology stocks represented the portfolio’s single largest sector allocation on an absolute basis and reflect some recently initiated or more concentrated positions.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Exxon Mobil Corp. | 3.9% |
Apple, Inc. | 3.4% |
JPMorgan Chase & Co. | 2.6% |
Wells Fargo & Co. | 2.3% |
PepsiCo, Inc. | 2.3% |
Citigroup, Inc. | 2.3% |
Home Depot, Inc. (The) | 2.2% |
Johnson & Johnson | 2.1% |
Chevron Corp. | 2.1% |
Honeywell International, Inc. | 1.9% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 9.2% |
Computers and Peripherals | 5.3% |
Pharmaceuticals | 5.2% |
Media | 5.1% |
Diversified Financial Services | 4.9% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.7% |
Exchange-Traded Funds | 1.4% |
Total Equity Exposure | 99.1% |
Temporary Cash Investments | 0.9% |
Other Assets and Liabilities | —* |
* Category is less than 0.05% of total net assets.
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 - 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,105.00 | $5.36 | 1.01% |
Institutional Class | $1,000 | $1,106.70 | $4.30 | 0.81% |
A Class | $1,000 | $1,104.10 | $6.68 | 1.26% |
B Class | $1,000 | $1,099.60 | $10.64 | 2.01% |
C Class | $1,000 | $1,100.20 | $10.64 | 2.01% |
R Class | $1,000 | $1,102.70 | $8.00 | 1.51% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.11 | $5.14 | 1.01% |
Institutional Class | $1,000 | $1,021.12 | $4.13 | 0.81% |
A Class | $1,000 | $1,018.85 | $6.41 | 1.26% |
B Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
C Class | $1,000 | $1,015.07 | $10.21 | 2.01% |
R Class | $1,000 | $1,017.59 | $7.68 | 1.51% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.7% | ||||||
AEROSPACE AND DEFENSE — 4.9% | ||||||
Boeing Co. (The) | 30,119 | $3,930,530 | ||||
General Dynamics Corp. | 18,307 | 1,585,935 | ||||
Honeywell International, Inc. | 47,770 | 4,143,092 | ||||
Lockheed Martin Corp. | 2,738 | 365,085 | ||||
Northrop Grumman Corp. | 7,808 | 839,438 | ||||
10,864,080 | ||||||
AIR FREIGHT AND LOGISTICS — 0.4% | ||||||
United Parcel Service, Inc., Class B | 8,519 | 836,907 | ||||
AIRLINES — 0.2% | ||||||
Allegiant Travel Co. | 4,341 | 452,636 | ||||
AUTOMOBILES — 0.7% | ||||||
Ford Motor Co. | 90,777 | 1,553,194 | ||||
BEVERAGES — 3.1% | ||||||
Coca-Cola Enterprises, Inc. | 10,417 | 434,702 | ||||
Dr Pepper Snapple Group, Inc. | 31,812 | 1,506,298 | ||||
PepsiCo, Inc. | 59,892 | 5,036,318 | ||||
6,977,318 | ||||||
BIOTECHNOLOGY — 1.8% | ||||||
Amgen, Inc. | 30,214 | 3,504,824 | ||||
Gilead Sciences, Inc.(1) | 7,214 | 512,122 | ||||
4,016,946 | ||||||
CAPITAL MARKETS — 1.1% | ||||||
Ameriprise Financial, Inc. | 3,740 | 376,020 | ||||
Goldman Sachs Group, Inc. (The) | 8,050 | 1,294,923 | ||||
Legg Mason, Inc. | 18,497 | 711,579 | ||||
2,382,522 | ||||||
CHEMICALS — 2.2% | ||||||
Ashland, Inc. | 1,340 | 124,017 | ||||
CF Industries Holdings, Inc. | 7,116 | 1,534,209 | ||||
Dow Chemical Co. (The) | 20,310 | 801,636 | ||||
E.I. du Pont de Nemours & Co. | 7,284 | 445,781 | ||||
Eastman Chemical Co. | 2,005 | 157,974 | ||||
LyondellBasell Industries NV, Class A | 21,230 | 1,583,758 | ||||
Monsanto Co. | 444 | 46,567 | ||||
PPG Industries, Inc. | 998 | 182,215 | ||||
4,876,157 | ||||||
COMMERCIAL BANKS — 2.5% | ||||||
Bank of Hawaii Corp. | 7,405 | 429,342 | ||||
Wells Fargo & Co. | 122,562 | 5,232,172 | ||||
5,661,514 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.1% | ||||||
Knoll, Inc. | 19,642 | 322,522 | ||||
COMMUNICATIONS EQUIPMENT — 2.1% | ||||||
Cisco Systems, Inc. | 156,684 | 3,525,390 | ||||
Motorola Solutions, Inc. | 3,392 | 212,068 | ||||
QUALCOMM, Inc. | 12,628 | 877,267 | ||||
4,614,725 | ||||||
COMPUTERS AND PERIPHERALS — 5.3% | ||||||
Apple, Inc. | 14,449 | 7,547,435 | ||||
EMC Corp. | 70,859 | 1,705,576 | ||||
Hewlett-Packard Co. | 91,718 | 2,235,168 | ||||
Seagate Technology plc | 7,374 | 358,966 | ||||
11,847,145 | ||||||
CONSTRUCTION AND ENGINEERING — 0.2% | ||||||
EMCOR Group, Inc. | 8,286 | 307,079 | ||||
Fluor Corp. | 2,285 | 169,593 | ||||
476,672 | ||||||
CONSUMER FINANCE — 0.8% | ||||||
American Express Co. | 6,298 | 515,176 | ||||
Capital One Financial Corp. | 623 | 42,781 | ||||
Discover Financial Services | 22,003 | 1,141,516 | ||||
1,699,473 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 4.9% | ||||||
Citigroup, Inc. | 102,959 | 5,022,340 | ||||
JPMorgan Chase & Co. | 114,306 | 5,891,331 | ||||
10,913,671 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 2.0% | ||||||
AT&T, Inc. | 51,275 | 1,856,155 | ||||
CenturyLink, Inc. | 10,854 | 367,517 | ||||
Verizon Communications, Inc. | 45,289 | 2,287,547 | ||||
4,511,219 | ||||||
ELECTRIC UTILITIES — 1.3% | ||||||
FirstEnergy Corp. | 18,896 | 715,592 | ||||
Northeast Utilities | 15,735 | 674,874 | ||||
Xcel Energy, Inc. | 51,144 | 1,476,016 | ||||
2,866,482 | ||||||
ELECTRICAL EQUIPMENT — 1.0% | ||||||
Emerson Electric Co. | 32,738 | 2,192,464 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.4% | ||||||
Belden, Inc. | 10,223 | 687,599 | ||||
Jabil Circuit, Inc. | 9,242 | 192,788 | ||||
880,387 |
Shares | Value |
ENERGY EQUIPMENT AND SERVICES — 1.9% | ||||||
Halliburton Co. | 14,230 | $754,617 | ||||
National Oilwell Varco, Inc. | 7,503 | 609,094 | ||||
Patterson-UTI Energy, Inc. | 22,352 | 542,259 | ||||
Schlumberger Ltd. | 24,121 | 2,260,620 | ||||
4,166,590 | ||||||
FOOD AND STAPLES RETAILING — 1.4% | ||||||
Kroger Co. (The) | 2,262 | 96,904 | ||||
Safeway, Inc. | 11,091 | 387,076 | ||||
Sysco Corp. | 1,603 | 51,841 | ||||
Wal-Mart Stores, Inc. | 34,715 | 2,664,376 | ||||
3,200,197 | ||||||
FOOD PRODUCTS — 1.7% | ||||||
Archer-Daniels-Midland Co. | 6,111 | 249,940 | ||||
ConAgra Foods, Inc. | 16,845 | 535,840 | ||||
General Mills, Inc. | 25,586 | 1,290,046 | ||||
Green Mountain Coffee Roasters, Inc.(1) | 6,982 | 438,539 | ||||
Kraft Foods Group, Inc. | 1,441 | 78,362 | ||||
Tyson Foods, Inc., Class A | 43,318 | 1,198,609 | ||||
3,791,336 | ||||||
GAS UTILITIES — 0.1% | ||||||
Questar Corp. | 9,295 | 219,920 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.6% | ||||||
Abbott Laboratories | 46,942 | 1,715,730 | ||||
Baxter International, Inc. | 2,081 | 137,076 | ||||
Boston Scientific Corp.(1) | 12,823 | 149,901 | ||||
Covidien plc | 1,404 | 90,010 | ||||
Medtronic, Inc. | 46,662 | 2,678,399 | ||||
ResMed, Inc. | 10,546 | 545,650 | ||||
Stryker Corp. | 5,205 | 384,441 | ||||
5,701,207 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.4% | ||||||
Aetna, Inc. | 20,244 | 1,269,299 | ||||
AmerisourceBergen Corp. | 51,602 | 3,371,159 | ||||
Cardinal Health, Inc. | 41,731 | 2,447,940 | ||||
Express Scripts Holding Co.(1) | 4,865 | 304,160 | ||||
UnitedHealth Group, Inc. | 4,352 | 297,067 | ||||
7,689,625 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 1.4% | ||||||
Bally Technologies, Inc.(1) | 3,875 | 283,418 | ||||
Brinker International, Inc. | 1,022 | 45,397 | ||||
Cheesecake Factory, Inc. (The) | 2,873 | 135,749 | ||||
Starbucks Corp. | 7,735 | 626,922 | ||||
Wyndham Worldwide Corp. | 18,251 | 1,211,866 | ||||
Wynn Resorts Ltd. | 4,790 | 796,338 | ||||
3,099,690 | ||||||
HOUSEHOLD DURABLES — 0.2% | ||||||
Tupperware Brands Corp. | 3,936 | 352,862 | ||||
HOUSEHOLD PRODUCTS — 1.5% | ||||||
Colgate-Palmolive Co. | 1,695 | 109,717 | ||||
Kimberly-Clark Corp. | 6,549 | 707,292 | ||||
Procter & Gamble Co. (The) | 31,018 | 2,504,704 | ||||
3,321,713 | ||||||
INDUSTRIAL CONGLOMERATES — 1.6% | ||||||
General Electric Co. | 137,238 | 3,587,401 | ||||
INSURANCE — 4.3% | ||||||
ACE Ltd. | 10,492 | 1,001,356 | ||||
Aflac, Inc. | 8,863 | 575,918 | ||||
American Financial Group, Inc. | 5,345 | 300,710 | ||||
American International Group, Inc. | 30,930 | 1,597,534 | ||||
Assurant, Inc. | 10,556 | 617,315 | ||||
Chubb Corp. (The) | 6,348 | 584,524 | ||||
MetLife, Inc. | 8,645 | 408,995 | ||||
Principal Financial Group, Inc. | 16,260 | 771,700 | ||||
Travelers Cos., Inc. (The) | 21,008 | 1,812,990 | ||||
Unum Group | 61,870 | 1,963,754 | ||||
9,634,796 | ||||||
INTERNET AND CATALOG RETAIL — 0.7% | ||||||
Expedia, Inc. | 16,961 | 998,663 | ||||
priceline.com, Inc.(1) | 195 | 205,497 | ||||
TripAdvisor, Inc.(1) | 3,411 | 282,124 | ||||
1,486,284 | ||||||
INTERNET SOFTWARE AND SERVICES — 2.0% | ||||||
AOL, Inc. | 4,544 | 164,674 | ||||
Google, Inc., Class A(1) | 2,558 | 2,636,224 | ||||
LinkedIn Corp., Class A(1) | 2,495 | 558,057 | ||||
VeriSign, Inc.(1) | 20,108 | 1,091,462 | ||||
4,450,417 | ||||||
IT SERVICES — 4.1% | ||||||
Accenture plc, Class A | 18,107 | 1,330,864 | ||||
Cognizant Technology Solutions Corp., Class A(1) | 3,505 | 304,690 | ||||
Computer Sciences Corp. | 1,314 | 64,728 | ||||
International Business Machines Corp. | 19,341 | 3,466,101 | ||||
MasterCard, Inc., Class A | 4,204 | 3,014,688 | ||||
Western Union Co. (The) | 61,611 | 1,048,619 | ||||
9,229,690 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.3% | ||||||
Hasbro, Inc. | 13,965 | 721,292 |
Shares | Value |
LIFE SCIENCES TOOLS AND SERVICES — 0.3% | ||||||
Agilent Technologies, Inc. | 9,178 | $465,875 | ||||
Thermo Fisher Scientific, Inc. | 2,739 | 267,820 | ||||
733,695 | ||||||
MACHINERY — 2.0% | ||||||
AGCO Corp. | 3,232 | 188,684 | ||||
Cummins, Inc. | 5,883 | 747,259 | ||||
Dover Corp. | 29,799 | 2,735,250 | ||||
Oshkosh Corp.(1) | 1,575 | 74,954 | ||||
Wabtec Corp. | 10,024 | 653,465 | ||||
4,399,612 | ||||||
MEDIA — 5.1% | ||||||
CBS Corp., Class B | 22,136 | 1,309,123 | ||||
Comcast Corp., Class A | 86,536 | 4,117,383 | ||||
Gannett Co., Inc. | 4,778 | 132,207 | ||||
Omnicom Group, Inc. | 4,976 | 338,916 | ||||
Time Warner Cable, Inc. | 12,628 | 1,517,254 | ||||
Time Warner, Inc. | 48,222 | 3,314,780 | ||||
Viacom, Inc., Class B | 7,015 | 584,279 | ||||
11,313,942 | ||||||
METALS AND MINING — 0.1% | ||||||
Reliance Steel & Aluminum Co. | 4,143 | 303,640 | ||||
MULTI-UTILITIES — 1.2% | ||||||
Ameren Corp. | 3,812 | 137,918 | ||||
CenterPoint Energy, Inc. | 58,196 | 1,431,622 | ||||
DTE Energy Co. | 16,610 | 1,148,415 | ||||
Public Service Enterprise Group, Inc. | 2,204 | 73,834 | ||||
2,791,789 | ||||||
MULTILINE RETAIL — 0.9% | ||||||
Dillard’s, Inc., Class A | 3,028 | 248,235 | ||||
Macy’s, Inc. | 14,837 | 684,134 | ||||
Target Corp. | 16,305 | 1,056,401 | ||||
1,988,770 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 9.2% | ||||||
Chevron Corp. | 38,304 | 4,594,948 | ||||
ConocoPhillips | 36,782 | 2,696,121 | ||||
Exxon Mobil Corp. | 97,359 | 8,725,314 | ||||
Hess Corp. | 5,960 | 483,952 | ||||
HollyFrontier Corp. | 23,022 | 1,060,393 | ||||
Murphy Oil Corp. | 8,753 | 527,981 | ||||
Occidental Petroleum Corp. | 18,805 | 1,806,784 | ||||
Peabody Energy Corp. | 10,289 | 200,430 | ||||
Valero Energy Corp. | 8,085 | 332,859 | ||||
WPX Energy, Inc.(1) | 2,493 | 55,195 | ||||
20,483,977 | ||||||
PAPER AND FOREST PRODUCTS — 0.9% | ||||||
International Paper Co. | 42,801 | 1,909,353 | ||||
PHARMACEUTICALS — 5.2% | ||||||
AbbVie, Inc. | 39,117 | 1,895,218 | ||||
Eli Lilly & Co. | 23,947 | 1,193,039 | ||||
Hospira, Inc.(1) | 8,834 | 357,954 | ||||
Johnson & Johnson | 50,211 | 4,650,041 | ||||
Mallinckrodt plc(1) | 175 | 7,352 | ||||
Pfizer, Inc. | 113,412 | 3,479,480 | ||||
11,583,084 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.0% | ||||||
American Tower Corp. | 12,099 | 960,056 | ||||
Public Storage | 6,212 | 1,037,217 | ||||
Simon Property Group, Inc. | 1,483 | 229,198 | ||||
Weyerhaeuser Co. | 1,343 | 40,827 | ||||
2,267,298 | ||||||
ROAD AND RAIL — 1.2% | ||||||
CSX Corp. | 8,566 | 223,230 | ||||
Ryder System, Inc. | 16,904 | 1,112,790 | ||||
Union Pacific Corp. | 9,422 | 1,426,491 | ||||
2,762,511 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.3% | ||||||
Altera Corp. | 32,001 | 1,075,234 | ||||
First Solar, Inc.(1) | 4,566 | 229,533 | ||||
Intel Corp. | 21,807 | 532,745 | ||||
Micron Technology, Inc.(1) | 20,587 | 363,978 | ||||
Texas Instruments, Inc. | 18,732 | 788,242 | ||||
2,989,732 | ||||||
SOFTWARE — 2.1% | ||||||
Microsoft Corp. | 75,769 | 2,678,434 | ||||
Oracle Corp. | 37,571 | 1,258,629 | ||||
Red Hat, Inc.(1) | 795 | 34,400 | ||||
Symantec Corp. | 36,680 | 834,103 | ||||
4,805,566 | ||||||
SPECIALTY RETAIL — 3.9% | ||||||
AutoZone, Inc.(1) | 792 | 344,275 | ||||
Chico’s FAS, Inc. | 13,674 | 234,509 | ||||
CST Brands, Inc. | 898 | 28,952 | ||||
Gap, Inc. (The) | 28,381 | 1,049,813 | ||||
Home Depot, Inc. (The) | 62,024 | 4,831,049 | ||||
L Brands, Inc. | 2,295 | 143,690 | ||||
Lowe’s Cos., Inc. | 18,173 | 904,652 | ||||
Murphy USA, Inc.(1) | 2,187 | 88,748 | ||||
Pier 1 Imports, Inc. | 54,120 | 1,130,026 | ||||
8,755,714 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.1% | ||||||
Coach, Inc. | 4,085 | 207,028 |
Shares | Value |
TOBACCO — 1.0% | ||||||
Altria Group, Inc. | 51,141 | $1,903,979 | ||||
Lorillard, Inc. | 5,564 | 283,820 | ||||
2,187,799 | ||||||
TOTAL COMMON STOCKS (Cost $138,253,925) | 218,082,564 | |||||
Exchange-Traded Funds — 1.4% | ||||||
SPDR S&P 500 ETF Trust (Cost $2,603,841) | 17,458 | 3,067,894 | ||||
Temporary Cash Investments — 0.9% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $437,879), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $429,796) | 429,795 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $526,550), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $515,754) | 515,754 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $526,447), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $515,754) | 515,754 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $526,450), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $515,755) | 515,754 | |||||
SSgA U.S. Government Money Market Fund | 142,768 | 142,768 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,119,825) | 2,119,825 | |||||
TOTAL INVESTMENT SECURITIES — 100.0% (Cost $142,977,591) | 223,270,283 | |||||
OTHER ASSETS AND LIABILITIES† | (40,870 | ) | ||||
TOTAL NET ASSETS — 100.0% | $223,229,413 |
Notes to Schedule of Investments
† | Category is less than 0.05% of total net assets. |
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $142,977,591) | $223,270,283 | ||
Receivable for capital shares sold | 248,256 | ||
Dividends and interest receivable | 196,095 | ||
223,714,634 | |||
Liabilities | |||
Payable for capital shares redeemed | 257,412 | ||
Accrued management fees | 183,878 | ||
Distribution and service fees payable | 43,931 | ||
485,221 | |||
Net Assets | $223,229,413 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $234,620,213 | ||
Undistributed net investment income | 1,620,774 | ||
Accumulated net realized loss | (93,304,266 | ) | |
Net unrealized appreciation | 80,292,692 | ||
$223,229,413 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $68,416,122 | 3,715,360 | $18.41 |
Institutional Class, $0.01 Par Value | $10,451,011 | 565,848 | $18.47 |
A Class, $0.01 Par Value | $119,357,965 | 6,505,157 | $18.35* |
B Class, $0.01 Par Value | $3,325,890 | 184,736 | $18.00 |
C Class, $0.01 Par Value | $16,678,627 | 926,106 | $18.01 |
R Class, $0.01 Par Value | $4,999,798 | 273,971 | $18.25 |
* Maximum offering price $19.47 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $11,188) | $4,799,159 | ||
Interest | 880 | ||
4,800,039 | |||
Expenses: | |||
Management fees | 1,938,864 | ||
Distribution and service fees: | |||
A Class | 277,801 | ||
B Class | 31,868 | ||
C Class | 159,253 | ||
R Class | 20,942 | ||
Directors’ fees and expenses | 12,208 | ||
Other expenses | 25 | ||
2,440,961 | |||
Net investment income (loss) | 2,359,078 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 15,335,223 | ||
Change in net unrealized appreciation (depreciation) on investments | 26,660,396 | ||
Net realized and unrealized gain (loss) | 41,995,619 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $44,354,697 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $2,359,078 | $2,015,649 | ||||
Net realized gain (loss) | 15,335,223 | 7,398,862 | ||||
Change in net unrealized appreciation (depreciation) | 26,660,396 | 15,225,088 | ||||
Net increase (decrease) in net assets resulting from operations | 44,354,697 | 24,639,599 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (505,892 | ) | (478,590 | ) | ||
Institutional Class | (124,491 | ) | (111,278 | ) | ||
A Class | (1,279,655 | ) | (981,254 | ) | ||
B Class | (32,227 | ) | (7,176 | ) | ||
C Class | (153,858 | ) | (32,405 | ) | ||
R Class | (34,693 | ) | (13,234 | ) | ||
Decrease in net assets from distributions | (2,130,816 | ) | (1,623,937 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | 6,863,937 | (20,705,063 | ) | |||
Net increase (decrease) in net assets | 49,087,818 | 2,310,599 | ||||
Net Assets | ||||||
Beginning of period | 174,141,595 | 171,830,996 | ||||
End of period | $223,229,413 | $174,141,595 | ||||
Undistributed net investment income | $1,620,774 | $1,444,585 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Fundamental Equity Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. Income is a secondary objective.
The fund offers the Investor Class, the Institutional Class, the A Class, the B Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are typically valued at the closing price on the exchange where primarily traded or as of the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Indemnifications — Under the corporation’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against a fund. The risk of material loss from such claims is considered by management to be remote.
3. Fees and Transactions with Related Parties
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, 2013 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $76,339,253 and $69,811,690, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 2,105,291 | $35,157,597 | 1,342,007 | $18,814,978 | ||||||||
Issued in reinvestment of distributions | 31,320 | 469,801 | 35,466 | 454,676 | ||||||||
Redeemed | (1,001,523 | ) | (16,616,170 | ) | (2,344,052 | ) | (31,995,934 | ) | ||||
1,135,088 | 19,011,228 | (966,579 | ) | (12,726,280 | ) | |||||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 97,765 | 1,637,665 | 679,623 | 8,808,345 | ||||||||
Issued in reinvestment of distributions | 8,288 | 124,491 | 8,687 | 111,278 | ||||||||
Redeemed | (161,547 | ) | (2,718,059 | ) | (74,872 | ) | (1,040,106 | ) | ||||
(55,494 | ) | (955,903 | ) | 613,438 | 7,879,517 | |||||||
A Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||
Sold | 1,060,036 | 17,404,481 | 1,044,206 | 14,687,028 | ||||||||
Issued in reinvestment of distributions | 77,769 | 1,164,981 | 71,129 | 911,874 | ||||||||
Redeemed | (1,777,030 | ) | (28,895,340 | ) | (2,172,087 | ) | (30,183,533 | ) | ||||
(639,225 | ) | (10,325,878 | ) | (1,056,752 | ) | (14,584,631 | ) | |||||
B Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 10,530 | 172,424 | 2,968 | 40,429 | ||||||||
Issued in reinvestment of distributions | 1,991 | 29,471 | 521 | 6,630 | ||||||||
Redeemed | (44,575 | ) | (708,772 | ) | (31,934 | ) | (443,468 | ) | ||||
(32,054 | ) | (506,877 | ) | (28,445 | ) | (396,409 | ) | |||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 141,577 | 2,300,680 | 134,302 | 1,852,399 | ||||||||
Issued in reinvestment of distributions | 6,759 | 100,029 | 1,594 | 20,313 | ||||||||
Redeemed | (246,977 | ) | (4,014,231 | ) | (205,903 | ) | (2,860,466 | ) | ||||
(98,641 | ) | (1,613,522 | ) | (70,007 | ) | (987,754 | ) | |||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||
Sold | 145,612 | 2,270,986 | 103,146 | 1,481,207 | ||||||||
Issued in reinvestment of distributions | 2,324 | 34,693 | 1,034 | 13,234 | ||||||||
Redeemed | (65,001 | ) | (1,050,790 | ) | (103,525 | ) | (1,383,947 | ) | ||||
82,935 | 1,254,889 | 655 | 110,494 | |||||||||
Net increase (decrease) | 392,609 | $6,863,937 | (1,507,690 | ) | $(20,705,063 | ) |
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 | $218,082,564 | — | — | ||||||
Exchange-Traded Funds | 3,067,894 | — | — | ||||||
Temporary Cash Investments | 142,768 | $1,977,057 | — | ||||||
Total Value of Investment Securities | $221,293,226 | $1,977,057 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $2,130,816 | $1,623,937 | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $146,357,012 | ||
Gross tax appreciation of investments | $78,047,769 | ||
Gross tax depreciation of investments | (1,134,498 | ) | |
Net tax appreciation (depreciation) of investments | $76,913,271 | ||
Undistributed ordinary income | $1,620,774 | ||
Accumulated short-term capital losses | $(89,924,845 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(16,293,618) and $(73,631,227) expire in 2016 and 2017, respectively.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||
Net Beginning | Net Income | Net Realized | Total From | Distributions | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |
Investor Class | |||||||||||
2013 | $14.82 | 0.23 | 3.55 | 3.78 | (0.19) | $18.41 | 25.83% | 1.01% | 1.44% | 36% | $68,416 |
2012 | $12.97 | 0.20 | 1.81 | 2.01 | (0.16) | $14.82 | 15.65% | 1.01% | 1.39% | 18% | $38,250 |
2011 | $11.95 | 0.14 | 1.02 | 1.16 | (0.14) | $12.97 | 9.72% | 1.01% | 1.11% | 18% | $45,991 |
2010 | $10.57 | 0.12 | 1.40 | 1.52 | (0.14) | $11.95 | 14.47% | 1.02% | 1.06% | 29% | $41,698 |
2009 | $9.93 | 0.12 | 0.66 | 0.78 | (0.14) | $10.57 | 8.16% | 1.01% | 1.37% | 64% | $37,918 |
Institutional Class | |||||||||||
2013 | $14.85 | 0.27 | 3.55 | 3.82 | (0.20) | $18.47 | 26.06% | 0.81% | 1.64% | 36% | $10,451 |
2012 | $12.99 | 0.21 | 1.83 | 2.04 | (0.18) | $14.85 | 15.93% | 0.81% | 1.59% | 18% | $9,225 |
2011 | $11.96 | 0.17 | 1.02 | 1.19 | (0.16) | $12.99 | 10.02% | 0.81% | 1.31% | 18% | $103 |
2010 | $10.59 | 0.15 | 1.38 | 1.53 | (0.16) | $11.96 | 14.57% | 0.82% | 1.26% | 29% | $120 |
2009 | $9.94 | 0.16 | 0.65 | 0.81 | (0.16) | $10.59 | 8.47% | 0.81% | 1.57% | 64% | $274 |
A Class | |||||||||||
2013 | $14.80 | 0.20 | 3.53 | 3.73 | (0.18) | $18.35 | 25.51% | 1.26% | 1.19% | 36% | $119,358 |
2012 | $12.94 | 0.16 | 1.82 | 1.98 | (0.12) | $14.80 | 15.48% | 1.26% | 1.14% | 18% | $105,718 |
2011 | $11.93 | 0.11 | 1.01 | 1.12 | (0.11) | $12.94 | 9.38% | 1.26% | 0.86% | 18% | $106,159 |
2010 | $10.56 | 0.09 | 1.39 | 1.48 | (0.11) | $11.93 | 14.10% | 1.27% | 0.81% | 29% | $129,960 |
2009 | $9.91 | 0.11 | 0.66 | 0.77 | (0.12) | $10.56 | 8.00% | 1.26% | 1.12% | 64% | $159,959 |
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 Beginning | Net Income | Net Realized | Total From | Distributions | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |
B Class | |||||||||||
2013 | $14.60 | 0.08 | 3.47 | 3.55 | (0.15) | $18.00 | 24.56% | 2.01% | 0.44% | 36% | $3,326 |
2012 | $12.77 | 0.06 | 1.80 | 1.86 | (0.03) | $14.60 | 14.60% | 2.01% | 0.39% | 18% | $3,165 |
2011 | $11.77 | 0.01 | 1.00 | 1.01 | (0.01) | $12.77 | 8.59% | 2.01% | 0.11% | 18% | $3,133 |
2010 | $10.42 | 0.01 | 1.37 | 1.38 | (0.03) | $11.77 | 13.23% | 2.02% | 0.06% | 29% | $3,838 |
2009 | $9.78 | 0.03 | 0.66 | 0.69 | (0.05) | $10.42 | 7.17% | 2.01% | 0.37% | 64% | $4,043 |
C Class | |||||||||||
2013 | $14.61 | 0.07 | 3.48 | 3.55 | (0.15) | $18.01 | 24.54% | 2.01% | 0.44% | 36% | $16,679 |
2012 | $12.78 | 0.05 | 1.81 | 1.86 | (0.03) | $14.61 | 14.59% | 2.01% | 0.39% | 18% | $14,967 |
2011 | $11.77 | 0.01 | 1.01 | 1.02 | (0.01) | $12.78 | 8.68% | 2.01% | 0.11% | 18% | $13,990 |
2010 | $10.42 | 0.01 | 1.37 | 1.38 | (0.03) | $11.77 | 13.23% | 2.02% | 0.06% | 29% | $14,816 |
2009 | $9.79 | 0.03 | 0.65 | 0.68 | (0.05) | $10.42 | 7.06% | 2.01% | 0.37% | 64% | $15,311 |
R Class | |||||||||||
2013 | $14.74 | 0.15 | 3.53 | 3.68 | (0.17) | $18.25 | 25.25% | 1.51% | 0.94% | 36% | $5,000 |
2012 | $12.90 | 0.13 | 1.80 | 1.93 | (0.09) | $14.74 | 15.09% | 1.51% | 0.89% | 18% | $2,817 |
2011 | $11.89 | 0.08 | 1.00 | 1.08 | (0.07) | $12.90 | 9.14% | 1.51% | 0.61% | 18% | $2,456 |
2010 | $10.52 | 0.06 | 1.39 | 1.45 | (0.08) | $11.89 | 13.86% | 1.52% | 0.56% | 29% | $2,624 |
2009 | $9.88 | 0.06 | 0.68 | 0.74 | (0.10) | $10.52 | 7.64% | 1.51% | 0.87% | 64% | $2,650 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Fundamental Equity Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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 | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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 | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $2,130,816, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80464 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Growth Fund
Table of Contents |
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 | 23 |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCGX | 25.42% | 15.47% | 7.79% | 13.48% | 6/30/71(1) |
Russell 1000 Growth Index | — | 28.30% | 17.50% | 7.70% | N/A(2) | — |
Institutional Class | TWGIX | 25.68% | 15.69% | 8.00% | 6.30% | 6/16/97 |
A Class(3) No sales charge* With sales charge* | TCRAX
| 25.14% 17.93% | 15.19% 13.84% | 7.52% 6.89% | 6.15% 5.77% | 6/4/97
|
C Class | TWRCX | 24.16% | — | — | 13.12% | 3/1/10 |
R Class | AGWRX | 24.80% | 14.89% | 7.25% | 7.55% | 8/29/03 |
R6 Class | AGRDX | — | — | — | 7.34%(4) | 7/26/13 |
* | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. |
(1) | Although the fund’s actual inception date was 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. |
(4) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/growth.jpg)
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
0.97% | 0.77% | 1.22% | 1.97% | 1.47% | 0.62% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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.
Portfolio Commentary |
Portfolio Managers: Greg Woodhams and Prescott LeGard
Performance Summary
Growth returned 25.42%* in the 12 months ended October 31, 2013. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 28.30%.
In terms of Growth’s absolute returns, consumer discretionary and health care shares contributed most. No sector detracted in absolute terms. Relative to the benchmark, stock selection made consumer discretionary stocks the leading detractors. Stock choices meant energy shares contributed most to relative performance.
Consumer Discretionary Detracted Most
Stock selection detracted most from relative results in the consumer discretionary sector. Two of the leading detractors for the year were online travel providers Expedia, in which the portfolio held an overweight position, and priceline.com, to which the fund had no exposure. Unfortunately, Expedia lagged and priceline.com did relatively well. We believed Expedia would realize greater efficiencies and profits as a result of its business model; however, that did not materialize and we eliminated the position. Elsewhere in the sector, select textiles and apparel and retail holdings also detracted. Multiline retailer Target is a good example. Though the stock underperformed, we expect profit improvement out of the company’s Canadian operations and continue to like its focus on returning equity to shareholders in the form of dividends and share buybacks, as well as its decision to cut capital expenditures and sell its credit card division.
Materials Underperformed
Positioning in the materials sector detracted from performance largely as a result of stock selection decisions in the chemicals industry. It also hurt to hold a stake in Coeur Mining, which underperformed as a result of the collapse in precious metals prices. We eliminated the position because the economics of our investment thesis no longer hold up with gold and silver trading at such low levels. The financials sector also detracted, largely as a result of holdings in the capital markets, consumer finance, and insurance industries.
In terms of individual detractors, real estate investment trust American Campus Communities, which focuses on student housing, underperformed as a result of changes in lease rates. We eliminated the position. It also detracted from relative results to be underrepresented in shares of Facebook. We initiated a position in the company, but held less than the benchmark on average over the course of the period.
Energy, Health Care Helped Most
The leading contribution to relative performance came from positioning in the energy sector. Independent oil and gas producers Noble Energy and EOG Resources were key contributors, benefiting from continued successful development and production at key projects and properties. Another source of strength was energy equipment and services firm Oceaneering International.
*All fund returns referenced in this commentary are for Investor Class shares.
The company, which makes remotely operated vehicles and other equipment for underwater drilling, benefited from the continuing expansion of deep-water drilling and exploration activity.
Positioning in the health care sector also made a significant contribution to relative results. The leading contributor here was Gilead Sciences, with investors enthused about developments in the company’s hepatitis C treatment. Other biopharmaceutical companies to make notable contributions were Regeneron Pharmaceuticals and Alexion Pharmaceuticals. Both benefited from positive product launches and development of drugs in their pipelines. It was a similar story for Bristol-Myers Squibb, which enjoyed good trial results for its immuno-oncology treatments.
Other Notable Contributors
The largest contribution to relative performance came as a result of being underrepresented in shares of IBM, which suffered from disappointing hardware sales. A position in MasterCard contributed to performance, as the electronic payment processor continued to benefit from the rising trend of electronic rather than cash transactions. Entertainment companies CBS and Viacom did well thanks to rising licensing revenues for content in the former case, and continued strong ratings momentum for animated and live-action shows, in the latter case.
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 we believe to be superior individual securities. As of October 31, 2013, the portfolio’s largest underweight position was in the telecommunications sector. In part, this reflected the elimination of a stake in diversified telecommunication provider Verizon, as well as eliminating exposure to wireless providers and tower companies. We see increasing competition in the wireless space and slowing growth in the tower space, so we are closing out these positions after a period of solid performance while valuations are still relatively high.
The largest overweight sector relative to the benchmark was information technology. In part, this reflects a recently initiated position in Facebook. After reporting better-than-expected mobile revenue, we believe the company addressed the key question about its ability to generate revenue from mobile users, not just those on the desktop.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Apple, Inc. | 4.8% |
Google, Inc., Class A | 4.3% |
Schlumberger Ltd. | 2.5% |
Comcast Corp., Class A | 2.5% |
MasterCard, Inc., Class A | 2.4% |
Philip Morris International, Inc. | 2.3% |
PepsiCo, Inc. | 2.2% |
QUALCOMM, Inc. | 2.0% |
Coca-Cola Co. (The) | 1.9% |
Bristol-Myers Squibb Co. | 1.8% |
Top Five Industries | % of net assets |
Internet Software and Services | 6.6% |
Media | 6.1% |
Computers and Peripherals | 6.0% |
Aerospace and Defense | 5.8% |
Software | 5.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.5% |
Temporary Cash Investments | 2.6% |
Other Assets and Liabilities | (0.1)% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses Paid | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,123.60 | $5.19 | 0.97% |
Institutional Class | $1,000 | $1,124.60 | $4.12 | 0.77% |
A Class | $1,000 | $1,122.10 | $6.53 | 1.22% |
C Class | $1,000 | $1,117.90 | $10.52 | 1.97% |
R Class | $1,000 | $1,120.60 | $7.86 | 1.47% |
R6 Class | $1,000 | $1,073.40(2) | $1.73(3) | 0.62% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.32 | $4.94 | 0.97% |
Institutional Class | $1,000 | $1,021.32 | $3.92 | 0.77% |
A Class | $1,000 | $1,019.06 | $6.21 | 1.22% |
C Class | $1,000 | $1,015.28 | $10.01 | 1.97% |
R Class | $1,000 | $1,017.80 | $7.48 | 1.47% |
R6 Class | $1,000 | $1,022.08(4) | $3.16(4) | 0.62% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.5% | ||||||
AEROSPACE AND DEFENSE — 5.8% | ||||||
Boeing Co. (The) | 1,289,300 | $ 168,253,650 | ||||
Honeywell International, Inc. | 1,973,500 | 171,161,655 | ||||
Precision Castparts Corp. | 463,900 | 117,575,455 | ||||
United Technologies Corp. | 1,201,500 | 127,659,375 | ||||
584,650,135 | ||||||
AIR FREIGHT AND LOGISTICS — 1.5% | ||||||
United Parcel Service, Inc., Class B | 1,588,400 | 156,044,416 | ||||
AIRLINES — 0.3% | ||||||
Alaska Air Group, Inc. | 452,400 | 31,966,584 | ||||
AUTOMOBILES — 1.4% | ||||||
Harley-Davidson, Inc. | 1,484,600 | 95,073,784 | ||||
Tesla Motors, Inc.(1) | 312,500 | 49,981,250 | ||||
145,055,034 | ||||||
BEVERAGES — 4.8% | ||||||
Beam, Inc. | 492,900 | 33,172,170 | ||||
Brown-Forman Corp., Class B | 418,300 | 30,527,534 | ||||
Coca-Cola Co. (The) | 4,921,400 | 194,739,798 | ||||
PepsiCo, Inc. | 2,684,200 | 225,714,378 | ||||
484,153,880 | ||||||
BIOTECHNOLOGY — 4.7% | ||||||
Alexion Pharmaceuticals, Inc.(1) | 650,100 | 79,929,795 | ||||
Amgen, Inc. | 1,279,200 | 148,387,200 | ||||
Gilead Sciences, Inc.(1) | 2,426,400 | 172,250,136 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 258,300 | 74,287,080 | ||||
474,854,211 | ||||||
CAPITAL MARKETS — 1.8% | ||||||
Franklin Resources, Inc. | 2,027,700 | 109,211,922 | ||||
State Street Corp. | 1,103,700 | 77,336,259 | ||||
186,548,181 | ||||||
CHEMICALS — 2.7% | ||||||
LyondellBasell Industries NV, Class A | 1,562,800 | 116,584,880 | ||||
Monsanto Co. | 1,544,100 | 161,945,208 | ||||
278,530,088 | ||||||
COMMERCIAL BANKS — 0.7% | ||||||
SunTrust Banks, Inc. | 2,213,900 | 74,475,596 | ||||
COMMERCIAL SERVICES AND SUPPLIES — 0.7% | ||||||
Tyco International Ltd. | 1,828,400 | 66,828,020 | ||||
COMMUNICATIONS EQUIPMENT — 3.6% | ||||||
Ciena Corp.(1) | 2,005,300 | 46,663,331 | ||||
Cisco Systems, Inc. | 2,804,700 | 63,105,750 | ||||
F5 Networks, Inc.(1) | 606,300 | $ 49,419,513 | ||||
QUALCOMM, Inc. | 2,913,800 | 202,421,686 | ||||
361,610,280 | ||||||
COMPUTERS AND PERIPHERALS — 6.0% | ||||||
Apple, Inc. | 940,300 | 491,165,705 | ||||
NetApp, Inc. | 1,683,400 | 65,332,754 | ||||
Seagate Technology plc | 1,060,400 | 51,620,272 | ||||
608,118,731 | ||||||
CONSUMER FINANCE — 1.4% | ||||||
American Express Co. | 1,681,400 | 137,538,520 | ||||
ELECTRICAL EQUIPMENT — 0.9% | ||||||
Rockwell Automation, Inc. | 804,000 | 88,769,640 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.4% | ||||||
Trimble Navigation Ltd.(1) | 1,364,200 | 38,975,194 | ||||
ENERGY EQUIPMENT AND SERVICES — 3.7% | ||||||
Core Laboratories NV | 193,800 | 36,283,236 | ||||
Oceaneering International, Inc. | 966,000 | 82,960,080 | ||||
Schlumberger Ltd. | 2,715,300 | 254,477,916 | ||||
373,721,232 | ||||||
FOOD AND STAPLES RETAILING — 2.0% | ||||||
Costco Wholesale Corp. | 1,125,100 | 132,761,800 | ||||
Whole Foods Market, Inc. | 1,092,900 | 68,994,777 | ||||
201,756,577 | ||||||
FOOD PRODUCTS — 1.4% | ||||||
Hershey Co. (The) | �� | 426,700 | 42,345,708 | |||
Mead Johnson Nutrition Co. | 1,243,400 | 101,536,044 | ||||
Pinnacle Foods, Inc. | 46,343 | 1,255,432 | ||||
145,137,184 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.3% | ||||||
CareFusion Corp.(1) | 523,700 | 20,303,849 | ||||
DENTSPLY International, Inc. | 828,200 | 39,008,220 | ||||
IDEXX Laboratories, Inc.(1) | 296,100 | 31,937,346 | ||||
Intuitive Surgical, Inc.(1) | 113,600 | 42,202,400 | ||||
ResMed, Inc. | 58,200 | 3,011,268 | ||||
136,463,083 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 1.7% | ||||||
Cardinal Health, Inc. | 1,200,600 | 70,427,196 | ||||
Express Scripts Holding Co.(1) | 1,618,400 | 101,182,368 | ||||
171,609,564 | ||||||
HEALTH CARE TECHNOLOGY — 0.3% | ||||||
Veeva Systems, Inc. Class A(1) | 667,062 | 25,955,382 |
Shares | Value | |||||
HOTELS, RESTAURANTS AND LEISURE — 3.6% | ||||||
Chipotle Mexican Grill, Inc.(1) | 140,400 | $ 73,986,588 | ||||
Las Vegas Sands Corp. | 1,501,300 | 105,421,286 | ||||
Marriott International, Inc. Class A | 1,540,800 | 69,459,264 | ||||
Starbucks Corp. | 1,457,600 | 118,138,480 | ||||
367,005,618 | ||||||
HOUSEHOLD DURABLES — 1.0% | ||||||
Mohawk Industries, Inc.(1) | 767,700 | 101,658,834 | ||||
HOUSEHOLD PRODUCTS — 0.8% | ||||||
Colgate-Palmolive Co. | 469,700 | 30,403,681 | ||||
Procter & Gamble Co. (The) | 664,700 | 53,674,525 | ||||
84,078,206 | ||||||
INDUSTRIAL CONGLOMERATES — 0.8% | ||||||
Danaher Corp. | 1,197,800 | 86,349,402 | ||||
INSURANCE — 0.7% | ||||||
MetLife, Inc. | 1,517,700 | 71,802,387 | ||||
INTERNET AND CATALOG RETAIL — 0.6% | ||||||
Amazon.com, Inc.(1) | 165,600 | 60,283,368 | ||||
INTERNET SOFTWARE AND SERVICES — 6.6% | ||||||
Facebook, Inc., Class A(1) | 3,344,200 | 168,079,492 | ||||
Google, Inc., Class A(1) | 423,400 | 436,347,572 | ||||
LinkedIn Corp., Class A(1) | 309,600 | 69,248,232 | ||||
673,675,296 | ||||||
IT SERVICES — 2.4% | ||||||
MasterCard, Inc., Class A | 336,900 | 241,590,990 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 0.5% | ||||||
Waters Corp.(1) | 458,400 | 46,261,728 | ||||
MACHINERY — 1.3% | ||||||
Lincoln Electric Holdings, Inc. | 422,200 | 29,233,128 | ||||
Parker-Hannifin Corp. | 659,200 | 76,941,824 | ||||
WABCO Holdings, Inc.(1) | 335,200 | 28,719,936 | ||||
134,894,888 | ||||||
MEDIA — 6.1% | ||||||
CBS Corp., Class B | 1,905,000 | 112,661,700 | ||||
Comcast Corp., Class A | 5,336,500 | 253,910,670 | ||||
Discovery Communications, Inc. Class C(1) | 771,200 | 63,785,952 | ||||
Scripps Networks Interactive, Inc. Class A | 944,900 | 76,064,450 | ||||
Viacom, Inc., Class B | 1,423,800 | 118,588,302 | ||||
625,011,074 | ||||||
MULTILINE RETAIL — 1.1% | ||||||
Target Corp. | 1,725,700 | 111,808,103 | ||||
OIL, GAS AND CONSUMABLE FUELS — 2.4% | ||||||
EOG Resources, Inc. | 842,733 | 150,343,567 | ||||
Noble Energy, Inc. | 1,275,200 | 95,550,736 | ||||
245,894,303 | ||||||
PERSONAL PRODUCTS — 0.7% | ||||||
Estee Lauder Cos., Inc. (The), Class A | 971,300 | 68,923,448 | ||||
PHARMACEUTICALS — 4.3% | ||||||
AbbVie, Inc. | 2,705,300 | 131,071,785 | ||||
Allergan, Inc. | 605,300 | 54,846,233 | ||||
Bristol-Myers Squibb Co. | 3,521,300 | 184,938,676 | ||||
Zoetis, Inc. | 2,236,400 | 70,804,424 | ||||
441,661,118 | ||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.5% | ||||||
CBRE Group, Inc.(1) | 2,265,900 | 52,636,857 | ||||
ROAD AND RAIL — 1.3% | ||||||
Union Pacific Corp. | 853,200 | 129,174,480 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.9% | ||||||
Altera Corp. | 2,171,600 | 72,965,760 | ||||
Freescale Semiconductor Ltd.(1) | 1,658,800 | 25,611,872 | ||||
Linear Technology Corp. | 2,261,300 | 93,029,882 | ||||
191,607,514 | ||||||
SOFTWARE — 5.7% | ||||||
Cadence Design Systems, Inc.(1) | 1,650,000 | 21,400,500 | ||||
CommVault Systems, Inc.(1) | 496,900 | 38,797,952 | ||||
Electronic Arts, Inc.(1) | 3,073,300 | 80,674,125 | ||||
Microsoft Corp. | 4,046,100 | 143,029,635 | ||||
NetSuite, Inc.(1) | 286,900 | 28,942,472 | ||||
Oracle Corp. | 5,238,400 | 175,486,400 | ||||
Splunk, Inc.(1) | 524,700 | 32,903,937 | ||||
VMware, Inc., Class A(1) | 679,300 | 55,213,504 | ||||
576,448,525 | ||||||
SPECIALTY RETAIL — 5.4% | ||||||
Best Buy Co., Inc. | 1,987,900 | 85,082,120 | ||||
Foot Locker, Inc. | 726,100 | 25,195,670 | ||||
GNC Holdings, Inc. Class A | 1,130,200 | 66,478,364 | ||||
Home Depot, Inc. (The) | 1,975,200 | 153,848,328 | ||||
Lowe’s Cos., Inc. | 2,781,814 | 138,478,701 | ||||
Urban Outfitters, Inc.(1) | 2,056,200 | 77,888,856 | ||||
546,972,039 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.4% | ||||||
Hanesbrands, Inc. | 589,000 | 40,122,680 | ||||
TOBACCO — 2.3% | ||||||
Philip Morris International, Inc. | 2,663,500 | 237,371,120 | ||||
TOTAL COMMON STOCKS (Cost $7,282,184,933) | 9,907,993,510 |
Shares/ Principal Amount | Value | |||||
Temporary Cash Investments — 2.6% | ||||||
Federal Home Loan Bank Discount Notes, 0.00%, 11/1/13(2) | $75,000,000 | $ 75,000,000 | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $39,668,257), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $38,935,956) | 38,935,880 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $47,701,057), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $46,723,096) | 46,723,057 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $47,691,797), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $46,723,083) | 46,723,057 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $47,692,036), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $46,723,121) | 46,723,056 | |||||
SSgA U.S. Government Money Market Fund | 13,005,385 | 13,005,385 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $267,110,435) | 267,110,435 | |||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $7,549,295,368) | 10,175,103,945 | |||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (13,033,098 | ) | ||||
TOTAL NET ASSETS — 100.0% | $10,162,070,847 |
Notes to Schedule of Investments
(1) | Non-income producing. |
(2) | The rate indicated is the yield to maturity at purchase. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $7,549,295,368) | $10,175,103,945 | ||
Receivable for investments sold | 222,925,792 | ||
Receivable for capital shares sold | 3,750,804 | ||
Dividends and interest receivable | 4,223,728 | ||
10,406,004,269 | |||
Liabilities | |||
Payable for investments purchased | 228,945,002 | ||
Payable for capital shares redeemed | 7,061,519 | ||
Accrued management fees | 7,683,699 | ||
Distribution and service fees payable | 243,202 | ||
243,933,422 | |||
Net Assets | $10,162,070,847 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ 6,929,828,037 | ||
Undistributed net investment income | 39,626,721 | ||
Undistributed net realized gain | 566,807,430 | ||
Net unrealized appreciation | 2,625,808,659 | ||
$10,162,070,847 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $6,327,674,253 | 191,153,496 | $33.10 |
Institutional Class, $0.01 Par Value | $2,842,185,301 | 84,867,264 | $33.49 |
A Class, $0.01 Par Value | $817,165,552 | 25,182,855 | $32.45* |
C Class, $0.01 Par Value | $14,489,449 | 449,377 | $32.24 |
R Class, $0.01 Par Value | $145,336,815 | 4,518,787 | $32.16 |
R6 Class, $0.01 Par Value | $15,219,477 | 454,226 | $33.51 |
*Maximum offering price $34.43 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $144,747) | $157,679,708 | ||
Interest | 35,777 | ||
157,715,485 | |||
Expenses: | |||
Management fees | 85,410,551 | ||
Distribution and service fees: | |||
A Class | 1,919,132 | ||
C Class | 141,127 | ||
R Class | 653,445 | ||
Directors’ fees and expenses | 359,255 | ||
Other expenses | 3,735 | ||
88,487,245 | |||
Net investment income (loss) | 69,228,240 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 588,359,957 | ||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 1,482,465,572 | ||
Translation of assets and liabilities in foreign currencies | 66 | ||
1,482,465,638 | |||
Net realized and unrealized gain (loss) | 2,070,825,595 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $2,140,053,835 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $69,228,240 | $50,211,379 | ||||
Net realized gain (loss) | 588,359,957 | 325,855,193 | ||||
Change in net unrealized appreciation (depreciation) | 1,482,465,638 | 547,946,103 | ||||
Net increase (decrease) in net assets resulting from operations | 2,140,053,835 | 924,012,675 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (50,120,015 | ) | (26,416,678 | ) | ||
Institutional Class | (20,798,230 | ) | (14,792,971 | ) | ||
A Class | (5,972,503 | ) | (1,716,972 | ) | ||
C Class | (86,748 | ) | — | |||
R Class | (890,390 | ) | (11,579 | ) | ||
From net realized gains: | ||||||
Investor Class | (177,112,333 | ) | (188,116,335 | ) | ||
Institutional Class | (69,134,932 | ) | (75,859,024 | ) | ||
A Class | (22,912,075 | ) | (23,798,326 | ) | ||
C Class | (448,307 | ) | (518,181 | ) | ||
R Class | (3,737,327 | ) | (2,911,202 | ) | ||
Decrease in net assets from distributions | (351,212,860 | ) | (334,141,268 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (288,999,763 | ) | (108,468,943 | ) | ||
Net increase (decrease) in net assets | 1,499,841,212 | 481,402,464 | ||||
Net Assets | ||||||
Beginning of period | 8,662,229,635 | 8,180,827,171 | ||||
End of period | $10,162,070,847 | $8,662,229,635 | ||||
Undistributed net investment income | $39,626,721 | $49,113,306 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. Sale of the R6 Class commenced on July 26, 2013.
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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 annual management fee schedule ranges from 0.600% to 0.800% for the Institutional Class and 0.450% to 0.650% for the R6 Class. The effective annual management fee for each class for the period ended October 31, 2013 was 0.97% for the Investor Class, A Class, C Class and R Class, 0.77% for the Institutional Class and 0.62% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $6,172,706,286 and $6,959,444,642, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 800,000,000 | 800,000,000 | ||||||||||
Sold | 15,758,673 | $ 458,269,744 | 30,597,197 | $ 815,590,046 | ||||||||
Issued in reinvestment of distributions | 8,131,994 | 221,190,187 | 8,543,449 | 208,801,900 | ||||||||
Redeemed | (36,318,749 | ) | (1,071,846,016 | ) | (43,315,016 | ) | (1,179,529,361 | ) | ||||
(12,428,082 | ) | (392,386,085 | ) | (4,174,370 | ) | (155,137,415 | ) | |||||
Institutional Class/Shares Authorized | 345,000,000 | 250,000,000 | ||||||||||
Sold | 24,000,053 | 708,413,723 | 28,226,797 | 760,524,181 | ||||||||
Issued in reinvestment of distributions | 3,154,202 | 86,645,932 | 3,536,090 | 87,129,253 | ||||||||
Redeemed | (22,931,725 | ) | (681,198,270 | ) | (30,746,180 | ) | (858,219,071 | ) | ||||
4,222,530 | 113,861,385 | 1,016,707 | (10,565,637 | ) | ||||||||
A Class/Shares Authorized | 310,000,000 | 310,000,000 | ||||||||||
Sold | 4,360,740 | 123,057,542 | 7,679,409 | 199,942,589 | ||||||||
Issued in reinvestment of distributions | 1,010,735 | 27,006,835 | 969,672 | 23,340,001 | ||||||||
Redeemed | (6,160,662 | ) | (178,220,923 | ) | (7,375,216 | ) | (194,657,631 | ) | ||||
(789,187 | ) | (28,156,546 | ) | 1,273,865 | 28,624,959 | |||||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||
Sold | 38,712 | 1,107,256 | 75,173 | 1,960,969 | ||||||||
Issued in reinvestment of distributions | 12,908 | 344,918 | 14,143 | 342,255 | ||||||||
Redeemed | (124,341 | ) | (3,565,181 | ) | (143,783 | ) | (3,804,971 | ) | ||||
(72,721 | ) | (2,113,007 | ) | (54,467 | ) | (1,501,747 | ) | |||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||||
Sold | 1,135,215 | 32,171,052 | 2,150,364 | 56,736,953 | ||||||||
Issued in reinvestment of distributions | 167,967 | 4,457,853 | 111,295 | 2,666,644 | ||||||||
Redeemed | (1,080,129 | ) | (30,973,232 | ) | (1,112,835 | ) | (29,292,700 | ) | ||||
223,053 | 5,655,673 | 1,148,824 | 30,110,897 | |||||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 466,448 | 14,535,460 | ||||||||||
Redeemed | (12,222 | ) | (396,643 | ) | ||||||||
454,226 | 14,138,817 | |||||||||||
Net increase (decrease) | (8,390,181 | ) | $(288,999,763 | ) | (789,441 | ) | $(108,468,943 | ) |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Common Stocks | $9,907,993,510 | — | — | ||||||
Temporary Cash Investments | 13,005,385 | $254,105,050 | — | ||||||
Total Value of Investment Securities | $9,920,998,895 | $254,105,050 | — |
7. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $ 77,552,048 | $ 42,938,200 | ||||
Long-term capital gains | $273,660,812 | $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.
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $7,565,342,149 | ||
Gross tax appreciation of investments | $2,631,892,791 | ||
Gross tax depreciation of investments | (22,130,995 | ) | |
Net tax appreciation (depreciation) of investments | $2,609,761,796 | ||
Net tax appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $82 | ||
Net tax appreciation (depreciation) | $2,609,761,878 | ||
Undistributed ordinary income | $141,513,485 | ||
Accumulated long-term gains | $480,967,447 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||
Net Asset | Net | Net Realized | Total From | Net | Net | Total | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |
Investor Class | |||||||||||||
2013 | $27.48 | 0.21 | 6.53 | 6.74 | (0.25) | (0.87) | (1.12) | $33.10 | 25.42% | 0.97% | 0.71% | 67% | $6,327,674 |
2012 | $25.88 | 0.14 | 2.50 | 2.64 | (0.13) | (0.91) | (1.04) | $27.48 | 10.67% | 0.97% | 0.54% | 74% | $5,593,916 |
2011 | $24.00 | 0.16 | 1.81 | 1.97 | (0.09) | — | (0.09) | $25.88 | 8.20% | 0.98% | 0.58% | 79% | $5,377,431 |
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 |
Institutional Class | |||||||||||||
2013 | $27.75 | 0.27 | 6.60 | 6.87 | (0.26) | (0.87) | (1.13) | $33.49 | 25.68% | 0.77% | 0.91% | 67% | $2,842,185 |
2012 | $26.13 | 0.20 | 2.51 | 2.71 | (0.18) | (0.91) | (1.09) | $27.75 | 10.86% | 0.77% | 0.74% | 74% | $2,237,708 |
2011 | $24.23 | 0.20 | 1.84 | 2.04 | (0.14) | — | (0.14) | $26.13 | 8.42% | 0.78% | 0.78% | 79% | $2,080,463 |
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 |
A Class(3) | |||||||||||||
2013 | $27.00 | 0.13 | 6.42 | 6.55 | (0.23) | (0.87) | (1.10) | $32.45 | 25.14% | 1.22% | 0.46% | 67% | $817,166 |
2012 | $25.45 | 0.07 | 2.46 | 2.53 | (0.07) | (0.91) | (0.98) | $27.00 | 10.37% | 1.22% | 0.29% | 74% | $701,313 |
2011 | $23.60 | 0.08 | 1.79 | 1.87 | (0.02) | — | (0.02) | $25.45 | 7.93% | 1.23% | 0.33% | 79% | $628,634 |
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 |
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 | Net | Net Realized | Total From | Net | Net | Total | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |
C Class | |||||||||||||
2013 | $26.98 | (0.08) | 6.38 | 6.30 | (0.17) | (0.87) | (1.04) | $32.24 | 24.16% | 1.97% | (0.29)% | 67% | $14,489 |
2012 | $25.55 | (0.12) | 2.46 | 2.34 | — | (0.91) | (0.91) | $26.98 | 9.55% | 1.97% | (0.46)% | 74% | $14,084 |
2011 | $23.85 | (0.12) | 1.82 | 1.70 | — | — | — | $25.55 | 7.13% | 1.98% | (0.42)% | 79% | $14,730 |
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 | |||||||||||||
2013 | $26.82 | 0.06 | 6.36 | 6.42 | (0.21) | (0.87) | (1.08) | $32.16 | 24.80% | 1.47% | 0.21% | 67% | $145,337 |
2012 | $25.28 | 0.01 | 2.44 | 2.45 | —(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 |
R6 Class | |||||||||||||
2013(9) | $31.22 | 0.05 | 2.24 | 2.29 | — | — | — | $33.51 | 7.34% | 0.62%(6) | 0.64%(6) | 67%(10) | $15,219 |
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%. |
(9) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(10) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
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) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $77,552,048, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $273,660,812, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80462 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Heritage Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWHIX | 29.43% | 17.43% | 11.86% | 11.89% | 11/10/87 |
Russell Midcap | — | 33.93% | 20.31% | 9.59% | 11.14%(1) | — |
Russell Midcap Index | — | 33.79% | 19.65% | 10.34% | 12.34%(1) | — |
Institutional Class | ATHIX | 29.70% | 17.66% | 12.09% | 9.50% | 6/16/97 |
A Class(2) No sales charge* With sales charge* | ATHAX
| 29.13% 21.68% | 17.14% 15.77% | 11.59% 10.93% | 8.73% 8.34% | 7/11/97
|
B Class No sales charge* With sales charge* | ATHBX
| 28.17% 24.17% | 16.26% 16.15% | — — | 5.03% 5.03% | 9/28/07
|
C Class | AHGCX | 28.10% | 16.27% | 10.75% | 7.18% | 6/26/01 |
R Class | ATHWX | 28.74% | 16.84% | — | 5.55% | 9/28/07 |
R6 Class | ATHDX | — | — | — | 7.46%(3) | 7/26/13 |
* | Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. 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. |
(3) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/heritage.jpg)
Total Annual Fund Operating Expenses | ||||||
Investor Class | Institutional Class | A Class | B Class | C Class | R Class | R6 Class |
1.01% | 0.81% | 1.26% | 2.01% | 2.01% | 1.51% | 0.66% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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.
Portfolio Commentary |
Portfolio Managers: David Hollond and Greg Walsh
Performance Summary
Heritage returned 29.43%* for the 12 months ended October 31, 2013, lagging the 33.93% 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. Price momentum and acceleration, two factors that the Heritage team looks for in portfolio holdings, returned to favor during the reporting period.
Although Heritage delivered solid gains and derived positive results from each sector in which it invested, its returns trailed those of the benchmark. Within the portfolio, stock decisions in the energy and health care sectors accounted for the bulk of underperformance versus the benchmark. Holdings in the consumer discretionary and materials sectors also detracted from relative gains. Stock selection in the information technology, financials, and industrials sectors contributed to relative returns.
Energy, Health Care Detracted
The energy sector was the largest source of underperformance versus the benchmark. In the oil, gas, and consumable fuels group, a position in Linn Energy detracted meaningfully from relative results. The company, which struggled with infrastructure issues, lower-than-expected production, and low prices for natural gas liquids, was also the target of short interest and an investigation by the U.S. Securities and Exchange Commission.
In the energy equipment and services group, detractors included an overweight stake in Cameron International. The oil service company had strong bookings, but did not execute well on its backlog, pushing out higher margin business.
The health care sector was home to the portfolio’s largest individual detractor, pharmacy benefit manager Catamaran. The company lost some of its legacy business, as Walgreens shifted its employees to a private exchange rather than provide coverage options. This is a small part of Catamaran’s customer base and is a less profitable business. The investment team is interested in the company’s relationship with Cigna, which should provide higher margins due to the use of generic drugs in this pipeline. However, there is uncertainty due to recent health care reform. IDEXX Laboratories, which provides equipment and consumables to veterinary labs, also detracted. The company started leasing equipment to veterinary labs instead of selling, and it also revamped its sales force without alerting analysts, which influenced the investment team to exit the position. Elsewhere in the sector, positioning in the biotechnology and pharmaceuticals industry groups detracted.
Consumer Discretionary, Materials Lagged
Within the consumer discretionary sector, an underweight position in Netflix hurt relative returns, as the company achieved higher-than-expected subscriber
*All fund returns referenced in this commentary are for Investor Class shares.
growth and exceeded analysts’ expectations for earnings. Elsewhere in the sector, positioning in the hotels, restaurants, and leisure group, as well as the media group and the auto components group, detracted.
Positioning in the materials sector detracted from results versus the benchmark, particularly in the chemicals and construction materials groups.
Information Technology Led Contributors
Information technology holding LinkedIn was Heritage’s top contributing security. Although the company warned that margins would be squeezed as it spends to expand engagement on the site, LinkedIn continued to gain market share in the recruiter market and benefited from self-service advertising.
In the IT services industry, the portfolio held an overweight position in Alliance Data Systems. The provider of loyalty programs and marketing solutions performed well as it exhibited solid receivables growth.
Financials, Industrials Added
In the financials sector, the portfolio generally avoided the real estate investment trust (REIT) segment. This decision helped relative performance as these companies collectively underperformed the benchmark. Stock selection among commercial banks also added to relative returns.
Contributors within the industrials sector included an overweight stake in Kansas City Southern, which benefited from robust demand for crude oil transportation by rail, as well as increased transportation volumes of goods manufactured at plants in Mexico. Positioning among machinery companies and trading companies and distributors also contributed.
In terms of individual holdings, Lumber Liquidators added significantly to relative performance. The 305-store hardwood flooring chain experienced solid same-store sales and store traffic as the real estate market improved. Home remodeling expansion played a key role in the favorable results. The company also introduced its “Store of the Future” initiative, offering an enhanced shopping experience in an effort to increase operating efficiency and productivity.
Outlook
Heritage’s investment process focuses on medium-sized and smaller companies with accelerating revenue and earnings growth rates, which are also exhibiting share-price strength. During the reporting period, the environment for this process became more favorable. The investment team believes that active investing in such companies will generate attractive absolute and relative investment performance over time.
As of October 31, 2013, the investment team saw attractive opportunities in home-related sectors (particularly remodeling-focused stocks such as Lumber Liquidators), media companies, the energy renaissance (represented by companies such as Concho Resources and MasTec), and information technology, focusing on companies that are disruptors/displacers (such as LinkedIn), that are taking the place of more traditional providers.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Canadian Pacific Railway Ltd. New York Shares | 3.0% |
Alliance Data Systems Corp. | 2.6% |
SBA Communications Corp., Class A | 2.5% |
Electronic Arts, Inc. | 2.5% |
Whole Foods Market, Inc. | 2.4% |
Catamaran Corp. | 2.1% |
LinkedIn Corp., Class A | 2.0% |
Kansas City Southern | 2.0% |
Discovery Communications, Inc. Class A | 1.7% |
Constellation Brands, Inc., Class A | 1.7% |
Top Five Industries | % of net assets |
Specialty Retail | 8.4% |
Software | 6.2% |
Road and Rail | 5.0% |
Textiles, Apparel and Luxury Goods | 4.4% |
Media | 4.3% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 89.5% |
Foreign Common Stocks* | 8.2% |
Total Common Stocks | 97.7% |
Temporary Cash Investments | 1.7% |
Other Assets and Liabilities | 0.6% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 - 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,155.60 | $5.43 | 1.00% |
Institutional Class | $1,000 | $1,157.00 | $4.35 | 0.80% |
A Class | $1,000 | $1,154.10 | $6.79 | 1.25% |
B Class | $1,000 | $1,149.80 | $10.84 | 2.00% |
C Class | $1,000 | $1,149.90 | $10.84 | 2.00% |
R Class | $1,000 | $1,152.60 | $8.14 | 1.50% |
R6 Class | $1,000 | $1,074.60(2) | $1.81(3) | 0.65% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
B Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
R6 Class | $1,000 | $1,021.93(4) | $3.31(4) | 0.65% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.7% | ||||||
AEROSPACE AND DEFENSE — 1.0% | ||||||
B/E Aerospace, Inc.(1) | 113,000 | $9,171,080 | ||||
TransDigm Group, Inc. | 253,247 | 36,824,646 | ||||
45,995,726 | ||||||
AUTO COMPONENTS — 1.1% | ||||||
BorgWarner, Inc. | 486,659 | 50,189,143 | ||||
AUTOMOBILES — 2.1% | ||||||
Harley-Davidson, Inc. | 797,528 | 51,073,693 | ||||
Tesla Motors, Inc.(1) | 262,399 | 41,968,096 | ||||
93,041,789 | ||||||
BEVERAGES — 2.5% | ||||||
Brown-Forman Corp., Class B | 501,570 | 36,604,579 | ||||
Constellation Brands, Inc., Class A(1) | 1,168,400 | 76,296,520 | ||||
112,901,099 | ||||||
BIOTECHNOLOGY — 2.8% | ||||||
Aegerion Pharmaceuticals, Inc.(1) | 241,400 | 19,992,748 | ||||
BioMarin Pharmaceutical, Inc.(1) | 429,700 | 26,993,754 | ||||
Grifols SA | 704,720 | 28,901,143 | ||||
Incyte Corp. Ltd.(1) | 459,200 | 17,908,800 | ||||
Pharmacyclics, Inc.(1) | 92,100 | 10,926,744 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 84,498 | 24,301,625 | ||||
129,024,814 | ||||||
BUILDING PRODUCTS — 2.5% | ||||||
Fortune Brands Home & Security, Inc. | 1,388,048 | 59,797,108 | ||||
Lennox International, Inc. | 667,767 | 52,125,892 | ||||
111,923,000 | ||||||
CAPITAL MARKETS — 2.6% | ||||||
Affiliated Managers Group, Inc.(1) | 322,600 | 63,694,144 | ||||
KKR & Co. LP | 1,022,669 | 22,447,585 | ||||
Lazard Ltd. Class A | 784,959 | 30,338,665 | ||||
116,480,394 | ||||||
CHEMICALS — 3.2% | ||||||
FMC Corp. | 831,423 | 60,494,337 | ||||
Sherwin-Williams Co. (The) | 333,289 | 62,658,332 | ||||
Westlake Chemical Corp. | 221,888 | 23,835,209 | ||||
146,987,878 | ||||||
COMMERCIAL BANKS — 1.8% | ||||||
East West Bancorp., Inc. | 920,099 | 30,998,135 | ||||
SVB Financial Group(1) | 541,387 | 51,854,047 | ||||
82,852,182 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.9% | ||||||
Stericycle, Inc.(1) | 334,293 | 38,844,847 | ||||
COMMUNICATIONS EQUIPMENT — 0.4% | ||||||
Palo Alto Networks, Inc.(1) | 461,630 | 19,462,321 | ||||
COMPUTERS AND PERIPHERALS — 1.4% | ||||||
NetApp, Inc. | 1,598,297 | 62,029,907 | ||||
CONSTRUCTION AND ENGINEERING — 2.9% | ||||||
Chicago Bridge & Iron Co. NV New York Shares | 342,718 | 25,391,976 | ||||
MasTec, Inc.(1) | 1,601,640 | 51,204,431 | ||||
Quanta Services, Inc.(1) | 1,888,161 | 57,041,344 | ||||
133,637,751 | ||||||
CONSUMER FINANCE — 0.9% | ||||||
Discover Financial Services | 816,599 | 42,365,156 | ||||
CONTAINERS AND PACKAGING — 0.4% | ||||||
Rock Tenn Co., Class A | 186,900 | 20,000,169 | ||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.9% | ||||||
tw telecom, inc., Class A(1) | 1,357,558 | 42,790,228 | ||||
ELECTRICAL EQUIPMENT — 0.7% | ||||||
Acuity Brands, Inc. | 298,300 | 29,982,133 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.8% | ||||||
FLIR Systems, Inc. | 1,302,157 | 37,085,431 | ||||
ENERGY EQUIPMENT AND SERVICES — 1.7% | ||||||
Atwood Oceanics, Inc.(1) | 326,130 | 17,327,287 | ||||
Dril-Quip, Inc.(1) | 269,605 | 31,657,019 | ||||
Frank’s International NV(1) | 918,867 | 28,108,142 | ||||
77,092,448 | ||||||
FOOD AND STAPLES RETAILING — 4.0% | ||||||
Costco Wholesale Corp. | 599,108 | 70,694,744 | ||||
Whole Foods Market, Inc. | 1,764,254 | 111,377,355 | ||||
182,072,099 | ||||||
FOOD PRODUCTS — 0.6% | ||||||
Hain Celestial Group, Inc. (The)(1) | 339,708 | 28,273,897 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.0% | ||||||
Cooper Cos., Inc. (The) | 322,988 | 41,733,280 | ||||
Teleflex, Inc. | 537,984 | 49,591,365 | ||||
91,324,645 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.1% | ||||||
Catamaran Corp.(1) | 2,057,692 | 96,629,216 | ||||
HEALTH CARE TECHNOLOGY — 0.7% | ||||||
Cerner Corp.(1) | 525,528 | 29,445,334 | ||||
Veeva Systems, Inc. Class A(1) | 53,826 | 2,094,369 | ||||
31,539,703 |
Shares | Value |
HOTELS, RESTAURANTS AND LEISURE — 2.4% | ||||||
Chipotle Mexican Grill, Inc.(1) | 75,600 | $39,838,932 | ||||
Noodles & Co.(1) | 411,500 | 18,019,585 | ||||
Wyndham Worldwide Corp. | 780,876 | 51,850,166 | ||||
109,708,683 | ||||||
HOUSEHOLD DURABLES — 0.6% | ||||||
Mohawk Industries, Inc.(1) | 192,500 | 25,490,850 | ||||
HOUSEHOLD PRODUCTS — 1.1% | ||||||
Church & Dwight Co., Inc. | 730,711 | 47,605,822 | ||||
INTERNET AND CATALOG RETAIL — 3.1% | ||||||
Ctrip.com International Ltd. ADR(1) | 458,000 | 24,846,500 | ||||
Netflix, Inc.(1) | 77,900 | 25,121,192 | ||||
priceline.com, Inc.(1) | 43,516 | 45,858,466 | ||||
TripAdvisor, Inc.(1) | 541,500 | 44,787,465 | ||||
140,613,623 | ||||||
INTERNET SOFTWARE AND SERVICES — 2.8% | ||||||
CoStar Group, Inc.(1) | 147,269 | 26,065,140 | ||||
LinkedIn Corp., Class A(1) | 407,970 | 91,250,650 | ||||
Xoom Corp.(1) | 326,250 | 9,705,938 | ||||
127,021,728 | ||||||
IT SERVICES — 2.6% | ||||||
Alliance Data Systems Corp.(1) | 507,024 | 120,195,109 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 1.0% | ||||||
Covance, Inc.(1) | 529,710 | 47,281,915 | ||||
MACHINERY — 3.9% | ||||||
Flowserve Corp. | 786,794 | 54,658,579 | ||||
Middleby Corp.(1) | 206,000 | 46,895,900 | ||||
Pentair Ltd. | 574,900 | 38,570,041 | ||||
WABCO Holdings, Inc.(1) | 433,200 | 37,116,576 | ||||
177,241,096 | ||||||
MEDIA — 4.3% | ||||||
AMC Networks, Inc.(1) | 592,589 | 41,534,563 | ||||
Discovery Communications, Inc. Class A(1) | 860,298 | 76,497,698 | ||||
Lions Gate Entertainment Corp.(1) | 1,093,800 | 37,823,604 | ||||
Sirius XM Radio, Inc. | 10,692,395 | 40,310,329 | ||||
196,166,194 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.2% | ||||||
Antero Resources Corp.(1) | 421,730 | 23,823,528 | ||||
Cabot Oil & Gas Corp. | 944,216 | 33,349,709 | ||||
Cobalt International Energy, Inc.(1) | 718,200 | 16,669,422 | ||||
Concho Resources, Inc.(1) | 406,600 | 44,974,026 | ||||
Pioneer Natural Resources Co. | 119,800 | 24,532,644 | ||||
143,349,329 | ||||||
PHARMACEUTICALS — 3.6% | ||||||
Actavis plc(1) | 481,500 | 74,430,270 | ||||
Perrigo Co. | 300,454 | 41,429,602 | ||||
Zoetis, Inc. | 1,485,968 | 47,045,747 | ||||
162,905,619 | ||||||
ROAD AND RAIL — 5.0% | ||||||
Canadian Pacific Railway Ltd. New York Shares | 944,246 | 135,093,275 | ||||
Kansas City Southern | 741,828 | 90,146,939 | ||||
225,240,214 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.6% | ||||||
ARM Holdings plc | 1,629,402 | 25,746,994 | ||||
NXP Semiconductor NV(1) | 816,984 | 34,411,366 | ||||
Xilinx, Inc. | 1,296,025 | 58,865,456 | ||||
119,023,816 | ||||||
SOFTWARE — 6.2% | ||||||
CommVault Systems, Inc.(1) | 571,902 | 44,654,108 | ||||
Electronic Arts, Inc.(1) | 4,330,700 | 113,680,875 | ||||
NetSuite, Inc.(1) | 730,327 | 73,675,388 | ||||
Splunk, Inc.(1) | 799,212 | 50,118,584 | ||||
282,128,955 | ||||||
SPECIALTY RETAIL — 8.4% | ||||||
DSW, Inc., Class A | 342,236 | 30,003,830 | ||||
GNC Holdings, Inc. Class A | 661,475 | 38,907,959 | ||||
Lumber Liquidators Holdings, Inc.(1) | 532,524 | 60,808,916 | ||||
O’Reilly Automotive, Inc.(1) | 394,107 | 48,794,388 | ||||
PetSmart, Inc. | 226,468 | 16,477,812 | ||||
Restoration Hardware Holdings, Inc.(1) | 342,603 | 23,893,133 | ||||
Ross Stores, Inc. | 933,374 | 72,196,479 | ||||
Tractor Supply Co. | 862,894 | 61,567,487 | ||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 226,000 | 29,120,100 | ||||
381,770,104 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 4.4% | ||||||
Fifth & Pacific Cos., Inc.(1) | 866,432 | 22,951,784 | ||||
Hanesbrands, Inc. | 763,596 | 52,016,159 | ||||
Michael Kors Holdings Ltd.(1) | 563,349 | 43,349,705 | ||||
PVH Corp. | 310,766 | 38,712,121 | ||||
Under Armour, Inc. Class A(1) | 541,498 | 43,942,563 | ||||
200,972,332 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 2.5% | ||||||
SBA Communications Corp., Class A(1) | 1,318,008 | 115,286,160 | ||||
TOTAL COMMON STOCKS (Cost $2,998,740,494) | 4,444,527,525 |
Value | ||||
Temporary Cash Investments — 1.7% | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $16,492,378), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $16,187,918) | $16,187,887 | |||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $19,832,076), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $19,425,481) | 19,425,465 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $19,828,226), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $19,425,476) | 19,425,465 |
Shares | Value | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $19,828,325), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $19,425,492) | $19,425,465 | |||||
SSgA U.S. Government Money Market Fund | 5,383,340 | 5,383,340 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $79,847,622) | 79,847,622 | |||||
TOTAL INVESTMENT SECURITIES — 99.4% (Cost $3,078,588,116) | 4,524,375,147 | |||||
OTHER ASSETS AND LIABILITIES — 0.6% | 25,132,907 | |||||
TOTAL NET ASSETS — 100.0% | $4,549,508,054 |
Forward Foreign Currency Exchange Contracts | ||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||
USD | 21,106,723 | EUR | 15,303,876 | UBS AG | 11/29/13 | $326,749 |
USD | 635,956 | EUR | 467,758 | UBS AG | 11/29/13 | 822 |
USD | 19,309,173 | GBP | 11,948,154 | Credit Suisse AG | 11/29/13 | 155,097 |
$482,668 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $3,078,588,116) | $4,524,375,147 | ||
Foreign currency holdings, at value (cost of $380,261) | 377,876 | ||
Receivable for investments sold | 47,809,156 | ||
Receivable for capital shares sold | 3,451,453 | ||
Unrealized gain on forward foreign currency exchange contracts | 482,668 | ||
Dividends and interest receivable | 1,073,443 | ||
4,577,569,743 | |||
Liabilities | |||
Payable for investments purchased | 13,857,479 | ||
Payable for capital shares redeemed | 10,071,073 | ||
Accrued management fees | 3,763,084 | ||
Distribution and service fees payable | 370,053 | ||
28,061,689 | |||
Net Assets | $4,549,508,054 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $2,590,163,180 | ||
Accumulated net investment loss | (482,837 | ) | |
Undistributed net realized gain | 513,561,283 | ||
Net unrealized appreciation | 1,446,266,428 | ||
$4,549,508,054 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $3,016,929,634 | 106,050,290 | $28.45 |
Institutional Class, $0.01 Par Value | $243,548,415 | 8,327,473 | $29.25 |
A Class, $0.01 Par Value | $1,092,574,368 | 39,763,813 | $27.48* |
B Class, $0.01 Par Value | $3,189,264 | 118,046 | $27.02 |
C Class, $0.01 Par Value | $139,063,843 | 5,526,967 | $25.16 |
R Class, $0.01 Par Value | $54,128,990 | 1,952,560 | $27.72 |
R6 Class, $0.01 Par Value | $73,540 | 2,514 | $29.25 |
*Maximum offering price $29.16 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $199,459) | $29,209,099 | ||
Interest | 34,927 | ||
29,244,026 | |||
Expenses: | |||
Management fees | 40,786,291 | ||
Distribution and service fees: | |||
A Class | 2,545,392 | ||
B Class | 30,292 | ||
C Class | 1,251,196 | ||
R Class | 235,153 | ||
Directors’ fees and expenses | 190,131 | ||
Other expenses | 374 | ||
45,038,829 | |||
Net investment income (loss) | (15,794,803 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 582,216,289 | ||
Foreign currency transactions | (2,440,266 | ) | |
579,776,023 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 504,206,792 | ||
Translation of assets and liabilities in foreign currencies | 533,553 | ||
504,740,345 | |||
Net realized and unrealized gain (loss) | 1,084,516,368 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $1,068,721,565 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $(15,794,803 | ) | $(13,891,414 | ) | ||
Net realized gain (loss) | 579,776,023 | 102,815,352 | ||||
Change in net unrealized appreciation (depreciation) | 504,740,345 | 244,308,417 | ||||
Net increase (decrease) in net assets resulting from operations | 1,068,721,565 | 333,232,355 | ||||
Distributions to Shareholders | ||||||
From net realized gains: | ||||||
Investor Class | (51,872,462 | ) | — | |||
Institutional Class | (4,009,776 | ) | — | |||
A Class | (20,688,083 | ) | — | |||
B Class | (62,664 | ) | — | |||
C Class | (2,690,270 | ) | — | |||
R Class | (839,874 | ) | — | |||
Decrease in net assets from distributions | (80,163,129 | ) | — | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (258,823,703 | ) | (190,310,717 | ) | ||
Net increase (decrease) in net assets | 729,734,733 | 142,921,638 | ||||
Net Assets | ||||||
Beginning of period | 3,819,773,321 | 3,676,851,683 | ||||
End of period | $4,549,508,054 | $3,819,773,321 | ||||
Accumulated net investment loss | $(482,837 | ) | $(14,507,815 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Heritage Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the B Class, the C Class, the R Class and the R6 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 and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. Sale of the R6 Class commenced on July 26, 2013.
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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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, 0.80% for the Institutional Class and 0.65% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $2,828,568,545 and $3,198,221,122, respectively.
For the year ended October 31, 2013, the fund incurred net realized gains of $5,505,798 from redemptions in kind. A redemption in kind occurs when a fund delivers securities from its portfolio in lieu of cash as payment to a redeeming shareholder.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 400,000,000 | 400,000,000 | ||||||||||
Sold | 16,795,955 | $412,396,030 | 19,486,686 | $426,699,628 | ||||||||
Issued in reinvestment of distributions | 2,209,352 | 49,666,229 | — | — | ||||||||
Redeemed | (24,326,674 | ) | (597,491,711 | ) | (24,914,434 | ) | (542,065,205 | ) | ||||
(5,321,367 | ) | (135,429,452 | ) | (5,427,748 | ) | (115,365,577 | ) | |||||
Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||
Sold | 2,587,620 | 64,421,636 | 2,555,946 | 57,612,871 | ||||||||
Issued in reinvestment of distributions | 173,645 | 4,005,998 | — | — | ||||||||
Redeemed | (2,603,496 | ) | (66,934,941 | ) | (1,849,797 | ) | (41,541,916 | ) | ||||
157,769 | 1,492,693 | 706,149 | 16,070,955 | |||||||||
A Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 8,850,144 | 211,406,392 | 10,998,704 | 231,930,600 | ||||||||
Issued in reinvestment of distributions | 915,571 | 19,922,827 | — | — | ||||||||
Redeemed | (14,746,186 | ) | (352,236,250 | ) | (15,090,587 | ) | (318,897,294 | ) | ||||
(4,980,471 | ) | (120,907,031 | ) | (4,091,883 | ) | (86,966,694 | ) | |||||
B Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||
Sold | 2,503 | 57,164 | 1,456 | 31,946 | ||||||||
Issued in reinvestment of distributions | 2,775 | 59,744 | — | — | ||||||||
Redeemed | (28,873 | ) | (669,324 | ) | (39,468 | ) | (846,918 | ) | ||||
(23,595 | ) | (552,416 | ) | (38,012 | ) | (814,972 | ) | |||||
C Class/Shares Authorized | 35,000,000 | 35,000,000 | ||||||||||
Sold | 1,063,202 | 23,407,917 | 1,184,385 | 23,287,065 | ||||||||
Issued in reinvestment of distributions | 106,299 | 2,131,290 | — | — | ||||||||
Redeemed | (1,493,875 | ) | (32,586,225 | ) | (1,565,557 | ) | (30,740,596 | ) | ||||
(324,374 | ) | (7,047,018 | ) | (381,172 | ) | (7,453,531 | ) | |||||
R Class/Shares Authorized | 30,000,000 | 30,000,000 | ||||||||||
Sold | 732,975 | 17,538,607 | 835,511 | 17,682,981 | ||||||||
Issued in reinvestment of distributions | 38,176 | 839,874 | — | — | ||||||||
Redeemed | (606,808 | ) | (14,830,736 | ) | (632,717 | ) | (13,463,879 | ) | ||||
164,343 | 3,547,745 | 202,794 | 4,219,102 | |||||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 2,514 | 71,776 | ||||||||||
Net increase (decrease) | (10,325,181 | ) | $(258,823,703 | ) | (9,029,872 | ) | $(190,310,717 | ) |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Domestic Common Stocks | $4,073,507,055 | — | — | ||||||
Foreign Common Stocks | 316,372,333 | $ 54,648,137 | — | ||||||
Temporary Cash Investments | 5,383,340 | 74,464,282 | — | ||||||
Total Value of Investment Securities | $4,395,262,728 | $129,112,419 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $ 482,668 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $482,668 in unrealized gain on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(2,416,371) in net realized gain (loss) on foreign currency transactions and $535,638 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.
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. The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | — | — | ||||
Long-term capital gains | $80,163,129 | — |
The reclassifications, which are primarily due to net operating losses and tax equalization, were made to capital $33,328,252, accumulated net investment loss $29,819,781, and undistributed net realized gains $(63,148,033).
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $3,075,528,873 |
Gross tax appreciation of investments | $1,465,916,172 |
Gross tax depreciation of investments | (17,069,898) |
Net tax appreciation (depreciation) of investments | $1,448,846,274 |
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(3,440) |
Net tax appreciation (depreciation) | $1,448,842,834 |
Undistributed ordinary income | $11,035,784 |
Accumulated long-term gains | $499,466,256 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of wash sales and return of capital dividends received.
10. Subsequent Event
On September 12, 2013, the Board of Directors approved an agreement and plan of reorganization (the reorganization), whereby the net assets of Vista Fund (Vista), one fund in a series issued by the corporation, were transferred to Heritage Fund (Heritage) in exchange for shares of Heritage. The financial statements and performance history of Heritage survived after the reorganization. The reorganization was effective at the close of the NYSE on December 6, 2013. Vista’s annual report dated October 31, 2013, is available at americancentury.com and, upon request, by calling 1-800-345-2021.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||
Net Beginning | Net | Net | Total From | Net | Net | Total | Net | Total | Operating | Net | Portfolio | Net Assets, | |
Investor Class | |||||||||||||
2013 | $22.44 | (0.07) | 6.55 | 6.48 | — | (0.47) | (0.47) | $28.45 | 29.43% | 1.00% | (0.29)% | 70% | $3,016,930 |
2012 | $20.51 | (0.06) | 1.99 | 1.93 | — | — | — | $22.44 | 9.41% | 1.01% | (0.28)% | 72% | $2,499,048 |
2011 | $19.21 | (0.07) | 1.37 | 1.30 | — | — | — | $20.51 | 6.77% | 1.01% | (0.35)% | 95% | $2,395,881 |
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 |
Institutional Class | |||||||||||||
2013 | $23.01 | (0.02) | 6.73 | 6.71 | — | (0.47) | (0.47) | $29.25 | 29.70% | 0.80% | (0.09)% | 70% | $243,548 |
2012 | $20.99 | (0.01) | 2.03 | 2.02 | — | — | — | $23.01 | 9.62% | 0.81% | (0.08)% | 72% | $187,984 |
2011 | $19.62 | (0.03) | 1.40 | 1.37 | — | — | — | $20.99 | 6.98% | 0.81% | (0.15)% | 95% | $156,681 |
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 |
A Class | |||||||||||||
2013 | $21.74 | (0.13) | 6.34 | 6.21 | — | (0.47) | (0.47) | $27.48 | 29.13% | 1.25% | (0.54)% | 70% | $1,092,574 |
2012 | $19.92 | (0.11) | 1.93 | 1.82 | — | — | — | $21.74 | 9.08% | 1.26% | (0.53)% | 72% | $972,795 |
2011 | $18.70 | (0.12) | 1.34 | 1.22 | — | — | — | $19.92 | 6.58% | 1.26% | (0.60)% | 95% | $973,051 |
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 |
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 Beginning | Net | Net | Total From | Net | Net | Total | Net | Total | Operating | Net | Portfolio | Net Assets, | |
B Class | |||||||||||||
2013 | $21.54 | (0.30) | 6.25 | 5.95 | — | (0.47) | (0.47) | $27.02 | 28.17% | 2.00% | (1.29)% | 70% | $3,189 |
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 |
C Class | |||||||||||||
2013 | $20.09 | (0.28) | 5.82 | 5.54 | — | (0.47) | (0.47) | $25.16 | 28.10% | 2.00% | (1.29)% | 70% | $139,064 |
2012 | $18.55 | (0.25) | 1.79 | 1.54 | — | — | — | $20.09 | 8.30% | 2.01% | (1.28)% | 72% | $117,580 |
2011 | $17.55 | (0.26) | 1.26 | 1.00 | — | — | — | $18.55 | 5.75% | 2.01% | (1.35)% | 95% | $115,641 |
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 |
R Class | |||||||||||||
2013 | $21.99 | (0.20) | 6.40 | 6.20 | — | (0.47) | (0.47) | $27.72 | 28.74% | 1.50% | (0.79)% | 70% | $54,129 |
2012 | $20.20 | (0.16) | 1.95 | 1.79 | — | — | — | $21.99 | 8.86% | 1.51% | (0.78)% | 72% | $39,314 |
2011 | $19.01 | (0.18) | 1.37 | 1.19 | — | — | — | $20.20 | 6.26% | 1.51% | (0.85)% | 95% | $32,023 |
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 |
R6 Class | |||||||||||||
2013(4) | $27.22 | —(3) | 2.03 | 2.03 | — | — | — | $29.25 | 7.46% | 0.65%(5) | (0.07)%(5) | 70%(6) | $74 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Heritage Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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 | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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 | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
Other Tax Information
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund hereby designates $107,384,928, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
The fund hereby designates $596,252 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871.
The fund utilized earnings and profits of $27,818,051 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
Notes |
Notes |
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80471 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
New Opportunities Fund
Table of Contents |
President’s Letter | 2 |
Independent Chairman’s Letter | 3 |
Market Perspective | 4 |
Performance | 5 |
Portfolio Commentary | 7 |
Fund Characteristics | 9 |
Shareholder Fee Example | 10 |
Schedule of Investments | 12 |
Statement of Assets and Liabilities | 17 |
Statement of Operations | 18 |
Statement of Changes in Net Assets | 19 |
Notes to Financial Statements | 20 |
Financial Highlights | 25 |
Report of Independent Registered Public Accounting Firm | 27 |
Management | 28 |
Approval of Management Agreement | 31 |
Additional Information | 36 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWNOX | 34.44%(1) | 16.37% | 8.00% | 7.77% | 12/26/96 |
Russell 2500 Growth Index | — | 37.60% | 20.86% | 9.84% | 7.86% | — |
Institutional Class | TWNIX | 34.76%(1) | — | — | 17.61% | 3/1/10 |
A Class No sales charge* With sales charge* | TWNAX
| 34.03%(1) 26.37% | — — | — — | 17.08% 15.21% | 3/1/10
|
C Class | TWNCX | 33.12%(1) | — | — | 16.19% | 3/1/10 |
R Class | TWNRX | 33.67%(1) | — | — | 16.76% | 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) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/newopportunities.jpg)
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.53% | 1.33% | 1.78% | 2.53% | 2.03% |
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.
Portfolio Commentary |
Portfolio Managers: Matthew Ferretti and Jeffrey Otto
In January 2013, portfolio manager Stafford Southwick left the New Opportunities management team and portfolio manager Jeffrey Otto was promoted from Senior Analyst on the team.
Performance Summary
New Opportunities returned 34.44%* for the 12 months ended October 31, 2013. By comparison, the Russell 2500 Growth Index (the fund’s benchmark) returned 37.60%.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period. Although New Opportunities derived positive results from every sector in which it invested, its performance lagged that of the benchmark. Relative to the benchmark, stock selection in the information technology sector accounted for the bulk of underperformance. Positioning in the consumer staples and financials sectors also detracted. Stock choices in the industrials, energy, and materials sectors made the largest contributions to relative returns.
Information Technology Led Detractors
The information technology sector was the portfolio’s largest source of underperformance relative to the benchmark.
In the semiconductors and semiconductor equipment industry, an overweight position in Cirrus Logic detracted meaningfully. The supplier of integrated circuits, which is highly levered to Apple, experienced decelerating sales levels and decreasing margins. In the electronic equipment industry group, OSI Systems was a key detractor, as there was slower than expected growth in their security equipment and health care businesses.
Two software holdings trimmed results. Allot Communications, which provides data traffic optimization solutions for large telecom and cable customers using deep packet inspection, missed earnings expectations. An overweight position in FleetMatics Group detracted meaningfully. The company, which offers fleet management software, was impacted by an adverse short report during the period. The investment team has maintained an overweight position based on the company’s continued strong growth prospects. In the communications equipment space, Aruba Networks, which sells enterprise Wi-Fi networking products and services, was hurt by a slowdown in spending on enterprise networking equipment.
Consumer Staples, Financials Lagged
Underperformance in the consumer staples sector was largely attributable to positioning in the food products industry segment. Here, not holding Green Mountain Coffee Roasters hurt relative results as the company benefited from lower coffee costs and strong sales of its single-serve K cups. The financials sector was a source of relative underperformance. In the sector, stock selection among capital markets companies detracted.
* All fund returns referenced in this commentary are for Investor Class shares.
In terms of individual detractors, homebuilder MDC Holdings underperformed as an increase in interest rates resulted in slowing orders. Relative performance also suffered because the portfolio did not include shares of electric vehicle maker Tesla, which experienced strong demand for its cars.
Industrials Contributed
The industrials sector was a meaningful source of outperformance relative to the benchmark. In the sector, overweight holding WageWorks, which is a provider of programs for employee-directed health and spending account benefits, contributed meaningfully to relative performance. The company has benefited from the increased adoption of health savings accounts.
Food service equipment company Middleby added to relative returns. The maker of energy-efficient ovens benefited from restaurants’ drive to make their kitchens more efficient. Also in the sector, holdings in the commercial services and supplies group and the road and rail group contributed.
Energy, Materials Added
In the energy sector, oil and natural gas exploration company Gulfport Energy contributed. The company performed well due to better-than-expected well results in the Utica Shale in Ohio.
The materials sector was a source of gains versus the benchmark. Here, an underweight allocation to the metals and mining group drove relative results, as the portfolio avoided benchmark underperformers, including Allied Nevada Gold.
Apart from those sectors, Lithia Motors was a significant individual contributor. The automotive dealer that operates in small and rural markets benefited from the recovery in U.S. auto sales and also saw an increase in truck sales, due to a rise in residential construction.
Outlook
New Opportunities’ investment process focuses on small and mid-sized companies with accelerating earnings growth rates and share-price momentum. The investment team believes that active investing in such companies will generate outperformance over time compared with the Russell 2500 Growth Index.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Middleby Corp. | 1.6% |
Goodyear Tire & Rubber Co. (The) | 1.4% |
FleetCor Technologies, Inc. | 1.4% |
American Axle & Manufacturing Holdings, Inc. | 1.4% |
Sinclair Broadcast Group, Inc., Class A | 1.3% |
LKQ Corp. | 1.1% |
Gulfport Energy Corp. | 1.1% |
Fortune Brands Home & Security, Inc. | 1.0% |
Restoration Hardware Holdings, Inc. | 1.0% |
Conn’s, Inc. | 1.0% |
Top Five Industries | % of net assets |
Software | 7.3% |
Specialty Retail | 4.7% |
Biotechnology | 4.7% |
Health Care Equipment and Supplies | 4.4% |
Internet Software and Services | 4.2% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.6% |
Temporary Cash Investments | 2.2% |
Other Assets and Liabilities | 0.2% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 - 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,165.20 | $8.19 | 1.50% |
Institutional Class | $1,000 | $1,166.30 | $7.10 | 1.30% |
A Class | $1,000 | $1,164.50 | $9.55 | 1.75% |
C Class | $1,000 | $1,159.70 | $13.61 | 2.50% |
R Class | $1,000 | $1,161.40 | $10.90 | 2.00% |
Hypothetical | ||||
Investor Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
Institutional Class | $1,000 | $1,018.65 | $6.61 | 1.30% |
A Class | $1,000 | $1,016.38 | $8.89 | 1.75% |
C Class | $1,000 | $1,012.60 | $12.68 | 2.50% |
R Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.6% | ||||||
AEROSPACE AND DEFENSE — 2.5% | ||||||
B/E Aerospace, Inc.(1) | 19,096 | $1,549,831 | ||||
HEICO Corp. | 7,813 | 418,594 | ||||
TransDigm Group, Inc. | 12,743 | 1,852,960 | ||||
Triumph Group, Inc. | 13,492 | 966,702 | ||||
4,788,087 | ||||||
AIRLINES — 0.9% | ||||||
Copa Holdings SA Class A | 5,800 | 867,332 | ||||
Spirit Airlines, Inc.(1) | 19,766 | 852,903 | ||||
1,720,235 | ||||||
AUTO COMPONENTS — 2.8% | ||||||
American Axle & Manufacturing Holdings, Inc.(1) | 141,120 | 2,626,243 | ||||
Goodyear Tire & Rubber Co. (The) | 129,564 | 2,718,253 | ||||
5,344,496 | ||||||
AUTOMOBILES — 0.4% | ||||||
Winnebago Industries, Inc.(1) | 25,452 | 754,906 | ||||
BIOTECHNOLOGY — 4.7% | ||||||
Acorda Therapeutics, Inc.(1) | 7,758 | 237,472 | ||||
Aegerion Pharmaceuticals, Inc.(1) | 10,790 | 893,628 | ||||
Alkermes plc(1) | 16,758 | 589,714 | ||||
Alnylam Pharmaceuticals, Inc.(1) | 9,300 | 535,773 | ||||
Celldex Therapeutics, Inc.(1) | 13,310 | 304,932 | ||||
Cepheid, Inc.(1) | 9,769 | 397,794 | ||||
Cubist Pharmaceuticals, Inc.(1) | 8,634 | 535,308 | ||||
Incyte Corp. Ltd.(1) | 15,581 | 607,659 | ||||
Isis Pharmaceuticals, Inc.(1) | 12,231 | 406,925 | ||||
Medivation, Inc.(1) | 10,088 | 603,868 | ||||
Myriad Genetics, Inc.(1) | 12,121 | 295,510 | ||||
NPS Pharmaceuticals, Inc.(1) | 11,240 | 323,487 | ||||
Opko Health, Inc.(1) | 36,200 | 362,724 | ||||
Pharmacyclics, Inc.(1) | 7,594 | 900,952 | ||||
Puma Biotechnology, Inc.(1) | 6,530 | 250,164 | ||||
Sarepta Therapeutics, Inc.(1) | 5,430 | 211,444 | ||||
Seattle Genetics, Inc.(1) | 14,235 | 549,898 | ||||
Theravance, Inc.(1) | 10,560 | 386,919 | ||||
United Therapeutics Corp.(1) | 6,463 | 572,105 | ||||
8,966,276 | ||||||
BUILDING PRODUCTS — 2.7% | ||||||
American Woodmark Corp.(1) | 27,494 | 932,596 | ||||
Apogee Enterprises, Inc. | 34,831 | 1,089,514 | ||||
Fortune Brands Home & Security, Inc. | 46,359 | 1,997,146 | ||||
Lennox International, Inc. | 14,676 | 1,145,608 | ||||
5,164,864 | ||||||
CAPITAL MARKETS — 1.6% | ||||||
Eaton Vance Corp. | 12,915 | 539,976 | ||||
HFF, Inc., Class A | 28,030 | 688,136 | ||||
Lazard Ltd. Class A | 14,613 | 564,792 | ||||
SEI Investments Co. | 14,167 | 470,203 | ||||
Triangle Capital Corp. | 28,560 | 849,946 | ||||
3,113,053 | ||||||
CHEMICALS — 1.8% | ||||||
Cabot Corp. | 24,390 | 1,136,818 | ||||
Chemtura Corp.(1) | 50,290 | 1,232,105 | ||||
International Flavors & Fragrances, Inc. | 8,927 | 737,816 | ||||
PolyOne Corp. | 9,150 | 277,245 | ||||
3,383,984 | ||||||
COMMERCIAL BANKS — 2.7% | ||||||
Cathay General Bancorp. | 37,058 | 912,738 | ||||
Central Pacific Financial Corp. | 26,790 | 493,472 | ||||
Home Bancshares, Inc. | 38,076 | 1,290,015 | ||||
Pinnacle Financial Partners, Inc.(1) | 25,211 | 781,541 | ||||
Renasant Corp. | 16,750 | 480,390 | ||||
Signature Bank(1) | 5,474 | 557,363 | ||||
WesBanco, Inc. | 18,560 | 545,664 | ||||
5,061,183 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.1% | ||||||
G&K Services, Inc., Class A | 13,956 | 870,854 | ||||
Mobile Mini, Inc.(1) | 19,483 | 703,726 | ||||
US Ecology, Inc. | 14,267 | 507,192 | ||||
2,081,772 | ||||||
COMMUNICATIONS EQUIPMENT — 0.4% | ||||||
Plantronics, Inc. | 6,569 | 282,073 | ||||
Ubiquiti Networks, Inc. | 14,700 | 567,126 | ||||
849,199 | ||||||
COMPUTERS AND PERIPHERALS — 0.4% | ||||||
NCR Corp.(1) | 21,985 | 803,552 | ||||
CONSTRUCTION AND ENGINEERING — 1.1% | ||||||
Chicago Bridge & Iron Co. NV New York Shares | 11,720 | 868,335 | ||||
MasTec, Inc.(1) | 40,363 | 1,290,405 | ||||
2,158,740 |
Shares | Value |
CONSTRUCTION MATERIALS — 1.7% | ||||||
Caesarstone Sdot-Yam Ltd.(1) | 24,730 | $1,042,864 | ||||
Eagle Materials, Inc. | 13,416 | 1,006,334 | ||||
Headwaters, Inc.(1) | 78,802 | 687,941 | ||||
Martin Marietta Materials, Inc. | 5,440 | 533,610 | ||||
3,270,749 | ||||||
CONTAINERS AND PACKAGING — 2.0% | ||||||
Ball Corp. | 17,310 | 846,286 | ||||
Crown Holdings, Inc.(1) | 23,700 | 1,033,320 | ||||
Packaging Corp. of America | 10,346 | 644,349 | ||||
Rock Tenn Co., Class A | 6,220 | 665,602 | ||||
Sealed Air Corp. | 21,150 | 638,307 | ||||
3,827,864 | ||||||
DISTRIBUTORS — 1.7% | ||||||
LKQ Corp.(1) | 62,519 | 2,065,002 | ||||
Pool Corp. | 20,384 | 1,108,482 | ||||
3,173,484 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 1.1% | ||||||
CBOE Holdings, Inc. | 15,970 | 774,545 | ||||
MarketAxess Holdings, Inc. | 20,515 | 1,338,193 | ||||
2,112,738 | ||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.3% | ||||||
tw telecom, inc., Class A(1) | 17,356 | 547,061 | ||||
ELECTRIC UTILITIES — 0.3% | ||||||
ITC Holdings Corp. | 5,350 | 538,157 | ||||
ELECTRICAL EQUIPMENT — 0.8% | ||||||
EnerSys | 15,110 | 1,002,548 | ||||
Hubbell, Inc., Class B | 5,564 | 598,353 | ||||
1,600,901 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.5% | ||||||
Belden, Inc. | 9,056 | 609,107 | ||||
Cognex Corp. | 26,744 | 835,750 | ||||
FEI Co. | 8,710 | 775,887 | ||||
Littelfuse, Inc. | 8,533 | 725,561 | ||||
Trimble Navigation Ltd.(1) | 29,234 | 835,215 | ||||
Vishay Intertechnology, Inc.(1) | 73,929 | 907,109 | ||||
4,688,629 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.8% | ||||||
Dresser-Rand Group, Inc.(1) | 7,537 | 458,024 | ||||
Dril-Quip, Inc.(1) | 11,613 | 1,363,599 | ||||
Geospace Technologies Corp.(1) | 7,900 | 769,618 | ||||
Hornbeck Offshore Services, Inc.(1) | 17,735 | 980,213 | ||||
Matrix Service Co.(1) | 23,915 | 497,193 | ||||
Oceaneering International, Inc. | 15,331 | 1,316,626 | ||||
5,385,273 | ||||||
FOOD AND STAPLES RETAILING — 0.5% | ||||||
United Natural Foods, Inc.(1) | 13,331 | 952,500 | ||||
FOOD PRODUCTS — 2.2% | ||||||
Annie’s, Inc.(1) | 10,770 | 508,882 | ||||
Flowers Foods, Inc. | 18,305 | 463,849 | ||||
Hain Celestial Group, Inc. (The)(1) | 11,258 | 937,003 | ||||
J&J Snack Foods Corp. | 7,275 | 622,522 | ||||
Snyders-Lance, Inc. | 17,410 | 522,126 | ||||
TreeHouse Foods, Inc.(1) | 14,572 | 1,067,545 | ||||
4,121,927 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 4.4% | ||||||
Align Technology, Inc.(1) | 14,250 | 813,105 | ||||
Cooper Cos., Inc. (The) | 4,204 | 543,199 | ||||
Cyberonics, Inc.(1) | 5,173 | 298,793 | ||||
DexCom, Inc.(1) | 11,270 | 323,787 | ||||
Haemonetics Corp.(1) | 7,781 | 315,597 | ||||
HeartWare International, Inc.(1) | 2,898 | 210,279 | ||||
IDEXX Laboratories, Inc.(1) | 6,934 | 747,901 | ||||
Insulet Corp.(1) | 13,450 | 524,819 | ||||
Mettler-Toledo International, Inc.(1) | 5,645 | 1,396,912 | ||||
ResMed, Inc. | 17,342 | 897,275 | ||||
Sirona Dental Systems, Inc.(1) | 7,820 | 564,995 | ||||
STERIS Corp. | 17,612 | 795,886 | ||||
Thoratec Corp.(1) | 9,857 | 425,724 | ||||
West Pharmaceutical Services, Inc. | 10,560 | 510,576 | ||||
8,368,848 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.7% | ||||||
Brookdale Senior Living, Inc.(1) | 15,340 | 415,407 | ||||
Centene Corp.(1) | 8,074 | 453,436 | ||||
Health Management Associates, Inc., Class A(1) | 35,290 | 452,418 | ||||
HealthSouth Corp. | 11,127 | 390,669 | ||||
Mednax, Inc.(1) | 4,840 | 527,657 | ||||
MWI Veterinary Supply, Inc.(1) | 4,330 | 686,911 | ||||
Patterson Cos., Inc. | 11,230 | 477,387 | ||||
Team Health Holdings, Inc.(1) | 10,910 | 473,930 | ||||
Tenet Healthcare Corp.(1) | 12,830 | 605,448 | ||||
Universal Health Services, Inc., Class B | 8,330 | 671,065 | ||||
5,154,328 |
Shares | Value |
HEALTH CARE TECHNOLOGY — 1.2% | ||||||
athenahealth, Inc.(1) | 5,296 | $707,069 | ||||
HMS Holdings Corp.(1) | 23,466 | 495,836 | ||||
Medidata Solutions, Inc.(1) | 5,386 | 594,130 | ||||
Veeva Systems, Inc. Class A(1) | 14,380 | 559,526 | ||||
2,356,561 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.6% | ||||||
AFC Enterprises, Inc.(1) | 14,253 | 635,399 | ||||
Buffalo Wild Wings, Inc.(1) | 4,160 | 593,133 | ||||
Cedar Fair LP | 9,041 | 414,530 | ||||
Domino’s Pizza, Inc. | 9,420 | 631,705 | ||||
Papa John’s International, Inc. | 18,957 | 1,434,476 | ||||
Six Flags Entertainment Corp. | 31,748 | 1,194,042 | ||||
4,903,285 | ||||||
HOUSEHOLD DURABLES — 1.9% | ||||||
M.D.C. Holdings, Inc. | 43,541 | 1,270,962 | ||||
Ryland Group, Inc. (The) | 18,600 | 747,720 | ||||
Standard Pacific Corp.(1) | 192,150 | 1,523,749 | ||||
3,542,431 | ||||||
INSURANCE — 0.6% | ||||||
AMERISAFE, Inc. | 17,299 | 666,012 | ||||
Brown & Brown, Inc. | 16,538 | 528,058 | ||||
1,194,070 | ||||||
INTERNET SOFTWARE AND SERVICES — 4.2% | ||||||
58.Com, Inc. ADR(1) | 8,895 | 214,547 | ||||
Bankrate, Inc.(1) | 71,500 | 1,204,060 | ||||
comScore, Inc.(1) | 46,470 | 1,241,679 | ||||
CoStar Group, Inc.(1) | 5,560 | 984,064 | ||||
Criteo SA ADR(1) | 2,596 | 91,665 | ||||
Dealertrack Technologies, Inc.(1) | 17,902 | 667,745 | ||||
Pandora Media, Inc.(1) | 14,708 | 369,612 | ||||
Rocket Fuel, Inc.(1) | 3,691 | 188,389 | ||||
Shutterstock, Inc.(1) | 7,773 | 550,328 | ||||
Trulia, Inc.(1) | 25,240 | 1,008,843 | ||||
Web.com Group, Inc.(1) | 57,636 | 1,553,290 | ||||
8,074,222 | ||||||
IT SERVICES — 4.1% | ||||||
Alliance Data Systems Corp.(1) | 4,700 | 1,114,182 | ||||
FleetCor Technologies, Inc.(1) | 23,191 | 2,675,082 | ||||
Gartner, Inc.(1) | 10,403 | 613,257 | ||||
Global Payments, Inc. | 7,986 | 475,007 | ||||
iGATE Corp.(1) | 26,450 | 842,168 | ||||
MAXIMUS, Inc. | 14,800 | 717,060 | ||||
ServiceSource International, Inc.(1) | 130,340 | 1,410,279 | ||||
7,847,035 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 1.0% | ||||||
Brunswick Corp. | 17,151 | 774,025 | ||||
Polaris Industries, Inc. | 8,499 | 1,112,944 | ||||
1,886,969 | ||||||
LIFE SCIENCES TOOLS AND SERVICES — 1.1% | ||||||
Bruker Corp.(1) | 17,328 | 354,358 | ||||
Covance, Inc.(1) | 13,780 | 1,230,003 | ||||
PAREXEL International Corp.(1) | 11,002 | 502,901 | ||||
2,087,262 | ||||||
MACHINERY — 3.8% | ||||||
Chart Industries, Inc.(1) | 4,257 | 457,500 | ||||
Hyster-Yale Materials Handling, Inc. | 3,456 | 271,089 | ||||
ITT Corp. | 33,085 | 1,314,467 | ||||
Lincoln Electric Holdings, Inc. | 8,804 | 609,589 | ||||
Middleby Corp.(1) | 13,434 | 3,058,250 | ||||
Mueller Water Products, Inc. Class A | 125,637 | 1,076,709 | ||||
WABCO Holdings, Inc.(1) | 6,317 | 541,240 | ||||
7,328,844 | ||||||
MEDIA — 2.4% | ||||||
AMC Networks, Inc.(1) | 16,770 | 1,175,410 | ||||
Nexstar Broadcasting Group, Inc. Class A | 13,800 | 612,582 | ||||
Regal Entertainment Group, Class A | 17,907 | 340,412 | ||||
Sinclair Broadcast Group, Inc., Class A | 79,036 | 2,533,894 | ||||
4,662,298 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 2.2% | ||||||
Athlon Energy, Inc.(1) | 34,920 | 1,148,868 | ||||
Gulfport Energy Corp.(1) | 34,594 | 2,030,322 | ||||
Kodiak Oil & Gas Corp.(1) | 41,467 | 537,827 | ||||
Rosetta Resources, Inc.(1) | 8,675 | 519,979 | ||||
4,236,996 | ||||||
PERSONAL PRODUCTS — 0.8% | ||||||
Herbalife Ltd. | 8,834 | 572,620 | ||||
Nu Skin Enterprises, Inc., Class A | 5,293 | 618,910 | ||||
Prestige Brands Holdings, Inc.(1) | 12,183 | 380,475 | ||||
1,572,005 | ||||||
PHARMACEUTICALS — 1.7% | ||||||
Endo Health Solutions, Inc.(1) | 14,927 | 652,758 | ||||
Jazz Pharmaceuticals plc(1) | 7,271 | 659,770 | ||||
Medicines Co. (The)(1) | 10,439 | 354,091 | ||||
Questcor Pharmaceuticals, Inc. | 8,070 | 495,256 |
Shares | Value |
Salix Pharmaceuticals Ltd.(1) | 8,548 | $613,319 | ||||
ViroPharma, Inc.(1) | 11,080 | 430,126 | ||||
3,205,320 | ||||||
PROFESSIONAL SERVICES — 2.4% | ||||||
Equifax, Inc. | 12,706 | 821,697 | ||||
Huron Consulting Group, Inc.(1) | 16,605 | 972,555 | ||||
On Assignment, Inc.(1) | 44,423 | 1,501,053 | ||||
WageWorks, Inc.(1) | 25,450 | 1,303,295 | ||||
4,598,600 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.6% | ||||||
Federal Realty Investment Trust | 4,106 | 425,382 | ||||
National Retail Properties, Inc. | 19,574 | 673,346 | ||||
Omega Healthcare Investors, Inc. | 15,746 | 523,397 | ||||
Rayonier, Inc. | 13,317 | 626,165 | ||||
Sovran Self Storage, Inc. | 6,913 | 528,775 | ||||
Weingarten Realty Investors | 10,251 | 325,264 | ||||
3,102,329 | ||||||
ROAD AND RAIL — 1.3% | ||||||
Saia, Inc.(1) | 22,973 | 747,312 | ||||
Swift Transportation Co.(1) | 80,704 | 1,758,540 | ||||
2,505,852 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.4% | ||||||
Cavium Networks, Inc.(1) | 17,156 | 691,559 | ||||
Cree, Inc.(1) | 12,980 | 788,535 | ||||
Photronics, Inc.(1) | 78,023 | 655,393 | ||||
Power Integrations, Inc. | 10,191 | 585,371 | ||||
Semtech Corp.(1) | 28,855 | 897,679 | ||||
Skyworks Solutions, Inc.(1) | 30,313 | 781,469 | ||||
SunEdison, Inc.(1) | 19,860 | 184,698 | ||||
4,584,704 | ||||||
SOFTWARE — 7.3% | ||||||
ANSYS, Inc.(1) | 6,206 | 542,715 | ||||
Aspen Technology, Inc.(1) | 41,745 | 1,595,911 | ||||
Bottomline Technologies (de), Inc.(1) | 38,706 | 1,216,143 | ||||
CommVault Systems, Inc.(1) | 4,637 | 362,057 | ||||
Concur Technologies, Inc.(1) | 3,927 | 410,764 | ||||
Covisint Corp.(1) | 54,442 | 668,003 | ||||
FleetMatics Group plc(1) | 17,940 | 569,595 | ||||
Fortinet, Inc.(1) | 21,231 | 426,955 | ||||
Infoblox, Inc.(1) | 10,795 | 479,838 | ||||
Informatica Corp.(1) | 33,000 | 1,273,800 | ||||
Interactive Intelligence, Inc.(1) | 13,371 | 821,648 | ||||
Manhattan Associates, Inc.(1) | 6,350 | 676,339 | ||||
Monotype Imaging Holdings, Inc. | 28,762 | 811,664 | ||||
NetSuite, Inc.(1) | 4,380 | 441,854 | ||||
PROS Holdings, Inc.(1) | 16,752 | 592,183 | ||||
QLIK Technologies, Inc.(1) | 7,695 | 194,991 | ||||
Solera Holdings, Inc. | 13,010 | 731,422 | ||||
Splunk, Inc.(1) | 9,490 | 595,118 | ||||
TIBCO Software, Inc.(1) | 17,292 | 424,692 | ||||
Tyler Technologies, Inc.(1) | 6,997 | 676,680 | ||||
Ultimate Software Group, Inc.(1) | 3,176 | 490,628 | ||||
14,003,000 | ||||||
SPECIALTY RETAIL — 4.7% | ||||||
Cabela’s, Inc.(1) | 6,354 | 376,919 | ||||
Conn’s, Inc.(1) | 30,679 | 1,854,239 | ||||
GameStop Corp., Class A | 19,400 | 1,063,508 | ||||
Lithia Motors, Inc., Class A | 19,073 | 1,198,738 | ||||
Restoration Hardware Holdings, Inc.(1) | 27,830 | 1,940,864 | ||||
Tractor Supply Co. | 8,982 | 640,866 | ||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 6,404 | 825,155 | ||||
Zale Corp.(1) | 68,350 | 1,068,311 | ||||
8,968,600 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 2.3% | ||||||
Fifth & Pacific Cos., Inc.(1) | 41,380 | 1,096,156 | ||||
Fossil Group, Inc.(1) | 9,115 | 1,157,058 | ||||
Hanesbrands, Inc. | 19,180 | 1,306,542 | ||||
Under Armour, Inc. Class A(1) | 10,682 | 866,844 | ||||
4,426,600 | ||||||
TRADING COMPANIES AND DISTRIBUTORS — 1.6% | ||||||
DXP Enterprises, Inc.(1) | 7,035 | 646,516 | ||||
H&E Equipment Services, Inc.(1) | 27,267 | 682,493 | ||||
United Rentals, Inc.(1) | 26,169 | 1,690,256 | ||||
3,019,265 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.3% | ||||||
RingCentral, Inc. Class A(1) | 27,354 | 526,838 | ||||
TOTAL COMMON STOCKS(Cost $141,040,671) | 186,565,892 | |||||
Shares | Value |
Temporary Cash Investments — 2.2% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $853,258), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $837,507) | $837,505 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $1,026,042), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $1,005,006) | 1,005,005 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $1,025,843), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $1,005,007) | 1,005,006 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $1,025,848), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $1,005,007) | 1,005,006 | |||||
SSgA U.S. Government Money Market Fund | 279,079 | 279,079 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $4,131,601) | 4,131,601 | |||||
TOTAL INVESTMENT SECURITIES — 99.8% (Cost $145,172,272) | 190,697,493 | |||||
OTHER ASSETS AND LIABILITIES — 0.2% | 370,452 | |||||
TOTAL NET ASSETS — 100.0% | $191,067,945 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $145,172,272) | $190,697,493 | ||
Receivable for investments sold | 1,779,121 | ||
Receivable for capital shares sold | 3,838 | ||
Dividends and interest receivable | 35,778 | ||
192,516,230 | |||
Liabilities | |||
Payable for investments purchased | 1,195,698 | ||
Payable for capital shares redeemed | 10,504 | ||
Accrued management fees | 241,880 | ||
Distribution and service fees payable | 203 | ||
1,448,285 | |||
Net Assets | $191,067,945 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $156,803,267 | ||
Accumulated net investment loss | (1,483,655 | ) | |
Accumulated net realized loss | (9,776,888 | ) | |
Net unrealized appreciation | 45,525,221 | ||
$191,067,945 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $190,490,326 | 17,431,259 | $10.93 |
Institutional Class, $0.01 Par Value | $45,330 | 4,119 | $11.01 |
A Class, $0.01 Par Value | $321,873 | 29,731 | $10.83* |
C Class, $0.01 Par Value | $117,451 | 11,154 | $10.53 |
R Class, $0.01 Par Value | $92,965 | 8,668 | $10.73 |
*Maximum offering price $11.49 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends | $1,487,513 | ||
Interest | 2,048 | ||
1,489,561 | |||
Expenses: | |||
Management fees | 2,538,150 | ||
Distribution and service fees: | |||
A Class | 703 | ||
C Class | 1,133 | ||
R Class | 382 | ||
Directors’ fees and expenses | 5,919 | ||
2,546,287 | |||
Net investment income (loss) | (1,056,726 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 26,351,491 | ||
Change in net unrealized appreciation (depreciation) on investments | 24,716,488 | ||
Net realized and unrealized gain (loss) | 51,067,979 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $50,011,253 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $(1,056,726 | ) | $(363,859 | ) | ||
Net realized gain (loss) | 26,351,491 | 5,704,469 | ||||
Change in net unrealized appreciation (depreciation) | 24,716,488 | 8,180,114 | ||||
Net increase (decrease) in net assets resulting from operations | 50,011,253 | 13,520,724 | ||||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (13,879,798 | ) | (17,127,334 | ) | ||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 5,437 | 2,645 | ||||
Net increase (decrease) in net assets | 36,136,892 | (3,603,965 | ) | |||
Net Assets | ||||||
Beginning of period | 154,931,053 | 158,535,018 | ||||
End of period | $191,067,945 | $154,931,053 | ||||
Accumulated net investment loss | $(1,483,655 | ) | $(493,831 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. New Opportunities Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class and the R Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are typically valued at the closing price on the exchange where primarily traded or as of the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited
to: a security has been declared in default; trading in a security has been halted during 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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 1.100% to 1.500% 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, 2013 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, 2013 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $130,999,273 and $145,324,382, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 1,105,428 | $10,646,772 | 621,604 | $4,915,018 | ||||||||
Redeemed | (2,680,109 | ) | (24,543,220 | ) | (2,782,961 | ) | (22,002,462 | ) | ||||
(1,574,681 | ) | (13,896,448 | ) | (2,161,357 | ) | (17,087,444 | ) | |||||
Institutional Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
A Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 13,453 | 127,738 | 8,432 | 64,452 | ||||||||
Redeemed | (13,318 | ) | (125,925 | ) | (16,755 | ) | (130,048 | ) | ||||
135 | 1,813 | (8,323 | ) | (65,596 | ) | |||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 5,823 | 51,750 | 2,447 | 18,044 | ||||||||
Redeemed | (4,720 | ) | (46,089 | ) | (130 | ) | (992 | ) | ||||
1,103 | 5,661 | 2,317 | 17,052 | |||||||||
R Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 999 | 9,337 | 1,932 | 14,548 | ||||||||
Redeemed | (15 | ) | (161 | ) | (726 | ) | (5,894 | ) | ||||
984 | 9,176 | 1,206 | 8,654 | |||||||||
Net increase (decrease) | (1,572,459 | ) | $(13,879,798 | ) | (2,166,157 | ) | $(17,127,334 | ) |
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 | $186,565,892 | — | — | ||||||
Temporary Cash Investments | 279,079 | $3,852,522 | — | ||||||
Total Value of Investment Securities | $186,844,971 | $3,852,522 | — |
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, 2013 and October 31, 2012.
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $145,092,179 | ||
Gross tax appreciation of investments | $47,265,249 | ||
Gross tax depreciation of investments | (1,659,935 | ) | |
Net tax appreciation (depreciation) of investments | $45,605,314 | ||
Undistributed ordinary income | — | ||
Accumulated short-term capital losses | $(9,856,981 | ) | |
Late-year ordinary loss deferral | $(1,483,655 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales, return of capital dividends received and the timing and recognition of partnership income.
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.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||
Net | Net | Net Realized | Total From | Net Asset | Total | Operating | Net | Portfolio | Net Assets, thousands) | |
Investor Class | ||||||||||
2013 | $8.13 | (0.06) | 2.86 | 2.80 | $10.93 | 34.44% | 1.50% | (0.62)% | 79% | $190,490 |
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 |
Institutional Class | ||||||||||
2013 | $8.17 | (0.04) | 2.88 | 2.84 | $11.01 | 34.76% | 1.30% | (0.42)% | 79% | $45 |
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 | ||||||||||
2013 | $8.08 | (0.08) | 2.83 | 2.75 | $10.83 | 34.03% | 1.75% | (0.87)% | 79% | $322 |
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 |
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 | Net | Net Realized | Total From | Net Asset | Total | Operating | Net | Portfolio | Net Assets, thousands) | |
C Class | ||||||||||
2013 | $7.91 | (0.15) | 2.77 | 2.62 | $10.53 | 33.12% | 2.50% | (1.62)% | 79% | $117 |
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 |
R Class | ||||||||||
2013 | $8.02 | (0.11) | 2.82 | 2.71 | $10.73 | 33.67% | 2.00% | (1.12)% | 79% | $93 |
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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of New Opportunities Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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 | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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 | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
Notes |
Notes |
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80467 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
NT Growth Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | Since Inception | Inception Date | ||
Institutional Class | ACLTX | 26.05% | 15.76% | 8.02 | % | 5/12/06 |
Russell 1000 Growth Index | — | 28.30% | 17.50% | 7.96 | % | — |
R6 Class | ACDTX | — | — | 7.30 | %(1) | 7/26/13 |
(1) Total returns for periods less than one year are not annualized.
Growth of $10,000 Over Life of Class |
$10,000 investment made May 12, 2006 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/ntgrowth.jpg)
*From 5/12/06, the Institutional Class’s inception date. Not annualized.
Total Annual Fund Operating Expenses | |
Institutional Class | R6 Class |
0.77% | 0.62% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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 Institutional 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.
Portfolio Commentary |
Portfolio Managers: Greg Woodhams and Prescott LeGard
Performance Summary
NT Growth returned 26.05%* in the 12 months ended October 31, 2013. By comparison, the Russell 1000 Growth Index (the fund’s benchmark) returned 28.30%.
In terms of NT Growth’s absolute returns, consumer discretionary and health care shares contributed most. No sector detracted in absolute terms. Relative to the benchmark, stock selection made consumer discretionary stocks the leading detractors. Stock choices meant energy shares contributed most to relative performance.
Consumer Discretionary Detracted Most
Stock selection detracted most from relative results in the consumer discretionary sector. Two of the leading detractors for the year were online travel providers Expedia, in which the portfolio held an overweight position, and priceline.com, to which the fund had no exposure. Unfortunately, Expedia lagged and priceline.com did relatively well. We believed Expedia would realize greater efficiencies and profits as a result of its business model; however, that did not materialize and we eliminated the position. Elsewhere in the sector, select textiles and apparel and retail holdings also detracted. Multiline retailer Target is a good example. Though the stock underperformed, we expect profit improvement out of the company’s Canadian operations and continue to like its focus on returning equity to shareholders in the form of dividends and share buybacks, as well as its decision to cut capital expenditures and sell its credit card division.
Materials Underperformed
Positioning in the materials sector detracted from performance largely as a result of stock selection decisions in the chemicals industry. It also hurt to hold a stake in Coeur Mining, which underperformed as a result of the collapse in precious metals prices. We eliminated the position because the economics of our investment thesis no longer hold up with gold and silver trading at such low levels. The financials sector also detracted, largely as a result of positioning in the capital markets and consumer finance industries.
In terms of individual detractors, real estate investment trust American Campus Communities, which focuses on student housing, underperformed as a result of changes in lease rates. We eliminated the position. It also detracted from relative results to be underrepresented in shares of Facebook. We initiated a position in the company, but held less than the benchmark on average over the course of the period.
Energy, Health Care Helped Most
The leading contribution to relative performance came from positioning in the energy sector. Independent oil and gas producers Noble Energy and EOG Resources were key contributors, benefiting from continued successful development and production at key projects and properties. Another source of strength was energy equipment and services firm Oceaneering International.
* All fund returns referenced in this commentary are for Institutional Class shares.
The company, which makes remotely operated vehicles and other equipment for underwater drilling, benefited from the continuing expansion of deep-water drilling and exploration activity.
Positioning in the health care sector also made a significant contribution to relative results. The leading contributor here was Gilead Sciences, with investors enthused about developments in the company’s hepatitis C treatment. Other biopharmaceutical companies to make notable contributions were Regeneron Pharmaceuticals and Alexion Pharmaceuticals. Both benefited from positive product launches and development of drugs in their pipelines. It was a similar story for Bristol-Myers Squibb, which enjoyed good trial results for its immuno-oncology treatments.
Other Notable Contributors
One of the largest contributions to relative performance came as a result of being underrepresented in shares of IBM, which suffered from disappointing hardware sales. A position in MasterCard contributed to performance, as the electronic payment processor continued to benefit from the rising trend of electronic rather than cash transactions. Entertainment companies CBS and Viacom did well thanks to rising licensing revenues for content in the former case, and continued strong ratings momentum for animated and live-action shows, in the latter case.
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 we believe to be superior individual securities. As of October 31, 2013, the portfolio’s largest underweight position was in the telecommunications sector. In part, this reflected the elimination of a stake in diversified telecommunication provider Verizon, as well as eliminating exposure to wireless providers and tower companies. We see increasing competition in the wireless space and slowing growth in the tower space, so we are closing out these positions after a period of solid performance while valuations are still relatively high.
The largest overweight sector relative to the benchmark was information technology. In part, this reflects a recently initiated position in Facebook. After reporting better-than-expected mobile revenue, we believe the company addressed the key question about its ability to generate revenue from mobile users, not just those on the desktop.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Apple, Inc. | 4.8% |
Google, Inc., Class A | 4.3% |
PepsiCo, Inc. | 3.0% |
Coca-Cola Co. (The) | 2.7% |
Schlumberger Ltd. | 2.5% |
Comcast Corp., Class A | 2.5% |
MasterCard, Inc., Class A | 2.4% |
QUALCOMM, Inc. | 2.0% |
Bristol-Myers Squibb Co. | 1.8% |
Oracle Corp. | 1.7% |
Top Five Industries | % of net assets |
Internet Software and Services | 6.6% |
Beverages | 6.3% |
Media | 6.1% |
Computers and Peripherals | 6.0% |
Aerospace and Defense | 5.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 97.3% |
Exchange-Traded Funds | 0.3% |
Total Equity Exposure | 97.6% |
Temporary Cash Investments | 2.7% |
Other Assets and Liabilities | (0.3)% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 - 10/31/13 | Annualized | |||
Actual | ||||||
Institutional Class | $1,000 | $1,126.40 | $4.13 | 0.77% | ||
R6 Class | $1,000 | $1,073.00 | (2) | $1.73 | (3) | 0.62% |
Hypothetical | ||||||
Institutional Class | $1,000 | $1,021.32 | $3.92 | 0.77% | ||
R6 Class | $1,000 | $1,022.08 | (4) | $3.16 | (4) | 0.62% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.3% | ||||||
AEROSPACE AND DEFENSE — 5.7% | ||||||
Boeing Co. (The) | 127,191 | $ 16,598,426 | ||||
Honeywell International, Inc. | 194,689 | 16,885,377 | ||||
Precision Castparts Corp. | 45,820 | 11,613,079 | ||||
United Technologies Corp. | 117,245 | 12,457,281 | ||||
57,554,163 | ||||||
AIR FREIGHT AND LOGISTICS — 1.5% | ||||||
United Parcel Service, Inc., Class B | 156,723 | 15,396,468 | ||||
AIRLINES — 0.3% | ||||||
Alaska Air Group, Inc. | 44,015 | 3,110,100 | ||||
AUTOMOBILES — 1.4% | ||||||
Harley-Davidson, Inc. | 144,871 | 9,277,539 | ||||
Tesla Motors, Inc.(1) | 30,039 | 4,804,438 | ||||
14,081,977 | ||||||
BEVERAGES — 6.3% | ||||||
Beam, Inc. | 51,496 | 3,465,681 | ||||
Brown-Forman Corp., Class B | 41,266 | 3,011,593 | ||||
Coca-Cola Co. (The) | 689,031 | 27,264,957 | ||||
PepsiCo, Inc. | 356,339 | 29,964,546 | ||||
63,706,777 | ||||||
BIOTECHNOLOGY — 4.7% | ||||||
Alexion Pharmaceuticals, Inc.(1) | 65,751 | 8,084,085 | ||||
Amgen, Inc. | 126,348 | 14,656,368 | ||||
Gilead Sciences, Inc.(1) | 242,277 | 17,199,244 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 25,206 | 7,249,246 | ||||
47,188,943 | ||||||
CAPITAL MARKETS — 1.8% | ||||||
Franklin Resources, Inc. | 197,868 | 10,657,171 | ||||
State Street Corp. | 107,702 | 7,546,679 | ||||
18,203,850 | ||||||
CHEMICALS — 2.7% | ||||||
LyondellBasell Industries NV, Class A | 154,173 | 11,501,306 | ||||
Monsanto Co. | 152,328 | 15,976,160 | ||||
27,477,466 | ||||||
COMMERCIAL BANKS — 0.7% | ||||||
SunTrust Banks, Inc. | 217,880 | 7,329,483 | ||||
COMMERCIAL SERVICES AND SUPPLIES — 0.7% | ||||||
Tyco International Ltd. | 180,375 | 6,592,706 | ||||
COMMUNICATIONS EQUIPMENT — 3.6% | ||||||
Ciena Corp.(1) | 198,066 | 4,608,996 | ||||
Cisco Systems, Inc. | 276,671 | 6,225,097 | ||||
F5 Networks, Inc.(1) | 59,861 | 4,879,270 | ||||
QUALCOMM, Inc. | 287,504 | 19,972,903 | ||||
35,686,266 | ||||||
COMPUTERS AND PERIPHERALS — 6.0% | ||||||
Apple, Inc. | 92,876 | 48,513,779 | ||||
NetApp, Inc. | 166,272 | 6,453,016 | ||||
Seagate Technology plc | 104,627 | 5,093,242 | ||||
60,060,037 | ||||||
CONSUMER FINANCE — 1.4% | ||||||
American Express Co. | 166,074 | 13,584,853 | ||||
ELECTRICAL EQUIPMENT — 0.9% | ||||||
Rockwell Automation, Inc. | 79,388 | 8,765,229 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.4% | ||||||
Trimble Navigation Ltd.(1) | 131,013 | 3,743,041 | ||||
ENERGY EQUIPMENT AND SERVICES — 3.7% | ||||||
Core Laboratories NV | 18,425 | 3,449,528 | ||||
Oceaneering International, Inc. | 94,265 | 8,095,478 | ||||
Schlumberger Ltd. | 267,991 | 25,116,117 | ||||
36,661,123 | ||||||
FOOD AND STAPLES RETAILING — 2.0% | ||||||
Costco Wholesale Corp. | 109,790 | 12,955,220 | ||||
Whole Foods Market, Inc. | 107,914 | 6,812,611 | ||||
19,767,831 | ||||||
FOOD PRODUCTS — 1.4% | ||||||
Hershey Co. (The) | 43,111 | 4,278,336 | ||||
Mead Johnson Nutrition Co. | 122,774 | 10,025,725 | ||||
Pinnacle Foods, Inc. | 6,161 | 166,901 | ||||
14,470,962 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.3% | ||||||
CareFusion Corp.(1) | 51,727 | 2,005,456 | ||||
DENTSPLY International, Inc. | 81,716 | 3,848,824 | ||||
IDEXX Laboratories, Inc.(1) | 29,821 | 3,216,493 | ||||
Intuitive Surgical, Inc.(1) | 11,209 | 4,164,143 | ||||
ResMed, Inc. | 5,748 | 297,401 | ||||
13,532,317 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 1.7% | ||||||
Cardinal Health, Inc. | 118,548 | 6,954,026 | ||||
Express Scripts Holding Co.(1) | 159,852 | 9,993,947 | ||||
16,947,973 | ||||||
HEALTH CARE TECHNOLOGY — 0.3% | ||||||
Veeva Systems, Inc. Class A(1) | 65,806 | 2,560,511 |
Shares | Value | |||||
HOTELS, RESTAURANTS AND LEISURE — 3.6% | ||||||
Chipotle Mexican Grill, Inc.(1) | 13,850 | $ 7,298,535 | ||||
Las Vegas Sands Corp. | 149,262 | 10,481,178 | ||||
Marriott International, Inc. Class A | 152,002 | 6,852,250 | ||||
Starbucks Corp. | 143,969 | 11,668,687 | ||||
36,300,650 | ||||||
HOUSEHOLD DURABLES — 1.0% | ||||||
Mohawk Industries, Inc.(1) | 76,417 | 10,119,139 | ||||
HOUSEHOLD PRODUCTS — 1.6% | ||||||
Colgate-Palmolive Co. | 46,393 | 3,003,019 | ||||
Procter & Gamble Co. (The) | 158,783 | 12,821,727 | ||||
15,824,746 | ||||||
INDUSTRIAL CONGLOMERATES — 0.8% | ||||||
Danaher Corp. | 118,184 | 8,519,885 | ||||
INSURANCE — 0.7% | ||||||
MetLife, Inc. | 149,724 | 7,083,442 | ||||
INTERNET AND CATALOG RETAIL — 0.6% | ||||||
Amazon.com, Inc.(1) | 16,059 | 5,845,958 | ||||
INTERNET SOFTWARE AND SERVICES — 6.6% | ||||||
Facebook, Inc., Class A(1) | 329,964 | 16,583,991 | ||||
Google, Inc., Class A(1) | 41,776 | 43,053,510 | ||||
LinkedIn Corp., Class A(1) | 30,541 | 6,831,105 | ||||
66,468,606 | ||||||
IT SERVICES — 2.4% | ||||||
MasterCard, Inc., Class A | 33,276 | 23,862,220 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 0.5% | ||||||
Waters Corp.(1) | 45,277 | 4,569,355 | ||||
MACHINERY — 1.3% | ||||||
Lincoln Electric Holdings, Inc. | 39,908 | 2,763,230 | ||||
Parker-Hannifin Corp. | 66,353 | 7,744,722 | ||||
WABCO Holdings, Inc.(1) | 31,532 | 2,701,662 | ||||
13,209,614 | ||||||
MEDIA — 6.1% | ||||||
CBS Corp., Class B | 187,931 | 11,114,239 | ||||
Comcast Corp., Class A | 526,454 | 25,048,681 | ||||
Discovery Communications, Inc. Class C(1) | 76,080 | 6,292,577 | ||||
Scripps Networks Interactive, Inc. Class A | 93,216 | 7,503,888 | ||||
Viacom, Inc., Class B | 138,938 | 11,572,146 | ||||
61,531,531 | ||||||
MULTILINE RETAIL — 1.1% | ||||||
Target Corp. | 170,450 | 11,043,456 | ||||
OIL, GAS AND CONSUMABLE FUELS — 2.4% | ||||||
EOG Resources, Inc. | 83,181 | 14,839,490 | ||||
Noble Energy, Inc. | 125,801 | 9,426,269 | ||||
24,265,759 | ||||||
PERSONAL PRODUCTS — 0.7% | ||||||
Estee Lauder Cos., Inc. (The), Class A | 95,820 | 6,799,387 | ||||
PHARMACEUTICALS — 4.3% | ||||||
AbbVie, Inc. | 263,990 | 12,790,315 | ||||
Allergan, Inc. | 59,714 | 5,410,685 | ||||
Bristol-Myers Squibb Co. | 347,382 | 18,244,503 | ||||
Zoetis, Inc. | 218,233 | 6,909,257 | ||||
43,354,760 | ||||||
REAL ESTATE MANAGEMENT AND DEVELOPMENT — 0.5% | ||||||
CBRE Group, Inc.(1) | 217,808 | 5,059,680 | ||||
ROAD AND RAIL — 1.3% | ||||||
Union Pacific Corp. | 84,272 | 12,758,781 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.9% | ||||||
Altera Corp. | 214,232 | 7,198,195 | ||||
Freescale Semiconductor Ltd.(1) | 170,382 | 2,630,698 | ||||
Linear Technology Corp. | 223,117 | 9,179,034 | ||||
19,007,927 | ||||||
SOFTWARE — 5.7% | ||||||
Cadence Design Systems, Inc.(1) | 162,908 | 2,112,917 | ||||
CommVault Systems, Inc.(1) | 49,028 | 3,828,106 | ||||
Electronic Arts, Inc.(1) | 303,235 | 7,959,919 | ||||
Microsoft Corp. | 399,154 | 14,110,094 | ||||
NetSuite, Inc.(1) | 28,326 | 2,857,527 | ||||
Oracle Corp. | 516,860 | 17,314,810 | ||||
Splunk, Inc.(1) | 51,771 | 3,246,559 | ||||
VMware, Inc., Class A(1) | 67,013 | 5,446,817 | ||||
56,876,749 | ||||||
SPECIALTY RETAIL — 5.3% | ||||||
Best Buy Co., Inc. | 196,141 | 8,394,835 | ||||
Foot Locker, Inc. | 68,862 | 2,389,511 | ||||
GNC Holdings, Inc. Class A | 111,489 | 6,557,783 | ||||
Home Depot, Inc. (The) | 194,857 | 15,177,412 | ||||
Lowe’s Cos., Inc. | 271,456 | 13,513,080 | ||||
Urban Outfitters, Inc.(1) | 202,847 | 7,683,844 | ||||
53,716,465 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.4% | ||||||
Hanesbrands, Inc. | 58,176 | 3,962,949 | ||||
TOTAL COMMON STOCKS (Cost $732,631,681) | 976,603,135 |
Shares | Value | |||||
Exchange-Traded Funds — 0.3% | ||||||
iShares Russell 1000 Growth Index Fund (Cost $2,926,211) | 40,115 | $ 3,272,983 | ||||
Temporary Cash Investments — 2.7% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $5,657,803), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $5,553,356) | 5,553,345 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $6,803,505), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $6,664,021) | 6,664,015 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $6,802,184), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $6,664,019) | 6,664,015 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $6,802,218), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $6,664,024) | $ 6,664,015 | |||||
SSgA U.S. Government Money Market Fund | 1,850,524 | 1,850,524 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $27,395,914) | 27,395,914 | |||||
TOTAL INVESTMENT SECURITIES — 100.3% (Cost $762,953,806) | 1,007,272,032 | |||||
OTHER ASSETS AND LIABILITIES — (0.3)% | (3,372,045 | ) | ||||
TOTAL NET ASSETS — 100.0% | $1,003,899,987 |
Notes to Schedule of Investments
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $762,953,806) | $1,007,272,032 | ||
Receivable for investments sold | 20,656,398 | ||
Dividends and interest receivable | 464,941 | ||
1,028,393,371 | |||
Liabilities | |||
Payable for investments purchased | 23,835,018 | ||
Payable for capital shares redeemed | 29,920 | ||
Accrued management fees | 628,446 | ||
24,493,384 | |||
Net Assets | $1,003,899,987 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $722,512,802 | ||
Undistributed net investment income | 4,660,845 | ||
Undistributed net realized gain | 32,407,042 | ||
Net unrealized appreciation | 244,319,298 | ||
�� | $1,003,899,987 |
Net assets | Shares outstanding | Net asset value per share | |
Institutional Class, $0.01 Par Value | $995,575,383 | 64,554,764 | $15.42 |
R6 Class, $0.01 Par Value | $8,324,604 | 539,570 | $15.43 |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $12,073) | $ 13,313,890 | ||
Interest | 5,638 | ||
13,319,528 | |||
Expenses: | |||
Management fees | 6,270,851 | ||
Directors’ fees and expenses | 28,498 | ||
Other expenses | 198 | ||
6,299,547 | |||
Net investment income (loss) | 7,019,981 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 40,236,779 | ||
Futures contract transactions | 72,241 | ||
40,309,020 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 145,709,613 | ||
Translation of assets and liabilities in foreign currencies | 113 | ||
145,709,726 | |||
Net realized and unrealized gain (loss) | 186,018,746 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $193,038,727 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $ 7,019,981 | $ 3,955,607 | ||||
Net realized gain (loss) | 40,309,020 | 18,575,373 | ||||
Change in net unrealized appreciation (depreciation) | 145,709,726 | 26,570,366 | ||||
Net increase (decrease) in net assets resulting from operations | 193,038,727 | 49,101,346 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Institutional Class | (5,233,236 | ) | (3,102,332 | ) | ||
From net realized gains: | ||||||
Institutional Class | (21,042,732 | ) | (11,931,445 | ) | ||
Decrease in net assets from distributions | (26,275,968 | ) | (15,033,777 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | 201,230,763 | 139,994,045 | ||||
Net increase (decrease) in net assets | 367,993,522 | 174,061,614 | ||||
Net Assets | ||||||
Beginning of period | 635,906,465 | 461,844,851 | ||||
End of period | $1,003,899,987 | $635,906,465 | ||||
Undistributed net investment income | $4,660,845 | $2,938,469 |
See Notes to Financial Statements.
Notes to Financial Statements |
October 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is not the result of any difference in advisory or custodial fees or other expenses related to management of the fund’s assets, which do not vary by class. The fund’s R6 Class shares are available for purchase exclusively by certain American Century Investments funds of funds that are offered only through employer-sponsored retirement plans where a financial intermediary provides retirement recordkeeping services to plan participants. Because financial intermediaries do not receive any service, distribution or administrative fees for offering such funds of funds, American Century Investment Management, Inc. (ACIM) (the investment advisor) is able to charge the R6 Class a lower unified management fee. Sale of the R6 Class commenced on July 26, 2013.
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.
Security Transactions — Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes.
Investment Income — Dividend income less foreign taxes withheld, if any, is recorded as of the ex-dividend date. Distributions received on securities that represent a return of capital or long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
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 Growth Fund, one fund in a series issued by the corporation. The annual management fee schedule ranges from 0.600% to 0.800% for the Institutional Class and 0.450% to 0.650% for the R6 Class. The effective annual management fee for each class for the period ended October 31, 2013 was 0.77% for the Institutional Class and 0.62% for the R6 Class.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $779,079,704 and $617,638,321, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Institutional Class/Shares Authorized | 300,000,000 | 150,000,000 | ||||||||||
Sold | 14,965,867 | $201,231,386 | 16,207,107 | $204,409,917 | ||||||||
Issued in reinvestment of distributions | 2,082,089 | 26,275,968 | 1,326,900 | 15,033,777 | ||||||||
Redeemed | (2,473,143 | ) | (34,535,500 | ) | (6,301,169 | ) | (79,449,649 | ) | ||||
14,574,813 | 192,971,854 | 11,232,838 | 139,994,045 | |||||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 542,537 | 8,303,599 | ||||||||||
Redeemed | (2,967 | ) | (44,690 | ) | ||||||||
539,570 | 8,258,909 | |||||||||||
Net increase (decrease) | 15,114,383 | $201,230,763 | 11,232,838 | $139,994,045 |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Common Stocks | $976,603,135 | — | — | ||||||
Exchange-Traded Funds | 3,272,983 | — | — | ||||||
Temporary Cash Investments | 1,850,524 | $25,545,390 | — | ||||||
Total Value of Investment Securities | $981,726,642 | $25,545,390 | — |
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, 2013, the effect of equity price risk derivative instruments on the Statement of Operations was $72,241 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, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $5,216,535 | $3,102,332 | ||||
Long-term capital gains | $21,059,433 | $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.
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $770,777,032 | ||
Gross tax appreciation of investments | $238,751,310 | ||
Gross tax depreciation of investments | (2,256,310 | ) | |
Net tax appreciation (depreciation) of investments | $236,495,000 | ||
Net tax appreciation (depreciation) on translation of assets and liabilities in foreign currencies | $1,072 | ||
Net tax appreciation (depreciation) | $236,496,072 | ||
Undistributed ordinary income | $12,139,005 | ||
Accumulated long-term gains | $32,752,108 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||||
Net | Net | Net | Total From Investment Operations | Net | Net | Total Distributions | Net Asset Value, | Total Return(2) | Operating Expenses | Net | Portfolio | Net Assets, | |||||||||||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $12.72 | 0.12 | 3.08 | 3.20 | (0.10 | ) | (0.40 | ) | (0.50 | ) | $15.42 | 26.05 | % | 0.77 | % | 0.85 | % | 77 | % | $995,575 | |||||||||||||||||||
2012 | $11.92 | 0.09 | 1.09 | 1.18 | (0.08 | ) | (0.30 | ) | (0.38 | ) | $12.72 | 10.33 | % | 0.77 | % | 0.71 | % | 87 | % | $635,906 | |||||||||||||||||||
2011 | $11.06 | 0.09 | 0.85 | 0.94 | (0.08 | ) | — | (0.08 | ) | $11.92 | 8.48 | % | 0.78 | % | 0.78 | % | 95 | % | $461,845 | ||||||||||||||||||||
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 | ||||||||||||||||||||
R6 Class | |||||||||||||||||||||||||||||||||||||||
2013(3) | $14.38 | — | (4) | 1.05 | 1.05 | — | — | — | $15.43 | 7.30 | % | 0.62% | (5) | 0.09% | (5) | 77% | (6) | $8,325 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(4) | Per-share amount was less than $0.005. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
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) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available upon request by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $5,216,535, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $21,059,433, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
Notes |
Notes |
Notes |
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80475 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
NT Heritage Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap
Improving U.S. Economic Environment,
Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative
easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | |||||
Average Annual Returns | |||||
Ticker | 1 year | 5 years | Since Inception | Inception | |
Institutional Class | ACLWX | 30.38%(1) | 13.04% | 4.71% | 5/12/06 |
Russell Midcap Growth Index | — | 33.93% | 20.31% | 7.73% | — |
R6 Class | ACDUX | — | — | 6.97%(2) | 7/26/13 |
(1) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
(2) | Total returns for periods less than one year are not annualized. |
Growth of $10,000 Over Life of Class |
$10,000 investment made May 12, 2006 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/ntheritage.jpg)
*From 5/12/06, the Institutional Class’s inception date. Not annualized.
Total Annual Fund Operating Expenses | |
Institutional Class | R6 Class |
0.81% | 0.66% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
Unless otherwise indicated, performance reflects Institutional 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.
Portfolio Commentary |
Portfolio Managers: David Hollond and Greg Walsh
Effective October 11, 2013, NT Vista was renamed NT Heritage. At that time, David Hollond and Greg Walsh became the portfolio managers of the fund.
Performance Summary
NT Heritage returned 30.38%* for the 12 months ended October 31, 2013, lagging the 33.93% 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. Price momentum and acceleration, two factors that the NT Heritage team looks for in portfolio holdings, returned to favor during the reporting period.
Although NT Heritage delivered solid gains and derived positive results from each sector in which it invested, its returns trailed those of the benchmark. Within the portfolio, stock decisions in the health care, consumer discretionary, consumer staples, and energy sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the information technology, materials, and financials sectors contributed to relative returns.
Health Care, Consumer Discretionary Detracted
The health care sector was home to the portfolio’s largest individual detractor, pharmacy benefit manager Catamaran. The company lost some of its legacy business, as Walgreens shifted its employees to a private exchange rather than provide coverage options. This is a small part of Catamaran’s customer base and is a less profitable business. The investment team is interested in the company’s relationship with Cigna, which should provide higher margins due to the use of generic drugs in this pipeline. However, there is uncertainty due to recent health care reform. Elsewhere in the sector, positioning in the biotechnology and pharmaceuticals industry groups detracted.
Within the consumer discretionary sector, an underweight position in Netflix hurt relative returns, as the company achieved higher-than-expected subscriber growth and exceeded analysts’ expectations for earnings.
In the household durables group, a position in Toll Brothers detracted as rising interest rates resulted in slowing housing demand. Elsewhere in the sector,
positioning in the hotels, restaurants, and leisure group, as well as the media group, detracted.
Consumer Staples, Energy Lagged
Positioning in the consumer staples sector hurt results versus the benchmark. In the sector, stock decisions in the food staples and retailing group and the food products group detracted from relative results.
In the energy sector, the portfolio recently began acquiring shares of Pioneer Natural Resources. The company’s share price has gained considerably, as investors are looking more favorably at shale again and the company has a strong presence in the Permian Basin. This was a relative detractor because the position was underweight relative to the benchmark and was not held for the entire period. Stock decisions in the energy equipment and services industry segment also curbed relative returns.
*All fund returns referenced in this commentary are for Institutional Class shares.
In terms of individual detractors apart from these sectors, a position in data storage and analysis firm Teradata trimmed relative results. The stock slumped after reporting slightly disappointing earnings.
Information Technology Led Contributors
Information technology holding Alliance Data Systems was NT Heritage’s top contributing security. The provider of loyalty programs and marketing solutions performed well as it exhibited solid receivables growth.
An overweight position in big-data company Splunk helped. The company’s ability to capture and index machine-generated data allows developers to find new use cases, which in turn creates additional data for indexing. Because the company is paid on new data being captured and indexed, its model provides opportunity for sustainable acceleration of earnings within this secular big-data trend.
Business social networking site LinkedIn was a key contributor. Although the company warned that margins would be squeezed as it spends to expand engagement on the site, LinkedIn continued to gain market share in the recruiter market and benefited from self-service advertising. Elsewhere in the sector, stock decisions in the semiconductors and semiconductor equipment group added to relative results.
Materials, Financials Added
Positioning in the materials sector added to relative returns. Largely avoiding the metals and mining industry contributed, as did stock selection in the containers and packaging industry.
In the financials sector, an overweight position in Affiliated Managers Group contributed. The asset management company benefited from top-line growth, rising assets under management, and a healthy balance sheet.
The portfolio held a significantly underweight allocation to the real estate investment trust (REIT) segment. This decision helped relative performance as these companies collectively underperformed the benchmark.
Apart from these sectors, individual contributors included an overweight stake in Kansas City Southern, which benefited from robust demand for crude oil transportation by rail, as well as increased transportation volumes of goods manufactured at plants in Mexico.
Outlook
NT Heritage’s investment process focuses on medium-sized and smaller companies with accelerating revenue and earnings growth rates, which are also exhibiting share-price strength. During the reporting period, the environment for this process became more favorable. The investment team believes that active investing in such companies will generate attractive absolute and relative investment performance over time.
As of October 31, 2013, the investment team saw attractive opportunities in home-related sectors (particularly remodeling-focused stocks such as Lumber Liquidators), media companies, the energy renaissance (represented by companies such as Concho Resources), and information technology, focusing on companies that are disruptors/displacers (such as LinkedIn), that are taking the place of more traditional providers.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Canadian Pacific Railway Ltd. New York Shares | 2.9% |
Alliance Data Systems Corp. | 2.6% |
SBA Communications Corp., Class A | 2.5% |
Electronic Arts, Inc. | 2.5% |
Whole Foods Market, Inc. | 2.4% |
Catamaran Corp. | 2.1% |
LinkedIn Corp., Class A | 2.0% |
Kansas City Southern | 2.0% |
Discovery Communications, Inc. Class A | 1.7% |
Constellation Brands, Inc., Class A | 1.7% |
Top Five Industries | % of net assets |
Specialty Retail | 8.4% |
Software | 6.2% |
Road and Rail | 4.9% |
Textiles, Apparel and Luxury Goods | 4.5% |
Media | 4.3% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 89.4% |
Foreign Common Stocks* | 8.2% |
Total Common Stocks | 97.6% |
Temporary Cash Investments | 1.6% |
Other Assets and Liabilities | 0.8% |
*Includes depositary shares, dual listed securities and foreign ordinary shares.
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |||
Actual | ||||||
Institutional Class | $1,000 | $1,149.90 | $4.34 | 0.80% | ||
R6 Class | $1,000 | $1,069.70 | (2) | $1.81 | (3) | 0.65% |
Hypothetical | ||||||
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% | ||
R6 Class | $1,000 | $1,021.93 | (4) | $3.31 | (4) | 0.65% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 97.6% | ||||||
AEROSPACE AND DEFENSE — 1.0% | ||||||
B/E Aerospace, Inc.(1) | 11,500 | $933,340 | ||||
TransDigm Group, Inc. | 25,740 | 3,742,853 | ||||
4,676,193 | ||||||
AUTO COMPONENTS — 1.1% | ||||||
BorgWarner, Inc. | 49,635 | 5,118,858 | ||||
AUTOMOBILES — 2.1% | ||||||
Harley-Davidson, Inc. | 81,070 | 5,191,723 | ||||
Tesla Motors, Inc.(1) | 27,081 | 4,331,335 | ||||
9,523,058 | ||||||
BEVERAGES — 2.5% | ||||||
Brown-Forman Corp., Class B | 51,720 | 3,774,526 | ||||
Constellation Brands, Inc., Class A(1) | 118,170 | 7,716,501 | ||||
11,491,027 | ||||||
BIOTECHNOLOGY — 2.8% | ||||||
Aegerion Pharmaceuticals, Inc.(1) | 23,970 | 1,985,195 | ||||
BioMarin Pharmaceutical, Inc.(1) | 43,810 | 2,752,144 | ||||
Grifols SA | 73,460 | 3,012,655 | ||||
Incyte Corp. Ltd.(1) | 46,820 | 1,825,980 | ||||
Pharmacyclics, Inc.(1) | 9,380 | 1,112,843 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 8,390 | 2,412,964 | ||||
13,101,781 | ||||||
BUILDING PRODUCTS — 2.5% | ||||||
Fortune Brands Home & Security, Inc. | 141,110 | 6,079,019 | ||||
Lennox International, Inc. | 68,005 | 5,308,470 | ||||
11,387,489 | ||||||
CAPITAL MARKETS — 2.6% | ||||||
Affiliated Managers Group, Inc.(1) | 32,750 | 6,466,160 | ||||
KKR & Co. LP | 104,066 | 2,284,249 | ||||
Lazard Ltd. Class A | 81,560 | 3,152,294 | ||||
11,902,703 | ||||||
CHEMICALS — 3.2% | ||||||
FMC Corp. | 84,430 | 6,143,127 | ||||
Sherwin-Williams Co. (The) | 33,830 | 6,360,040 | ||||
Westlake Chemical Corp. | 22,870 | 2,456,695 | ||||
14,959,862 | ||||||
COMMERCIAL BANKS — 1.8% | ||||||
East West Bancorp., Inc. | 95,440 | 3,215,374 | ||||
SVB Financial Group(1) | 55,200 | 5,287,056 | ||||
8,502,430 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 0.9% | ||||||
Stericycle, Inc.(1) | 34,370 | 3,993,794 | ||||
COMMUNICATIONS EQUIPMENT — 0.4% | ||||||
Palo Alto Networks, Inc.(1) | 45,840 | 1,932,614 | ||||
COMPUTERS AND PERIPHERALS — 1.4% | ||||||
NetApp, Inc. | 162,090 | 6,290,713 | ||||
CONSTRUCTION AND ENGINEERING — 2.9% | ||||||
Chicago Bridge & Iron Co. NV New York Shares | 34,030 | 2,521,283 | ||||
MasTec, Inc.(1) | 163,210 | 5,217,824 | ||||
Quanta Services, Inc.(1) | 192,270 | 5,808,476 | ||||
13,547,583 | ||||||
CONSUMER FINANCE — 0.9% | ||||||
Discover Financial Services | 83,100 | 4,311,228 | ||||
CONTAINERS AND PACKAGING — 0.4% | ||||||
Rock Tenn Co., Class A | 18,560 | 1,986,106 | ||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.0% | ||||||
tw telecom, inc., Class A(1) | 139,270 | 4,389,790 | ||||
ELECTRICAL EQUIPMENT — 0.7% | ||||||
Acuity Brands, Inc. | 30,370 | 3,052,489 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 0.8% | ||||||
FLIR Systems, Inc. | 132,370 | 3,769,898 | ||||
ENERGY EQUIPMENT AND SERVICES — 1.7% | ||||||
Atwood Oceanics, Inc.(1) | 33,151 | 1,761,313 | ||||
Dril-Quip, Inc.(1) | 27,950 | 3,281,889 | ||||
Frank’s International NV(1) | 93,410 | 2,857,412 | ||||
7,900,614 | ||||||
FOOD AND STAPLES RETAILING — 4.0% | ||||||
Costco Wholesale Corp. | 60,640 | 7,155,520 | ||||
Whole Foods Market, Inc. | 178,780 | 11,286,381 | ||||
18,441,901 | ||||||
FOOD PRODUCTS — 0.6% | ||||||
Hain Celestial Group, Inc. (The)(1) | 34,595 | 2,879,342 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 2.0% | ||||||
Cooper Cos., Inc. (The) | 32,830 | 4,241,964 | ||||
Teleflex, Inc. | 55,010 | 5,070,822 | ||||
9,312,786 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.1% | ||||||
Catamaran Corp.(1) | 210,840 | 9,901,046 | ||||
HEALTH CARE TECHNOLOGY — 0.7% | ||||||
Cerner Corp.(1) | 53,480 | 2,996,485 | ||||
Veeva Systems, Inc. Class A(1) | 5,353 | 208,285 | ||||
3,204,770 |
Shares | Value | |||||
HOTELS, RESTAURANTS AND LEISURE — 2.4% | ||||||
Chipotle Mexican Grill, Inc.(1) | 7,700 | $4,057,669 | ||||
Noodles & Co.(1) | 40,870 | 1,789,697 | ||||
Wyndham Worldwide Corp. | 79,380 | 5,270,832 | ||||
11,118,198 | ||||||
HOUSEHOLD DURABLES — 0.6% | ||||||
Mohawk Industries, Inc.(1) | 19,120 | 2,531,870 | ||||
HOUSEHOLD PRODUCTS — 1.0% | ||||||
Church & Dwight Co., Inc. | 74,000 | 4,821,100 | ||||
INTERNET AND CATALOG RETAIL — 3.1% | ||||||
Ctrip.com International Ltd. ADR(1) | 45,480 | 2,467,290 | ||||
Netflix, Inc.(1) | 7,740 | 2,495,995 | ||||
priceline.com, Inc.(1) | 4,450 | 4,689,543 | ||||
TripAdvisor, Inc.(1) | 55,680 | 4,605,293 | ||||
14,258,121 | ||||||
INTERNET SOFTWARE AND SERVICES — 2.8% | ||||||
CoStar Group, Inc.(1) | 14,975 | 2,650,425 | ||||
LinkedIn Corp., Class A(1) | 41,830 | 9,356,116 | ||||
Xoom Corp.(1) | 33,270 | 989,783 | ||||
12,996,324 | ||||||
IT SERVICES — 2.6% | ||||||
Alliance Data Systems Corp.(1) | 51,530 | 12,215,702 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 1.0% | ||||||
Covance, Inc.(1) | 54,150 | 4,833,429 | ||||
MACHINERY — 3.9% | ||||||
Flowserve Corp. | 80,220 | 5,572,883 | ||||
Middleby Corp.(1) | 21,090 | 4,801,139 | ||||
Pentair Ltd. | 59,210 | 3,972,399 | ||||
WABCO Holdings, Inc.(1) | 44,040 | 3,773,347 | ||||
18,119,768 | ||||||
MEDIA — 4.3% | ||||||
AMC Networks, Inc.(1) | 60,820 | 4,262,874 | ||||
Discovery Communications, Inc. Class A(1) | 88,770 | 7,893,429 | ||||
Lions Gate Entertainment Corp.(1) | 112,390 | 3,886,446 | ||||
Sirius XM Radio, Inc. | 1,086,960 | 4,097,839 | ||||
20,140,588 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.1% | ||||||
Antero Resources Corp.(1) | 42,996 | 2,428,844 | ||||
Cabot Oil & Gas Corp. | 96,090 | 3,393,899 | ||||
Cobalt International Energy, Inc.(1) | 71,320 | 1,655,337 | ||||
Concho Resources, Inc.(1) | 41,380 | 4,577,042 | ||||
Pioneer Natural Resources Co. | 11,899 | 2,436,677 | ||||
14,491,799 | ||||||
PHARMACEUTICALS — 3.6% | ||||||
Actavis plc(1) | 48,750 | 7,535,775 | ||||
Perrigo Co. | 30,900 | 4,260,801 | ||||
Zoetis, Inc. | 151,670 | 4,801,872 | ||||
16,598,448 | ||||||
ROAD AND RAIL — 4.9% | ||||||
Canadian Pacific Railway Ltd. New York Shares | 96,090 | 13,747,596 | ||||
Kansas City Southern | 75,410 | 9,163,823 | ||||
22,911,419 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.6% | ||||||
ARM Holdings plc | 172,990 | 2,733,501 | ||||
NXP Semiconductor NV(1) | 83,140 | 3,501,857 | ||||
Xilinx, Inc. | 131,690 | 5,981,360 | ||||
12,216,718 | ||||||
SOFTWARE — 6.2% | ||||||
CommVault Systems, Inc.(1) | 58,400 | 4,559,872 | ||||
Electronic Arts, Inc.(1) | 441,070 | 11,578,087 | ||||
NetSuite, Inc.(1) | 74,240 | 7,489,331 | ||||
Splunk, Inc.(1) | 81,574 | 5,115,506 | ||||
28,742,796 | ||||||
SPECIALTY RETAIL — 8.4% | ||||||
DSW, Inc., Class A | 33,990 | 2,979,903 | ||||
GNC Holdings, Inc. Class A | 68,179 | 4,010,289 | ||||
Lumber Liquidators Holdings, Inc.(1) | 54,160 | 6,184,530 | ||||
O’Reilly Automotive, Inc.(1) | 40,160 | 4,972,210 | ||||
PetSmart, Inc. | 23,020 | 1,674,935 | ||||
Restoration Hardware Holdings, Inc.(1) | 34,020 | 2,372,555 | ||||
Ross Stores, Inc. | 94,540 | 7,312,669 | ||||
Tractor Supply Co. | 87,730 | 6,259,536 | ||||
Ulta Salon Cosmetics & Fragrance, Inc.(1) | 23,020 | 2,966,127 | ||||
38,732,754 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 4.5% | ||||||
Fifth & Pacific Cos., Inc.(1) | 87,760 | 2,324,762 | ||||
Hanesbrands, Inc. | 77,963 | 5,310,840 | ||||
Michael Kors Holdings Ltd.(1) | 57,780 | 4,446,171 | ||||
PVH Corp. | 32,380 | 4,033,577 | ||||
Under Armour, Inc. Class A(1) | 55,420 | 4,497,333 | ||||
20,612,683 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 2.5% | ||||||
SBA Communications Corp., Class A(1) | 133,562 | 11,682,668 | ||||
TOTAL COMMON STOCKS (Cost $352,674,015) | 452,602,460 |
Value | ||||
Temporary Cash Investments — 1.6% | ||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $1,553,092), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $1,524,421) | $1,524,418 | |||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $1,867,592), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $1,829,304) | 1,829,302 | |||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $1,867,230), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $1,829,302) | 1,829,301 |
Shares | Value | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $1,867,239), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $1,829,304) | $1,829,301 | |||||
SSgA U.S. Government Money Market Fund | 507,977 | 507,977 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,520,299) | 7,520,299 | |||||
TOTAL INVESTMENT SECURITIES — 99.2% (Cost $360,194,314) | 460,122,759 | |||||
OTHER ASSETS AND LIABILITIES — 0.8% | 3,621,971 | |||||
TOTAL NET ASSETS — 100.0% | $463,744,730 |
Forward Foreign Currency Exchange Contracts | ||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||||||||
USD | 2,200,164 | EUR | 1,595,276 | UBS AG | 11/29/13 | $34,060 | ||||||
USD | 66,292 | EUR | 48,759 | UBS AG | 11/29/13 | 86 | ||||||
USD | 2,013,921 | GBP | 1,246,177 | Credit Suisse AG | 11/29/13 | 16,177 | ||||||
USD | 63,407 | GBP | 39,571 | Credit Suisse AG | 11/29/13 | (30 | ) | |||||
$50,293 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
EUR = Euro
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $360,194,314) | $460,122,759 | ||
Receivable for investments sold | 5,021,084 | ||
Receivable for capital shares sold | 147,489 | ||
Unrealized gain on forward foreign currency exchange contracts | 50,323 | ||
Dividends and interest receivable | 111,353 | ||
465,453,008 | |||
Liabilities | |||
Payable for investments purchased | 1,400,448 | ||
Payable for capital shares redeemed | 2,540 | ||
Unrealized loss on forward foreign currency exchange contracts | 30 | ||
Accrued management fees | 305,260 | ||
1,708,278 | |||
Net Assets | $463,744,730 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $312,635,681 | ||
Distributions in excess of net investment income | (50,293 | ) | |
Undistributed net realized gain | 51,180,604 | ||
Net unrealized appreciation | 99,978,738 | ||
$463,744,730 |
Net assets | Shares outstanding | Net asset value per share | |
Institutional Class, $0.01 Par Value | $459,877,334 | 33,292,272 | $13.81 |
R6 Class, $0.01 Par Value | $3,867,396 | 279,866 | $13.82 |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $13,770) | $2,670,968 | ||
Interest | 4,792 | ||
2,675,760 | |||
Expenses: | |||
Management fees | 3,059,045 | ||
Directors’ fees and expenses | 13,338 | ||
3,072,383 | |||
Net investment income (loss) | (396,623 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 56,852,186 | ||
Foreign currency transactions | (92,250 | ) | |
56,759,936 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 46,313,208 | ||
Translation of assets and liabilities in foreign currencies | 57,670 | ||
46,370,878 | |||
Net realized and unrealized gain (loss) | 103,130,814 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $102,734,191 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $(396,623 | ) | $(63,225 | ) | ||
Net realized gain (loss) | 56,759,936 | (1,777,922 | ) | |||
Change in net unrealized appreciation (depreciation) | 46,370,878 | 19,907,387 | ||||
Net increase (decrease) in net assets resulting from operations | 102,734,191 | 18,066,240 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Institutional Class | (530,477 | ) | — | |||
From net realized gains: | ||||||
Institutional Class | — | (3,557,528 | ) | |||
Decrease in net assets from distributions | (530,477 | ) | (3,557,528 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | 64,111,641 | 67,860,604 | ||||
Net increase (decrease) in net assets | 166,315,355 | 82,369,316 | ||||
Net Assets | ||||||
Beginning of period | 297,429,375 | 215,060,059 | ||||
End of period | $463,744,730 | $297,429,375 | ||||
Distributions in excess of net investment income | $(50,293 | ) | $(36,846 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. NT Heritage Fund (formerly NT VistaSM Fund) (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth. The fund is not permitted to invest in securities issued by companies assigned the Global Industry Classification Standard for the tobacco industry.
The fund offers the Institutional Class and the R6 Class, which have different fees and expenses. The difference in the fee structures between the classes is not the result of any difference in advisory or custodial fees or other expenses related to management of the fund’s assets, which do not vary by class. The fund’s R6 Class shares are available for purchase exclusively by certain American Century Investments funds of funds that are offered only through employer-sponsored retirement plans where a financial intermediary provides retirement recordkeeping services to plan participants. Because financial intermediaries do not receive any service, distribution or administrative fees for offering such funds of funds, American Century Investment Management, Inc. (ACIM) (the investment advisor) is able to charge the R6 Class a lower unified management fee. Sale of the R6 Class commenced on July 26, 2013.
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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 0.80% for the Institutional Class and 0.65% for the R6 Class.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 100% of the shares of the fund. Related parties do not invest in the fund for the purpose of exercising management or control.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $481,802,135 and $422,139,655, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Institutional Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||
Sold | 6,738,647 | $79,054,475 | 9,510,793 | $98,603,911 | ||||||||
Issued in reinvestment of distributions | 48,534 | 530,477 | 375,663 | 3,557,528 | ||||||||
Redeemed | (1,529,071 | ) | (19,331,015 | ) | (3,298,873 | ) | (34,300,835 | ) | ||||
5,258,110 | 60,253,937 | 6,587,583 | 67,860,604 | |||||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 281,120 | 3,874,593 | ||||||||||
Redeemed | (1,254 | ) | (16,889 | ) | ||||||||
279,866 | 3,857,704 | |||||||||||
Net increase (decrease) | 5,537,976 | $64,111,641 | 6,587,583 | $67,860,604 |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Domestic Common Stocks | $414,717,232 | — | — | ||||||
Foreign Common Stocks | 32,139,072 | $5,746,156 | — | ||||||
Temporary Cash Investments | 507,977 | 7,012,322 | — | ||||||
Total Value of Investment Securities | $447,364,281 | $12,758,478 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $50,293 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $50,323 in unrealized gain on forward foreign currency exchange contracts and a liability of $30 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(101,472) in net realized gain (loss) on foreign currency transactions and $57,969 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.
The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
9. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $530,477 | — | ||||
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.
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $360,696,785 | ||
Gross tax appreciation of investments | $100,940,610 | ||
Gross tax depreciation of investments | (1,514,636 | ) | |
Net tax appreciation (depreciation) of investments | $99,425,974 | ||
Undistributed ordinary income | $9,976,055 | ||
Accumulated long-term gains | $41,707,020 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and return of capital dividends received.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Distributions From: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net | Net | Total From Investment Operations | Net | Net | Total Distributions | Net Asset Value, | Total | Operating Expenses | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $10.61 | (0.01 | ) | 3.23 | 3.22 | (0.02 | ) | — | (0.02 | ) | $13.81 | 30.38 | % | 0.80 | % | (0.10 | )% | 113 | % | $459,877 | |||||||||||||||||||
2012 | $10.03 | — | (3) | 0.74 | 0.74 | — | (0.16 | ) | (0.16 | ) | $10.61 | 7.59 | % | 0.81 | % | (0.02 | )% | 92 | % | $297,429 | |||||||||||||||||||
2011 | $9.44 | (0.03 | ) | 0.62 | 0.59 | — | — | — | $10.03 | 6.25 | % | 0.80 | % | (0.27 | )% | 115 | % | $215,060 | |||||||||||||||||||||
2010 | $7.50 | (0.02 | ) | 1.96 | 1.94 | — | (3) | — | — | (3) | $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 | |||||||||||||||||||
R6 Class | |||||||||||||||||||||||||||||||||||||||
2013(4) | $12.92 | — | (3) | 0.90 | 0.90 | — | — | — | $13.82 | 6.97 | % | 0.65% | (5) | 0.03% | (5) | 113% | (6) | $3,867 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of NT Heritage Fund (the “Fund”) (formerly NT Vista Fund), one of the funds constituting American Century Mutual Funds, Inc., as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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 Heritage Fund of American Century Mutual Funds, Inc. as of October 31, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | 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 (2001 to 2009) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
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) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available upon request by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $530,477, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
The fund hereby designates $393,260, or up to the maximum amount allowable, as long-term capital gain distributions for the fiscal year ended October 31, 2013.
The fund hereby designates $633,381 as qualified short-term capital gain distributions for purposes of Internal Revenue Code Section 871.
The fund utilized earnings and profits of $496,164 distributed to shareholders on redemption of shares as part of the dividends paid deduction (tax equalization).
Notes |
Notes |
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80476 1312
ANNUAL REPORT | OCTOBER 31, 2013
Select Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCIX | 22.80% | 15.77% | 6.05% | 12.27% | 6/30/71(1) |
Russell 1000 Growth Index | — | 28.30% | 17.50% | 7.70% | N/A(2) | — |
Institutional Class | TWSIX | 23.05% | 16.01% | 6.26% | 6.03% | 3/13/97 |
A Class(3) No sales charge* With sales charge* | TWCAX
| 22.48% 15.45% | 15.48% 14.12% | 5.79% 5.16% | 4.42% 4.04% | 8/8/97
|
C Class | ACSLX | 21.57% | 14.62% | 4.99% | 6.50% | 1/31/03 |
R Class | ASERX | 22.18% | 15.19% | — | 5.18% | 7/29/05 |
R6 Class | ASDEX | — | — | — | 7.73%(4) | 7/26/13 |
*Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
(1) | Although the fund’s actual inception date was 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. |
(4) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/select.jpg)
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
1.00% | 0.80% | 1.25% | 2.00% | 1.50% | 0.65% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. 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.
Portfolio Commentary |
Portfolio Managers: Keith Lee, Michael Li, and Christopher Krantz
Performance Summary
Select returned 22.80%* for the 12 months ended October 31, 2013, compared with the 28.30% return of its benchmark, the Russell 1000 Growth Index, and the 27.18%** return of the S&P 500 Index, a broader market measure.
As discussed in the Market Perspective on page 4, equity indices enjoyed strong gains during the reporting period although they continued to experience considerable volatility. In this environment, Select delivered solid results for the period but trailed its benchmark.
Select derived positive absolute results from every sector in which it invested. Security selection decisions made the consumer discretionary sector the largest detractor from Select’s performance relative to the benchmark. Stock selection in the information technology, energy, financials, and materials sectors also hurt relative results. Positioning in the health care and telecommunication services sectors added to relative returns.
Consumer Discretionary, Information Technology Detracted
The consumer discretionary sector was the largest source of underperformance versus the benchmark. The leading individual detractor in the sector was a stake in online travel provider Expedia. Expedia failed to leverage previous infrastructure investments into market share gains. The investment team has eliminated the position. Elsewhere in the sector, positioning in the textiles, apparel, and luxury goods group, the hotels, restaurants, and leisure group, and the media group detracted.
The information technology sector was home to a handful of underperforming positions. In the IT services industry, a position in data storage and analysis firm Teradata was the leading detractor for the fiscal year. The stock underperformed after reporting disappointing international results and issuing lower-than-expected revenue guidance.
In the computers and peripherals group, an overweight position in Apple detracted from returns versus its benchmark. The company missed analysts’ expectations for sales of its iPhone and achieved lower-than-expected margins. Another key underperformer in the group was network storage company EMC Corp., which declined as it lowered its profit and revenue guidance for the fiscal year.
The portfolio held an overweight position in semiconductor manufacturer Broadcom. The company’s stock price declined on concerns about delay in development of its next generation wireless chips.
* | All fund returns referenced in this commentary are for Investor Class shares. |
** | The S&P 500 Index average annual returns were 15.16% and 7.45% for the five- and 10-year periods ended October 31, 2013, respectively. |
Energy, Financials, Materials Lagged
Detractors in the energy sector included a position in Exxon Mobil. The oil and gas producer delivered lower-than-expected profits and declining revenues as production levels fell throughout the reporting period.
Within the financials sector, the diversified financial services segment detracted. It helped to hold an overweight allocation to this group, but stock selection within the group hurt relative returns. In the materials sector, holdings in the chemicals group detracted from results versus the benchmark.
Health Care, Telecommunication Services Contributed
The health care sector was home to two positions that added meaningfully to relative performance. Biotechnology firm Gilead Sciences was the largest individual contributor with investors responding positively to developments in the company’s hepatitis C treatment. Also in the biotechnology group, an overweight position in Biogen Idec helped as the company exceeded expectations for earnings and raised its full-year guidance on profits and revenues, and its new multiple sclerosis drug had a successful launch. A key contributor in the pharmaceuticals segment was Bristol-Myers Squibb, which enjoyed good trial results for its immuno-oncology treatments.
The portfolio avoided the telecommunications sector. This allocation decision benefited relative results, as the sector underperformed the benchmark.
In terms of individual securities, it was beneficial not to hold shares of IBM, which experienced weak revenue growth under the challenging macro environment. An overweight position in MasterCard contributed to performance as the electronic payment processor continued to benefit from the rising trend of electronic rather than cash/check transactions.
Starting Point for Next Reporting 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. Our portfolio positioning reflects where we are seeing opportunities as a result of the application of that philosophy and process. As of October 31, 2013, the largest overweight sector within the portfolio relative to the benchmark was information technology, reflecting positions in the internet software and services and computers and peripherals industry segments. The portfolio held a sizeable overweight position in health care driven by allocations to the biotechnology and health care providers industries. The portfolio also had an overweight allocation to financial shares reflecting diversified financial services, insurance, and capital markets shares.
The portfolio’s largest underweight position was in the telecommunications sector. The managers are finding more attractive opportunities for growth in other sectors.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Apple, Inc. | 6.4% |
Google, Inc., Class A | 5.8% |
Gilead Sciences, Inc. | 4.0% |
TJX Cos., Inc. (The) | 3.0% |
MasterCard, Inc., Class A | 2.8% |
Walt Disney Co. (The) | 2.6% |
Monsanto Co. | 2.6% |
Bristol-Myers Squibb Co. | 2.4% |
QUALCOMM, Inc. | 2.1% |
Biogen Idec, Inc. | 2.1% |
Top Five Industries | % of net assets |
Internet Software and Services | 9.2% |
Computers and Peripherals | 8.2% |
Specialty Retail | 7.4% |
Biotechnology | 7.1% |
Media | 6.4% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.6% |
Temporary Cash Investments | 0.5% |
Other Assets and Liabilities | (0.1)% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |||
Actual | ||||||
Investor Class | $1,000 | $1,125.60 | $5.36 | 1.00% | ||
Institutional Class | $1,000 | $1,126.50 | $4.29 | 0.80% | ||
A Class | $1,000 | $1,123.90 | $6.69 | 1.25% | ||
C Class | $1,000 | $1,119.90 | $10.69 | 2.00% | ||
R Class | $1,000 | $1,122.40 | $8.02 | 1.50% | ||
R6 Class | $1,000 | $1,077.30 | (2) | $1.81 | (3) | 0.65% |
Hypothetical | ||||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% | ||
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% | ||
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% | ||
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% | ||
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% | ||
R6 Class | $1,000 | $1,021.93 | (4) | $3.31 | (4) | 0.65% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 99.6% | ||||||
AEROSPACE AND DEFENSE — 4.8% | ||||||
Boeing Co. (The) | 352,300 | $45,975,150 | ||||
Rockwell Collins, Inc. | 233,700 | 16,319,271 | ||||
United Technologies Corp. | 414,500 | 44,040,625 | ||||
106,335,046 | ||||||
BEVERAGES — 1.9% | ||||||
Diageo plc | 1,309,695 | 41,726,283 | ||||
BIOTECHNOLOGY — 7.1% | ||||||
Biogen Idec, Inc.(1) | 189,600 | 46,298,424 | ||||
Gilead Sciences, Inc.(1) | 1,234,300 | 87,622,957 | ||||
Vertex Pharmaceuticals, Inc.(1) | 325,100 | 23,192,634 | ||||
157,114,015 | ||||||
CAPITAL MARKETS — 2.0% | ||||||
Franklin Resources, Inc. | 839,400 | 45,210,084 | ||||
CHEMICALS — 2.6% | ||||||
Monsanto Co. | 548,000 | 57,474,240 | ||||
COMMUNICATIONS EQUIPMENT — 2.1% | ||||||
QUALCOMM, Inc. | 685,600 | 47,628,632 | ||||
COMPUTERS AND PERIPHERALS — 8.2% | ||||||
Apple, Inc. | 269,500 | 140,773,325 | ||||
EMC Corp. | 1,705,700 | 41,056,199 | ||||
181,829,524 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 2.3% | ||||||
CBOE Holdings, Inc. | 437,100 | 21,199,350 | ||||
JPMorgan Chase & Co. | 557,400 | 28,728,396 | ||||
49,927,746 | ||||||
ELECTRICAL EQUIPMENT — 1.8% | ||||||
Emerson Electric Co. | 589,900 | 39,505,603 | ||||
ENERGY EQUIPMENT AND SERVICES — 2.5% | ||||||
Frank’s International NV(1) | 153,400 | 4,692,506 | ||||
National Oilwell Varco, Inc. | 163,200 | 13,248,576 | ||||
Schlumberger Ltd. | 390,300 | 36,578,916 | ||||
54,519,998 | ||||||
FOOD AND STAPLES RETAILING — 2.8% | ||||||
Costco Wholesale Corp. | 377,100 | 44,497,800 | ||||
Whole Foods Market, Inc. | 261,100 | 16,483,243 | ||||
60,981,043 | ||||||
FOOD PRODUCTS — 2.5% | ||||||
Mead Johnson Nutrition Co. | 393,600 | 32,141,376 | ||||
Mondelez International, Inc. Class A | 684,800 | 23,036,672 | ||||
55,178,048 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.9% | ||||||
Express Scripts Holding Co.(1) | 356,600 | 22,294,632 | ||||
UnitedHealth Group, Inc. | 619,300 | 42,273,418 | ||||
64,568,050 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.9% | ||||||
McDonald’s Corp. | 267,800 | 25,848,056 | ||||
Panera Bread Co., Class A(1) | 64,900 | 10,249,008 | ||||
Wynn Resorts Ltd. | 165,700 | 27,547,625 | ||||
63,644,689 | ||||||
HOUSEHOLD PRODUCTS — 1.2% | ||||||
Procter & Gamble Co. (The) | 325,300 | 26,267,975 | ||||
INSURANCE — 1.9% | ||||||
MetLife, Inc. | 278,600 | 13,180,566 | ||||
Travelers Cos., Inc. (The) | 348,200 | 30,049,660 | ||||
43,230,226 | ||||||
INTERNET AND CATALOG RETAIL — 2.7% | ||||||
Amazon.com, Inc.(1) | 127,100 | 46,268,213 | ||||
Groupon, Inc.(1) | 1,583,800 | 14,460,094 | ||||
60,728,307 | ||||||
INTERNET SOFTWARE AND SERVICES — 9.2% | ||||||
Baidu, Inc. ADR(1) | 122,600 | 19,726,340 | ||||
Facebook, Inc., Class A(1) | 845,800 | 42,509,908 | ||||
Google, Inc., Class A(1) | 123,500 | 127,276,630 | ||||
LinkedIn Corp., Class A(1) | 64,700 | 14,471,449 | ||||
203,984,327 | ||||||
IT SERVICES — 5.0% | ||||||
FleetCor Technologies, Inc.(1) | 196,800 | 22,700,880 | ||||
MasterCard, Inc., Class A | 86,700 | 62,172,570 | ||||
Teradata Corp.(1) | 589,000 | 25,957,230 | ||||
110,830,680 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.8% | ||||||
Hasbro, Inc. | 342,700 | 17,700,455 | ||||
MACHINERY — 4.1% | ||||||
FANUC Corp. | 101,500 | 16,226,788 | ||||
Graco, Inc. | 278,800 | 21,540,088 | ||||
Middleby Corp.(1) | 76,200 | 17,346,930 | ||||
Nordson Corp. | 173,500 | 12,507,615 | ||||
Parker-Hannifin Corp. | 194,600 | 22,713,712 | ||||
90,335,133 | ||||||
MEDIA — 6.4% | ||||||
AMC Networks, Inc.(1) | 272,400 | 19,092,516 | ||||
Comcast Corp., Class A | 671,800 | 31,964,244 |
Shares | Value | |||||
Twenty-First Century Fox, Inc. | 946,700 | $32,263,536 | ||||
Walt Disney Co. (The) | 839,100 | 57,553,869 | ||||
140,874,165 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 2.1% | ||||||
Noble Energy, Inc. | 386,000 | 28,922,980 | ||||
Occidental Petroleum Corp. | 174,000 | 16,717,920 | ||||
45,640,900 | ||||||
PERSONAL PRODUCTS — 1.0% | ||||||
Estee Lauder Cos., Inc. (The), Class A | 300,000 | 21,288,000 | ||||
PHARMACEUTICALS — 3.7% | ||||||
Allergan, Inc. | 325,500 | 29,493,555 | ||||
Bristol-Myers Squibb Co. | 1,000,600 | 52,551,512 | ||||
82,045,067 | ||||||
PROFESSIONAL SERVICES — 0.5% | ||||||
Verisk Analytics, Inc. Class A(1) | 175,300 | 12,011,556 | ||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.6% | ||||||
American Tower Corp. | 173,600 | 13,775,160 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.4% | ||||||
Broadcom Corp., Class A | 404,900 | 10,818,928 | ||||
Linear Technology Corp. | 498,800 | 20,520,632 | ||||
31,339,560 | ||||||
SOFTWARE — 3.2% | ||||||
Microsoft Corp. | 464,300 | 16,413,005 | ||||
Oracle Corp. | 1,274,900 | 42,709,150 | ||||
Splunk, Inc.(1) | 187,700 | 11,770,667 | ||||
70,892,822 | ||||||
SPECIALTY RETAIL — 7.4% | ||||||
AutoZone, Inc.(1) | 75,900 | 32,992,971 | ||||
Home Depot, Inc. (The) | 464,400 | 36,172,116 | ||||
L Brands, Inc. | 451,400 | 28,262,154 | ||||
TJX Cos., Inc. (The) | 1,076,800 | 65,458,672 | ||||
162,885,913 | ||||||
TOBACCO — 2.0% | ||||||
Philip Morris International, Inc. | 504,800 | 44,987,776 | ||||
TOTAL COMMON STOCKS (Cost $1,283,060,446) | 2,204,461,023 | |||||
Temporary Cash Investments — 0.5% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $2,455,374), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $2,410,046) | 2,410,041 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $2,952,586), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $2,892,052) | 2,892,050 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $2,952,013), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $2,892,052) | 2,892,050 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $2,952,027), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $2,892,054) | 2,892,050 | |||||
SSgA U.S. Government Money Market Fund | 799,219 | 799,219 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $11,885,410) | 11,885,410 | |||||
TOTAL INVESTMENT SECURITIES — 100.1% (Cost $1,294,945,856) | 2,216,346,433 | |||||
OTHER ASSETS AND LIABILITIES — (0.1)% | (2,885,762 | ) | ||||
TOTAL NET ASSETS — 100.0% | $2,213,460,671 |
Forward Foreign Currency Exchange Contracts | ||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||||||||
USD | 36,206,608 | GBP | 22,403,970 | Credit Suisse AG | 11/29/13 | $290,822 | ||||||
JPY | 57,804,250 | USD | 588,403 | Credit Suisse AG | 11/29/13 | (474 | ) | |||||
JPY | 37,098,250 | USD | 379,616 | Credit Suisse AG | 11/29/13 | (2,289 | ) | |||||
USD | 14,475,136 | JPY | 1,409,733,500 | Credit Suisse AG | 11/29/13 | 136,697 | ||||||
USD | 475,603 | JPY | 46,588,500 | Credit Suisse AG | 11/29/13 | 1,751 | ||||||
$426,507 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
GBP = British Pound
JPY = Japanese Yen
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $1,294,945,856) | $2,216,346,433 | ||
Foreign currency holdings, at value (cost of $766,435) | 758,829 | ||
Receivable for investments sold | 3,776,505 | ||
Receivable for capital shares sold | 264,193 | ||
Unrealized gain on forward foreign currency exchange contracts | 429,270 | ||
Dividends and interest receivable | 932,341 | ||
2,222,507,571 | |||
Liabilities | |||
Payable for investments purchased | 6,226,084 | ||
Payable for capital shares redeemed | 972,710 | ||
Unrealized loss on forward foreign currency exchange contracts | 2,763 | ||
Accrued management fees | 1,828,453 | ||
Distribution and service fees payable | 16,890 | ||
9,046,900 | |||
Net Assets | $2,213,460,671 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $1,276,905,526 | ||
Undistributed net investment income | 9,263,975 | ||
Undistributed net realized gain | 5,471,276 | ||
Net unrealized appreciation | 921,819,894 | ||
$2,213,460,671 |
Net assets | Shares outstanding | Net asset value per share | |||||||
Investor Class, $0.01 Par Value | $2,119,522,700 | 39,939,884 | $53.07 | ||||||
Institutional Class, $0.01 Par Value | $39,263,064 | 729,963 | $53.79 | ||||||
A Class, $0.01 Par Value | $43,318,186 | 830,609 | $52.15 | * | |||||
C Class, $0.01 Par Value | $8,054,333 | 163,315 | $49.32 | ||||||
R Class, $0.01 Par Value | $3,275,481 | 62,904 | $52.07 | ||||||
R6 Class, $0.01 Par Value | $26,907 | 500 | $53.81 |
*Maximum offering price $55.33 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $74,077) | $35,528,726 | ||
Interest | 13,536 | ||
35,542,262 | |||
Expenses: | |||
Management fees | 20,271,255 | ||
Distribution and service fees: | |||
A Class | 108,691 | ||
C Class | 70,064 | ||
R Class | 12,909 | ||
Directors’ fees and expenses | 72,991 | ||
Other expenses | 54 | ||
20,535,964 | |||
Net investment income (loss) | 15,006,298 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 131,492,532 | ||
Foreign currency transactions | (868,404 | ) | |
130,624,128 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 276,513,855 | ||
Translation of assets and liabilities in foreign currencies | 493,878 | ||
277,007,733 | |||
Net realized and unrealized gain (loss) | 407,631,861 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $422,638,159 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $15,006,298 | $7,639,322 | ||||
Net realized gain (loss) | 130,624,128 | 51,189,081 | ||||
Change in net unrealized appreciation (depreciation) | 277,007,733 | 142,407,731 | ||||
Net increase (decrease) in net assets resulting from operations | 422,638,159 | 201,236,134 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (13,028,356 | ) | (4,659,009 | ) | ||
Institutional Class | (140,890 | ) | (23,035 | ) | ||
A Class | (295,191 | ) | (7,931 | ) | ||
C Class | (26,359 | ) | — | |||
R Class | (12,375 | ) | — | |||
Decrease in net assets from distributions | (13,503,171 | ) | (4,689,975 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (126,523,858 | ) | (61,750,287 | ) | ||
Net increase (decrease) in net assets | 282,611,130 | 134,795,872 | ||||
Net Assets | ||||||
Beginning of period | 1,930,849,541 | 1,796,053,669 | ||||
End of period | $2,213,460,671 | $1,930,849,541 | ||||
Undistributed net investment income | $9,263,975 | $8,629,252 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Select Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. Sale of the R6 Class commenced on July 26, 2013.
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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 annual management fee schedule ranges from 0.600% to 0.800% for the Institutional Class and 0.450% to 0.650% for the R6 Class. The effective annual management fee for each class for the period ended October 31, 2013 was 1.00% for the Investor Class, A Class, C Class and R Class, 0.80% for the Institutional Class and 0.65% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $629,832,929 and $731,719,679, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 300,000,000 | 300,000,000 | ||||||||||
Sold | 1,670,785 | $78,033,446 | 2,187,738 | $93,774,628 | ||||||||
Issued in reinvestment of distributions | 281,233 | 12,430,501 | 117,261 | 4,458,282 | ||||||||
Redeemed | (4,785,724 | ) | (224,053,202 | ) | (4,641,009 | ) | (195,137,515 | ) | ||||
(2,833,706 | ) | (133,589,255 | ) | (2,336,010 | ) | (96,904,605 | ) | |||||
Institutional Class/Shares Authorized | 40,000,000 | 40,000,000 | ||||||||||
Sold | 522,243 | 23,886,199 | 285,373 | 12,571,675 | ||||||||
Issued in reinvestment of distributions | 2,051 | 91,713 | 596 | 22,905 | ||||||||
Redeemed | (176,427 | ) | (8,601,099 | ) | (33,480 | ) | (1,449,400 | ) | ||||
347,867 | 15,376,813 | 252,489 | 11,145,180 | |||||||||
A Class/Shares Authorized | 75,000,000 | 75,000,000 | ||||||||||
Sold | 272,763 | 12,295,204 | 614,826 | 25,736,761 | ||||||||
Issued in reinvestment of distributions | 6,596 | 287,136 | 209 | 7,821 | ||||||||
Redeemed | (507,187 | ) | (23,202,894 | ) | (194,157 | ) | (8,068,061 | ) | ||||
(227,828 | ) | (10,620,554 | ) | 420,878 | 17,676,521 | |||||||
C Class/Shares Authorized | 25,000,000 | 25,000,000 | ||||||||||
Sold | 52,007 | 2,251,547 | 135,986 | 5,492,534 | ||||||||
Issued in reinvestment of distributions | 337 | 13,997 | — | — | ||||||||
Redeemed | (28,064 | ) | (1,256,210 | ) | (12,415 | ) | (502,300 | ) | ||||
24,280 | 1,009,334 | 123,571 | 4,990,234 | |||||||||
R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 35,684 | 1,579,863 | 34,430 | 1,429,554 | ||||||||
Issued in reinvestment of distributions | 284 | 12,375 | — | — | ||||||||
Redeemed | (7,025 | ) | (317,434 | ) | (2,001 | ) | (87,171 | ) | ||||
28,943 | 1,274,804 | 32,429 | 1,342,383 | |||||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 500 | 25,000 | ||||||||||
Net increase (decrease) | (2,659,944 | ) | $(126,523,858 | ) | (1,506,643 | ) | $(61,750,287 | ) |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Common Stocks | $2,146,507,952 | $57,953,071 | — | ||||||
Temporary Cash Investments | 799,219 | 11,086,191 | — | ||||||
Total Value of Investment Securities | $2,147,307,171 | $69,039,262 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $426,507 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $429,270 in unrealized gain on forward foreign currency exchange contracts and a liability of $2,763 in unrealized loss on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(889,054) in net realized gain (loss) on foreign currency transactions and $505,750 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $13,503,171 | $4,689,975 | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $1,298,490,075 | ||
Gross tax appreciation of investments | $924,533,652 | ||
Gross tax depreciation of investments | (6,677,294 | ) | |
Net tax appreciation (depreciation) of investments | $917,856,358 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $(7,190 | ) | |
Net tax appreciation (depreciation) | $917,849,168 | ||
Undistributed ordinary income | $9,690,482 | ||
Accumulated long-term gains | $9,015,495 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||
Net Asset | Net | Net | Total From Investment Operations | Distributions | Net Asset | Total | Operating Expenses | Net | Portfolio | Net Assets, | |||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||
2013 | $43.52 | 0.35 | 9.51 | 9.86 | (0.31 | ) | $53.07 | 22.80 | % | 1.00 | % | 0.74 | % | 31 | % | $2,119,523 | |||||||||||||||||
2012 | $39.14 | 0.17 | 4.31 | 4.48 | (0.10 | ) | $43.52 | 11.50 | % | 1.00 | % | 0.41 | % | 17 | % | $1,861,545 | |||||||||||||||||
2011 | $35.54 | 0.10 | 3.62 | 3.72 | (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 | ) | $35.54 | 16.78 | % | 1.01 | % | 0.34 | % | 35 | % | $1,722,138 | |||||||||||||||||
2009 | $26.25 | 0.19 | 4.40 | 4.59 | (0.26 | ) | $30.58 | 17.77 | % | 1.00 | % | 0.75 | % | 31 | % | $1,591,621 | |||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||
2013 | $44.04 | 0.36 | 9.72 | 10.08 | (0.33 | ) | $53.79 | 23.05 | % | 0.80 | % | 0.94 | % | 31 | % | $39,263 | |||||||||||||||||
2012 | $39.60 | 0.24 | 4.38 | 4.62 | (0.18 | ) | $44.04 | 11.73 | % | 0.80 | % | 0.61 | % | 17 | % | $16,828 | |||||||||||||||||
2011 | $35.95 | 0.18 | 3.67 | 3.85 | (0.20 | ) | $39.60 | 10.73 | % | 0.80 | % | 0.46 | % | 17 | % | $5,133 | |||||||||||||||||
2010 | $30.94 | 0.18 | 5.06 | 5.24 | (0.23 | ) | $35.95 | 17.02 | % | 0.81 | % | 0.54 | % | 35 | % | $4,563 | |||||||||||||||||
2009 | $26.56 | 0.28 | 4.41 | 4.69 | (0.31 | ) | $30.94 | 18.00 | % | 0.80 | % | 0.95 | % | 31 | % | $3,950 | |||||||||||||||||
A Class | |||||||||||||||||||||||||||||||||
2013 | $42.85 | 0.25 | 9.33 | 9.58 | (0.28 | ) | $52.15 | 22.48 | % | 1.25 | % | 0.49 | % | 31 | % | $43,318 | |||||||||||||||||
2012 | $38.54 | 0.06 | 4.26 | 4.32 | (0.01 | ) | $42.85 | 11.22 | % | 1.25 | % | 0.16 | % | 17 | % | $45,355 | |||||||||||||||||
2011 | $34.99 | — | (3) | 3.58 | 3.58 | (0.03 | ) | $38.54 | 10.23 | % | 1.25 | % | 0.01 | % | 17 | % | $24,573 | ||||||||||||||||
2010 | $30.11 | 0.03 | 4.93 | 4.96 | (0.08 | ) | $34.99 | 16.48 | % | 1.26 | % | 0.09 | % | 35 | % | $20,666 | |||||||||||||||||
2009 | $25.85 | 0.13 | 4.33 | 4.46 | (0.20 | ) | $30.11 | 17.47 | % | 1.25 | % | 0.50 | % | 31 | % | $19,824 |
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 | Net | Net | Total From Investment Operations | Distributions | Net Asset | Total | Operating Expenses | Net | Portfolio | Net Assets, | |||||||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||
2013 | $40.75 | (0.14 | ) | 8.90 | 8.76 | (0.19 | ) | $49.32 | 21.57 | % | 2.00 | % | (0.26 | )% | 31 | % | $8,054 | ||||||||||||||||
2012 | $36.92 | (0.25 | ) | 4.08 | 3.83 | — | $40.75 | 10.37 | % | 2.00 | % | (0.59 | )% | 17 | % | $5,666 | |||||||||||||||||
2011 | $33.74 | (0.28 | ) | 3.46 | 3.18 | — | $36.92 | 9.43 | % | 2.00 | % | (0.74 | )% | 17 | % | $571 | |||||||||||||||||
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 | ) | $29.19 | 16.58 | % | 2.00 | % | (0.25 | )% | 31 | % | $314 | ||||||||||||||||
R Class | |||||||||||||||||||||||||||||||||
2013 | $42.86 | 0.03 | 9.43 | 9.46 | (0.25 | ) | $52.07 | 22.18 | % | 1.50 | % | 0.24 | % | 31 | % | $3,275 | |||||||||||||||||
2012 | $38.64 | (0.06 | ) | 4.28 | 4.22 | — | $42.86 | 10.92 | % | 1.50 | % | (0.09 | )% | 17 | % | $1,456 | |||||||||||||||||
2011 | $35.14 | (0.08 | ) | 3.58 | 3.50 | — | $38.64 | 9.96 | % | 1.50 | % | (0.24 | )% | 17 | % | $59 | |||||||||||||||||
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 | ) | $30.24 | 17.17 | % | 1.50 | % | 0.25 | % | 31 | % | $43 | |||||||||||||||||
R6 Class | |||||||||||||||||||||||||||||||||
2013(4) | $49.95 | 0.10 | 3.76 | 3.86 | — | $53.81 | 7.73 | % | 0.65 | %(5) | 0.72 | %(5) | 31 | %(6) | $27 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Per-share amount was less than $0.005. |
(4) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Select Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | 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) | 75 | None | ||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | ||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | ||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | ||
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) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | ||
Independent Directors | |||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 | ||
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | ||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | ||
Interested Directors | |||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | ||
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $13,503,171, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80461 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Small Cap Growth Fund
Table of Contents |
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 | 26 |
Report of Independent Registered Public Accounting Firm | 29 |
Management | 30 |
Approval of Management Agreement | 33 |
Additional Information | 38 |
Any opinions expressed in this report reflect those of the author as of the date of the report, and do not necessarily represent the opinions of American Century Investments® or any other person in the American Century Investments organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century Investments disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century Investments funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century Investments fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century Investments by third party vendors. To the best of American Century Investments’ knowledge, such information is accurate at the time of printing.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer,U.S. Growth Equity — Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | |||||||
Average Annual Returns | |||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | ||
Investor Class | ANOIX | 36.23% | (1) | 16.53% | 9.30% | 8.64% | 6/1/01 |
Russell 2000 Growth Index | — | 39.84% | 19.26% | 9.13% | 6.68% | — | |
Institutional Class | ANONX | 36.61% | (1) | 16.75% | — | 6.26% | 5/18/07 |
A Class No sales charge* With sales charge* | ANOAX | 36.00% 28.13% |
(1)
| 16.23% 14.85% | 9.03% 8.39% | 11.69% 11.09% | 1/31/03 |
B Class No sales charge* With sales charge* | ANOBX | 34.96% 30.96% | (1) (1) | 15.41% 15.29% | 8.22% 8.22% | 10.87% 10.87% | 1/31/03 |
C Class | ANOCX | 34.95% | (1) | 15.36% | 8.21% | 10.90%(2) | 1/31/03 |
R Class | ANORX | 35.73% | (1) | 15.96% | — | 4.39% | 9/28/07 |
R6 Class | ANODX | — | — | — | 6.80%(3) | 7/26/13 |
*Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. 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) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
(2) | Returns would have been lower if a portion of the distribution and service fees had not been waived. |
(3) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/smallcapgrowth.jpg)
Total Annual Fund Operating Expenses | ||||||
Investor | Institutional Class | A Class | B Class | C Class | R Class | R6 Class |
1.46% | 1.26% | 1.71% | 2.46% | 2.46% | 1.96% | 1.11% |
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.
Portfolio Commentary |
Portfolio Managers: Matthew Ferretti and Jeffrey Otto
In January 2013, portfolio manager Stafford Southwick left the Small Cap Growth management team and portfolio manager Jeffrey Otto was promoted from Senior Analyst on the team.
Performance Summary
Small Cap Growth returned 36.23%* for the 12 months ended October 31, 2013.By comparison, the Russell 2000 Growth Index (the fund’s benchmark) returned 39.84%.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period. Although Small Cap Growth derived positive results from every sector in which it invested, its performance lagged that of the benchmark. Relative to the benchmark, stock selection in the information technology sector accounted for the bulk of underperformance. Positioning in the financials, consumer discretionary, and health care sectors also detracted. Stock choices in the industrials, materials, and energy sectors made the largest contributions to relative returns.
Information Technology Led Detractors
The information technology sector was the portfolio’s largest source of underperformance relative to the benchmark.
Two software holdings trimmed results. An overweight position in FleetMatics Group detracted meaningfully. The company, which offers fleet management software, was impacted by an adverse short report during the period. The investment team has maintained an overweight position based on the company’s continued strong growth prospects. Allot Communications, which provides data traffic optimization solutions for large telecom and cable customers using deep packet inspection, missed earnings expectations.
In the electronic equipment industry group, OSI Systems was a key detractor, as there was slower than expected growth in their security equipment and health care businesses. In the communications equipment space, Aruba Networks, which sells enterprise Wi-Fi networking products and services, was hurt by a slowdown in spending on enterprise networking equipment. Elsewhere in the sector, stock selection in the semiconductors and semiconductor equipment industry detracted.
Financials, Consumer Discretionary Lagged
The financials sector was a source of relative underperformance. In the sector, positioning among capital markets companies detracted. In the consumer discretionary sector, homebuilders MDC Holdings and M/I Homes were hurt as an increase in interest rates resulted in slowing orders. Positioning in the hotels, restaurants, and leisure industry, as well as the leisure equipment and products industry, also trimmed relative results.
*All fund returns referenced in this commentary are for Investor Class shares.
Industrials Contributed
The industrials sector was a meaningful source of outperformance relative to the benchmark. In the professional services segment, two positions added to results versus the benchmark. Barrett Business Services, a supplier of outsourced human resources, enjoyed better than expected growth in the reporting period. Overweight holding WageWorks, which is a provider of programs for employee-directed health and spending account benefits, contributed meaningfully to relative performance. The company has benefited from the increased adoption of health savings accounts.
Food service equipment company Middleby added to relative returns. The maker of energy-efficient ovens benefited from restaurants’ drive to make their kitchens more efficient. Also in the sector, holdings in the commercial services and supplies group and the trading companies and distributors group contributed.
Materials, Energy Added
The materials sector was a meaningful source of relative gains. An overweight position in KapStone Paper and Packaging contributed, as the company completed its acquisition of Longview Fibre Paper and Packaging. Also in the sector, an underweight allocation to the metals and mining group helped relative results, as the portfolio avoided benchmark underperformers, including Allied Nevada Gold.
In the energy sector, oil and natural gas exploration company Gulfport Energy contributed. The company performed well due to better-than-expected well results in the Utica Shale in Ohio.
Apart from those sectors, Lithia Motors was a significant individual contributor. The automotive dealer that operates in small and rural markets benefited from the recovery in U.S. auto sales and also saw an increase in truck sales, due to a rise in residential construction.
Outlook
Small Cap Growth’s investment process focuses on smaller companies with accelerating earnings growth rates and share-price momentum. The investment team believes that active investing in such companies will generate outperformance over time compared with the Russell 2000 Growth Index.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Middleby Corp. | 1.9% |
American Axle & Manufacturing Holdings, Inc. | 1.4% |
Sinclair Broadcast Group, Inc., Class A | 1.3% |
CoStar Group, Inc. | 1.2% |
Aspen Technology, Inc. | 1.1% |
Conn’s, Inc. | 1.1% |
Restoration Hardware Holdings, Inc. | 1.1% |
Papa John’s International, Inc. | 1.0% |
Swift Transportation Co. | 1.0% |
Gulfport Energy Corp. | 1.0% |
Top Five Industries | % of net assets |
Software | 8.3% |
Biotechnology | 5.6% |
Health Care Equipment and Supplies | 5.6% |
Internet Software and Services | 5.3% |
Machinery | 4.3% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 96.6% |
Temporary Cash Investments | 3.1% |
Other Assets and Liabilities | 0.3% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,182.00 | $7.75 | 1.41% |
Institutional Class | $1,000 | $1,184.00 | $6.66 | 1.21% |
A Class | $1,000 | $1,180.30 | $9.12 | 1.66% |
B Class | $1,000 | $1,176.20 | $13.22 | 2.41% |
C Class | $1,000 | $1,176.70 | $13.22 | 2.41% |
R Class | $1,000 | $1,179.90 | $10.49 | 1.91% |
R6 Class | $1,000 | $1,068.00(2) | $2.92(3) | 1.05% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.10 | $7.17 | 1.41% |
Institutional Class | $1,000 | $1,019.11 | $6.16 | 1.21% |
A Class | $1,000 | $1,016.84 | $8.44 | 1.66% |
B Class | $1,000 | $1,013.06 | $12.23 | 2.41% |
C Class | $1,000 | $1,013.06 | $12.23 | 2.41% |
R Class | $1,000 | $1,015.58 | $9.70 | 1.91% |
R6 Class | $1,000 | $1,019.91(4) | $5.35(4) | 1.05% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(2) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(3) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(4) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 96.6% | ||||||
AEROSPACE AND DEFENSE — 0.9% | ||||||
HEICO Corp. | 35,063 | $ 1,878,649 | ||||
Triumph Group, Inc. | 30,089 | 2,155,877 | ||||
4,034,526 | ||||||
AIRLINES — 0.6% | ||||||
Spirit Airlines, Inc.(1) | 59,337 | 2,560,392 | ||||
AUTO COMPONENTS — 2.3% | ||||||
American Axle & Manufacturing Holdings, Inc.(1) | 333,761 | 6,211,292 | ||||
Goodyear Tire & Rubber Co. (The) | 182,510 | 3,829,060 | ||||
10,040,352 | ||||||
AUTOMOBILES — 0.6% | ||||||
Winnebago Industries, Inc.(1) | 80,653 | 2,392,168 | ||||
BEVERAGES — 0.2% | ||||||
Boston Beer Co., Inc., Class A(1) | 4,163 | 955,783 | ||||
BIOTECHNOLOGY — 5.6% | ||||||
ACADIA Pharmaceuticals, Inc.(1) | 50,940 | 1,157,866 | ||||
Acorda Therapeutics, Inc.(1) | 29,332 | 897,852 | ||||
Aegerion Pharmaceuticals, Inc.(1) | 32,792 | 2,715,833 | ||||
Alnylam Pharmaceuticals, Inc.(1) | 35,585 | 2,050,052 | ||||
Arena Pharmaceuticals, Inc.(1) | 129,203 | 567,201 | ||||
Celldex Therapeutics, Inc.(1) | 53,320 | 1,221,561 | ||||
Cepheid, Inc.(1) | 40,617 | 1,653,924 | ||||
Exact Sciences Corp.(1) | 52,046 | 573,547 | ||||
Exelixis, Inc.(1) | 151,621 | 747,492 | ||||
ImmunoGen, Inc.(1) | 48,671 | 801,125 | ||||
Infinity Pharmaceuticals, Inc.(1) | 41,912 | 567,908 | ||||
InterMune, Inc.(1) | 66,310 | 934,308 | ||||
Ironwood Pharmaceuticals, Inc.(1) | 76,906 | 739,067 | ||||
Isis Pharmaceuticals, Inc.(1) | 57,872 | 1,925,401 | ||||
Keryx Biopharmaceuticals, Inc.(1) | 81,481 | 843,328 | ||||
MannKind Corp.(1) | 123,590 | 604,355 | ||||
Neurocrine Biosciences, Inc.(1) | 53,425 | 504,332 | ||||
NPS Pharmaceuticals, Inc.(1) | 46,430 | 1,336,255 | ||||
Opko Health, Inc.(1) | 111,736 | 1,119,595 | ||||
PDL BioPharma, Inc. | 108,328 | 876,374 | ||||
Puma Biotechnology, Inc.(1) | 14,810 | 567,371 | ||||
Sarepta Therapeutics, Inc.(1) | 24,020 | 935,339 | ||||
Synageva BioPharma Corp.(1) | 15,510 | 787,908 | ||||
24,127,994 | ||||||
BUILDING PRODUCTS — 2.4% | ||||||
American Woodmark Corp.(1) | 79,287 | 2,689,415 | ||||
Apogee Enterprises, Inc. | 93,218 | 2,915,859 | ||||
Fortune Brands Home & Security, Inc. | 55,304 | 2,382,496 | ||||
Lennox International, Inc. | 31,677 | 2,472,707 | ||||
10,460,477 | ||||||
CAPITAL MARKETS — 0.9% | ||||||
HFF, Inc., Class A | 71,080 | 1,745,014 | ||||
Triangle Capital Corp. | 70,547 | 2,099,479 | ||||
3,844,493 | ||||||
CHEMICALS — 2.1% | ||||||
Cabot Corp. | 55,410 | 2,582,660 | ||||
Chemtura Corp.(1) | 140,710 | 3,447,395 | ||||
Flotek Industries, Inc.(1) | 87,909 | 1,879,494 | ||||
PolyOne Corp. | 41,700 | 1,263,510 | ||||
9,173,059 | ||||||
COMMERCIAL BANKS — 3.1% | ||||||
Cathay General Bancorp. | 103,808 | 2,556,791 | ||||
Central Pacific Financial Corp. | 60,110 | 1,107,226 | ||||
Home Bancshares, Inc. | 96,134 | 3,257,020 | ||||
Pinnacle Financial Partners, Inc.(1) | 69,030 | 2,139,930 | ||||
Renasant Corp. | 38,180 | 1,095,003 | ||||
Signature Bank(1) | 20,338 | 2,070,815 | ||||
WesBanco, Inc. | 41,790 | 1,228,626 | ||||
13,455,411 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 1.3% | ||||||
G&K Services, Inc., Class A | 41,702 | 2,602,205 | ||||
Mobile Mini, Inc.(1) | 40,396 | 1,459,103 | ||||
US Ecology, Inc. | 39,744 | 1,412,899 | ||||
5,474,207 | ||||||
COMMUNICATIONS EQUIPMENT — 1.3% | ||||||
InterDigital, Inc. | 29,021 | 1,124,564 | ||||
Plantronics, Inc. | 26,633 | 1,143,621 | ||||
Procera Networks, Inc.(1) | 159,950 | 2,263,293 | ||||
Ubiquiti Networks, Inc. | 33,330 | 1,285,871 | ||||
5,817,349 | ||||||
COMPUTERS AND PERIPHERALS — 0.3% | ||||||
NCR Corp.(1) | 31,700 | 1,158,635 |
Shares | Value | |||||
CONSTRUCTION AND ENGINEERING — 0.8% | ||||||
MasTec, Inc.(1) | 102,120 | $ 3,264,776 | ||||
CONSTRUCTION MATERIALS — 1.3% | ||||||
Caesarstone Sdot-Yam Ltd.(1) | 55,670 | 2,347,604 | ||||
Eagle Materials, Inc. | 16,771 | 1,257,993 | ||||
Headwaters, Inc.(1) | 212,066 | 1,851,336 | ||||
5,456,933 | ||||||
CONTAINERS AND PACKAGING — 0.3% | ||||||
Packaging Corp. of America | 21,890 | 1,363,309 | ||||
DISTRIBUTORS — 0.7% | ||||||
Pool Corp. | 57,017 | 3,100,584 | ||||
DIVERSIFIED CONSUMER SERVICES — 0.3% | ||||||
Grand Canyon Education, Inc.(1) | 26,948 | 1,273,832 | ||||
DIVERSIFIED FINANCIAL SERVICES — 0.8% | ||||||
MarketAxess Holdings, Inc. | 55,099 | 3,594,108 | ||||
ELECTRICAL EQUIPMENT — 0.6% | ||||||
EnerSys | 40,890 | 2,713,051 | ||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 2.8% | ||||||
Belden, Inc. | 28,742 | 1,933,187 | ||||
Cognex Corp. | 81,950 | 2,560,937 | ||||
FEI Co. | 29,020 | 2,585,102 | ||||
Littelfuse, Inc. | 27,804 | 2,364,174 | ||||
OSI Systems, Inc.(1) | 10,104 | 735,975 | ||||
Vishay Intertechnology, Inc.(1) | 174,980 | 2,147,005 | ||||
12,326,380 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.0% | ||||||
Dril-Quip, Inc.(1) | 21,128 | 2,480,850 | ||||
Geospace Technologies Corp.(1) | 17,460 | 1,700,953 | ||||
Hornbeck Offshore Services, Inc.(1) | 44,922 | 2,482,839 | ||||
Matrix Service Co.(1) | 56,601 | 1,176,735 | ||||
Natural Gas Services Group, Inc.(1) | 34,810 | 974,332 | ||||
8,815,709 | ||||||
FOOD AND STAPLES RETAILING — 1.1% | ||||||
Casey’s General Stores, Inc. | 21,820 | 1,590,242 | ||||
United Natural Foods, Inc.(1) | 44,487 | 3,178,596 | ||||
4,768,838 | ||||||
FOOD PRODUCTS — 2.6% | ||||||
Annie’s, Inc.(1) | 24,190 | 1,142,978 | ||||
Hain Celestial Group, Inc. (The)(1) | 35,191 | 2,928,947 | ||||
J&J Snack Foods Corp. | 24,499 | 2,096,379 | ||||
Snyders-Lance, Inc. | 65,360 | 1,960,146 | ||||
TreeHouse Foods, Inc.(1) | 41,573 | 3,045,638 | ||||
11,174,088 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 5.6% | ||||||
Abaxis, Inc. | 16,149 | 577,004 | ||||
Align Technology, Inc.(1) | 52,721 | 3,008,260 | ||||
Arthrocare Corp.(1) | 18,566 | 695,111 | ||||
Cyberonics, Inc.(1) | 19,324 | 1,116,154 | ||||
DexCom, Inc.(1) | 48,716 | 1,399,611 | ||||
Endologix, Inc.(1) | 53,789 | 971,967 | ||||
Globus Medical, Inc.(1) | 42,410 | 814,272 | ||||
Haemonetics Corp.(1) | 32,109 | 1,302,341 | ||||
HeartWare International, Inc.(1) | 10,847 | 787,058 | ||||
ICU Medical, Inc.(1) | 9,425 | 582,465 | ||||
Insulet Corp.(1) | 53,151 | 2,073,952 | ||||
Masimo Corp. | 37,299 | 955,601 | ||||
Meridian Bioscience, Inc. | 33,994 | 840,332 | ||||
Neogen Corp.(1) | 24,546 | 1,134,516 | ||||
NxStage Medical, Inc.(1) | 50,227 | 666,512 | ||||
STERIS Corp. | 55,552 | 2,510,395 | ||||
Thoratec Corp.(1) | 40,590 | 1,753,082 | ||||
Volcano Corp.(1) | 42,929 | 822,949 | ||||
West Pharmaceutical Services, Inc. | 42,156 | 2,038,243 | ||||
24,049,825 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.2% | ||||||
Acadia Healthcare Co., Inc.(1) | 24,786 | 1,074,721 | ||||
Air Methods Corp. | 20,797 | 909,245 | ||||
Bio-Reference Labs, Inc.(1) | 22,365 | 724,850 | ||||
Centene Corp.(1) | 33,361 | 1,873,554 | ||||
Chemed Corp. | 13,302 | 902,141 | ||||
Emeritus Corp.(1) | 32,648 | 625,536 | ||||
Ensign Group, Inc. (The) | 17,160 | 730,673 | ||||
HealthSouth Corp. | 46,126 | 1,619,484 | ||||
IPC The Hospitalist Co., Inc.(1) | 14,125 | 773,909 | ||||
Molina Healthcare, Inc.(1) | 22,280 | 704,939 | ||||
MWI Veterinary Supply, Inc.(1) | 13,850 | 2,197,164 | ||||
Team Health Holdings, Inc.(1) | 43,460 | 1,887,902 | ||||
14,024,118 | ||||||
HEALTH CARE TECHNOLOGY — 2.2% | ||||||
athenahealth, Inc.(1) | 21,208 | 2,831,480 | ||||
HMS Holdings Corp.(1) | 79,417 | 1,678,081 | ||||
MedAssets, Inc.(1) | 47,300 | 1,089,319 | ||||
Medidata Solutions, Inc.(1) | 19,057 | 2,102,178 |
Shares | Value |
Quality Systems, Inc. | 32,769 | $ 747,789 | ||||
Veeva Systems, Inc. Class A(1) | 32,675 | 1,271,384 | ||||
9,720,231 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 3.8% | ||||||
AFC Enterprises, Inc.(1) | 50,502 | 2,251,379 | ||||
Buffalo Wild Wings, Inc.(1) | 14,710 | 2,097,352 | ||||
Cedar Fair LP | 38,881 | 1,782,694 | ||||
Del Frisco’s Restaurant Group, Inc.(1) | 86,684 | 1,568,981 | ||||
Domino’s Pizza, Inc. | 17,750 | 1,190,315 | ||||
Papa John’s International, Inc. | 60,108 | 4,548,372 | ||||
Six Flags Entertainment Corp. | 84,120 | 3,163,753 | ||||
16,602,846 | ||||||
HOUSEHOLD DURABLES — 1.5% | ||||||
M.D.C. Holdings, Inc. | 81,430 | 2,376,942 | ||||
Ryland Group, Inc. (The) | 23,460 | 943,092 | ||||
Standard Pacific Corp.(1) | 404,205 | 3,205,345 | ||||
6,525,379 | ||||||
INSURANCE — 0.6% | ||||||
AMERISAFE, Inc. | 41,177 | 1,585,314 | ||||
Amtrust Financial Services, Inc. | 25,441 | 975,917 | ||||
2,561,231 | ||||||
INTERNET SOFTWARE AND SERVICES — 5.3% | ||||||
58.Com, Inc. ADR(1) | 20,227 | 487,875 | ||||
Bankrate, Inc.(1) | 174,710 | 2,942,116 | ||||
comScore, Inc.(1) | 113,350 | 3,028,712 | ||||
CoStar Group, Inc.(1) | 28,354 | 5,018,375 | ||||
Criteo SA ADR(1) | 5,910 | 208,682 | ||||
Dealertrack Technologies, Inc.(1) | 42,862 | 1,598,753 | ||||
Rocket Fuel, Inc.(1) | 8,351 | 426,235 | ||||
Shutterstock, Inc.(1) | 17,700 | 1,253,160 | ||||
Trulia, Inc.(1) | 70,260 | 2,808,292 | ||||
Web.com Group, Inc.(1) | 150,109 | 4,045,438 | ||||
Yelp, Inc.(1) | 15,780 | 1,069,095 | ||||
22,886,733 | ||||||
IT SERVICES — 2.5% | ||||||
FleetCor Technologies, Inc.(1) | 24,853 | 2,866,794 | ||||
iGATE Corp.(1) | 68,350 | 2,176,264 | ||||
MAXIMUS, Inc. | 52,802 | 2,558,257 | ||||
ServiceSource International, Inc.(1) | 310,470 | 3,359,285 | ||||
10,960,600 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.8% | ||||||
Brunswick Corp. | 75,913 | 3,425,954 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 0.7% | ||||||
Luminex Corp.(1) | 31,631 | 616,805 | ||||
PAREXEL International Corp.(1) | 52,879 | 2,417,099 | ||||
3,033,904 | ||||||
MACHINERY — 4.3% | ||||||
Chart Industries, Inc.(1) | 18,460 | 1,983,896 | ||||
Commercial Vehicle Group, Inc.(1) | 203,910 | 1,604,772 | ||||
Graham Corp. | 37,670 | 1,386,633 | ||||
Hyster-Yale Materials Handling, Inc. | 10,328 | 810,128 | ||||
ITT Corp. | 53,056 | 2,107,915 | ||||
Middleby Corp.(1) | 36,685 | 8,351,340 | ||||
Mueller Water Products, Inc. Class A | 277,466 | 2,377,884 | ||||
18,622,568 | ||||||
MARINE — 0.2% | ||||||
Baltic Trading Ltd. | 194,540 | 871,539 | ||||
MEDIA — 2.2% | ||||||
Entravision Communications Corp., Class A | 215,805 | 1,454,526 | ||||
Nexstar Broadcasting Group, Inc. Class A | 31,990 | 1,420,036 | ||||
Regal Entertainment Group, Class A | 52,830 | 1,004,298 | ||||
Sinclair Broadcast Group, Inc., Class A | 174,920 | 5,607,935 | ||||
9,486,795 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 2.5% | ||||||
Athlon Energy, Inc.(1) | 78,650 | 2,587,585 | ||||
Gulfport Energy Corp.(1) | 70,779 | 4,154,020 | ||||
Kodiak Oil & Gas Corp.(1) | 147,825 | 1,917,290 | ||||
Rosetta Resources, Inc.(1) | 32,903 | 1,972,206 | ||||
10,631,101 | ||||||
PAPER AND FOREST PRODUCTS — 1.1% | ||||||
KapStone Paper and Packaging Corp. | 67,568 | 3,510,833 | ||||
Neenah Paper, Inc. | 24,721 | 1,017,022 | ||||
4,527,855 | ||||||
PERSONAL PRODUCTS — 0.3% | ||||||
Prestige Brands Holdings, Inc.(1) | 43,916 | 1,371,497 | ||||
PHARMACEUTICALS — 2.4% | ||||||
Akorn, Inc.(1) | 52,235 | 1,067,683 | ||||
Auxilium Pharmaceuticals, Inc.(1) | 43,272 | 744,711 | ||||
Medicines Co. (The)(1) | 39,363 | 1,335,193 |
Shares | Value |
Nektar Therapeutics(1) | 72,525 | $ 689,713 | ||||
Pacira Pharmaceuticals, Inc.(1) | 25,160 | 1,270,832 | ||||
Questcor Pharmaceuticals, Inc. | 31,226 | 1,916,340 | ||||
Santarus, Inc.(1) | 44,681 | 1,042,408 | ||||
ViroPharma, Inc.(1) | 43,380 | 1,684,011 | ||||
VIVUS, Inc.(1) | 78,206 | 734,354 | ||||
10,485,245 | ||||||
PROFESSIONAL SERVICES — 3.1% | ||||||
Barrett Business Services, Inc. | 43,808 | 3,647,892 | ||||
Huron Consulting Group, Inc.(1) | 42,721 | 2,502,169 | ||||
On Assignment, Inc.(1) | 114,301 | 3,862,231 | ||||
WageWorks, Inc.(1) | 64,690 | 3,312,775 | ||||
13,325,067 | ||||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 1.3% | ||||||
National Retail Properties, Inc. | 47,735 | 1,642,084 | ||||
Omega Healthcare Investors, Inc. | 42,767 | 1,421,575 | ||||
Sovran Self Storage, Inc. | 21,901 | 1,675,207 | ||||
Weingarten Realty Investors | 28,205 | 894,945 | ||||
5,633,811 | ||||||
ROAD AND RAIL — 1.4% | ||||||
Saia, Inc.(1) | 43,875 | 1,427,254 | ||||
Swift Transportation Co.(1) | 205,487 | 4,477,561 | ||||
5,904,815 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 2.5% | ||||||
Cavium Networks, Inc.(1) | 53,472 | 2,155,456 | ||||
Photronics, Inc.(1) | 239,256 | 2,009,750 | ||||
Power Integrations, Inc. | 31,483 | 1,808,384 | ||||
Semtech Corp.(1) | 100,748 | 3,134,270 | ||||
Skyworks Solutions, Inc.(1) | 39,750 | 1,024,755 | ||||
SunEdison, Inc.(1) | 90,640 | 842,952 | ||||
10,975,567 | ||||||
SOFTWARE — 8.3% | ||||||
Aspen Technology, Inc.(1) | 124,079 | 4,743,540 | ||||
Bottomline Technologies (de), Inc.(1) | 85,322 | 2,680,817 | ||||
CommVault Systems, Inc.(1) | 22,469 | 1,754,380 | ||||
Covisint Corp.(1) | 130,772 | 1,604,572 | ||||
FleetMatics Group plc(1) | 47,481 | 1,507,522 | ||||
Infoblox, Inc.(1) | 37,475 | 1,665,764 | ||||
Informatica Corp.(1) | 48,292 | 1,864,071 | ||||
Interactive Intelligence, Inc.(1) | 34,441 | 2,116,400 | ||||
Manhattan Associates, Inc.(1) | 21,930 | 2,335,764 | ||||
Monotype Imaging Holdings, Inc. | 69,895 | 1,972,437 | ||||
PROS Holdings, Inc.(1) | 54,293 | 1,919,258 | ||||
QLIK Technologies, Inc.(1) | 44,186 | 1,119,673 | ||||
Qualys, Inc.(1) | 51,430 | 1,069,744 | ||||
Solera Holdings, Inc. | 21,810 | 1,226,158 | ||||
SS&C Technologies Holdings, Inc.(1) | 62,100 | 2,440,530 | ||||
Synchronoss Technologies, Inc.(1) | 27,824 | 963,267 | ||||
Tangoe, Inc.(1) | 53,802 | 1,027,618 | ||||
Tyler Technologies, Inc.(1) | 19,010 | 1,838,457 | ||||
Ultimate Software Group, Inc.(1) | 14,211 | 2,195,315 | ||||
36,045,287 | ||||||
SPECIALTY RETAIL — 3.4% | ||||||
Conn’s, Inc.(1) | 77,159 | 4,663,490 | ||||
Lithia Motors, Inc., Class A | 50,514 | 3,174,805 | ||||
Restoration Hardware Holdings, Inc.(1) | 66,220 | 4,618,183 | ||||
Zale Corp.(1) | 155,740 | 2,434,216 | ||||
14,890,694 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.6% | ||||||
Fifth & Pacific Cos., Inc.(1) | 94,780 | 2,510,722 | ||||
TRADING COMPANIES AND DISTRIBUTORS — 1.6% | ||||||
DXP Enterprises, Inc.(1) | 28,327 | 2,603,251 | ||||
H&E Equipment Services, Inc.(1) | 84,096 | 2,104,923 | ||||
United Rentals, Inc.(1) | 35,978 | 2,323,819 | ||||
7,031,993 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.3% | ||||||
RingCentral, Inc. Class A(1) | 62,304 | 1,199,975 | ||||
TOTAL COMMON STOCKS (Cost $292,507,748) | 418,651,806 | |||||
Temporary Cash Investments — 3.1% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $2,792,427), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $2,740,877) | 2,740,872 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $3,357,892), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $3,289,049) | 3,289,046 |
Shares | Value |
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $3,357,241), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $3,289,049) | $ 3,289,047 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $3,357,257), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $3,289,052) | 3,289,047 | |||||
SSgA U.S. Government Money Market Fund | 913,349 | 913,349 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $13,521,361) | 13,521,361 | |||||
TOTAL INVESTMENT SECURITIES — 99.7% (Cost $306,029,109) | 432,173,167 | |||||
OTHER ASSETS AND LIABILITIES — 0.3% | 1,175,462 | |||||
TOTAL NET ASSETS — 100.0% | $433,348,629 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $306,029,109) | $432,173,167 | ||
Receivable for investments sold | 4,897,000 | ||
Receivable for capital shares sold | 189,341 | ||
Dividends and interest receivable | 67,505 | ||
437,327,013 | |||
Liabilities | |||
Payable for investments purchased | 3,161,991 | ||
Payable for capital shares redeemed | 285,124 | ||
Accrued management fees | 493,848 | ||
Distribution and service fees payable | 37,421 | ||
3,978,384 | |||
Net Assets | $433,348,629 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $488,688,472 | ||
Accumulated net investment loss | (3,027,091 | ) | |
Accumulated net realized loss | (178,456,810 | ) | |
Net unrealized appreciation | 126,144,058 | ||
$433,348,629 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $199,294,466 | 16,671,436 | $11.95 |
Institutional Class, $0.01 Par Value | $103,519,893 | 8,555,110 | $12.10 |
A Class, $0.01 Par Value | $114,080,377 | 9,733,736 | $11.72* |
B Class, $0.01 Par Value | $1,233,884 | 111,367 | $11.08 |
C Class, $0.01 Par Value | $13,171,496 | 1,184,527 | $11.12 |
R Class, $0.01 Par Value | $2,021,807 | 174,169 | $11.61 |
R6 Class, $0.01 Par Value | $26,706 | 2,207 | $12.10 |
*Maximum offering price $12.44 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends | $ 3,592,962 | ||
Interest | 5,147 | ||
3,598,109 | |||
Expenses: | |||
Management fees | 5,168,048 | ||
Distribution and service fees: | |||
A Class | 257,029 | ||
B Class | 13,216 | ||
C Class | 119,724 | ||
R Class | 8,436 | ||
Directors’ fees and expenses | 17,779 | ||
5,584,232 | |||
Net investment income (loss) | (1,986,123 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on investment transactions | 65,698,476 | ||
Change in net unrealized appreciation (depreciation) on investments | 52,908,024 | ||
Net realized and unrealized gain (loss) | 118,606,500 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $116,620,377 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $ (1,986,123 | ) | $ (666,499 | ) | ||
Net realized gain (loss) | 65,698,476 | 31,132,021 | ||||
Change in net unrealized appreciation (depreciation) | 52,908,024 | 2,658,560 | ||||
Net increase (decrease) in net assets resulting from operations | 116,620,377 | 33,124,082 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (290,567 | ) | — | |||
Institutional Class | (245,683 | ) | — | |||
A Class | (133,149 | ) | — | |||
R Class | (1,075 | ) | — | |||
Decrease in net assets from distributions | (670,474 | ) | — | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (35,896,888 | ) | (83,545,081 | ) | ||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 33,683 | 24,643 | ||||
Net increase (decrease) in net assets | 80,086,698 | (50,396,356 | ) | |||
Net Assets | ||||||
Beginning of period | 353,261,931 | 403,658,287 | ||||
End of period | $433,348,629 | $353,261,931 | ||||
Accumulated net investment loss | $(3,027,091 | ) | $(695,973 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
October 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Small Cap Growth Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the B Class, the C Class, the R Class and the R6 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 and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. Sale of the R6 Class commenced on July 26, 2013.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates.
Investment Valuations — The fund determines the fair value of its investments and computes its net asset value per share as of the close of regular trading (usually 4 p.m. Eastern time) on the New York Stock Exchange (NYSE) on each day the NYSE is open.
Equity securities that are listed or traded on a domestic securities exchange are valued at the last reported sales price or at the official closing price as provided by the exchange. Equity securities traded on foreign securities exchanges are typically valued at the closing price on the exchange where primarily traded or as of the close of the NYSE, if that is earlier. If no last sales price is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are valued at the mean of the latest bid and asked prices, the last sales price, or the official closing price. In its determination of fair value, the fund may review several factors including: market information specific to a security; news developments in U.S. and foreign markets; the performance of particular U.S. and foreign securities, indices, comparable securities, American Depositary Receipts, Exchange-Traded Funds, and other relevant market indicators.
Debt securities maturing within 60 days at the time of purchase may be valued at cost, plus or minus any amortized discount or premium or at the evaluated mean as provided by an independent pricing service. Evaluated mean prices are commonly derived through utilization of market models, which may consider, among other factors, trade data, quotations from dealers and active market makers, relevant yield curve and spread data, related sector levels, creditworthiness, and other relevant market information on the same or comparable securities.
Investments in open-end management investment companies are valued at the reported net asset value per share. Repurchase agreements are valued at cost.
If the fund determines that the market price for a portfolio security is not readily available or the valuation methods mentioned above do not reflect a security’s fair value, such security is valued as determined in good faith by the Board of Directors or its designee, in accordance with procedures adopted by the Board of Directors. Circumstances that may cause the fund to use these procedures to value a security include, but are not limited to: a security has been declared in default; trading in a security has been halted during 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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption — 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 1.100% to 1.500% for the Investor Class, A Class, B Class, C Class and R Class. The annual management fee schedule ranges from 0.900% to 1.300% for the Institutional Class and 0.750% to 1.150% for the R6 Class. The effective annual management fee for each class for the period ended October 31, 2013 was 1.41% for the Investor Class, A Class, B Class, C Class and R Class, 1.21% for the Institutional Class and 1.05% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay 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, 2013 are detailed in the Statement of Operations.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $293,982,997 and $335,188,659, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 165,000,000 | 165,000,000 | ||||||||||
Sold | 4,784,271 | $50,038,404 | 2,453,283 | $21,315,951 | ||||||||
Issued in reinvestment of distributions | 24,882 | 222,449 | — | — | ||||||||
Redeemed | (4,525,780 | ) | (45,610,715 | ) | (6,694,205 | ) | (56,972,418 | ) | ||||
283,373 | 4,650,138 | (4,240,922 | ) | (35,656,467 | ) | |||||||
Institutional Class/Shares Authorized | 150,000,000 | 150,000,000 | ||||||||||
Sold | 945,452 | 9,862,852 | 1,541,330 | 13,151,985 | ||||||||
Issued in reinvestment of distributions | 15,913 | 143,690 | — | — | ||||||||
Redeemed | (3,224,317 | ) | (32,242,668 | ) | (3,700,610 | ) | (31,789,664 | ) | ||||
(2,262,952 | ) | (22,236,126 | ) | (2,159,280 | ) | (18,637,679 | ) | |||||
A Class/Shares Authorized | 110,000,000 | 110,000,000 | ||||||||||
Sold | 1,361,853 | 13,876,067 | 959,987 | 8,050,146 | ||||||||
Issued in reinvestment of distributions | 14,402 | 126,446 | — | — | ||||||||
Redeemed | (3,073,091 | ) | (29,790,771 | ) | (4,114,005 | ) | (34,423,505 | ) | ||||
(1,696,836 | ) | (15,788,258 | ) | (3,154,018 | ) | (26,373,359 | ) | |||||
B Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||
Sold | 2,039 | 21,056 | 2,663 | 22,559 | ||||||||
Redeemed | (88,360 | ) | (803,639 | ) | (93,983 | ) | (748,733 | ) | ||||
(86,321 | ) | (782,583 | ) | (91,320 | ) | (726,174 | ) | |||||
C Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||
Sold | 162,263 | 1,591,310 | 140,410 | 1,130,008 | ||||||||
Redeemed | (348,060 | ) | (3,296,362 | ) | (432,945 | ) | (3,478,706 | ) | ||||
(185,797 | ) | (1,705,052 | ) | (292,535 | ) | (2,348,698 | ) | |||||
R Class/Shares Authorized | 20,000,000 | 20,000,000 | ||||||||||
Sold | 43,615 | 447,754 | 90,711 | 749,242 | ||||||||
Issued in reinvestment of distributions | 123 | 1,075 | — | — | ||||||||
Redeemed | (52,854 | ) | (508,836 | ) | (67,748 | ) | (551,946 | ) | ||||
(9,116 | ) | (60,007 | ) | 22,963 | 197,296 | |||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 2,207 | 25,000 | ||||||||||
Net increase (decrease) | (3,955,442 | ) | $(35,896,888 | ) | (9,915,112 | ) | $(83,545,081 | ) |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Common Stocks | $418,651,806 | — | — | ||||||
Temporary Cash Investments | 913,349 | $12,608,012 | — | ||||||
Total Value of Investment Securities | $419,565,155 | $12,608,012 | — |
7. Risk Factors
The fund concentrates its investments in common stocks of small companies. Because of this, the fund may be subject to greater risk and market fluctuations than a fund investing in larger, more established companies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $670,474 | — | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $307,600,578 | ||
Gross tax appreciation of investments | $130,803,373 | ||
Gross tax depreciation of investments | (6,230,784 | ) | |
Net tax appreciation (depreciation) of investments | $124,572,589 | ||
Undistributed ordinary income | — | ||
Accumulated short-term capital losses | $(176,885,341 | ) | |
Late-year ordinary loss deferral | $(3,027,091 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Accumulated capital losses represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations. Capital loss carryovers of $(64,516,152) and $(112,369,189) 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.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||
Net Asset | Net | Net | Total From Investment Operations | Distributions | Net Asset | Total Return(2) | Operating Expenses(3) | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||
2013 | $8.79 | (0.05 | ) | 3.23 | 3.18 | (0.02 | ) | $11.95 | 36.23 | % | 1.42 | % | (0.47 | )% | 80 | % | $199,294 | ||||||||||||||||
2012 | $8.06 | (0.01 | ) | 0.74 | 0.73 | — | $8.79 | 9.06 | % | 1.42 | % | (0.12 | )% | 62 | % | $144,021 | |||||||||||||||||
2011 | $7.45 | (0.07 | ) | 0.68 | 0.61 | — | $8.06 | 8.19 | % | 1.40 | % | (0.84 | )% | 108 | % | $166,243 | |||||||||||||||||
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 | |||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||
2013 | $8.88 | (0.02 | ) | 3.26 | 3.24 | (0.02 | ) | $12.10 | 36.61 | % | 1.22 | % | (0.27 | )% | 80 | % | $103,520 | ||||||||||||||||
2012 | $8.13 | 0.01 | 0.74 | 0.75 | — | $8.88 | 9.23 | % | 1.22 | % | 0.08 | % | 62 | % | $96,092 | ||||||||||||||||||
2011 | $7.50 | (0.05 | ) | 0.68 | 0.63 | — | $8.13 | 8.40 | % | 1.20 | % | (0.64 | )% | 108 | % | $105,520 | |||||||||||||||||
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 | |||||||||||||||
A Class | |||||||||||||||||||||||||||||||||
2013 | $8.63 | (0.07 | ) | 3.17 | 3.10 | (0.01 | ) | $11.72 | 36.00 | % | 1.67 | % | (0.72 | )% | 80 | % | $114,080 | ||||||||||||||||
2012 | $7.94 | (0.03 | ) | 0.72 | 0.69 | — | $8.63 | 8.69 | % | 1.67 | % | (0.37 | )% | 62 | % | $98,665 | |||||||||||||||||
2011 | $7.35 | (0.09 | ) | 0.68 | 0.59 | — | $7.94 | 8.03 | % | 1.65 | % | (1.09 | )% | 108 | % | $115,741 | |||||||||||||||||
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 |
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 | Net | Net | Total From Investment Operations | Distributions | Net Asset | Total Return(2) | Operating Expenses(3) | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||
B Class | |||||||||||||||||||||||||||||||||
2013 | $8.21 | (0.13 | ) | 3.00 | 2.87 | — | $11.08 | 34.96 | % | 2.42 | % | (1.47 | )% | 80 | % | $1,234 | |||||||||||||||||
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 | |||||||||||||||
C Class | |||||||||||||||||||||||||||||||||
2013 | $8.24 | (0.14 | ) | 3.02 | 2.88 | — | $11.12 | 34.95 | % | 2.42 | % | (1.47 | )% | 80 | % | $13,171 | |||||||||||||||||
2012 | $7.63 | (0.09 | ) | 0.70 | 0.61 | — | $8.24 | 7.99 | % | 2.42 | % | (1.12 | )% | 62 | % | $11,291 | |||||||||||||||||
2011 | $7.13 | (0.15 | ) | 0.65 | 0.50 | — | $7.63 | 7.01 | % | 2.40 | % | (1.84 | )% | 108 | % | $12,691 | |||||||||||||||||
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 | |||||||||||||||
R Class | |||||||||||||||||||||||||||||||||
2013 | $8.56 | (0.10 | ) | 3.16 | 3.06 | (0.01 | ) | $11.61 | 35.73 | % | 1.92 | % | (0.97 | )% | 80 | % | $2,022 | ||||||||||||||||
2012 | $7.89 | (0.04 | ) | 0.71 | 0.67 | — | $8.56 | 8.49 | % | 1.92 | % | (0.62 | )% | 62 | % | $1,570 | |||||||||||||||||
2011 | $7.33 | (0.11 | ) | 0.67 | 0.56 | — | $7.89 | 7.64 | % | 1.90 | % | (1.34 | )% | 108 | % | $1,266 | |||||||||||||||||
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 | |||||||||||||||
R6 Class | |||||||||||||||||||||||||||||||||
2013(4) | $11.33 | (0.02 | ) | 0.79 | 0.77 | — | $12.10 | 6.80 | % | 1.05 | %(5) | (0.55 | )%(5) | 80 | %(6) | $27 |
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) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Small Cap Growth Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | 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) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | |
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) | 75 | None |
Name | 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 | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services)(2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $670,474, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80472 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Ultra® Fund
Table of Contents |
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.
President’s Letter |
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/woodhams.jpg)
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 the 12 months ended October 31, 2013, with the S&P 500 Index reaching an all-time high in October. Improving economic growth and aggressive monetary policy by the Federal Reserve (Fed) and other leading central banks around the world helped support equities. Corporate profits reached a record high in nominal terms in the third quarter of 2013, though the rate of earnings growth slowed over the course of the fiscal year. Similarly, expectations for corporate earnings have also declined, according to analysts at Merrill Lynch.
Stocks experienced sharp volatility in May and June, when the Fed began to talk about cutting back, or “tapering,” its monthly bond purchases. The government shutdown and budget negotiations in Washington contributed further to market uncertainty. Nevertheless, signs of continued strength in the job and housing markets and Fed assurances that no tapering was imminent helped stocks rebound to new highs.
Every Sector in Russell 1000 Growth Index Enjoyed Double-Digit Gains
In that environment, there was little difference in performance by style among large- and mid-capitalization stocks, though growth outperformed value-oriented shares by a wide margin among small-cap stocks, as measured by the various Russell indices (see accompanying returns table). In terms of returns by size, small- and mid-capitalization stocks did better than those of large-cap companies.
Within the Russell 1000 Growth Index, every sector produced double-digit gains. Health care stocks performed best, driven by gains in the biotechnology segment. Consumer discretionary stocks made up the next-best performing sector led by auto-related stocks and internet and catalog retailers. Industrials, energy, and materials shares all produced returns in excess of the index. The information technology sector gained the least, weighed down by poor performance among computers and peripherals stocks. Telecommunication services, utilities, and consumer staples also lagged the index.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCUX | 31.34%(3) | 16.84% | 6.44% | 11.51% | 11/2/81 |
Russell 1000 Growth Index | — | 28.30% | 17.50% | 7.70% | 10.60%(1) | — |
S&P 500 Index | — | 27.18% | 15.16% | 7.45% | 11.60%(1) | — |
Institutional Class | TWUIX | 31.56%(3) | 17.07% | 6.66% | 6.30% | 11/14/96 |
A Class(2) No sales charge* With sales charge* | TWUAX
| 30.99%(3) 23.46% | 16.56% 15.18% | 6.18% 5.55% | 6.04% 5.68% | 10/2/96
|
C Class | TWCCX | 29.98% | 15.68% | 5.38% | 4.48% | 10/29/01 |
R Class | AULRX | 30.66%(3) | 16.26% | 5.92% | 6.27% | 8/29/03 |
R6 Class | AULDX | — | — | — | 9.15%(4) | 7/26/13 |
*Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 5.75% maximum initial sales charge and may be subject to a maximum CDSC of 1.00%. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied.
(1) | Since 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. |
(3) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
(4) | Total returns for periods less than one year are not annualized. |
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com.
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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/ultra.jpg)
Total Annual Fund Operating Expenses | |||||
Investor Class | Institutional Class | A Class | C Class | R Class | R6 Class |
0.99% | 0.79% | 1.24% | 1.99% | 1.49% | 0.64% |
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 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.
Portfolio Commentary |
Portfolio Managers: Keith Lee, Michael Li, and Jeffrey Bourke
Performance Summary
Ultra returned 31.34%* for the 12 months ended October 31, 2013, compared with the 28.30% return of its benchmark, the Russell 1000 Growth Index, and the 27.18% 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 continued to experience considerable volatility. In this environment, Ultra delivered solid results for the period and outperformed its benchmark.
Within the portfolio, security selection in the consumer discretionary and information technology sectors accounted for the bulk of Ultra’s outperformance relative to the benchmark. Positioning in the financials and telecommunications sectors contributed meaningfully. Positioning in the materials and consumer staples sectors trimmed those relative gains.
Consumer Discretionary, Information Technology Contributed
The consumer discretionary sector accounted for the bulk of Ultra’s outperformance versus the benchmark. In the sector, the top individual contributor was electric vehicle maker Tesla. The company has an attractive runway for growth as the Model S production expands and new models, such as the Model X SUV, are expected to begin production in late 2014.
In the hotels, restaurants, and leisure industry group, an overweight position in Starbucks contributed, as the company did not appear to suffer from the slowdown that others in the retail space encountered. Starbucks continued to benefit from lower coffee bean prices and posted strong same-store-sales levels. Positioning in the textiles, apparel, and luxury goods industry and the specialty retail industry also benefited relative results.
The information technology sector was also a key source of relative outperformance. Here, an overweight position in LinkedIn contributed significantly. While the company’s margins will be lower near term due to higher spending, the spending includes building its own data center and developing a more scalable advertising business model. These investments will enable higher profitability for the company longer term. LinkedIn continued to grow subscribers, gain market share in the recruiter market and expand internationally.
Within the IT services industry group, it was beneficial to be underrepresented in shares of IBM, which experienced weak revenue growth under the challenging macro environment.
*All fund returns referenced in this commentary are for Investor Class shares.
Financials, Telecommunications Services Helped
In the financials sector, avoiding the real estate investment trust (REIT) group altogether represented the majority of relative outperformance versus the benchmark. Stock decisions in the insurance segment also contributed.
The portfolio held no exposure to the telecommunications sector, as the investment team saw more attractive opportunities for growth in other sectors. This decision helped relative returns during the reporting period when the sector underperformed the benchmark.
Biotechnology company Gilead Sciences was the portfolio’s top individual contributor, with investors responding positively to developments in the company’s hepatitis C treatment.
Materials, Consumer Staples Detracted
The materials sector was a source of underperformance. Here, holdings in the chemical industry segment detracted most. The leading detractor was fertilizer company Potash Corp. of Saskatchewan, which detracted as a result of a collapse in potash prices and slowing demand.
In the consumer staples sector, an overweight allocation benefited relative results but did not compensate for the negative impact of stock decisions within the sector. The portfolio’s overweight position in tobacco company Philip Morris detracted due to lower volumes and higher excise taxes.
In terms of individual holdings, a position in Apple represented the largest detractor from returns versus the benchmark. The company missed analysts’ expectations for sales of its iPhone and achieved lower-than-expected margins.
Starting Point for Next Reporting Period
Going forward, we remain confident in our investment beliefs that stocks that exhibit high quality, accelerating fundamentals, positive relative strength, and attractive valuations will outperform in the long term. Our portfolio positioning reflects where we are seeing opportunities as a result of the application of that philosophy and process. As of October 31, 2013, the largest overweight sector within the portfolio relative to the benchmark was information technology. This reflected significant overweight allocations to computers and peripherals, and internet software and services industries. The portfolio held a sizable overweight to health care stocks, driven by allocations to the biotechnology and health care providers industries. The portfolio also had an overweight allocation to financial shares, reflecting positioning among diversified financial services, capital markets, and insurance shares.
The portfolio’s largest underweight position was in the telecommunications sector. The managers find more attractive opportunities for growth in other sectors.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Apple, Inc. | 6.1% |
Google, Inc., Class A | 5.5% |
Gilead Sciences, Inc. | 3.8% |
Starbucks Corp. | 2.7% |
Amazon.com, Inc. | 2.5% |
Monsanto Co. | 2.3% |
MasterCard, Inc., Class A | 2.3% |
QUALCOMM, Inc. | 2.3% |
Philip Morris International, Inc. | 2.2% |
TJX Cos., Inc. (The) | 2.1% |
Top Five Industries | % of net assets |
Internet Software and Services | 10.0% |
Computers and Peripherals | 7.2% |
Biotechnology | 7.2% |
Hotels, Restaurants and Leisure | 5.1% |
Software | 4.7% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 99.5% |
Temporary Cash Investments | 0.4% |
Other Assets and Liabilities | 0.1% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013 (except as noted).
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |||
Actual | ||||||
Investor Class (after waiver) | $1,000 | $1,183.80 | $5.45 | 0.99% | ||
Investor Class (before waiver) | $1,000 | $1,183.80 | (2) | $5.45 | 0.99% | |
Institutional Class (after waiver) | $1,000 | $1,185.10 | $4.35 | 0.79% | ||
Institutional Class (before waiver) | $1,000 | $1,185.10 | (2) | $4.35 | 0.79% | |
A Class (after waiver) | $1,000 | $1,182.50 | $6.82 | 1.24% | ||
A Class (before waiver) | $1,000 | $1,182.50 | (2) | $6.82 | 1.24% | |
C Class (after waiver) | $1,000 | $1,177.90 | $10.92 | 1.99% | ||
C Class (before waiver) | $1,000 | $1,177.90 | (2) | $10.92 | 1.99% | |
R Class (after waiver) | $1,000 | $1,180.60 | $8.19 | 1.49% | ||
R Class (before waiver) | $1,000 | $1,180.60 | (2) | $8.19 | 1.49% | |
R6 Class (after waiver) | $1,000 | $1,091.50 | (3) | $1.77 | (4) | 0.63% |
R6 Class (before waiver) | $1,000 | $1,091.50 | (2)(3) | $1.80 | (4) | 0.64% |
Hypothetical | ||||||
Investor Class (after waiver) | $1,000 | $1,020.22 | $5.04 | 0.99% | ||
Investor Class (before waiver) | $1,000 | $1,020.22 | $5.04 | 0.99% | ||
Institutional Class (after waiver) | $1,000 | $1,021.22 | $4.02 | 0.79% | ||
Institutional Class (before waiver) | $1,000 | $1,021.22 | $4.02 | 0.79% | ||
A Class (after waiver) | $1,000 | $1,018.96 | $6.31 | 1.24% | ||
A Class (before waiver) | $1,000 | $1,018.96 | $6.31 | 1.24% | ||
C Class (after waiver) | $1,000 | $1,015.17 | $10.11 | 1.99% | ||
C Class (before waiver) | $1,000 | $1,015.17 | $10.11 | 1.99% | ||
R Class (after waiver) | $1,000 | $1,017.69 | $7.58 | 1.49% | ||
R Class (before waiver) | $1,000 | $1,017.69 | $7.58 | 1.49% | ||
R6 Class (after waiver) | $1,000 | $1,022.03 | (5) | $3.21 | (5) | 0.63% |
R6 Class (before waiver) | $1,000 | $1,021.98 | (5) | $3.26 | (5) | 0.64% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
(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. |
(3) | Ending account value based on actual return from July 26, 2013 (commencement of sale) through October 31, 2013. |
(4) | 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 98, the number of days in the period from July 26, 2013 (commencement of sale) through October 31, 2013, divided by 365, to reflect the period. Had the class been available for the full period, the expenses paid during the period would have been higher. |
(5) | Ending account value and expenses paid during the period assumes the class had been available throughout the entire period and are calculated using the class’s annualized expense ratio listed in the table above. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 99.5% | ||||||
AEROSPACE AND DEFENSE — 3.4% | ||||||
Boeing Co. (The) | 1,000,000 | $ 130,500,000 | ||||
United Technologies Corp. | 1,231,000 | 130,793,750 | ||||
261,293,750 | ||||||
AUTO COMPONENTS — 0.6% | ||||||
BorgWarner, Inc. | 448,000 | 46,202,240 | ||||
AUTOMOBILES — 1.0% | ||||||
Tesla Motors, Inc.(1) | 468,000 | 74,851,920 | ||||
BEVERAGES — 1.6% | ||||||
Coca-Cola Co. (The) | 3,052,000 | 120,767,640 | ||||
BIOTECHNOLOGY — 7.2% | ||||||
Alexion Pharmaceuticals, Inc.(1) | 500,000 | 61,475,000 | ||||
Celgene Corp.(1) | 991,000 | 147,153,590 | ||||
Gilead Sciences, Inc.(1) | 4,098,000 | 290,917,020 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 175,000 | 50,330,000 | ||||
549,875,610 | ||||||
BUILDING PRODUCTS — 0.5% | ||||||
Lennox International, Inc. | 510,000 | 39,810,600 | ||||
CAPITAL MARKETS — 1.8% | ||||||
Franklin Resources, Inc. | 1,349,958 | 72,708,738 | ||||
T. Rowe Price Group, Inc. | 855,000 | 66,185,550 | ||||
138,894,288 | ||||||
CHEMICALS — 3.1% | ||||||
Ecolab, Inc. | 557,001 | 59,042,106 | ||||
Monsanto Co. | 1,677,000 | 175,883,760 | ||||
234,925,866 | ||||||
COMMUNICATIONS EQUIPMENT — 2.3% | ||||||
QUALCOMM, Inc. | 2,506,000 | 174,091,820 | ||||
COMPUTERS AND PERIPHERALS — 7.2% | ||||||
Apple, Inc. | 890,833 | 465,326,618 | ||||
EMC Corp. | 3,559,000 | 85,665,130 | ||||
550,991,748 | ||||||
CONSUMER FINANCE — 1.2% | ||||||
American Express Co. | 1,097,000 | 89,734,600 | ||||
DIVERSIFIED FINANCIAL SERVICES — 2.0% | ||||||
CME Group, Inc. | 670,000 | 49,720,700 | ||||
JPMorgan Chase & Co. | 1,933,000 | 99,626,820 | ||||
149,347,520 | ||||||
ELECTRICAL EQUIPMENT — 3.1% | ||||||
Eaton Corp. plc | 1,360,000 | 95,961,600 | ||||
Emerson Electric Co. | 2,064,000 | 138,226,080 | ||||
234,187,680 | ||||||
ENERGY EQUIPMENT AND SERVICES — 2.1% | ||||||
Core Laboratories NV | 219,000 | 41,001,180 | ||||
Schlumberger Ltd. | 1,270,000 | 119,024,400 | ||||
160,025,580 | ||||||
FOOD AND STAPLES RETAILING — 2.5% | ||||||
Costco Wholesale Corp. | 1,126,000 | 132,868,000 | ||||
Whole Foods Market, Inc. | 884,000 | 55,806,920 | ||||
188,674,920 | ||||||
FOOD PRODUCTS — 1.5% | ||||||
Mead Johnson Nutrition Co. | 723,000 | 59,040,180 | ||||
Nestle SA | 809,000 | 58,400,287 | ||||
117,440,467 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 0.7% | ||||||
St. Jude Medical, Inc. | 406,000 | 23,300,340 | ||||
Varian Medical Systems, Inc.(1) | 426,000 | 30,919,080 | ||||
54,219,420 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 2.9% | ||||||
Catamaran Corp.(1) | 538,000 | 25,264,480 | ||||
Express Scripts Holding Co.(1) | 1,468,000 | 91,779,360 | ||||
UnitedHealth Group, Inc. | 1,582,000 | 107,987,320 | ||||
225,031,160 | ||||||
HEALTH CARE TECHNOLOGY — 1.0% | ||||||
Cerner Corp.(1) | 1,355,000 | 75,920,650 | ||||
HOTELS, RESTAURANTS AND LEISURE — 5.1% | ||||||
McDonald’s Corp. | 1,001,900 | 96,703,388 | ||||
Starbucks Corp. | 2,522,000 | 204,408,100 | ||||
Wynn Resorts Ltd. | 538,000 | 89,442,500 | ||||
390,553,988 | ||||||
HOUSEHOLD PRODUCTS — 1.2% | ||||||
Colgate-Palmolive Co. | 1,414,000 | 91,528,220 | ||||
INSURANCE — 1.3% | ||||||
MetLife, Inc. | 2,056,000 | 97,269,360 | ||||
INTERNET AND CATALOG RETAIL — 2.5% | ||||||
Amazon.com, Inc.(1) | 525,000 | 191,115,750 | ||||
INTERNET SOFTWARE AND SERVICES — 10.0% | ||||||
Baidu, Inc. ADR(1) | 343,000 | 55,188,700 | ||||
Facebook, Inc., Class A(1) | 2,359,000 | 118,563,340 | ||||
Google, Inc., Class A(1) | 406,599 | 419,032,797 | ||||
LinkedIn Corp., Class A(1) | 446,000 | 99,756,820 | ||||
Tencent Holdings Ltd. | 822,000 | 44,869,135 | ||||
Yelp, Inc.(1) | 353,000 | 23,915,750 | ||||
761,326,542 |
Shares | Value | |||||
IT SERVICES — 3.8% | ||||||
MasterCard, Inc., Class A | 245,229 | $175,853,716 | ||||
Teradata Corp.(1) | 879,000 | 38,737,530 | ||||
Visa, Inc., Class A | 390,000 | 76,701,300 | ||||
291,292,546 | ||||||
MACHINERY — 4.2% | ||||||
Cummins, Inc. | 701,000 | 89,041,020 | ||||
Donaldson Co., Inc. | 779,000 | 30,856,190 | ||||
Parker-Hannifin Corp. | 643,000 | 75,050,960 | ||||
WABCO Holdings, Inc.(1) | 856,000 | 73,342,080 | ||||
Wabtec Corp. | 752,000 | 49,022,880 | ||||
317,313,130 | ||||||
MEDIA — 4.6% | ||||||
Comcast Corp., Class A | 946,000 | 45,010,680 | ||||
Time Warner, Inc. | 1,575,000 | 108,265,500 | ||||
Twenty-First Century Fox, Inc. | 2,164,000 | 73,749,120 | ||||
Walt Disney Co. (The) | 1,794,000 | 123,050,460 | ||||
350,075,760 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 3.0% | ||||||
Concho Resources, Inc.(1) | 253,000 | 27,984,330 | ||||
EOG Resources, Inc. | 328,000 | 58,515,200 | ||||
Noble Energy, Inc. | 1,128,000 | 84,521,040 | ||||
Occidental Petroleum Corp. | 605,000 | 58,128,400 | ||||
229,148,970 | ||||||
PERSONAL PRODUCTS — 0.8% | ||||||
Estee Lauder Cos., Inc. (The), Class A | 811,000 | 57,548,560 | ||||
PHARMACEUTICALS — 1.5% | ||||||
Pfizer, Inc. | 3,689,000 | 113,178,520 | ||||
PROFESSIONAL SERVICES — 0.8% | ||||||
Nielsen Holdings NV | 1,561,000 | 61,565,840 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.3% | ||||||
Altera Corp. | 1,350,000 | 45,360,000 | ||||
Linear Technology Corp. | 1,285,000 | 52,864,900 | ||||
98,224,900 | ||||||
SOFTWARE — 4.7% | ||||||
Microsoft Corp. | 1,582,000 | 55,923,700 | ||||
NetSuite, Inc.(1) | 380,000 | 38,334,400 | ||||
Oracle Corp. | 3,634,000 | 121,739,000 | ||||
Salesforce.com, Inc.(1) | 1,420,000 | 75,771,200 | ||||
VMware, Inc., Class A(1) | 556,000 | 45,191,680 | ||||
Workday, Inc.(1) | 326,000 | 24,407,620 | ||||
361,367,600 | ||||||
SPECIALTY RETAIL — 4.0% | ||||||
Home Depot, Inc. (The) | 605,000 | 47,123,450 | ||||
O’Reilly Automotive, Inc.(1) | 348,000 | 43,085,880 | ||||
Tiffany & Co. | 731,000 | 57,873,270 | ||||
TJX Cos., Inc. (The) | 2,594,800 | 157,737,892 | ||||
305,820,492 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 2.8% | ||||||
Burberry Group plc | 1,729,000 | 42,554,455 | ||||
NIKE, Inc., Class B | 1,498,000 | 113,488,480 | ||||
Under Armour, Inc. Class A(1) | 693,000 | 56,236,950 | ||||
212,279,885 | ||||||
TOBACCO — 2.2% | ||||||
Philip Morris International, Inc. | 1,848,000 | 164,693,760 | ||||
TOTAL COMMON STOCKS (Cost $3,831,231,487) | 7,580,591,302 | |||||
Temporary Cash Investments — 0.4% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $6,293,192), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $6,177,016) | 6,177,004 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $7,567,560), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $7,412,410) | 7,412,404 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $7,566,091), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $7,412,409) | 7,412,405 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $7,566,129), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $7,412,414) | 7,412,404 | |||||
SSgA U.S. Government Money Market Fund | 2,072,336 | 2,072,336 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $30,486,553) | 30,486,553 | |||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $3,861,718,040) | 7,611,077,855 | |||||
OTHER ASSETS AND LIABILITIES — 0.1% | 8,984,938 | |||||
TOTAL NET ASSETS — 100.0% | $7,620,062,793 |
Forward Foreign Currency Exchange Contracts | ||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||
USD | 50,415,351 | CHF | 45,041,075 | Credit Suisse AG | 11/29/13 | $ 765,076 |
USD | 36,742,363 | GBP | 22,735,486 | Credit Suisse AG | 11/29/13 | 295,125 |
$1,060,201 |
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.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $3,861,718,040) | $7,611,077,855 | ||
Foreign currency holdings, at value (cost of $884,338) | 917,478 | ||
Receivable for investments sold | 21,421,165 | ||
Receivable for capital shares sold | 1,066,180 | ||
Unrealized gain on forward foreign currency exchange contracts | 1,060,201 | ||
Dividends and interest receivable | 2,729,012 | ||
7,638,271,891 | |||
Liabilities | |||
Payable for investments purchased | 9,319,227 | ||
Payable for capital shares redeemed | 2,702,435 | ||
Accrued management fees | 6,168,270 | ||
Distribution and service fees payable | 19,166 | ||
18,209,098 | |||
Net Assets | $7,620,062,793 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $3,596,463,499 | ||
Undistributed net investment income | 22,220,265 | ||
Undistributed net realized gain | 250,910,456 | ||
Net unrealized appreciation | 3,750,468,573 | ||
$7,620,062,793 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $7,338,221,580 | 218,682,590 | $33.56 |
Institutional Class, $0.01 Par Value | $202,117,862 | 5,868,613 | $34.44 |
A Class, $0.01 Par Value | $71,062,591 | 2,189,545 | $32.46* |
C Class, $0.01 Par Value | $2,077,091 | 70,172 | $29.60 |
R Class, $0.01 Par Value | $6,556,380 | 204,240 | $32.10 |
R6 Class, $0.01 Par Value | $27,289 | 792 | $34.46 |
*Maximum offering price $34.44 (net asset value divided by 0.9425).
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $574,607) | $102,141,587 | ||
Interest | 46,306 | ||
102,187,893 | |||
Expenses: | |||
Management fees | 66,611,378 | ||
Distribution and service fees: | |||
A Class | 163,850 | ||
C Class | 16,966 | ||
R Class | 30,035 | ||
Directors’ fees and expenses | 237,873 | ||
Other expenses | 216 | ||
67,060,318 | |||
Fees waived | (183,720 | ) | |
66,876,598 | |||
Net investment income (loss) | 35,311,295 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 727,633,655 | ||
Foreign currency transactions | (2,365,038 | ) | |
725,268,617 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 1,107,394,779 | ||
Translation of assets and liabilities in foreign currencies | 1,311,853 | ||
1,108,706,632 | |||
Net realized and unrealized gain (loss) | 1,833,975,249 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $1,869,286,544 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $35,311,295 | $16,322,659 | ||||
Net realized gain (loss) | 725,268,617 | 67,018,612 | ||||
Change in net unrealized appreciation (depreciation) | 1,108,706,632 | 500,109,640 | ||||
Net increase (decrease) in net assets resulting from operations | 1,869,286,544 | 583,450,911 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (31,423,524 | ) | — | |||
Institutional Class | (288,697 | ) | — | |||
A Class | (284,451 | ) | — | |||
C Class | (3,847 | ) | — | |||
R Class | (22,083 | ) | — | |||
Decrease in net assets from distributions | (32,022,602 | ) | — | |||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (534,351,092 | ) | (371,178,954 | ) | ||
Net increase (decrease) in net assets | 1,302,912,850 | 212,271,957 | ||||
Net Assets | ||||||
Beginning of period | 6,317,149,943 | 6,104,877,986 | ||||
End of period | $7,620,062,793 | $6,317,149,943 | ||||
Undistributed net investment income | $22,220,265 | $23,005,732 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Ultra Fund (the fund) is one fund in a series issued by the corporation. The fund is diversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class, the Institutional Class, the A Class, the C Class, the R Class and the R6 Class. The A Class may incur an initial sales charge. The A Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and distribution and shareholder servicing expenses and arrangements. The Institutional Class and R6 Class shareholders do not require the same level of shareholder and administrative services from American Century Investment Management, Inc. (ACIM) (the investment advisor) as shareholders of other classes. In addition, financial intermediaries do not receive any service, distribution or administrative fees for the R6 Class. As a result, the Institutional Class and R6 Class are charged lower unified management fees. Sale of the R6 Class commenced on July 26, 2013.
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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that ACIM has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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 annual management fee schedule ranges from 0.600% to 0.800% for the Institutional Class and 0.450% to 0.650% for the R6 Class. Effective August 1, 2013, the investment advisor voluntarily agreed to waive 0.01% of its management fee. The investment advisor expects the fee waiver to continue through July 31, 2014, and cannot terminate it without the approval of the Board of Directors. The total amount of the waiver for each class for the period ended October 31, 2013 was $177,078, $4,705, $1,728, $48, $160 and $1 for the Investor Class, Institutional Class, A Class, C Class, R Class and R6 Class, respectively. The effective annual management fee before waiver for each class for the period ended October 31, 2013 was 0.99% for the Investor Class, A Class, C Class and R Class, 0.79% for the Institutional Class and 0.64% for the R6 Class. The effective annual management fee after waiver for each class for the period ended October 31, 2013 was 0.99% for the Investor Class, A Class, C Class and R Class, 0.79% for the Institutional Class and 0.63% for the R6 Class.
Distribution and Service Fees — The Board of Directors has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, C Class and R Class (collectively the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the A Class will pay 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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $1,764,398,027 and $2,197,195,722, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013(1) | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 3,500,000,000 | 3,500,000,000 | ||||||||||
Sold | 7,055,804 | $203,087,516 | 10,917,537 | $271,182,938 | ||||||||
Issued in reinvestment of distributions | 1,154,983 | 30,456,895 | — | — | ||||||||
Redeemed | (30,708,842 | ) | (872,739,374 | ) | (25,327,027 | ) | (633,737,852 | ) | ||||
(22,498,055 | ) | (639,194,963 | ) | (14,409,490 | ) | (362,554,914 | ) | |||||
Institutional Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 4,611,587 | 136,709,282 | 565,669 | 14,453,949 | ||||||||
Issued in reinvestment of distributions | 10,077 | 272,290 | — | — | ||||||||
Redeemed | (742,701 | ) | (21,742,793 | ) | (778,943 | ) | (20,325,791 | ) | ||||
3,878,963 | 115,238,779 | (213,274 | ) | (5,871,842 | ) | |||||||
A Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||||
Sold | 327,276 | 9,115,770 | 632,383 | 15,355,125 | ||||||||
Issued in reinvestment of distributions | 10,500 | 268,378 | — | — | ||||||||
Redeemed | (698,036 | ) | (19,328,348 | ) | (821,416 | ) | (19,845,648 | ) | ||||
(360,260 | ) | (9,944,200 | ) | (189,033 | ) | (4,490,523 | ) | |||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 14,186 | 370,450 | 33,458 | 754,820 | ||||||||
Issued in reinvestment of distributions | 95 | 2,235 | — | — | ||||||||
Redeemed | (8,260 | ) | (210,230 | ) | (1,562 | ) | (34,436 | ) | ||||
6,021 | 162,455 | 31,896 | 720,384 | |||||||||
R Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 86,097 | 2,296,500 | 106,133 | 2,600,422 | ||||||||
Issued in reinvestment of distributions | 863 | 21,866 | — | — | ||||||||
Redeemed | (109,589 | ) | (2,956,529 | ) | (63,922 | ) | (1,582,481 | ) | ||||
(22,629 | ) | (638,163 | ) | 42,211 | 1,017,941 | |||||||
R6 Class/Shares Authorized | 50,000,000 | N/A | ||||||||||
Sold | 792 | 25,000 | ||||||||||
Net increase (decrease) | (18,995,168 | ) | $(534,351,092 | ) | (14,737,690 | ) | $(371,178,954 | ) |
(1) | July 26, 2013 (commencement of sale) through October 31, 2013 for the R6 Class. |
6. Fair Value Measurements
The fund’s securities valuation process is based on several considerations and may use multiple inputs to determine the fair value of the positions held by the fund. In conformity with accounting principles generally accepted in the United States of America, the inputs used to determine a valuation are classified into three broad levels as follows:
• | Level 1 valuation inputs consist of unadjusted quoted prices in an active market for identical securities; |
• | Level 2 valuation inputs consist of direct or indirect observable market data (including quoted prices for similar securities, evaluations of subsequent market events, interest rates, prepayment speeds, credit risk, etc.); or |
• | Level 3 valuation inputs consist of unobservable data (including a fund’s own assumptions). |
The level classification is based on the lowest level input that is significant to the fair valuation measurement. The valuation inputs are not necessarily an indication of the risks associated with investing in these securities or other financial instruments.
The following is a summary of the level classifications as of period end. The Schedule of Investments provides additional information on the fund’s portfolio holdings.
Level 1 | Level 2 | Level 3 | |||||||
Investment Securities | |||||||||
Common Stocks | $7,434,767,425 | $145,823,877 | — | ||||||
Temporary Cash Investments | 2,072,336 | 28,414,217 | — | ||||||
Total Value of Investment Securities | $7,436,839,761 | $174,238,094 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $1,060,201 | — |
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, 2013, is disclosed on the Statement of Assets and Liabilities as an asset of $1,060,201 in unrealized gain on forward foreign currency exchange contracts. For the year ended October 31, 2013, the effect of foreign currency risk derivative instruments on the Statement of Operations was $(2,471,865) in net realized gain (loss) on foreign currency transactions and $1,352,777 in change in net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $32,022,602 | — | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $3,909,450,291 | ||
Gross tax appreciation of investments | $3,708,948,086 | ||
Gross tax depreciation of investments | (7,320,522 | ) | |
Net tax appreciation (depreciation) of investments | $3,701,627,564 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $48,554 | ||
Net tax appreciation (depreciation) | $3,701,676,118 | ||
Undistributed ordinary income | $23,280,466 | ||
Accumulated long-term gains | $298,642,710 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||||||||
Net Asset Value, Beginning | Net | Net | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, | Total | Operating Expenses | Operating Expenses (before | Net | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||||||||
2013 | $25.68 | 0.15 | 7.86 | 8.01 | (0.13 | ) | $33.56 | 31.34 | % | 0.99 | % | 0.99 | % | 0.52 | % | 0.52 | % | 26 | % | $7,338,222 | |||||||||||||||||||
2012 | $23.42 | 0.06 | 2.20 | 2.26 | — | $25.68 | 9.65 | % | 0.99 | % | 0.99 | % | 0.26 | % | 0.26 | % | 13 | % | $6,194,268 | ||||||||||||||||||||
2011 | $21.22 | 0.04 | 2.20 | 2.24 | (0.04 | ) | $23.42 | 10.59 | % | 0.99 | % | 0.99 | % | 0.16 | % | 0.16 | % | 13 | % | $5,984,972 | |||||||||||||||||||
2010 | $17.82 | 0.05 | 3.44 | 3.49 | (0.09 | ) | $21.22 | 19.63 | % | 1.00 | % | 1.00 | % | 0.25 | % | 0.25 | % | 24 | % | $5,906,158 | |||||||||||||||||||
2009 | $15.67 | 0.11 | 2.12 | 2.23 | (0.08 | ) | $17.82 | 14.35 | % | 1.00 | % | 1.00 | % | 0.69 | % | 0.69 | % | 53 | % | $5,435,051 | |||||||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||||||||
2013 | $26.32 | 0.17 | 8.10 | 8.27 | (0.15 | ) | $34.44 | 31.56 | % | 0.79 | % | 0.79 | % | 0.72 | % | 0.72 | % | 26 | % | $202,118 | |||||||||||||||||||
2012 | $23.95 | 0.12 | 2.25 | 2.37 | — | $26.32 | 9.90 | % | 0.79 | % | 0.79 | % | 0.46 | % | 0.46 | % | 13 | % | $52,362 | ||||||||||||||||||||
2011 | $21.69 | 0.08 | 2.27 | 2.35 | (0.09 | ) | $23.95 | 10.85 | % | 0.79 | % | 0.79 | % | 0.36 | % | 0.36 | % | 13 | % | $52,751 | |||||||||||||||||||
2010 | $18.22 | 0.09 | 3.51 | 3.60 | (0.13 | ) | $21.69 | 19.81 | % | 0.80 | % | 0.80 | % | 0.45 | % | 0.45 | % | 24 | % | $45,791 | |||||||||||||||||||
2009 | $16.02 | 0.14 | 2.17 | 2.31 | (0.11 | ) | $18.22 | 14.58 | % | 0.80 | % | 0.80 | % | 0.89 | % | 0.89 | % | 53 | % | $73,933 |
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 | Net | Net | Total From Investment Operations | Distributions From Net Investment Income | Net Asset Value, | Total | Operating Expenses | Operating Expenses (before | Net | Net | Portfolio Turnover | Net Assets, | |||||||||||||||||||||||||||
A Class | |||||||||||||||||||||||||||||||||||||||
2013 | $24.89 | 0.08 | 7.60 | 7.68 | (0.11 | ) | $32.46 | 30.99 | % | 1.24 | % | 1.24 | % | 0.27 | % | 0.27 | % | 26 | % | $71,063 | |||||||||||||||||||
2012 | $22.75 | — | (3) | 2.14 | 2.14 | — | $24.89 | 9.41 | % | 1.24 | % | 1.24 | % | 0.01 | % | 0.01 | % | 13 | % | $63,461 | |||||||||||||||||||
2011 | $20.62 | (0.02 | ) | 2.15 | 2.13 | — | $22.75 | 10.33 | % | 1.24 | % | 1.24 | % | (0.09 | )% | (0.09 | )% | 13 | % | $62,304 | |||||||||||||||||||
2010 | $17.33 | — | (3) | 3.33 | 3.33 | (0.04 | ) | $20.62 | 19.24 | % | 1.25 | % | 1.25 | % | 0.00 | %(4) | 0.00 | %(4) | 24 | % | $68,109 | ||||||||||||||||||
2009 | $15.23 | 0.07 | 2.07 | 2.14 | (0.04 | ) | $17.33 | 14.14 | % | 1.25 | % | 1.25 | % | 0.44 | % | 0.44 | % | 53 | % | $77,484 | |||||||||||||||||||
C Class | |||||||||||||||||||||||||||||||||||||||
2013 | $22.83 | (0.13 | ) | 6.96 | 6.83 | (0.06 | ) | $29.60 | 29.98 | % | 1.99 | % | 1.99 | % | (0.48 | )% | (0.48 | )% | 26 | % | $2,077 | ||||||||||||||||||
2012 | $21.02 | (0.17 | ) | 1.98 | 1.81 | — | $22.83 | 8.61 | % | 1.99 | % | 1.99 | % | (0.74 | )% | (0.74 | )% | 13 | % | $1,464 | |||||||||||||||||||
2011 | $19.20 | (0.17 | ) | 1.99 | 1.82 | — | $21.02 | 9.48 | % | 1.99 | % | 1.99 | % | (0.84 | )% | (0.84 | )% | 13 | % | $678 | |||||||||||||||||||
2010 | $16.22 | (0.13 | ) | 3.11 | 2.98 | — | $19.20 | 18.45 | % | 2.00 | % | 2.00 | % | (0.75 | )% | (0.75 | )% | 24 | % | $789 | |||||||||||||||||||
2009 | $14.32 | (0.04 | ) | 1.94 | 1.90 | — | $16.22 | 13.20 | % | 2.00 | % | 2.00 | % | (0.31 | )% | (0.31 | )% | 53 | % | $884 | |||||||||||||||||||
R Class | |||||||||||||||||||||||||||||||||||||||
2013 | $24.66 | 0.01 | 7.53 | 7.54 | (0.10 | ) | $32.10 | 30.66 | % | 1.49 | % | 1.49 | % | 0.02 | % | 0.02 | % | 26 | % | $6,556 | |||||||||||||||||||
2012 | $22.60 | (0.06 | ) | 2.12 | 2.06 | — | $24.66 | 9.12 | % | 1.49 | % | 1.49 | % | (0.24 | )% | (0.24 | )% | 13 | % | $5,595 | |||||||||||||||||||
2011 | $20.54 | (0.08 | ) | 2.14 | 2.06 | — | $22.60 | 10.03 | % | 1.49 | % | 1.49 | % | (0.34 | )% | (0.34 | )% | 13 | % | $4,173 | |||||||||||||||||||
2010 | $17.26 | (0.05 | ) | 3.33 | 3.28 | — | $20.54 | 19.00 | % | 1.50 | % | 1.50 | % | (0.25 | )% | (0.25 | )% | 24 | % | $3,260 | |||||||||||||||||||
2009 | $15.17 | 0.03 | 2.07 | 2.10 | (0.01 | ) | $17.26 | 13.84 | % | 1.50 | % | 1.50 | % | 0.19 | % | 0.19 | % | 53 | % | $3,056 | |||||||||||||||||||
R6 Class | |||||||||||||||||||||||||||||||||||||||
2013(5) | $31.57 | 0.05 | 2.84 | 2.89 | — | $34.46 | 9.15 | % | 0.63 | %(6) | 0.64 | %(6) | 0.61 | %(6) | 0.60 | %(6) | 26 | %(7) | $27 |
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%. |
(5) | July 26, 2013 (commencement of sale) through October 31, 2013. |
(6) | Annualized. |
(7) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2013. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ultra Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | 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 (2001 to 2009) | 75 | None | |
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 (2003 to 2013) | |
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) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 | |
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $32,022,602, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
Notes |
Notes |
Notes |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80468 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
Veedot® Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomassignature.jpg)
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | AMVIX | 34.11%(1) | 11.98% | 6.54% | 4.64% | 11/30/99 |
Russell 3000 Index | — | 28.99% | 15.93% | 7.92% | 4.27% | — |
Institutional Class | AVDIX | 34.41%(1) | 12.20% | 6.76% | 3.50% | 8/1/00 |
(1) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/veedot.jpg)
Total Annual Fund Operating Expenses | |
Investor Class | Institutional Class |
1.26% | 1.06% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
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.
Portfolio Commentary |
Portfolio Managers: John Small, Jr. and Stephen Pool
Performance Summary
Veedot returned 34.11%* for the 12 months ended October 31, 2013, compared with its benchmark, the Russell 3000 Index, which returned 28.99% for the period.
As discussed in the Market Perspective on page 4, equity indices generally gained during the reporting period, although they experienced considerable volatility. For example, price momentum, one of many factors incorporated in the Veedot stock selection model, came in and out of favor during the reporting period. In this environment, Veedot’s highly systematic investment process delivered positive portfolio returns and outpaced its benchmark.
Within the portfolio, stock selection in the information technology, consumer staples, and financials sectors accounted for the bulk of outperformance relative to Veedot’s benchmark. Those relative gains were partially offset by stock selection in the consumer discretionary, materials, and energy sectors.
Information Technology Drove Outperformance
Stock choices made information technology shares the leading contributors. In the computers and peripherals industry segment, the portfolio held an underweight position in Apple. This decision benefited returns versus the benchmark as the company missed analysts’ expectations for sales of its iPhone and achieved lower-than-expected margins. Also in the sector, positioning in the IT services, electronic equipment instruments, and semiconductors and semiconductor equipment groups contributed to relative results.
Consumer Staples, Financials Contributed
Beneficial holdings within the consumer staples sector included an overweight position in Green Mountain Coffee Roasters. The largest U.S. seller of single-serve brewers signed a five-year contract with Starbucks that tripled the number of single-serve packs that Starbucks produces for Green Mountain’s Keurig brewing machines. The company also continued to experience strong sales growth. Also within the consumer staples sector, the portfolio was rewarded for positioning in the personal products, tobacco, and food and staples retailing industries.
Stock decisions in the financials sector contributed meaningfully to relative performance. In the capital markets segment, the portfolio held a position in Apollo Global Management. The company experienced economic net income growth as assets under management increased. Stock selection within the consumer finance and commercial bank groups also contributed meaningfully to returns versus the benchmark.
In terms of individual contributors, electric vehicle maker Tesla contributed meaningfully. The company has an attractive capacity expansion and margin profile. Tesla continues to experience strong demand for its cars and is on pace to meet volume and margin targets, primarily as a result of purchased component cost savings, and supply chain and labor efficiencies.
*All fund returns referenced in this commentary are for Investor Class shares.
Consumer Discretionary, Materials, Energy Detracted
The consumer discretionary sector detracted from returns versus the benchmark. In the sector, an overweight position in Francesca’s Holdings Corporation hurt relative results. The specialty retailer delivered earnings that fell short of analysts’ expectations and lowered its full-year earnings guidance due to soft sales levels and weak margins. Also in the sector, stock decisions in the textiles, luxury, and apparel goods industry and the hotels, restaurants, and leisure industry detracted meaningfully from relative returns.
Detrimental positions in the materials sector included Barrick Gold. The gold mining company took $8.7 billion in charge-offs in mid-2013, driven largely by a government-forced stoppage at the company’s controversial Pascua-Lama gold mine project in Chile as a result of environmental concerns.
Positioning within the energy sector hurt relative performance. In the oil, gas, and consumable fuels group, the portfolio held an overweight stake in Western Refining. The oil refiner and marketer delivered weak earnings results due to a decline in refining margins.
Retailer Wal-Mart was the largest individual detractor from relative results. The company had outperformed in the past but declined as many investors sold off winners and rotated into global cyclical stocks.
Outlook
Using a systematic and technically-driven process, Veedot examines macroeconomic and company specific information in a complex model to underpin its stock selection process.
During the reporting period, even though the environment moved between periods favoring growth and value investment styles, the Veedot portfolio delivered solid results and solidly outpaced its benchmark. Looking ahead, the investment team remains confident that its systematic process of fusing macroeconomic and stock-specific factors will continue to successfully identify risk-adjusted opportunities across investment styles and industry sectors.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Walgreen Co. | 1.5% |
Cardinal Health, Inc. | 1.4% |
McKesson Corp. | 1.4% |
Wal-Mart Stores, Inc. | 1.4% |
Boeing Co. (The) | 1.3% |
Kroger Co. (The) | 1.3% |
TripAdvisor, Inc. | 1.3% |
CVS Caremark Corp. | 1.3% |
Raytheon Co. | 1.2% |
Microsoft Corp. | 1.2% |
Top Five Industries | % of net assets |
Oil, Gas and Consumable Fuels | 10.8% |
Insurance | 6.6% |
Software | 6.1% |
Food and Staples Retailing | 5.5% |
Health Care Providers and Services | 4.5% |
Types of Investments in Portfolio | % of net assets |
Common Stocks | 98.9% |
Temporary Cash Investments | 1.4% |
Other Assets and Liabilities | (0.3)% |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,159.60 | $6.80 | 1.25% |
Institutional Class | $1,000 | $1,161.70 | $5.72 | 1.05% |
Hypothetical | ||||
Investor Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
Institutional Class | $1,000 | $1,019.91 | $5.35 | 1.05% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 98.9% | ||||||
AEROSPACE AND DEFENSE — 3.1% | ||||||
B/E Aerospace, Inc.(1) | 5,703 | $462,856 | ||||
Boeing Co. (The) | 9,068 | 1,183,374 | ||||
Raytheon Co. | 12,995 | 1,070,398 | ||||
2,716,628 | ||||||
AIR FREIGHT AND LOGISTICS — 1.1% | ||||||
United Parcel Service, Inc., Class B | 10,206 | 1,002,637 | ||||
BEVERAGES — 1.7% | ||||||
Boston Beer Co., Inc., Class A(1) | 3,975 | 912,620 | ||||
Monster Beverage Corp.(1) | 10,958 | 627,127 | ||||
1,539,747 | ||||||
BIOTECHNOLOGY — 2.1% | ||||||
Myriad Genetics, Inc.(1) | 27,182 | 662,697 | ||||
PDL BioPharma, Inc. | 110,060 | 890,386 | ||||
Theravance, Inc.(1) | 8,966 | 328,514 | ||||
1,881,597 | ||||||
CAPITAL MARKETS — 1.0% | ||||||
Fortress Investment Group LLC Class A | 101,711 | 839,116 | ||||
CHEMICALS — 0.6% | ||||||
Sherwin-Williams Co. (The) | 2,913 | 547,644 | ||||
COMMERCIAL BANKS — 3.1% | ||||||
First Republic Bank | 19,375 | 989,481 | ||||
UMB Financial Corp. | 13,746 | 809,915 | ||||
Wintrust Financial Corp. | 20,757 | 903,137 | ||||
2,702,533 | ||||||
COMMERCIAL SERVICES AND SUPPLIES — 2.1% | ||||||
Stericycle, Inc.(1) | 7,808 | 907,290 | ||||
Waste Connections, Inc. | 404 | 17,267 | ||||
Waste Management, Inc. | 20,786 | 905,022 | ||||
1,829,579 | ||||||
COMMUNICATIONS EQUIPMENT — 1.0% | ||||||
Cisco Systems, Inc. | 39,663 | 892,417 | ||||
COMPUTERS AND PERIPHERALS — 2.7% | ||||||
3D Systems Corp.(1) | 8,731 | 543,418 | ||||
Apple, Inc. | 1,864 | 973,660 | ||||
Western Digital Corp. | 12,903 | 898,436 | ||||
2,415,514 | ||||||
CONSUMER FINANCE — 2.1% | ||||||
Credit Acceptance Corp.(1) | 7,020 | 830,466 | ||||
World Acceptance Corp.(1) | 9,611 | 1,000,697 | ||||
1,831,163 | ||||||
CONTAINERS AND PACKAGING — 1.5% | ||||||
Graphic Packaging Holding Co.(1) | 66,741 | 560,624 | ||||
Silgan Holdings, Inc. | 16,996 | 766,010 | ||||
1,326,634 | ||||||
DISTRIBUTORS — 0.8% | ||||||
LKQ Corp.(1) | 21,815 | 720,549 | ||||
DIVERSIFIED FINANCIAL SERVICES — 1.0% | ||||||
IntercontinentalExchange, Inc.(1) | 4,797 | 924,526 | ||||
ELECTRIC UTILITIES — 2.2% | ||||||
Duke Energy Corp. | 10,685 | 766,435 | ||||
NextEra Energy, Inc. | 9,594 | 813,092 | ||||
PPL Corp. | 10,724 | 328,476 | ||||
1,908,003 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS AND COMPONENTS — 1.0% | ||||||
Corning, Inc. | 52,482 | 896,917 | ||||
FOOD AND STAPLES RETAILING — 5.5% | ||||||
CVS Caremark Corp. | 18,263 | 1,137,054 | ||||
Kroger Co. (The) | 27,421 | 1,174,716 | ||||
Wal-Mart Stores, Inc. | 15,699 | 1,204,898 | ||||
Walgreen Co. | 22,229 | 1,316,846 | ||||
4,833,514 | ||||||
FOOD PRODUCTS — 2.8% | ||||||
General Mills, Inc. | 20,489 | 1,033,055 | ||||
Hain Celestial Group, Inc. (The)(1) | 7,384 | 614,570 | ||||
Kellogg Co. | 12,870 | 814,028 | ||||
2,461,653 | ||||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.2% | ||||||
Becton Dickinson and Co. | 9,653 | 1,014,820 | ||||
HEALTH CARE PROVIDERS AND SERVICES — 4.5% | ||||||
Cardinal Health, Inc. | 20,758 | 1,217,664 | ||||
McKesson Corp. | 7,735 | 1,209,290 | ||||
MWI Veterinary Supply, Inc.(1) | 3,609 | 572,532 | ||||
WellPoint, Inc. | 11,916 | 1,010,477 | ||||
4,009,963 | ||||||
HOTELS, RESTAURANTS AND LEISURE — 2.9% | ||||||
Chipotle Mexican Grill, Inc.(1) | 1,696 | 893,741 | ||||
McDonald’s Corp. | 8,537 | 823,991 | ||||
Papa John’s International, Inc. | 11,726 | 887,307 | ||||
2,605,039 | ||||||
HOUSEHOLD PRODUCTS — 1.0% | ||||||
Colgate-Palmolive Co. | 13,807 | 893,727 |
Shares | Value | |||||
INDUSTRIAL CONGLOMERATES — 1.0% | ||||||
3M Co. | 6,992 | $879,943 | ||||
INSURANCE — 6.6% | ||||||
ACE Ltd. | 9,305 | 888,069 | ||||
CNO Financial Group, Inc. | 64,102 | 998,709 | ||||
Hanover Insurance Group, Inc. (The) | 15,279 | 894,433 | ||||
Marsh & McLennan Cos., Inc. | 16,112 | 737,930 | ||||
Primerica, Inc. | 9,567 | 410,903 | ||||
Progressive Corp. (The) | 16,760 | 435,257 | ||||
RLI Corp. | 8,924 | 843,139 | ||||
StanCorp Financial Group, Inc. | 10,992 | 647,429 | ||||
5,855,869 | ||||||
INTERNET AND CATALOG RETAIL — 1.6% | ||||||
Groupon, Inc.(1) | 29,952 | 273,462 | ||||
TripAdvisor, Inc.(1) | 13,870 | 1,147,187 | ||||
1,420,649 | ||||||
INTERNET SOFTWARE AND SERVICES — 1.1% | ||||||
Sohu.com, Inc.(1) | 14,460 | 968,242 | ||||
IT SERVICES — 3.8% | ||||||
CACI International, Inc., Class A(1) | 13,124 | 944,666 | ||||
iGATE Corp.(1) | 29,551 | 940,904 | ||||
International Business Machines Corp. | 3,520 | 630,819 | ||||
MoneyGram International, Inc.(1) | 41,709 | 880,477 | ||||
3,396,866 | ||||||
LEISURE EQUIPMENT AND PRODUCTS — 0.9% | ||||||
Smith & Wesson Holding Corp.(1) | 76,243 | 821,900 | ||||
LIFE SCIENCES TOOLS AND SERVICES — 0.7% | ||||||
Charles River Laboratories International, Inc.(1) | 12,181 | 599,427 | ||||
MACHINERY — 0.6% | ||||||
Deere & Co. | 6,041 | 494,395 | ||||
MEDIA — 3.1% | ||||||
Belo Corp. Class A | 56,400 | 774,372 | ||||
CTC Media, Inc. | 77,897 | 984,618 | ||||
Time Warner Cable, Inc. | 7,921 | 951,708 | ||||
2,710,698 | ||||||
METALS AND MINING — 0.2% | ||||||
Alcoa, Inc. | 21,485 | 199,166 | ||||
MULTI-UTILITIES — 1.7% | ||||||
Consolidated Edison, Inc. | 10,407 | 605,896 | ||||
Dominion Resources, Inc. | 14,358 | 915,322 | ||||
1,521,218 | ||||||
MULTILINE RETAIL — 1.3% | ||||||
Macy’s, Inc. | 20,109 | 927,226 | ||||
Target Corp. | 3,989 | 258,447 | ||||
1,185,673 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 10.8% | ||||||
Anadarko Petroleum Corp. | 7,890 | 751,838 | ||||
Chevron Corp. | 7,594 | 910,976 | ||||
Energen Corp. | 7,697 | 602,829 | ||||
EOG Resources, Inc. | 5,711 | 1,018,842 | ||||
Exxon Mobil Corp. | 9,588 | 859,277 | ||||
Laredo Petroleum Holdings, Inc.(1) | 31,164 | 990,080 | ||||
Marathon Petroleum Corp. | 3,715 | 266,217 | ||||
Occidental Petroleum Corp. | 8,570 | 823,406 | ||||
Phillips 66 | 8,478 | 546,238 | ||||
Plains All American Pipeline LP | 19,718 | 1,009,956 | ||||
Range Resources Corp. | 10,683 | 808,810 | ||||
SM Energy Co. | 11,063 | 980,292 | ||||
9,568,761 | ||||||
PAPER AND FOREST PRODUCTS — 0.7% | ||||||
International Paper Co. | 14,082 | 628,198 | ||||
PHARMACEUTICALS — 2.4% | ||||||
Bristol-Myers Squibb Co. | 11,260 | 591,375 | ||||
Perrigo Co. | 4,831 | 666,146 | ||||
Salix Pharmaceuticals Ltd.(1) | 12,181 | 873,987 | ||||
2,131,508 | ||||||
PROFESSIONAL SERVICES — 1.0% | ||||||
WageWorks, Inc.(1) | 16,680 | 854,183 | ||||
REAL ESTATE INVESTMENT TRUSTS (REITs) — 2.0% | ||||||
Essex Property Trust, Inc. | 5,696 | 917,056 | ||||
LTC Properties, Inc. | 22,651 | 893,582 | ||||
1,810,638 | ||||||
ROAD AND RAIL — 1.1% | ||||||
Kansas City Southern | 7,774 | 944,696 | ||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 1.6% | ||||||
Intel Corp. | 37,131 | 907,110 | ||||
SunPower Corp.(1) | 16,298 | 492,037 | ||||
1,399,147 | ||||||
SOFTWARE — 6.1% | ||||||
CommVault Systems, Inc.(1) | 8,734 | 681,951 | ||||
Giant Interactive Group, Inc. ADR | 105,734 | 935,746 | ||||
Microsoft Corp. | 29,438 | 1,040,633 | ||||
ServiceNow, Inc.(1) | 17,438 | 952,289 | ||||
Shanda Games Ltd. ADR(1) | 73,689 | 325,705 |
Shares | Value |
TiVo, Inc.(1) | 49,169 | $653,456 | ||||
Ultimate Software Group, Inc.(1) | 5,353 | 826,932 | ||||
5,416,712 | ||||||
SPECIALTY RETAIL — 2.0% | ||||||
Gap, Inc. (The) | 24,054 | 889,757 | ||||
Zale Corp.(1) | 58,054 | 907,384 | ||||
1,797,141 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 0.4% | ||||||
VF Corp. | 1,658 | 356,470 | ||||
THRIFTS AND MORTGAGE FINANCE — 0.9% | ||||||
TFS Financial Corp.(1) | 63,761 | 774,059 | ||||
TOBACCO — 0.8% | ||||||
Lorillard, Inc. | 14,477 | 738,472 | ||||
WIRELESS TELECOMMUNICATION SERVICES — 1.5% | ||||||
China Mobile Ltd. ADR | 7,584 | 394,520 | ||||
SBA Communications Corp., Class A(1) | 11,036 | 965,319 | ||||
1,359,839 | ||||||
TOTAL COMMON STOCKS (Cost $75,496,071) | 87,627,790 | |||||
Temporary Cash Investments — 1.4% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $256,222), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $251,492) | $251,492 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $308,107), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $301,791) | 301,791 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $308,048), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $301,790) | 301,790 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $308,049), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $301,790) | 301,790 | |||||
SSgA U.S. Government Money Market Fund | 83,804 | 83,804 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,240,667) | 1,240,667 | |||||
TOTAL INVESTMENT SECURITIES — 100.3% (Cost $76,736,738) | 88,868,457 | |||||
OTHER ASSETS AND LIABILITIES — (0.3)% | (295,427 | ) | ||||
TOTAL NET ASSETS — 100.0% | $88,573,030 |
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $76,736,738) | $88,868,457 | ||
Receivable for capital shares sold | 115,924 | ||
Dividends and interest receivable | 54,148 | ||
89,038,529 | |||
Liabilities | |||
Payable for investments purchased | 343,420 | ||
Payable for capital shares redeemed | 30,359 | ||
Accrued management fees | 91,720 | ||
465,499 | |||
Net Assets | $88,573,030 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $89,074,657 | ||
Undistributed net investment income | 586,671 | ||
Accumulated net realized loss | (13,220,017 | ) | |
Net unrealized appreciation | 12,131,719 | ||
$88,573,030 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $88,256,487 | 9,716,457 | $9.08 |
Institutional Class, $0.01 Par Value | $316,543 | 34,146 | $9.27 |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $20,836) | $1,570,647 | ||
Interest | 314 | ||
1,570,961 | |||
Expenses: | |||
Management fees | 957,168 | ||
Directors’ fees and expenses | 2,674 | ||
Other expenses | 414 | ||
960,256 | |||
Net investment income (loss) | 610,705 | ||
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 11,933,235 | ||
Foreign currency transactions | (15 | ) | |
11,933,220 | |||
Change in net unrealized appreciation (depreciation) on investments | 9,993,980 | ||
Net realized and unrealized gain (loss) | 21,927,200 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $22,537,905 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $610,705 | $1,013,800 | ||||
Net realized gain (loss) | 11,933,220 | 5,601,717 | ||||
Change in net unrealized appreciation (depreciation) | 9,993,980 | 1,553,975 | ||||
Net increase (decrease) in net assets resulting from operations | 22,537,905 | 8,169,492 | ||||
Distributions to Shareholders | ||||||
From net investment income: | ||||||
Investor Class | (1,340,681 | ) | (1,049,869 | ) | ||
Institutional Class | (3,138 | ) | (2,838 | ) | ||
Decrease in net assets from distributions | (1,343,819 | ) | (1,052,707 | ) | ||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (5,094,889 | ) | (7,672,085 | ) | ||
Redemption Fees | ||||||
Increase in net assets from redemption fees | 4,298 | 4,869 | ||||
Net increase (decrease) in net assets | 16,103,495 | (550,431 | ) | |||
Net Assets | ||||||
Beginning of period | 72,469,535 | 73,019,966 | ||||
End of period | $88,573,030 | $72,469,535 | ||||
Undistributed net investment income | $586,671 | $893,721 |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
1. Organization
American Century Mutual Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company and is organized as a Maryland corporation. Veedot Fund (the fund) is one fund in a series issued by the corporation. The fund is nondiversified as defined under the 1940 Act. The fund’s investment objective is to seek long-term capital growth.
The fund offers the Investor Class and the Institutional Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. The Institutional Class is made available to institutional shareholders or through financial intermediaries whose clients do not require the same level of shareholder and administrative services as shareholders of other classes. As a result, the Institutional Class is charged a lower unified management fee.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the fund in preparation of its financial statements. The 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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
Redemption — 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, 2013 was 1.25% and 1.05% for the Investor Class and Institutional Class, respectively.
Acquired Fund Fees and Expenses — The fund may invest in mutual funds, exchange-traded funds, and business development companies (the acquired funds). The fund will indirectly realize its pro rata share of the fees and expenses of the acquired funds in which it invests. These indirect fees and expenses are not paid out of the fund’s assets but are reflected in the return realized by the fund on its investment in the acquired funds.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, American Century Investment Services, Inc., and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $119,745,931 and $125,599,771, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 200,000,000 | 200,000,000 | ||||||||||
Sold | 959,126 | $7,928,759 | 1,064,167 | $7,149,708 | ||||||||
Issued in reinvestment of distributions | 189,568 | 1,313,705 | 164,796 | 1,018,441 | ||||||||
Redeemed | (1,916,842 | ) | (14,445,066 | ) | (2,398,214 | ) | (15,808,396 | ) | ||||
(768,148 | ) | (5,202,602 | ) | (1,169,251 | ) | (7,640,247 | ) | |||||
Institutional Class/Shares Authorized | 100,000,000 | 100,000,000 | ||||||||||
Sold | 22,611 | 188,877 | 6,618 | 44,677 | ||||||||
Issued in reinvestment of distributions | 444 | 3,138 | 451 | 2,838 | ||||||||
Redeemed | (11,454 | ) | (84,302 | ) | (11,136 | ) | (79,353 | ) | ||||
11,601 | 107,713 | (4,067 | ) | (31,838 | ) | |||||||
Net increase (decrease) | (756,547 | ) | $(5,094,889 | ) | (1,173,318 | ) | $(7,672,085 | ) |
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 | $87,627,790 | — | — | ||||||
Temporary Cash Investments | 83,804 | $1,156,863 | — | ||||||
Total Value of Investment Securities | $87,711,594 | $1,156,863 | — |
7. Risk Factors
The fund’s investment process may result in high portfolio turnover, which could mean high transaction costs, affecting both performance and capital gains tax liabilities to investors.
8. Federal Tax Information
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 were as follows:
2013 | 2012 | |||||
Distributions Paid From | ||||||
Ordinary income | $1,343,819 | $1,052,707 | ||||
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, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $76,623,633 | ||
Gross tax appreciation of investments | $13,138,343 | ||
Gross tax depreciation of investments | (893,519 | ) | |
Net tax appreciation (depreciation) of investments | $12,244,824 | ||
Undistributed ordinary income | $587,452 | ||
Accumulated short-term capital losses | $(13,333,903 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the timing and recognition of partnership income.
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.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | |||||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | ||||||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | ||||||||||||||||||||||||||||||||
Net Asset | Net | Net | Total From Investment Operations | Distributions From Net Investment Income | Net Asset | Total | Operating Expenses(3) | Net | Portfolio | Net Assets, | |||||||||||||||||||||||
Investor Class | |||||||||||||||||||||||||||||||||
2013 | $6.90 | 0.06 | 2.25 | 2.31 | (0.13 | ) | $9.08 | 34.11 | % | 1.25 | % | 0.80 | % | 158 | % | $88,256 | |||||||||||||||||
2012 | $6.25 | 0.09 | 0.65 | 0.74 | (0.09 | ) | $6.90 | 12.03 | % | 1.26 | % | 1.35 | % | 257 | % | $72,311 | |||||||||||||||||
2011 | $5.68 | 0.05 | 0.53 | 0.58 | (0.01 | ) | $6.25 | 10.16 | % | 1.25 | % | 0.82 | % | 280 | % | $72,851 | |||||||||||||||||
2010 | $4.71 | — | (4) | 0.97 | 0.97 | — | (4) | $5.68 | 20.66 | % | 1.26 | % | (0.06 | )% | 260 | % | $78,441 | ||||||||||||||||
2009 | $5.34 | — | (4) | (0.63 | ) | (0.63 | ) | — | $4.71 | (11.80 | )% | 1.25 | % | (0.03 | )% | 320 | % | $75,603 | |||||||||||||||
Institutional Class | |||||||||||||||||||||||||||||||||
2013 | $7.03 | 0.07 | 2.31 | 2.38 | (0.14 | ) | $9.27 | 34.41 | % | 1.05 | % | 1.00 | % | 158 | % | $317 | |||||||||||||||||
2012 | $6.37 | 0.10 | 0.66 | 0.76 | (0.10 | ) | $7.03 | 12.18 | % | 1.06 | % | 1.55 | % | 257 | % | $158 | |||||||||||||||||
2011 | $5.78 | 0.06 | 0.55 | 0.61 | (0.02 | ) | $6.37 | 10.55 | % | 1.05 | % | 1.02 | % | 280 | % | $169 | |||||||||||||||||
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 |
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.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Veedot Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | 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) | 75 | None | ||
Andrea C. Hall (1945) | Director | Since 1997 | Retired | 75 | None | ||
Jan M. Lewis (1957) | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | ||
James A. Olson (1942) | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and EPR Properties (2003 to 2013) | ||
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) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | ||
Independent Directors | |||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 | ||
John R. Whitten (1946) | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | ||
Stephen E. Yates (1948) | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | ||
Interested Directors | |||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 | 75 | None | ||
Jonathan S. Thomas | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. Thomas | 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 | |
Maryanne L. Roepke | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
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, 2013.
For corporate taxpayers, the fund hereby designates $713,092, or up to the maximum amount allowable, of ordinary income distributions paid during the fiscal year ended October 31, 2013 as qualified for the corporate dividends received deduction.
Notes |
Notes |
Notes |
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80469 1312
ANNUAL REPORT | OCTOBER 31, 2013
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/frontpagebanner.jpg)
VistaSM Fund
Table of Contents |
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.
President’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/thomas.jpg)
Jonathan Thomas
Dear Investor:
Thank you for reviewing this annual report for the 12 months ended October 31, 2013. It provides investment performance, market analysis, and portfolio information, presented with the expert perspective of our portfolio management team.
Annual reports remain important vehicles for conveying information about fund returns, including key factors that affected fund performance. For additional, updated investment and market insights, we encourage you to visit our website, americancentury.com.
Federal Reserve (Fed) Policy-Driven Financial Markets
U.S. stock indices and government bond yields traced similar upward tracks during most of the reporting period, driven by Fed policy and the perceived path of future Fed policy decisions. In September 2012, the Fed announced its third round of quantitative easing (QE3) since the 2008 Financial Crisis, consisting of $85 billion of monthly purchases of U.S. Treasury and mortgage-backed securities. We believe QE3, like its predecessors, helped stimulate the U.S. stock market. Encouraging signs also emerged in the long-depressed U.S. housing and job markets, which supported stocks. The S&P 500 Index advanced 27.18%, a modest gain compared with U.S. mid- and small-cap indices, which posted returns in the 33% to 40% range.
The U.S. stock rally surmounted many obstacles, including the year-end 2012 fiscal cliff, the 2013 fiscal sequester, Congressional discord (over the Affordable Care Act, the federal budget, and the federal debt ceiling), the resulting partial government shutdown, and higher long-term interest rates. Indications of sustainable economic growth and hints from the Fed that it might taper QE3 sent bond yields soaring from May to September. The 10-year Treasury yield reached 3.00% before retreating to finish the reporting period at 2.55%, still well above where it began (at 1.69%). Bond yields declined in September and October on softer economic data, the Fed’s announcement that it would delay tapering, and uncertainty caused by the government shutdown.
A full economic recovery from 2008 remains elusive—economic growth is still subpar compared with past recoveries. In this environment, we continue to believe in a disciplined, diversified, long-term investment approach, using professionally managed stock and bond portfolios—as appropriate—for meeting financial goals. We appreciate your continued trust in us under these challenging conditions.
Sincerely,
Jonathan Thomas
President and Chief Executive Officer
American Century Investments
Independent Chairman’s Letter |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/pratt.jpg)
Don Pratt
Dear Fellow Shareholders,
This is my last letter to shareholders as the funds’ Chairman, as I will retire at the end of 2013.
My personal thanks go to the independent directors that elected me to the Board and subsequently to the Chairman position, and with whom I have worked to reorganize the Board’s committee structure and annually improve our governance processes. Throughout my tenure, the Board has addressed its responsibilities to shareholders diligently in committee work, the annual contract review, and the execution of our oversight responsibilities. I expect that it will continue to do so well into the future.
Thanks also to the American Century Investments management team led by Jonathan Thomas. Its transparency, candor, and open communication with the Board is most appreciated. I have served on more than 20 boards and this is the most productive and enjoyable relationship with management I have experienced.
Finally, thanks to the many shareholders who have written with questions, comments, and suggestions. Each was heard and addressed and enabled the Board to better represent your interests. Keep communicating with us so that the Board can continue to be aware of your interests, concerns, and questions. My best wishes to Jim Olson, my successor as Chairman, and the other independent directors who continue to serve on your behalf.
And remember, as the firm’s founder Jim Stowers, Jr. so often observed, “The best is yet to be.”
Best regards,
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/prattsignature.jpg)
Don Pratt
Market Perspective |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/hollond.jpg)
By David Hollond, Chief Investment Officer, U.S. Growth Equity — Mid & Small Cap
Improving U.S. Economic Environment, Fed Actions Led Stocks Higher
Stock market performance remained strong during the 12 months ended October 31, 2013. Despite persistent concerns about weak global growth and Europe’s ongoing financial crisis, investors largely focused on central bank stimulus measures and marginally-improving U.S. economic data.
Early in the period, the U.S. Federal Reserve (the Fed) responded to disappointing U.S. economic data by expanding its third—and most aggressive—quantitative easing program from monthly purchases of $40 billion in government agency mortgage-backed securities to $85 billion per month. This unprecedented program, combined with relatively healthy corporate earnings, significant housing market gains, and modest improvements in the labor market, helped keep stocks and other riskier assets in favor.
Late in the period, the Fed’s comments about “tapering” its quantitative easing program rattled markets. Fed Chairman Ben Bernanke said the central bank could begin scaling back its bond buying later in 2013 if the economy continues to improve. After reaching record highs in May, stocks stumbled in June, following Bernanke’s comments. The Fed then toned down its tapering talk in July, and stocks rebounded to new highs. Overall, most U.S. stock benchmarks generated robust 12-month returns, largely aided by strong double-digit gains posted during the first calendar quarter of 2013.
Growth Stocks Outpaced Value Stocks
Small-capitalization shares generated the strongest returns, outpacing the returns of mid- and large-capitalization stocks. Across the capitalization spectrum, growth stocks were the performance leaders for the 12-month period. From a sector perspective, all sectors within the Russell 3000 Index delivered positive results; the health care sector fared the best. Consumer discretionary, industrials, and energy all finished ahead of the Russell 3000 Index. The information technology and utilities sectors achieved more moderate gains.
U.S. Stock Index Returns | ||||
For the 12 months ended October 31, 2013 | ||||
Russell 1000 Index (Large-Cap) | 28.40% | Russell 2000 Index (Small-Cap) | 36.28% | |
Russell 1000 Growth Index | 28.30% | Russell 2000 Growth Index | 39.84% | |
Russell 1000 Value Index | 28.29% | Russell 2000 Value Index | 32.83% | |
Russell Midcap Index | 33.79% | |||
Russell Midcap Growth Index | 33.93% | |||
Russell Midcap Value Index | 33.45% |
Performance |
Total Returns as of October 31, 2013 | ||||||
Average Annual Returns | ||||||
Ticker Symbol | 1 year | 5 years | 10 years | Since Inception | Inception Date | |
Investor Class | TWCVX | 30.83%(1) | 12.71% | 7.67% | 9.48% | 11/25/83 |
Russell Midcap | — | 33.93% | 20.31% | 9.59% | N/A(2) | — |
Institutional Class | TWVIX | 31.09%(1) | 12.96% | 7.89% | 6.41% | 11/14/96 |
A Class(3) No sales charge* With sales charge* | TWVAX | 30.57%(1) 23.03% | 12.44% 11.12% | 7.41% 6.77% | 5.47% 5.10% | 10/2/96 |
C Class | AVNCX | 29.51% | — | — | 13.43% | 3/1/10 |
R Class | AVTRX | 30.19%(1) | 12.15% | — | 5.62% | 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) | Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. |
(2) | Benchmark data first available 12/31/85. |
(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. 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.
Growth of $10,000 Over 10 Years |
$10,000 investment made October 31, 2003 |
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/vista.jpg)
Total Annual Fund Operating Expenses | ||||
Investor Class | Institutional Class | A Class | C Class | R Class |
1.01% | 0.81% | 1.26% | 2.01% | 1.51% |
The total annual fund operating expenses shown is as stated in the fund’s prospectus current as of the date of this report. The prospectus may vary from the expense ratio shown elsewhere in this report because it is based on a different time period, includes acquired fund fees and expenses, and, if applicable, does not include fee waivers or expense reimbursements.
Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. International investing involves special risks, such as political instability and currency fluctuations. Historically, small company stocks have been more volatile than the stocks of larger, more established companies.
Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund’s total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not.
Portfolio Commentary |
Portfolio Managers: Brad Eixmann and Bryan Unterhalter
Performance Summary
Vista returned 30.83%* for the 12 months ended October 31, 2013, lagging the 33.93% 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. Price momentum and acceleration, two factors that the Vista team looks for in portfolio holdings, returned to favor during the reporting period.
Although Vista delivered solid gains and derived positive results from each sector in which it invested, its returns trailed those of the benchmark. Within the portfolio, stock decisions in the health care, consumer discretionary, consumer staples, and energy sectors accounted for the bulk of underperformance versus the benchmark. Stock selection in the information technology, materials, and financials sectors contributed to relative returns.
Health Care, Consumer Discretionary Detracted
The health care sector was home to the portfolio’s largest individual detractor, pharmacy benefit manager Catamaran. The company lost some of its legacy business, as Walgreens shifted its employees to a private exchange rather than provide coverage options. This is a small part of Catamaran’s customer base and is a less profitable business. The investment team is interested in the company’s relationship with Cigna, which should provide higher margins due to the use of generic drugs in this pipeline. However, there is uncertainty due to recent health care reform. Elsewhere in the sector, positioning in the biotechnology industry group detracted.
Within the consumer discretionary sector, it hurt relative returns not to hold Netflix, as the company achieved higher-than-expected subscriber growth and exceeded analysts’ expectations for earnings.
In the household durables group, a position in Toll Brothers detracted as rising interest rates resulted in slowing housing demand. Elsewhere in the sector, positioning in the hotels, restaurants, and leisure group, as well as the media group, detracted.
Consumer Staples, Energy Lagged
Positioning in the consumer staples sector hurt results versus the benchmark. In the sector, stock decisions in the food staples and retailing group and the food products group detracted from relative results.
In the energy sector, the portfolio recently began acquiring shares of Pioneer Natural Resources. The company’s share price has gained considerably, as investors are looking more favorably at shale again and the company has a strong presence in the Permian Basin. This was a relative detractor because the position was underweight relative to the benchmark and was not held for the entire period. Stock decisions in the energy equipment and services industry segment also curbed relative returns.
*All fund returns referenced in this commentary are for Investor Class shares.
In terms of individual detractors apart from these sectors, a position in data storage and analysis firm Teradata trimmed relative results. The stock slumped after reporting slightly disappointing earnings.
Information Technology Led Contributors
Information technology holding Alliance Data Systems was Vista’s top contributing security. The provider of loyalty programs and marketing solutions performed well as it exhibited solid receivables growth.
An overweight position in big-data company Splunk helped. The company’s ability to capture and index machine-generated data allows developers to find new use cases, which in turn creates additional data for indexing. Because the company is paid on new data being captured and indexed, its model provides opportunity for sustainable acceleration of earnings within this secular big-data trend.
Business social networking site LinkedIn was a key contributor. Although the company warned that margins would be squeezed as it spends to expand engagement on the site, LinkedIn continued to gain market share in the recruiter market and benefited from self-service advertising. Elsewhere in the sector, stock decisions in the semiconductors and semiconductor equipment group added to relative results.
Materials, Financials Added
Positioning in the materials sector added to relative returns. Largely avoiding the metals and mining industry contributed, as did stock selection in the containers and packaging industry.
In the financials sector, an overweight position in Affiliated Managers Group contributed. The asset management company benefited from top-line growth, rising assets under management, and a healthy balance sheet.
The portfolio held a significantly underweight allocation to the real estate investment trust (REIT) segment. This decision helped relative performance as these companies collectively underperformed the benchmark.
Apart from these sectors, individual contributors included an overweight stake in Hanesbrands. The maker of t-shirts, underwear and activewear improved volumes and took market share in a push toward higher-end products, which sell at a 30% premium to regular merchandise. The company bought Maidenform Brands, a maker of bras and shapewear, and the acquisition was 17% accretive to earnings, which was well received by investors.
Fund Reorganization
Pursuant to an agreement and plan of reorganization approved by its Board of Directors, Vista’s net assets were transferred to the American Century Heritage Fund in exchange for shares of the Heritage Fund effective December 6, 2013, as of the close of the New York Stock Exchange. Vista’s shareholders received shares of equal value of Heritage on a tax-free basis in exchange for their shares of Vista. The two funds’ investment objectives and strategies were substantially similar and their total expense ratios are expected to be the same. The value of a shareholder’s account did not change as a result of the transaction.
Fund Characteristics |
OCTOBER 31, 2013
| |
Top Ten Holdings | % of net assets |
Alliance Data Systems Corp. | 3.7% |
Affiliated Managers Group, Inc. | 3.3% |
Hanesbrands, Inc. | 2.8% |
Actavis plc | 2.7% |
Perrigo Co. | 2.7% |
Kansas City Southern | 2.6% |
Whole Foods Market, Inc. | 2.1% |
Liberty Global plc Class A | 2.1% |
Tractor Supply Co. | 2.0% |
LinkedIn Corp., Class A | 2.0% |
Top Five Industries | % of net assets |
Specialty Retail | 11.8% |
Pharmaceuticals | 5.4% |
Textiles, Apparel and Luxury Goods | 4.9% |
Software | 4.6% |
Media | 4.5% |
Types of Investments in Portfolio | % of net assets |
Domestic Common Stocks | 92.6% |
Foreign Common Stocks* | 5.5% |
Total Common Stocks | 98.1% |
Temporary Cash Investments | 1.8% |
Other Assets and Liabilities | 0.1% |
*Includes depositary shares, dual listed securities and foreign ordinary shares. |
Shareholder Fee Example |
Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from May 1, 2013 to October 31, 2013.
Actual Expenses
The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
If you hold Investor Class shares of any American Century Investments fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century Investments account (i.e., not a financial intermediary or retirement plan account), American Century Investments may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all personal accounts (including American Century Investments Brokerage accounts) registered under your Social Security number. Personal accounts include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Investments Brokerage accounts, you are currently not subject to this fee. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount.
Hypothetical Example for Comparison Purposes
The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund’s share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 5/1/13 | Ending 10/31/13 | Expenses Paid During Period(1) 5/1/13 – 10/31/13 | Annualized | |
Actual | ||||
Investor Class | $1,000 | $1,154.10 | $5.43 | 1.00% |
Institutional Class | $1,000 | $1,155.60 | $4.35 | 0.80% |
A Class | $1,000 | $1,152.70 | $6.78 | 1.25% |
C Class | $1,000 | $1,148.50 | $10.83 | 2.00% |
R Class | $1,000 | $1,151.30 | $8.13 | 1.50% |
Hypothetical | ||||
Investor Class | $1,000 | $1,020.16 | $5.09 | 1.00% |
Institutional Class | $1,000 | $1,021.17 | $4.08 | 0.80% |
A Class | $1,000 | $1,018.90 | $6.36 | 1.25% |
C Class | $1,000 | $1,015.12 | $10.16 | 2.00% |
R Class | $1,000 | $1,017.64 | $7.63 | 1.50% |
(1) | Expenses are equal to the class’s annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. |
Schedule of Investments |
OCTOBER 31, 2013
Shares | Value | |||||
Common Stocks — 98.1% | ||||||
AEROSPACE AND DEFENSE — 2.5% | ||||||
B/E Aerospace, Inc.(1) | 294,400 | $ 23,893,504 | ||||
TransDigm Group, Inc. | 103,900 | 15,108,099 | ||||
39,001,603 | ||||||
AUTO COMPONENTS — 2.2% | ||||||
BorgWarner, Inc. | 163,500 | 16,861,755 | ||||
Delphi Automotive plc | 321,100 | 18,366,920 | ||||
35,228,675 | ||||||
AUTOMOBILES — 1.5% | ||||||
Harley-Davidson, Inc. | 131,100 | 8,395,644 | ||||
Tesla Motors, Inc.(1) | 90,200 | 14,426,588 | ||||
22,822,232 | ||||||
BEVERAGES — 1.7% | ||||||
Constellation Brands, Inc., Class A(1) | 402,000 | 26,250,600 | ||||
BIOTECHNOLOGY — 2.1% | ||||||
Aegerion Pharmaceuticals, Inc.(1) | 80,200 | 6,642,164 | ||||
Alexion Pharmaceuticals, Inc.(1) | 103,400 | 12,713,030 | ||||
BioMarin Pharmaceutical, Inc.(1) | 73,700 | 4,629,834 | ||||
Regeneron Pharmaceuticals, Inc.(1) | 30,800 | 8,858,080 | ||||
32,843,108 | ||||||
BUILDING PRODUCTS — 2.1% | ||||||
Fortune Brands Home & Security, Inc. | 380,700 | 16,400,556 | ||||
Lennox International, Inc. | 219,300 | 17,118,558 | ||||
33,519,114 | ||||||
CAPITAL MARKETS — 3.8% | ||||||
Affiliated Managers Group, Inc.(1) | 266,100 | 52,538,784 | ||||
KKR & Co. LP | 338,306 | 7,425,817 | ||||
59,964,601 | ||||||
CHEMICALS — 3.3% | ||||||
Eastman Chemical Co. | 294,800 | 23,227,292 | ||||
FMC Corp. | 159,800 | 11,627,048 | ||||
Sherwin-Williams Co. (The) | 44,300 | 8,328,400 | ||||
Westlake Chemical Corp. | 80,500 | 8,647,310 | ||||
51,830,050 | ||||||
COMMERCIAL BANKS — 1.1% | ||||||
CIT Group, Inc.(1) | 357,100 | 17,197,936 | ||||
COMMERCIAL SERVICES AND SUPPLIES — 1.1% | ||||||
Stericycle, Inc.(1) | 152,200 | 17,685,640 | ||||
COMPUTERS AND PERIPHERALS — 0.9% | ||||||
NetApp, Inc. | 357,000 | 13,855,170 | ||||
CONSTRUCTION AND ENGINEERING — 2.7% | ||||||
Chicago Bridge & Iron Co. NV New York Shares | 120,200 | 8,905,618 | ||||
MasTec, Inc.(1) | 481,700 | 15,399,949 | ||||
Quanta Services, Inc.(1) | 597,900 | 18,062,559 | ||||
42,368,126 | ||||||
CONSTRUCTION MATERIALS — 0.4% | ||||||
Eagle Materials, Inc. | 27,500 | 2,062,775 | ||||
Texas Industries, Inc.(1) | 64,800 | 3,479,760 | ||||
5,542,535 | ||||||
CONSUMER FINANCE — 1.4% | ||||||
Discover Financial Services | 413,600 | 21,457,568 | ||||
CONTAINERS AND PACKAGING — 1.5% | ||||||
Packaging Corp. of America | 377,200 | 23,492,016 | ||||
ELECTRICAL EQUIPMENT — 0.6% | ||||||
AMETEK, Inc. | 198,000 | 9,470,340 | ||||
ENERGY EQUIPMENT AND SERVICES — 1.6% | ||||||
Atwood Oceanics, Inc.(1) | 147,200 | 7,820,736 | ||||
Oceaneering International, Inc. | 195,600 | 16,798,128 | ||||
24,618,864 | ||||||
FOOD AND STAPLES RETAILING — 2.1% | ||||||
Whole Foods Market, Inc. | 531,200 | 33,534,656 | ||||
FOOD PRODUCTS — 0.5% | ||||||
Hain Celestial Group, Inc. (The)(1) | 95,900 | 7,981,757 | ||||
HEALTH CARE EQUIPMENT AND SUPPLIES — 1.9% | ||||||
Cooper Cos., Inc. (The) | 92,000 | 11,887,320 | ||||
Mettler-Toledo International, Inc.(1) | 38,300 | 9,477,718 | ||||
Teleflex, Inc. | 93,800 | 8,646,484 | ||||
30,011,522 | ||||||
HEALTH CARE PROVIDERS AND SERVICES — 3.7% | ||||||
AmerisourceBergen Corp. | 369,900 | 24,165,567 | ||||
Catamaran Corp.(1) | 556,000 | 26,109,760 | ||||
Team Health Holdings, Inc.(1) | 173,400 | 7,532,496 | ||||
57,807,823 | ||||||
HEALTH CARE TECHNOLOGY — 0.7% | ||||||
Cerner Corp.(1) | 203,200 | 11,385,296 | ||||
HOTELS, RESTAURANTS AND LEISURE — 1.5% | ||||||
Dunkin’ Brands Group, Inc. | 171,200 | 8,162,816 | ||||
Wyndham Worldwide Corp. | 240,600 | 15,975,840 | ||||
24,138,656 | ||||||
HOUSEHOLD DURABLES — 0.6% | ||||||
Mohawk Industries, Inc.(1) | 69,800 | 9,242,916 | ||||
HOUSEHOLD PRODUCTS — 1.6% | ||||||
Church & Dwight Co., Inc. | 396,000 | 25,799,400 |
Shares | Value | |||||
INTERNET AND CATALOG RETAIL — 1.1% | ||||||
priceline.com, Inc.(1) | 16,200 | $ 17,072,046 | ||||
INTERNET SOFTWARE AND SERVICES — 2.0% | ||||||
LinkedIn Corp., Class A(1) | 140,200 | 31,358,534 | ||||
IT SERVICES — 3.8% | ||||||
Alliance Data Systems Corp.(1) | 242,200 | 57,415,932 | ||||
Teradata Corp.(1) | 33,700 | 1,485,159 | ||||
58,901,091 | ||||||
LIFE SCIENCES TOOLS AND SERVICES — 1.0% | ||||||
Covance, Inc.(1) | 167,200 | 14,924,272 | ||||
MACHINERY — 0.3% | ||||||
WABCO Holdings, Inc.(1) | 64,300 | 5,509,224 | ||||
MEDIA — 4.5% | ||||||
CBS Corp., Class B | 153,700 | 9,089,818 | ||||
Discovery Communications, Inc. Class A(1) | 214,600 | 19,082,232 | ||||
Liberty Global plc Class A(1) | 414,600 | 32,492,202 | ||||
Sirius XM Radio, Inc. | 2,772,000 | 10,450,440 | ||||
71,114,692 | ||||||
OIL, GAS AND CONSUMABLE FUELS — 4.0% | ||||||
Cabot Oil & Gas Corp. | 668,500 | 23,611,420 | ||||
Diamondback Energy, Inc.(1) | 241,900 | 12,494,135 | ||||
Gulfport Energy Corp.(1) | 116,400 | 6,831,516 | ||||
Oasis Petroleum, Inc.(1) | 197,900 | 10,538,175 | ||||
Pioneer Natural Resources Co. | 46,100 | 9,440,358 | ||||
62,915,604 | ||||||
PHARMACEUTICALS — 5.4% | ||||||
Actavis plc(1) | 277,300 | 42,865,034 | ||||
Perrigo Co. | 301,000 | 41,504,890 | ||||
84,369,924 | ||||||
ROAD AND RAIL — 4.4% | ||||||
Canadian Pacific Railway Ltd. New York Shares | 194,900 | 27,884,343 | ||||
Kansas City Southern | 333,700 | 40,551,224 | ||||
68,435,567 | ||||||
SEMICONDUCTORS AND SEMICONDUCTOR EQUIPMENT — 3.3% | ||||||
ARM Holdings plc | 731,000 | 11,550,896 | ||||
Avago Technologies Ltd. | 171,300 | 7,782,159 | ||||
Cree, Inc.(1) | 62,400 | 3,790,800 | ||||
NXP Semiconductor NV(1) | 280,400 | 11,810,448 | ||||
Xilinx, Inc. | 369,000 | 16,759,980 | ||||
51,694,283 | ||||||
SOFTWARE — 4.6% | ||||||
CommVault Systems, Inc.(1) | 140,000 | 10,931,200 | ||||
Electronic Arts, Inc.(1) | 920,500 | 24,163,125 | ||||
NetSuite, Inc.(1) | 188,000 | 18,965,440 | ||||
Splunk, Inc.(1) | 159,300 | 9,989,703 | ||||
Ultimate Software Group, Inc.(1) | 54,000 | 8,341,920 | ||||
72,391,388 | ||||||
SPECIALTY RETAIL — 11.8% | ||||||
DSW, Inc., Class A | 168,200 | 14,746,094 | ||||
GameStop Corp., Class A | 430,300 | 23,589,046 | ||||
GNC Holdings, Inc. Class A | 328,000 | 19,292,960 | ||||
Lumber Liquidators Holdings, Inc.(1) | 92,400 | 10,551,156 | ||||
O’Reilly Automotive, Inc.(1) | 207,500 | 25,690,575 | ||||
PetSmart, Inc. | 195,100 | 14,195,476 | ||||
Ross Stores, Inc. | 215,600 | 16,676,660 | ||||
Signet Jewelers Ltd. | 374,780 | 27,981,075 | ||||
Tractor Supply Co. | 446,900 | 31,886,315 | ||||
184,609,357 | ||||||
TEXTILES, APPAREL AND LUXURY GOODS — 4.9% | ||||||
Hanesbrands, Inc. | 633,400 | 43,147,208 | ||||
Michael Kors Holdings Ltd.(1) | 138,700 | 10,672,965 | ||||
PVH Corp. | 112,100 | 13,964,297 | ||||
Under Armour, Inc. Class A(1) | 112,300 | 9,113,145 | ||||
76,897,615 | ||||||
THRIFTS AND MORTGAGE FINANCE — 0.5% | ||||||
Ocwen Financial Corp.(1) | 137,300 | 7,720,379 | ||||
TOBACCO — 0.5% | ||||||
Lorillard, Inc. | 160,800 | 8,202,408 | ||||
TRADING COMPANIES AND DISTRIBUTORS — 0.9% | ||||||
United Rentals, Inc.(1) | 218,000 | 14,080,620 | ||||
WIRELESS TELECOMMUNICATION SERVICES — 2.0% | ||||||
SBA Communications Corp., Class A(1) | 355,200 | 31,069,344 | ||||
TOTAL COMMON STOCKS (Cost $1,019,253,976) | 1,538,316,552 |
Shares | Value |
Temporary Cash Investments — 1.8% | ||||||
Repurchase Agreement, Bank of America Merrill Lynch, (collateralized by various U.S. Treasury obligations, 1.25%, 10/31/18, valued at $5,828,190), in a joint trading account at 0.07%, dated 10/31/13, due 11/1/13 (Delivery value $5,720,597) | $ 5,720,586 | |||||
Repurchase Agreement, Credit Suisse First Boston, Inc., (collateralized by various U.S. Treasury obligations, 2.75%, 11/15/42, valued at $7,008,395), in a joint trading account at 0.03%, dated 10/31/13, due 11/1/13 (Delivery value $6,864,710) | 6,864,704 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.75%, 5/15/22, valued at $7,007,035), in a joint trading account at 0.02%, dated 10/31/13, due 11/1/13 (Delivery value $6,864,708) | 6,864,704 | |||||
Repurchase Agreement, Goldman Sachs & Co., (collateralized by various U.S. Treasury obligations, 1.625%, 8/15/22, valued at $7,007,070), in a joint trading account at 0.05%, dated 10/31/13, due 11/1/13 (Delivery value $6,864,714) | 6,864,704 | |||||
SSgA U.S. Government Money Market Fund | 1,901,167 | 1,901,167 | ||||
TOTAL TEMPORARY CASH INVESTMENTS (Cost $28,215,865) | 28,215,865 | |||||
TOTAL INVESTMENT SECURITIES — 99.9% (Cost $1,047,469,841) | 1,566,532,417 | |||||
OTHER ASSETS AND LIABILITIES — 0.1% | 2,055,939 | |||||
TOTAL NET ASSETS — 100.0% | $1,568,588,356 |
Forward Foreign Currency Exchange Contracts | ||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Gain (Loss) | ||
USD | 9,644,873 | GBP | 5,968,067 | Credit Suisse AG | 11/29/13 | $77,470 |
USD | 303,664 | GBP | 189,512 | Credit Suisse AG | 11/29/13 | (142) |
$77,328 |
Notes to Schedule of Investments
GBP = British Pound
USD = United States Dollar
(1) | Non-income producing. |
See Notes to Financial Statements.
Statement of Assets and Liabilities |
OCTOBER 31, 2013 | |||
Assets | |||
Investment securities, at value (cost of $1,047,469,841) | $1,566,532,417 | ||
Foreign currency holdings, at value (cost of $128,151) | 131,125 | ||
Receivable for investments sold | 18,378,952 | ||
Receivable for capital shares sold | 87,672 | ||
Unrealized gain on forward foreign currency exchange contracts | 77,470 | ||
Dividends and interest receivable | 457,568 | ||
1,585,665,204 | |||
Liabilities | |||
Payable for investments purchased | 15,140,743 | ||
Payable for capital shares redeemed | 616,018 | ||
Unrealized loss on forward foreign currency exchange contracts | 142 | ||
Accrued management fees | 1,301,247 | ||
Distribution and service fees payable | 18,698 | ||
17,076,848 | |||
Net Assets | $1,568,588,356 | ||
Net Assets Consist of: | |||
Capital (par value and paid-in surplus) | $ 968,201,075 | ||
Accumulated net investment loss | (6,243,419 | ) | |
Undistributed net realized gain | 87,441,446 | ||
Net unrealized appreciation | 519,189,254 | ||
$1,568,588,356 |
Net assets | Shares outstanding | Net asset value per share | |
Investor Class, $0.01 Par Value | $1,428,950,399 | 63,158,709 | $22.62 |
Institutional Class, $0.01 Par Value | $64,695,033 | 2,764,871 | $23.40 |
A Class, $0.01 Par Value | $60,958,691 | 2,803,946 | $21.74* |
C Class, $0.01 Par Value | $113,588 | 5,207 | $21.81 |
R Class, $0.01 Par Value | $13,870,645 | 639,356 | $21.69 |
*Maximum offering price $23.07 (net asset value divided by 0.9425). |
See Notes to Financial Statements.
Statement of Operations |
YEAR ENDED OCTOBER 31, 2013 | |||
Investment Income (Loss) | |||
Income: | |||
Dividends (net of foreign taxes withheld of $51,059) | $ 10,766,356 | ||
Interest | 13,683 | ||
10,780,039 | |||
Expenses: | |||
Management fees | 14,239,316 | ||
Distribution and service fees: | |||
A Class | 152,308 | ||
C Class | 868 | ||
R Class | 62,444 | ||
Directors’ fees and expenses | 52,721 | ||
Other expenses | 262 | ||
14,507,919 | |||
Net investment income (loss) | (3,727,880 | ) | |
Realized and Unrealized Gain (Loss) | |||
Net realized gain (loss) on: | |||
Investment transactions | 169,447,477 | ||
Futures contract transactions | (610,277 | ) | |
Foreign currency transactions | (174,629 | ) | |
168,662,571 | |||
Change in net unrealized appreciation (depreciation) on: | |||
Investments | 221,957,875 | ||
Translation of assets and liabilities in foreign currencies | 121,849 | ||
222,079,724 | |||
Net realized and unrealized gain (loss) | 390,742,295 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | $387,014,415 |
See Notes to Financial Statements.
Statement of Changes in Net Assets |
YEARS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012 | ||||||
Increase (Decrease) in Net Assets | October 31, 2013 | October 31, 2012 | ||||
Operations | ||||||
Net investment income (loss) | $ (3,727,880 | ) | $ (3,576,500 | ) | ||
Net realized gain (loss) | 168,662,571 | 97,099,029 | ||||
Change in net unrealized appreciation (depreciation) | 222,079,724 | (2,305,977 | ) | |||
Net increase (decrease) in net assets resulting from operations | 387,014,415 | 91,216,552 | ||||
Capital Share Transactions | ||||||
Net increase (decrease) in net assets from capital share transactions | (192,958,606 | ) | (312,325,379 | ) | ||
Net increase (decrease) in net assets | 194,055,809 | (221,108,827 | ) | |||
Net Assets | ||||||
Beginning of period | 1,374,532,547 | 1,595,641,374 | ||||
End of period | $1,568,588,356 | $1,374,532,547 | ||||
Accumulated net investment loss | $(6,243,419 | ) | $(2,816,763 | ) |
See Notes to Financial Statements.
Notes to Financial Statements |
OCTOBER 31, 2013
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 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.
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 long-term capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund may estimate the components of distributions received that may be considered nontaxable distributions or long-term capital gain distributions for income tax purposes. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums.
Foreign Currency Translations — All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. The fund may enter into spot foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of investment securities, dividend and interest income, spot foreign currency exchange contracts, and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Net realized and unrealized foreign currency exchange gains or losses related to investment securities are a component of net realized gain (loss) on investment transactions and change in net unrealized appreciation (depreciation) on investments, respectively.
Repurchase Agreements — The fund may enter into repurchase agreements with institutions that American Century Investment Management, Inc. (ACIM) (the investment advisor) has determined are creditworthy pursuant to criteria adopted by the Board of Directors. The fund requires that the collateral, represented by securities, received in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the fund to obtain those securities in the event of a default under the repurchase agreement. ACIM monitors, on a daily basis, the securities transferred to ensure the value, including accrued interest, of the securities under each repurchase agreement is equal to or greater than amounts owed to the fund under each repurchase agreement.
Joint Trading Account — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with certain other funds in the American Century Investments family of funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Agency obligations.
Segregated Assets — In accordance with the 1940 Act, the fund segregates assets on its books and records to cover futures contracts. ACIM monitors, on a daily basis, the securities segregated to ensure the fund designates a sufficient amount of liquid assets, marked-to-market daily. The fund may also receive assets or be required to pledge assets at the custodian bank or with a broker for margin requirements on futures contracts.
Income Tax Status — It is the fund’s policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for income taxes. The fund files U.S. federal, state, local and non-U.S. tax returns as applicable. The fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years from the date of filing but can be longer in certain jurisdictions. At this time, management believes there are no uncertain tax positions which, based on their technical merit, would not be sustained upon examination and for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Multiple Class — All shares of the fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets.
Distributions to Shareholders — Distributions from net investment income and net realized gains, if any, are generally declared and paid annually.
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, 2013 are detailed in the Statement of Operations.
Related Parties — Certain officers and directors of the corporation are also officers and/or directors of American Century Companies, Inc. (ACC). The corporation’s investment advisor, ACIM, the corporation’s distributor, ACIS, and the corporation’s transfer agent, American Century Services, LLC, are wholly owned, directly or indirectly, by ACC. Various funds issued by American Century Asset Allocation Portfolios, Inc. own, in aggregate, 18% of the shares of the fund.
4. Investment Transactions
Purchases and sales of investment securities, excluding short-term investments, for the year ended October 31, 2013 were $830,105,384 and $1,022,727,221, respectively.
5. Capital Share Transactions
Transactions in shares of the fund were as follows:
Year ended October 31, 2013 | Year ended October 31, 2012 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Investor Class/Shares Authorized | 750,000,000 | 750,000,000 | ||||||||||
Sold | 2,802,761 | $ 53,585,569 | 4,873,333 | $ 81,177,047 | ||||||||
Redeemed | (9,109,589 | ) | (177,600,277 | ) | (20,339,527 | ) | (324,033,168 | ) | ||||
(6,306,828 | ) | (124,014,708 | ) | (15,466,194 | ) | (242,856,121 | ) | |||||
Institutional Class/Shares Authorized | 80,000,000 | 80,000,000 | ||||||||||
Sold | 266,159 | 5,316,205 | 886,541 | 15,318,015 | ||||||||
Redeemed | (1,185,529 | ) | (23,514,046 | ) | (2,218,876 | ) | (39,285,626 | ) | ||||
(919,370 | ) | (18,197,841 | ) | (1,332,335 | ) | (23,967,611 | ) | |||||
A Class/Shares Authorized | 310,000,000 | 310,000,000 | ||||||||||
Sold | 449,043 | 8,462,568 | 1,022,625 | 16,651,054 | ||||||||
Redeemed | (3,326,520 | ) | (56,860,210 | ) | (3,331,130 | ) | (54,130,918 | ) | ||||
(2,877,477 | ) | (48,397,642 | ) | (2,308,505 | ) | (37,479,864 | ) | |||||
C Class/Shares Authorized | 50,000,000 | 50,000,000 | ||||||||||
Sold | 2,499 | 50,030 | 238 | 3,918 | ||||||||
Redeemed | (2,081 | ) | (39,100 | ) | (860 | ) | (14,472 | ) | ||||
418 | 10,930 | (622 | ) | (10,554 | ) | |||||||
R Class/Shares Authorized | 10,000,000 | 10,000,000 | ||||||||||
Sold | 129,661 | 2,530,717 | 158,086 | 2,624,418 | ||||||||
Redeemed | (266,461 | ) | (4,890,062 | ) | (644,443 | ) | (10,635,647 | ) | ||||
(136,800 | ) | (2,359,345 | ) | (486,357 | ) | (8,011,229 | ) | |||||
Net increase (decrease) | (10,240,057 | ) | $(192,958,606 | ) | (19,594,013 | ) | $(312,325,379 | ) |
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 | $1,452,055,487 | — | — | ||||||
Foreign Common Stocks | 74,710,169 | $11,550,896 | — | ||||||
Temporary Cash Investments | 1,901,167 | 26,314,698 | — | ||||||
Total Value of Investment Securities | $1,528,666,823 | $37,865,594 | — | ||||||
Other Financial Instruments | |||||||||
Total Unrealized Gain (Loss) on Forward Foreign Currency Exchange Contracts | — | $77,328 | — |
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.
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, 2013 | |||||||||
Asset Derivatives | Liability Derivatives | ||||||||
Type of | Location on Statement | Value | Location on Statement | Value | |||||
Foreign Currency Risk | Unrealized gain on forward foreign currency exchange contracts | $77,470 | Unrealized loss on forward foreign currency exchange contracts | $142 | |||||
Effect of Derivative Instruments on the Statement of Operations for the Year Ended October 31, 2013 | |||||||||
Net Realized Gain (Loss) | Change in Net Unrealized | ||||||||
Type of | Location on Statement | Value | Location on Statement | Value | |||||
Equity Price Risk | Net realized gain (loss) on futures contract transactions | $(610,277 | ) | Change in net unrealized appreciation (depreciation) | — | ||||
Foreign Currency Risk | Net realized gain (loss) on foreign currency transactions | (198,874 | ) | Change in net unrealized appreciation (depreciation) | $113,140 | ||||
$(809,151 | ) | $113,140 |
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.
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, 2013 and October 31, 2012.
As of October 31, 2013, the federal tax cost of investments and the components of distributable earnings on a tax-basis were as follows:
Federal tax cost of investments | $1,046,274,776 | ||
Gross tax appreciation of investments | $522,221,774 | ||
Gross tax depreciation of investments | (1,964,133 | ) | |
Net tax appreciation (depreciation) of investments | $520,257,641 | ||
Net tax appreciation (depreciation) on derivatives and translation of assets and liabilities in foreign currencies | $49,349 | ||
Net tax appreciation (depreciation) | $520,306,990 | ||
Undistributed ordinary income | — | ||
Accumulated long-term gains | $86,246,382 | ||
Late-year ordinary loss deferral | $(6,166,091 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and return of capital dividends received.
Loss deferrals represent certain qualified losses that the fund has elected to treat as having been incurred in the following fiscal year for federal income tax purposes.
10. Subsequent Events
On September 12, 2013, the Board of Directors approved an agreement and plan of reorganization (the reorganization), whereby the net assets of the fund were transferred to Heritage Fund (Heritage), one fund in a series issued by the corporation, in exchange for shares of Heritage. The financial statements and performance history of Heritage survived after the reorganization. The reorganization was effective at the close of the NYSE on December 6, 2013.
Financial Highlights |
For a Share Outstanding Throughout the Years Ended October 31 (except as noted) | ||||||||||||||||||||||||||||||
Per-Share Data | Ratios and Supplemental Data | |||||||||||||||||||||||||||||
Income From Investment Operations: | Ratio to Average Net Assets of: | |||||||||||||||||||||||||||||
Net Asset | Net | Net | Total From Investment Operations | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||||
2013 | $17.29 | (0.05 | ) | 5.38 | 5.33 | $22.62 | 30.83 | % | 1.00 | % | (0.25 | )% | 59 | % | $1,428,950 | |||||||||||||||
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 | |||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||
2013 | $17.85 | (0.01 | ) | 5.56 | 5.55 | $23.40 | 31.09 | % | 0.80 | % | (0.05 | )% | 59 | % | $64,695 | |||||||||||||||
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 | |||||||||||||
A Class(3) | ||||||||||||||||||||||||||||||
2013 | $16.65 | (0.09 | ) | 5.18 | 5.09 | $21.74 | 30.57 | % | 1.25 | % | (0.50 | )% | 59 | % | $60,959 | |||||||||||||||
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 |
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 | Net | Net | Total From Investment Operations | Net Asset | Total | Operating | Net | Portfolio | Net Assets, | |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||
2013 | $16.84 | (0.24 | ) | 5.21 | 4.97 | $21.81 | 29.51 | % | 2.00 | % | (1.25 | )% | 59 | % | $114 | |||||||||||||||
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(4) | $13.73 | (0.14 | ) | 1.56 | 1.42 | $15.15 | 10.34 | % | 2.01% | (5) | (1.51 | )%(5) | 132% | (6) | $30 | |||||||||||||||
R Class | ||||||||||||||||||||||||||||||
2013 | $16.66 | (0.14 | ) | 5.17 | 5.03 | $21.69 | 30.19 | % | 1.50 | % | (0.75 | )% | 59 | % | $13,871 | |||||||||||||||
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 |
Notes to Financial Highlights
(1) | Computed using average shares outstanding throughout the period. |
(2) | Total returns are calculated based on the net asset value of the last business day and do not reflect applicable sales charges, if any. Total returns for periods less than one year are not annualized. |
(3) | Prior to March 1, 2010, the A Class was referred to as the Advisor Class. |
(4) | March 1, 2010 (commencement of sale) through October 31, 2010. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended October 31, 2010. |
See Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of
American Century Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vista Fund (the “Fund”), one of the funds constituting American Century Mutual Funds, Inc. as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2013, 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, 2013, 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, 2013
Management |
The Board of Directors
The individuals listed below serve as directors of the funds. Each director will continue to serve in this capacity until death, retirement, resignation or removal from office. The board has adopted a mandatory retirement age for directors who are not “interested persons,” as that term is defined in the Investment Company Act (independent directors). Independent directors shall retire by December 31 of the year in which they reach their 75th birthday. Mr. Pratt may serve until December 31 of the year in which he reaches his 76th birthday based on an extension granted under previous retirement guidelines.
Mr. Thomas is an “interested person” because he currently serves as President and Chief Executive Officer of American Century Companies, Inc. (ACC), the parent company of American Century Investment Management, Inc. (ACIM or the advisor). Mr. Fink is treated as an “interested person” because of his recent employment with ACC and American Century Services, LLC (ACS). The other directors (more than three-fourths of the total number) are independent. They are not employees, directors or officers of, and have no financial interest in, ACC or any of its wholly owned, direct or indirect, subsidiaries, including ACIM, American Century Investment Services, Inc. (ACIS) and ACS, and do not have any other affiliations, positions, or relationships that would cause them to be considered “interested persons” under the Investment Company Act. The directors serve in this capacity for seven (in the case of Mr. Thomas, 15) registered investment companies in the American Century Investments family of funds.
The following table presents additional information about the directors. The mailing address for each director is 4500 Main Street, Kansas City, Missouri 64111.
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
Thomas A. Brown | Director | Since 1980 | Managing Member, Associated Investments, LLC (real estate investment company); Brown Cascade Properties, LLC (real estate investment company) (2001 to 2009) | 75 | None | |
Andrea C. Hall | Director | Since 1997 | Retired | 75 | None | |
Jan M. Lewis | Director | Since 2011 | President and Chief Executive Officer, Catholic Charities of Northeast Kansas (human services organization) | 75 | None | |
James A. Olson | Director | Since 2007 | Member, Plaza Belmont LLC (private equity fund manager) | 75 | Saia, Inc. (2002 to 2012) and (2003 to 2013) | |
Donald H. Pratt | Director and Chairman of the Board | Since 1995 (Chairman since 2005) | Chairman and Chief Executive Officer, Western Investments, Inc. (real estate company) | 75 | None |
Name | Position(s) Held with Funds | Length Served | Principal Occupation(s) During Past 5 Years | Number of American Century Portfolios Overseen | Other Directorships Held During Past 5 Years | |
Independent Directors | ||||||
M. Jeannine Strandjord | Director | Since 1994 | Retired | 75 | Euronet Worldwide Inc.; Charming Shoppes, Inc. (2006 to 2010); and DST Systems Inc. (1996 to 2012) | |
John R. Whitten | Director | Since 2008 | Retired | 75 | Rudolph Technologies, Inc. | |
Stephen E. Yates | Director | Since 2012 | Retired; Executive Vice President, Technology & Operations, KeyCorp. (computer services) (2004 to 2010) | 75 | Applied Industrial Technologies, Inc. (2001 to 2010) | |
Interested Directors | ||||||
Barry Fink | Director | Since 2012 | Retired; Executive Vice President, ACC (September 2007 to February 2013); President, ACS (October 2007 to February 2013); Chief Operating Officer, ACC (September 2007 to November 2012) | 75 | None | |
Jonathan S. | 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 | 117 | None |
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 | Offices with the Funds | Principal Occupation(s) During the Past Five Years | |
Jonathan S. | 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 | |
Maryanne L. | 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. | 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 | Vice President, Treasurer and Chief Financial Officer since 2012 | Vice President, ACS (February 2000 to present) | |
Robert J. Leach | Vice President since 2006 and Assistant Treasurer since 2012 | Vice President, ACS (February 2000 to present) | |
David H. Reinmiller | 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 | 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.
Approval of Management Agreement |
At a meeting held on June 20, 2013, the Fund’s Board of Directors unanimously approved the renewal of the management agreement pursuant to which American Century Investment Management, Inc. (the “Advisor”) acts as the investment advisor for the Fund. Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated, and approved by a majority of a fund’s directors (the “Directors”), including a majority of the independent Directors, each year.
Prior to its consideration of the renewal of the management agreement, the 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.
In connection with its consideration of the renewal of the management agreement, the Board’s review and evaluation of the services provided by the Advisor included, but was not limited to, the following:
• | the nature, extent, and quality of investment management, shareholder services, and other services provided by the Advisor to the Fund; |
• | the wide range of other programs and services the Advisor provides to the Fund and its shareholders on a routine and non-routine basis; |
• | the 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; |
• | possible economies of scale associated with the Advisor’s management of the Fund and other accounts under its management; |
• | data comparing services provided and charges to other investment management clients of the Advisor; and |
• | consideration of collateral benefits derived by the Advisor from the management of the Fund. |
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:
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 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, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The Board concluded that the Advisor’s profits were reasonable in light of the services provided to the Fund.
Ethics. The Board generally considers the Advisor’s commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the Advisor’s practices generally meet or exceed industry best practices.
Economies of Scale. The Board also reviewed information provided by the Advisor regarding the possible existence of economies of scale in connection with the management of the Fund. The Board concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. The Board concluded that the Advisor is appropriately sharing economies of scale through its competitive fee structure, offering competitive fees from fund inception, and through reinvestment in its business to provide shareholders additional content and services.
Comparison to Other Funds’ Fees. The management agreement provides that the Fund 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.
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.
Additional Information |
Retirement Account Information
As required by law, distributions you receive from certain IRAs are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld.
If you don’t want us to withhold on this amount, you must notify us to not withhold the federal income tax. You may notify us in writing or in certain situations by telephone or through other electronic means. For systematic withdrawals, your withholding election will remain in effect until revoked or changed by filing a new election. You have the right to revoke your election at any time.
Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don’t have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. You can reduce or defer the income tax on a distribution by directly or indirectly rolling such distribution over to another IRA or eligible plan. You should consult your tax advisor for additional information.
State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld (or as otherwise required by state law). State taxes will be withheld from your distribution in accordance with the respective state rules.
Distributions you receive from 403(b), 457 and qualified plans are subject to special tax and withholding rules. Your plan administrator or plan sponsor is required to provide you with a special tax notice explaining those rules at the time you request a distribution. If applicable, federal and/or state taxes may be withheld from your distribution amount.
Proxy Voting Policies
A description of the policies that the fund’s investment advisor uses in exercising the voting rights associated with the securities purchased and/or held by the fund is available without charge, upon request, by calling 1-800-345-2021. It is also available on the “About Us” page of American Century Investments’ website at americancentury.com and on the Securities and Exchange Commission’s website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the “About Us” page at americancentury.com. It is also available at sec.gov.
Quarterly Portfolio Disclosure
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its complete schedule of portfolio holdings for the most recent quarter of its fiscal year available on its website at americancentury.com and, upon request, by calling 1-800-345-2021.
![](https://capedge.com/proxy/N-CSR/0001437749-14-000326/amcentlogo.jpg)
Contact Us | americancentury.com |
Automated Information Line | 1-800-345-8765 |
Investor Services Representative | 1-800-345-2021 |
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.
©2013 American Century Proprietary Holdings, Inc. All rights reserved.
CL-ANN-80470 1312
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 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 2012: $296,263
FY 2013: $360,409
(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 2012: $0 FY 2013: $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 2012: $0 FY 2013: $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 2012: $0
FY 2013: $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 2012: $0
FY 2013: $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 2012: $0 FY 2013: $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 2012: $0 FY 2013: $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 2012: $ 68,768
FY 2013: $101,621
(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 30, 2013 | |||
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 30, 2013 |
By: | /s/ C. Jean Wade | ||
Name: | C. Jean Wade | ||
Title: | Vice President, Treasurer, and | ||
Chief Financial Officer | |||
(principal financial officer) | |||
Date: | December 30, 2013 |