SEMIANNUAL REPORT
[american century logo]
APRIL 30, 1997
TWENTIETH
CENTURY
GROUP
Ultra
Vista
[front cover]
TABLE OF CONTENTS
Report Highlights.............................................................1
Our Message to You............................................................2
Period Overview...............................................................3
Ultra
Performance & Portfolio Information......................................4
Management Q & A.........................................................5
Schedule of Investments..................................................8
Financial Highlights.........................................................26
Vista
Performance & Portfolio Information.....................................11
Management Q & A........................................................12
Schedule of Investments.................................................16
Financial Highlights.........................................................29
Statements of Assets and Liabilities.........................................18
Statements of Operations.....................................................19
Statements of Changes in Net Assets..........................................20
Notes to Financial Statements................................................21
Share Class and Retirement
Account Information.......................................................32
Background Information
Investment Philosophy and Policies......................................36
Comparative Indices.....................................................36
Fund Management Team Leaders............................................36
Glossary.....................................................................37
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
Benham Group(R) American Century Group Twentieth Century(R) Group
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Ultra
Vista
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o The U.S. stock market produced widely divergent returns over the period.
The S&P 500's 14.74% six-month total return continued a three-year trend of
unusually strong performance by large-cap stocks. By contrast, the S&P
MidCap 400 posted a 6.88% return, and the small-cap Russell 2000 returned
just 1.61%.
o Factors that were in the S&P 500's favor included: equity investors seeking
stability and liquidity; strong economic growth with low inflation; and the
success of index funds.
o The fast-growing companies targeted by Ultra and Vista didn't benefit from
the factors that drove investors to the S&P 500. They lagged despite
reporting strong earnings growth in most cases.
ULTRA
o Ultra posted a modest 4.35% total return in a period that didn't favor its
investment approach. Ultra's returns for the five-year, ten-year and
life-of-fund periods ended April 30 remained higher than the S&P 500's.
o We've remained focused on long-term results, concentrating on businesses
with the strongest fundamental outlooks we can find.
o We increased positions in consumer product companies such as Procter &
Gamble, pharmaceutical producers such as Warner-Lambert, and semiconductor
manufacturers such as Intel. All displayed strong growth prospects.
o We reduced positions in computer software, networking and communications
companies where increased competition has led to lower profit margins.
VISTA
o Vista suffered one of the steepest short-term declines in its 13-year
history. The drop resulted from the decline in mid- and small-cap growth
stocks, compounded by our focus on the most rapidly growing companies
within that group. The Russell 2500 Growth Index, which represents a blend
of small- and mid-cap stocks, posted a -3.73% total return.
o The technology sell-off allowed us to build positions in more seasoned,
high quality names. These are the stocks we believe will rebound strongly
when the market again favors fast-growing companies.
o We increased holdings in semiconductor companies, circuit board
manufacturers and energy services companies. We reduced computer software
and business services holdings because of increasing competition and low
barriers to entry in those industries.
ULTRA
-----------------------------------------
INVESTOR CLASS(1)
-----------------------------------------
Total Returns: AS OF 4/30/97
6 Months 4.35%(2)
1 Year 10.69%
-----------------------------------------
Net Assets: $18.9 billion
(AS of 4/30/97)
-----------------------------------------
Inception Date: 11/2/81
-----------------------------------------
Ticker Symbol: TWCUX
-----------------------------------------
VISTA
-----------------------------------------
INVESTOR CLASS(1)
-----------------------------------------
Total Returns: AS OF 4/30/97
6 Months -20.79%(2)
1 Year -23.56%
-----------------------------------------
Net Assets: $1.6 billion
(AS of 4/30/97)
-----------------------------------------
Inception Date: 11/25/83
-----------------------------------------
Ticker Symbol: TWCVX
-----------------------------------------
(1) See Share Classes, page 32.
(2) Not annualized.
- --------------------------------------------------------------------------------
Many of the investment terms in this report are defined
in the Glossary on page 37.
- --------------------------------------------------------------------------------
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[Photo of James E. Stowers, Jr. and James E. Stowers III]
April 30, 1997, marked the end of an eventful period for the company and the
Twentieth Century aggressive growth funds. We entered 1997 with a new identity--
American Century Investments. American Century encompasses the skills, talent
and resources brought together when Twentieth Century Mutual Funds and The
Benham Group merged during 1995 and 1996.
Changing the company's name after being known as Twentieth Century Mutual Funds
for almost 40 years was a significant step. Although our core investment
disciplines remain unchanged, the combination of Twentieth Century and Benham
allows us to bring you a full menu of nearly 70 funds. Our offerings range from
conservative money market funds carrying the Benham name to the nine growth
funds that still carry the Twentieth Century name and employ our hallmark
growth-oriented investment approach.
The six-month period ended April 30, 1997, was a challenge for aggressive growth
funds such as Ultra and Vista. As investors sought size, stability and
familiarity, the S&P 500 and funds that mirror the index outperformed growth
funds investing in smaller companies and emerging industries. These factors had
an especially large impact on the short-term performance of Vista.
Given this environment, it is important to remember that investing in aggressive
growth funds involves significant short-term volatility. This is why we
encourage investors to hold them for periods of five years or more. Over the
long term, an aggressive growth strategy can provide the kind of significant
capital growth that builds wealth. However, investors need patience to weather
the market's cycles and realize the strategy's potential benefits.
We have steadily refined the growth discipline pioneered at Twentieth Century
over the past 25 years, enabling our teams to identify and invest in businesses
that are among the fastest-growing in the world. We are confident that our
approach will continue to reward patient investors who stay the course.
A large part of helping investors remain patient and confident in their funds is
providing the best possible information regularly in a helpful format. Based on
investors' feedback, we have redesigned our shareholder reports to include new
features such as a one-page report summary, a glossary, more charts and graphs,
and expanded Management Q&A and background information sections. This report
displays the new format.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
[line graph - data below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the six monthes ended April 30, 1997
------------------------------------------------------------
DATE S&P 500 S&P 400 RUSSELL 2000
10/31/96 $1.00 $1.00 $1.00
11/30/96 $1.07 $1.06 $1.04
12/31/96 $1.06 $1.06 $1.07
1/31/97 $1.12 $1.10 $1.09
2/28/97 $1.13 $1.09 $1.06
3/31/97 $1.08 $1.04 $1.01
4/30/97 $1.15 $1.07 $1.02
WIDELY DIVERGENT RETURNS
The six-month period ended April 30, 1997, produced widely divergent returns for
U.S. stock investors. In general, the shares of large companies (large-cap
stocks), particularly relatively stable, industry-leading firms in the S&P 500,
significantly outperformed the shares of faster-growing, smaller companies (mid-
and small-cap stocks). Value stocks (shares of companies that are lower priced)
generally outperformed growth stocks (those of companies demonstrating
above-average earnings growth) as investors placed a higher premium on earnings
stability than on earnings growth.
STRONG RETURNS FOR THE S&P 500
The S&P 500 typically represents the large-cap sector of the U.S. stock market.
Many investors also use the index as a proxy for the U.S. market as a whole. The
sustained advance of the S&P 500 was one of the key success stories of the
period. The index posted a 14.74% total return during the six months, continuing
a three-year trend of unusually strong results. Factors that supported the S&P
500's performance included:
o Investors seeking predictable earnings and liquidity because they feared
rising interest rates and an economic slowdown. The shares of large, well-known
firms such as Johnson & Johnson and Microsoft rallied appreciably.
o Favorable economic conditions (robust growth and low inflation) and
particularly strong earnings growth for large-cap companies.
o The popularity and success of S&P 500 index funds. With more investor dollars
chasing stocks in the S&P 500, the prices of those shares rose much faster than
the prices of mid- and small-cap stocks.
LOWER RETURNS FOR SMALLER-CAP STOCKS
Many analysts use the S&P 400 MidCap Index and the Russell 2000 Index to
represent mid- and small-cap stocks, respectively. As shown in the accompanying
graph, the S&P 500 significantly outperformed the smaller-cap indices.
While the S&P 500 and its component companies were considered a relatively safe
haven during the period, many investors viewed mid- and small-cap growth
companies as too volatile and unpredictable. As a result, the market priced mid-
and small-cap growth stocks more conservatively, weighting current earnings more
heavily than projected future earnings. Investors also became less willing to
pay a premium for fast-growing technology and healthcare shares.
The resulting price declines were generally based more on market perception than
on actual fundamental indicators such as earnings and revenue. Many companies
experienced lower share prices despite continuing to show strong operating
results. Defensive-minded analysts questioned whether the earnings and revenue
projections of mid- and small-cap companies would be realized, and investors
refused to pay the higher prices these shares have been awarded in the past.
Semiannual Report Period Overview 3
<TABLE>
<CAPTION>
ULTRA
TOTAL RETURNS AS OF APRIL 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS LIFE OF FUND
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS (inception 11/2/81)
- ----------------------------------------------------------------------------------------------------------------------------------
Ultra..................... 4.35% 10.69% 17.04% 17.50% 16.37% 17.41%
S&P 500................... 14.74% 25.10% 24.08% 17.07% 14.10% 16.79%
- ----------------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS (inception 10/2/96)
- ----------------------------------------------------------------------------------------------------------------------------------
Ultra..................... 4.21%................................................................................ 4.11%
S&P 500................... 14.74%................................................................................ 16.60%
- ----------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (inception 11/14/96)
- ----------------------------------------------------------------------------------------------------------------------------------
Ultra............................................................................................................. 0.18%
S&P 500........................................................................................................... 9.97%
See pages 32, 36 and 37 for more information about share classes, the S&P 500
and returns.
</TABLE>
[line graph - data below]
GROWTH OF $10,000 OVER 10 YEARS (Investor Class)
- --------------------------------------------------------------
ULTRA S & P
--------------- ---------------
DATE ACCT VALUE ACCT VALUE
- --------------------------------------------------------------
4/30/87 $10,000 $10,000
4/30/88 $8,529 $9,356
4/30/89 $10,730 $11,487
4/30/90 $10,792 $12,687
4/30/91 $16,889 $14,914
4/30/92 $20,330 $17,010
4/30/93 $23,430 $18,578
4/30/94 $28,394 $19,568
4/30/95 $30,157 $22,976
4/30/96 $41,141 $29,899
4/30/97 $45,539 $37,404
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above).
The line representing Ultra's total return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
return line of the S&P 500 does not.
PORTFOLIO AT A GLANCE
- ------------------------------------------------------------------------
4/30/97 10/31/96
Number of Companies 122 109
Median Price/Earnings Ratio 24.0 26.8
Portfolio Turnover 51%(1) 87%(2)
Expense Ratio (for Investor Class) 1.00%(3) 1.00%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/96.
(3) Annualized.
4 Ultra American Century Investments
ULTRA
MANAGEMENT Q & A
An interview with Jim Stowers III and Bruce Wimberly, portfolio managers on the
Ultra management team.
HOW DID THE FUND PERFORM?
Ultra posted a modest return in a period that primarily rewarded the S&P 500 and
its largest companies (see the Period Overview on page 3). Ultra's total return
for the six months ended April 30, 1997, was 4.35%, compared to 14.74% for the
S&P 500. The companies Ultra owned were growing faster than many of the
companies that powered the S&P 500's ascent, but investors placed a premium on
consistency rather than growth.
Unlike an index fund, Ultra makes no attempt to match any benchmark over
short-term periods. We include the S&P 500 in our discussions primarily for
long-term performance comparisons and because the index is viewed so widely as a
proxy for the entire U.S. stock market. Although the S&P 500 has posted
exceptional returns over the last three years, Ultra's average annual returns
for long-term periods (the five-year, ten-year and life-of-fund periods ended
April 30) remained higher than the index's (see the performance chart on page
4). In pursuing our growth investing discipline, we continue to believe that
stock prices follow earnings over the long run and that the markets will
eventually reward companies that demonstrate accelerating earnings and revenues.
WHAT CHANGES DID YOU MAKE TO THE FUND'S PORTFOLIO DURING THE PERIOD? WHY?
When the stock market declined in March, we took advantage of falling share
prices to start adding consumer nondurable companies such as Gillette and
Procter & Gamble. We think these large-cap firms offer the opportunity for
strong, sustainable growth, even in the event of an economic downturn, and they
further diversify the fund's portfolio by increasing its exposure to a
previously underweighted
[bar graph - data below]
ULTRA'S ONE-YEAR RETURNS OVER 10 YEARS(1) (Periods ended April 30)
- --------------------------------------------------------------------------
ULTRA S & P
--------------- ---------------
DATE RETURN RETURN
- --------------------------------------------------------------------------
4/30/88 -14.71% -6.44%
4/30/89 25.81% 22.78%
4/30/90 0.58% 10.44%
4/30/91 56.51% 17.56%
4/30/92 20.37% 14.05%
4/30/93 15.25% 9.22%
4/30/94 21.18% 5.33%
4/30/95 6.21% 17.42%
4/30/96 36.42% 30.13%
4/30/97 10.69% 25.10%
This chart illustrates the fund's returns over the past 10 years and compares
them with the S&P 500's returns. Ultra's total returns include operating
expenses, while the S&P 500's returns do not. See page 36 for a description of
the S&P 500. Past performance is no guarantee of future results.
(1) Investor Class.
Semiannual Report Ultra 5
ULTRA
sector. Gillette and Procter & Gamble are dominant companies in their respective
industries.
We also increased Ultra's holdings in pharmaceutical companies to take advantage
of a strong new product cycle. Large-scale investment in research and
development by drug companies is starting to result in many new products coming
to the market. These new drugs, combined with the favorable demographic trends
of the aging U.S. population, give us confidence that many companies in this
industry will see share price appreciation.
One of the drug companies we owned was Warner-Lambert, which earned regulatory
approval for two new drugs that combat problems associated with diabetes and
high cholesterol. The profit margins for these new products are much higher than
those of the over-the-counter health and beauty aids that were once the
company's mainstay. We think Warner-Lambert will be able to sustain its current
high earnings growth rate, thanks to its new products.
WHAT CHANGES DID YOU MAKE TO THE FUND'S TECHNOLOGY HOLDINGS DURING THE PERIOD?
WHY?
The fund's overall weighting in technology stayed about the same, approximately
35%, but we made numerous changes within the sector. We added to our electrical
and electronic components position, especially semiconductor companies, where we
believe there are ample growth opportunities. We increased our existing holdings
in Intel, and we added Altera Corp. and LSI Logic to the portfolio. We continue
to focus on companies that demonstrate market dominance, pricing power and
efficient cost control.
We reduced our positions in computer software and services, networking and
communications companies. Rapid growth in these industries in recent years has
caused increased competition, leading to weaker product pricing and lower profit
margins.
WHAT WERE SOME OF THE FUND'S BEST-PERFORMING HOLDINGS DURING THE PERIOD?
Dell Computer Corp., a computer manufacturer, was the fund's top-performing
stock. Dell's successful business strategy and operations have enabled it to
increase its share of the personal computer market. The company recently
announced plans to enter the workstation market. Dell is an excellent example of
the kind of company we look for -- one with accelerating growth of earnings and
revenues, a dominant position in its industry, increasing market share, an
effective management team, healthy profit margins and strong cash flow.
Another strong contributor to the fund's return was Telecomunicacoes Brasileiras
S.A. (Telebras). Telebras, the Brazilian equivalent of AT&T, has benefited from
TOP TEN HOLDINGS % of fund investments
- --------------------------------------------------------------------
As of As of
4/30/97 10/31/96
Merck & Co., Inc. 3.9% 3.6%
Intel Corp. 3.1% 1.9%
Johnson & Johnson 3.1% 2.6%
Pfizer, Inc. 3.0% 2.7%
Citicorp 2.9% 3.2%
Chase Manhattan Corp. 2.9% 2.9%
General Electric Co. 2.8% 1.7%
Dell Computer Corp. 2.4% 0.6%
Sun Microsystems, Inc. 2.2% 4.5%
Telecomunicacoes Brasileiras
S.A. ADR 2.1% 1.5%
TOP FIVE INDUSTRIES % of fund investments
- --------------------------------------------------------------------
As of As of
4/30/97 10/31/96
Pharmaceuticals 16.9% 11.3%
Electrical & Electronic Components 11.6% 2.5%
Banking 11.1% 8.7%
Computer Systems 7.1% 6.4%
Computer Software & Services 5.3% 11.5%
6 Ultra American Century Investments
ULTRA
rate restructuring and moves toward privatization. Telebras was the fund's tenth
largest holding as of April 30.
Eight of the ten top-performing stocks in Ultra ranked in the top 15% of the S&P
500 in terms of market capitalization. These eight firms were: Intel, Merck,
Johnson & Johnson, Microsoft, Citicorp, Pfizer, BankAmerica and Warner-Lambert.
WHAT WERE SOME OF THE STOCKS THAT REDUCED THE FUND'S RETURNS?
Concerns about slowing computer sales caused three of the fund's top ten
holdings at the beginning of the period -- Sun Microsystems, Ascend
Commu-nications and Cascade Communications -- to post some of the lowest stock
price returns in the portfolio for the six months. Computer networking
companies, including 3Com Corporation and Fore Systems, were also hit by
concerns about slower sales as large companies postponed purchases while
evaluating new technology.
WHAT'S YOUR OUTLOOK FOR THE FUND?
Markets are cyclical. We've seen similar periods in the past when our growth
style and the stocks we target were out of favor, and large company stocks
perceived as relatively safe outperformed the market. This happens from time to
time, but we don't think it can go on forever. We believe growth will eventually
become attractive again and the market should reward our style. Unfortunately,
there is no telling precisely when this might happen or to what degree. We avoid
trying to time the market (and we discourage fund investors from doing so)
because market trends can reverse abruptly and without warning.
Instead, we continue to manage Ultra in the same manner as we have in the past.
We've stuck to our basic investment disciplines. We've remained focused on
long-term results, concentrating on keeping the fund well positioned with
investments in good, growing businesses with the strongest fundamental outlooks
we can find. We expect the fast-growing stocks owned in Ultra will eventually
reward investors for their patience.
Semiannual Report Ultra 7
SCHEDULE OF INVESTMENTS
ULTRA
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 2.4%
1,550,000 AlliedSignal Inc. $ 111,988
1,050,000 Boeing Co. 103,556
2,000,000 British Aerospace PLC ORD 42,636
2,500,000 United Technologies Corp. 189,063
------------
447,243
------------
AIRLINES -- 0.2%
450,000 AMR Corp.(1) 41,906
------------
BANKING -- 11.1%
2,000,000 Bank of Boston Corp.(1) 145,500
2,850,000 Bank of New York Co., Inc. (The) 112,575
2,800,000 BankAmerica Corp. 327,250
5,900,000 Chase Manhattan Corp. 546,488
4,895,000 Citicorp 551,299
200,000 First Bank System, Inc. 15,350
100,000 First Union Corp. 8,400
4,000,000 HSBC Holdings plc ORD 101,206
700,000 Mellon Bank Corp. 58,187
3,900,000 NationsBank Corp. 235,463
------------
2,101,718
------------
BIOTECHNOLOGY -- 1.3%
3,600,000 Amgen Inc. 211,725
800,000 Elan Corp., plc ADR(1) 27,200
------------
238,925
------------
BROADCASTING & MEDIA -- 0.8%
1,700,000 Evergreen Media Corporation(1)(2) 54,931
2,200,000 Time Warner Inc. 99,000
------------
153,931
------------
CHEMICALS & RESINS -- 0.4%
1,375,000 Praxair, Inc. 70,984
------------
COMMUNICATIONS EQUIPMENT -- 4.5%
5,305,000 Lucent Technologies, Inc. 313,658
5,370,000 Motorola Inc. 307,432
1,450,000 Nokia Corp. Cl A ADR 93,706
1,200,000 QUALCOMM Inc.(1) 55,950
1,800,000 Tellabs, Inc.(1) 71,663
------------
842,409
------------
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
COMMUNICATIONS SERVICES -- 3.9%
400,000 Alcatel Alsthom Compagnie Generale
d'Electricite ORD $ 44,547
3,450,000 Telecomunicacoes Brasileiras
S.A. ADR 395,888
1,500,000 Telefonos de Mexico, S.A. ADR 61,875
9,600,000 Worldcom Inc.(1) 229,800
------------
732,110
------------
COMPUTER PERIPHERALS -- 4.3%
700,000 Applied Magnetics Corp(1) 17,587
1,400,000 Cisco Systems Inc.(1) 72,538
3,050,000 EMC Corp. (Mass.)(1) 110,944
6,600,000 Seagate Technology, Inc.(1)(2) 302,775
2,600,000 Storage Technology Corp.(1)(2) 91,325
3,500,000 Western Digital Corp.(1)(2) 215,688
------------
810,857
------------
COMPUTER SOFTWARE & SERVICES -- 5.3%
3,801,000 America Online Inc.(1) 171,520
4,522,400 BMC Software, Inc.(1)(2) 195,311
2,400,000 Electronics for Imaging, Inc.(1) 93,900
1,250,000 McAfee Associates, Inc.(1) 69,687
1,960,000 Microsoft Corp.(1) 238,262
2,900,000 Oracle Systems Corp.(1) 115,456
2,650,000 Parametric Technology Corp.(1) 119,747
179,000 Sterling Commerce, Inc.(1) 4,632
------------
1,008,515
------------
COMPUTER SYSTEMS -- 7.1%
1,450,000 Compaq Computer Corp.(1) 123,794
5,400,000 Dell Computer Corp.(1) 451,912
1,413,500 Hewlett-Packard Co. 74,209
1,700,000 International Business Machines Corp. 273,275
14,537,800 Sun Microsystems, Inc.(1)(2) 418,870
------------
1,342,060
------------
CONSUMER PRODUCTS -- 4.2%
972,800 Colgate-Palmolive Co. 107,981
3,500,000 Gillette Company 297,500
2,560,000 Procter & Gamble Co. (The) 321,920
700,000 Ralston Purina Co. 57,663
------------
785,064
------------
See Notes to Financial Statements
8 Ultra American Century Investments
SCHEDULE OF INVESTMENTS
ULTRA
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
DIVERSIFIED COMPANIES -- 2.9%
4,750,000 General Electric Co. $ 526,656
3,250,000 Grupo Carso S.A. de CV Cl A1 ORD 18,810
110,000 Honeywell Inc. 7,769
------------
553,235
------------
ELECTRICAL & ELECTRONIC
COMPONENTS -- 11.6%
414,500 ASM Lithography Holding NV(1) 32,979
50,000 ASM Lithography Holding NV ORD(1) 3,739
1,150,000 Advanced Micro Devices, Inc.(1) 48,875
4,745,000 Altera Corp.(1)(2) 235,174
3,069,000 Analog Devices, Inc.(1) 82,096
5,750,000 Applied Materials, Inc.(1) 315,172
1,000,000 ESS Technology, Inc.(1) 13,688
3,835,000 Intel Corp. 587,234
7,000,000 LSI Logic Corp.(1)(2) 267,750
1,950,000 Maxim Integrated Products, Inc.(1) 102,984
2,100,000 Micron Technology, Inc. 74,025
2,250,000 National Semiconductor Corp.(1) 56,250
600,000 Rockwell International Corp. 39,900
500,000 Teradyne, Inc.(1) 16,375
3,200,000 Texas Instruments Inc. 285,600
1,400,000 VLSI Technology, Inc.(1) 27,738
------------
2,189,579
------------
ENERGY (PRODUCTION & MARKETING) -- 1.3%
300,000 British Petroleum Co. p.l.c. ADR 41,287
725,000 Cooper Cameron Corp.(1) 51,656
4,700,000 Global Marine, Inc.(1) 94,588
2,000,000 Noble Drilling Corp.(1) 34,750
475,000 Williams Companies, Inc. (The) 20,841
------------
243,122
------------
ENERGY (SERVICES) -- 1.5%
2,850,000 Baker Hughes Inc. 98,325
1,700,000 Schlumberger Ltd. 188,275
------------
286,600
------------
ENVIRONMENTAL SERVICES -- 0.2%
1,550,000 Republic Industries, Inc.(1) 38,459
------------
FINANCIAL SERVICES -- 5.0%
2,100,000 American Express Credit Corp. 138,337
3,600,000 Associates First Capital Corp. 184,500
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
6,750,000 Federal Home Loan
Mortgage Corporation $ 215,156
2,950,000 Federal National Mortgage Association 121,319
460,000 Franklin Resources, Inc. 27,198
1,000,000 Household International, Inc. 88,000
1,945,000 ING Groep N.V. ORD 76,480
3,000,000 MBNA Corp. 99,000
------------
949,990
------------
FOOD & BEVERAGE -- 0.8%
1,733,000 Coca-Cola Company (The) 110,262
962,100 Heinz (H.J.) Co. 39,927
------------
150,189
------------
HEALTHCARE -- 1.9%
5,000,000 Healthsouth Rehabilitation Corp.(1) 98,750
1,950,000 Oxford Health Plans, Inc.(1) 128,334
2,600,000 United HealthCare Corp. 126,425
------------
353,509
------------
INSURANCE -- 2.1%
1,150,000 Aetna Life and Casualty Co. 104,794
1,150,000 Allstate Corp. 75,325
1,800,000 Chubb Corp. (The) 103,950
1,400,000 ITT Hartford Group, Inc. 104,300
------------
388,369
------------
LEISURE -- 2.2%
1,970,000 Disney (Walt) Co. 161,540
8,150,000 Hilton Hotels Corporation 220,050
500,000 Marriott International, Inc. 27,625
------------
409,215
------------
MEDICAL EQUIPMENT & SUPPLIES -- 0.4%
600,000 Medtronic, Inc. 41,550
1,250,000 US Surgical Corp. 42,813
------------
84,363
------------
OFFICE EQUIPMENT -- 1.0%
3,000,000 Xerox Corp. 184,500
------------
PAPER & FOREST PRODUCTS -- 0.8%
2,900,000 Kimberly-Clark Corp. 148,625
------------
PHARMACEUTICALS -- 16.9%
623,000 Abbott Laboratories 38,003
3,500,000 American Home Products Corp. 231,875
See Notes to Financial Statements
Semiannual Report Ultra 9
SCHEDULE OF INVESTMENTS
ULTRA
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
505,800 Bristol-Myers Squibb Co. $ 33,130
9,560,000 Johnson & Johnson 585,550
3,750,000 Lilly (Eli) & Co. 329,531
8,100,000 Merck & Co., Inc. 733,050
144,000 Novartis ORD 190,107
5,900,000 Pfizer, Inc. 566,400
2,850,000 Teva Pharmaceutical
Industries Ltd. ADR(2) 143,925
3,350,000 Warner-Lambert Co. 328,300
------------
3,179,871
------------
RESTAURANTS -- 0.8%
2,700,000 McDonald's Corp. 144,788
------------
RETAIL (APPAREL) -- 0.3%
900,000 NIKE, Inc. 50,625
------------
RETAIL (FOOD & DRUG) -- 0.3%
850,000 Koninklijke Ahold NV ORD 58,108
55,000 Safeway Inc.(1) 2,454
123,000 Walgreen Co. 5,658
------------
66,220
------------
RETAIL (GENERAL MERCHANDISE) -- 0.5%
2,500,000 Kmart Corp.(1) 34,063
1,275,000 Sears, Roebuck & Co. 61,200
------------
95,263
------------
RETAIL (SPECIALTY) -- 0.5%
3,000,000 Starbucks Corp.(1)(2) 89,250
------------
TOBACCO -- 1.2%
12,000,000 B.A.T. Industries PLC ORD 101,664
3,281,700 Philip Morris Companies Inc. 129,217
------------
230,881
------------
TOTAL COMMON STOCKS -- 97.7% 18,412,375
(Cost $14,164,062) ------------
Principal Amount ($ in Thousands)Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(3)
- --------------------------------------------------------------------------------
$36,000 par value FFCB Discount Notes,
5.33%-5.38%, 5/8/97 through 5/15/97 $ 35,938
$270,000 par value FHLMC Discount Notes,
5.35%-5.43%, 5/6/97 through 6/9/97 269,228
$128,000 par value FNMA Discount Notes,
5.38%-5.40%, 5/5/97 through 6/11/97 127,444
------------
TOTAL TEMPORARY CASH
INVESTMENTS-- 2.3% 432,610
(Cost $432,610) ------------
TOTAL INVESTMENT SECURITIES-- 100.0% $18,844,985
(Cost $14,596,672) ============
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
Contracts Settlement Unrealized
to Sell Dates Value Gain (Loss)
- --------------------------------------------------------------------------------
55,347,296 GBP 6/30/97 $89,901 $(106)
177,520,000 FRF 6/30/97 30,587 7
260,706,810 NLG 6/30/97 134,576 317
217,152,000 CHF 6/30/97 148,605 389
------------ ------------
$403,669 $607
(Value on Settlement Date $404,276) ============ ============
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
FFCB = Federal Farm Credit Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
FRF = French Franc
GBP = British Pound
NLG = Netherlands Guilder
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the six months ended April 30, 1997.)
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
See Notes to Financial Statements
10 Ultra American Century Investments
<TABLE>
<CAPTION>
VISTA
TOTAL RETURNS AS OF APRIL 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS LIFE OF FUND
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS (inception 11/25/83)
- ---------------------------------------------------------------------------------------------------------------------------------
Vista..................... -20.79% -23.56% 11.02% 8.91% 8.37% 11.46%
Russell 2500 Growth....... -3.73% -6.98% 13.08% 12.07% 9.94% --(1)
- ---------------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS (inception 10/2/96)
- ---------------------------------------------------------------------------------------------------------------------------------
Vista..................... -20.89%............................................................................... -26.47%
Russell 2500 Growth....... -3.73%................................................................................-6.73%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (inception 11/14/96)
- ---------------------------------------------------------------------------------------------------------------------------------
Vista............................................................................................................. -21.02%
Russell 2500 Growth...............................................................................................-7.14%(3)
</TABLE>
(1) Not available. Index data begins in 1986.
(2) For the period from 9/30/96 (the date nearest the class's inception for
which data are available) to 4/30/97.
(3) For the period from 11/30/96 (the date nearest the class's inception for
which data are available) to 4/30/97.
See pages 32, 36 and 37 for more information about share classes, the
comparative indices and returns.
[line graph - data below]
GROWTH OF $10,000 OVER 10 YEARS (Investor Class)
- --------------------------------------------------------------
RUSSELL 2500
VISTA NASDAQ GROWTH INDEX
--------------- --------------- ---------------
DATE ACCT VALUE ACCT VALUE ACCT VALUE
- --------------------------------------------------------------------------------
4/30/87 $10,000 $10,000 $10,000
4/30/88 $7,792 $9,077 $9,024
4/30/89 $9,410 $10,233 $10,387
4/30/90 $10,828 $10,054 $10,786
4/30/91 $12,400 $11,601 $12,604
4/30/92 $14,582 $13,850 $14,591
4/30/93 $15,082 $15,831 $15,596
4/30/94 $16,322 $17,564 $17,838
4/30/95 $19,824 $20,200 $19,922
4/30/96 $29,225 $28,495 $27,730
4/30/97 $22,340 $30,175 $25,793
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above).
The line representing Vista's total return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
return lines of the Nasdaq and Russell 2500 Growth indices do not.
PORTFOLIO AT A GLANCE
- ------------------------------------------------------------------------
4/30/97 10/31/96
Number of Companies 60 61
Median Price/Earnings Ratio 30.9 53.9
Portfolio Turnover 49%(1) 91%(2)
Expense Ratio (for Investor Class) 1.00%(3) 0.99%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/96.
(3) Annualized.
Semiannual Report Vista 11
VISTA
Management Q & A
An interview with Glenn Fogle and John Seitzer, portfolio managers on the Vista
management team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED APRIL 30?
Vista's total return of -20.79% represented one of the steepest short-term
declines in the fund's 13-year history. The fund's negative performance resulted
from the generally unfavorable investment environment for mid- and small-cap
growth stocks, compounded by our focus on the most rapidly growing companies
within that sector of the equity market. Our concentration on these businesses,
hardest hit by the market's turbulence, caused the fund to suffer a greater
decline than benchmark market indices.
When reflecting on this six-month performance, it's important to remember that
we manage Vista aggressively for long-term returns. As a result, the fund
historically has been very volatile, sometimes underperforming the market
dramatically and other times significantly outperforming it. (The graph below
shows Vista's varied performance over short-term periods.) Vista has rebounded
sharply from similar performance downswings. We cannot predict when this might
occur, but we can assure investors that we are accustomed to managing through
periods of intense market volatility as well as the peaks and valleys in Vista's
performance resulting from our investment style.
HOW DID MID-CAP AND SMALL-CAP GROWTH STOCKS PERFORM?
The mid-cap and small-cap growth stocks that comprise Vista's portfolio
significantly underperformed the S&P 500. Mid-cap growth stocks, as measured by
the S&P 400/BARRA Growth Index, posted a 4.66% total return for the period,
while the Russell 2500 Growth Index, which represents a blend of small-cap and
mid-cap stocks, posted a -3.73% total return.
[bar graph - data below]
VISTA'S ONE-YEAR RETURNS OVER 10 YEARS(1) (Periods ended April 30)
- --------------------------------------------------------------------------
RUSSELL 2500
VISTA GROWTH INDEX
--------------- ---------------
DATE RETURN RETURN
- --------------------------------------------------------------------------
4/30/88 -22.08% -9.76%
4/30/89 20.76% 15.11%
4/30/90 15.07% 3.84%
4/30/91 14.52% 16.85%
4/30/92 17.60% 15.77%
4/30/93 3.43% 6.88%
4/30/94 8.22% 14.37%
4/30/95 21.46% 11.68%
4/30/96 47.42% 39.19%
4/30/97 -23.56% -6.98%
This chart illustrates the fund's returns over the past 10 years and compares
them with the returns of the Russell 2500 Growth Index. Vista's total returns
include operating expenses, while the Russell 2500 Growth Index's returns do
not. See page 36 for a description of the index. Past performance is no
guarantee of future results
(1) Investor Class.
12 Vista American Century Investments
VISTA
WHY WAS THE FUND'S PERFORMANCE BENCHMARK CHANGED FROM THE NASDAQ COMPOSITE INDEX
TO THE RUSSELL 2500 GROWTH INDEX?
The benchmark should resemble the holdings in Vista's portfolio as closely as
possible. The problem with the Nasdaq index is that it contains a number of
large-cap companies such as Microsoft and Intel that have market capitalizations
in excess of $100 billion and do not appear in Vista's portfolio. The Nasdaq
index's performance can be greatly skewed by these heavyweight companies. The
challenge was to find an index that reflects Vista's blend of small-cap (smaller
than $1 billion) and mid-cap ($1 billion to $5 billion) holdings. We chose the
Russell 2500 Growth Index, which has an average market capitalization of
approximately $600 million. This is smaller than Vista's $1.8 billion average
market capitalization at the end of the period, but other characteristics (such
as growth rates and valuation measures) make this index a better benchmark than
other mid-cap indices, in our opinion.
WHY DID VISTA'S PERFORMANCE DIFFER SO MARKEDLY FROM THAT OF THE RUSSELL 2500
GROWTH INDEX?
Unlike an index fund, Vista makes no attempt to match any benchmark returns over
short-term periods. In seeking superior long-term returns, the fund owns
companies that have much higher growth rates than those in the index. As a
result, the fund usually appears more expensive than the index on valuation
measures. Over time, we expect the exceptional earnings growth potential of the
stocks Vista owns to more than offset the premium paid to buy these companies.
In the short run, however, the fund can be very volatile and markedly
underperform the index. Our management of the fund has remained consistent with
our long-held investment discipline. We bought and now own some great growth
businesses. Unfortunately, as sometimes happens, the prices of many of those
stocks have fallen since we acquired them, in spite of strong earnings reports.
We are prepared to retain the shares of good businesses that meet our investment
standards even if they fall temporarily out of favor and their share prices lag
for a while. While the past is no guarantee of the future, our experience tells
us that over the long term we'll be rewarded with higher share prices.
TOP TEN HOLDINGS % of fund investments
- --------------------------------------------------------------------
As of As of
4/30/97 10/31/96
McAfee Associates, Inc. 4.0% 2.7%
Dura Pharmaceuticals, Inc. 3.7% 3.4%
HFS, Inc. 3.6% 5.8%
USA Waste Services, Inc. 3.4% 2.6%
Comverse Technology, Inc. 3.2% 2.6%
PairGain Technologies, Inc. 3.0% 6.7%
HBO & Co. 2.9% 4.0%
United Waste Systems, Inc. 2.9% 1.7%
Sanmina Corp. 2.7% 0.8%
U.S. Filter Corp. 2.3% --
TOP FIVE INDUSTRIES % of fund investments
- --------------------------------------------------------------------
As of As of
4/30/97 10/31/96
Computer Software & Services 13.0% 20.3%
Communications Equipment 10.4% 13.1%
Business Services & Supplies 10.0% 15.4%
Energy (Services) 10.0% --
Electrical & Electronic Components 7.0% 2.0%
Semiannual Report Vista 13
VISTA
CAN YOU GIVE INVESTORS ENCOURAGEMENT ABOUT THE FUND'S PERFORMANCE?
There are several factors that encourage us about the prospects for Vista. The
number of new stock offerings (IPOs) has declined dramatically in 1997 compared
to the prior two years, stemming the flood of new issues that were crowding the
market. The sell-off in mid- and small-cap growth stocks has brought their
valuation relative to large-cap stocks down to historically low levels. Finally,
the companies that Vista owns continue to report dynamic growth in their
revenues and earnings.
In terms of its investment philosophy and objectives, Vista is still essentially
the same fund it was two years ago when it was generating high returns. We've
stuck to our basic investment discipline, even though it's currently out of
favor. We've remained focused on long-term results. The stock market, like the
economy, moves in cycles. Periods such as the recent one, when uncertainty about
the strength of the economy and the direction of interest rates make stock
investors more conservative, are normal. Eventually, market sentiment should
shift again, and when it does we would expect the fast-growing stocks owned in
Vista to reward investors for their patience.
WHAT CHANGES DID YOU MAKE IN THE FUND'S INVESTMENT STRATEGY OR HOLDINGS?
We still own a significant number of technology stocks because the sector
continues to produce high and rising earnings growth rates. However, within the
technology group we shifted our focus to somewhat stronger companies with more
secure businesses. Because the sell-off in technology shares hit industry
leaders as well as less established companies, we were able to build positions
in several more-seasoned, high-quality names. These are the stocks we believe
will rebound strongly when the market once again favors fast-growing companies.
Apart from companies with unique niches in the computer software industry such
as HBO & Company and McAfee Associates (two of the fund's top ten holdings as of
April 30), we made a strategic decision to reduce our software holdings because
of increasing competition and low barriers to entry. We sold a number of our
holdings in business services for similar reasons. We also cut back on some of
our largest holdings such as HFS, Inc. and PairGain Technologies, Inc. because
we felt our positions were becoming too concentrated.
On the other hand, we increased our holdings in semiconductor companies and
circuit board manufacturers. Sanmina Corporation and Jabil Circuit, Inc. are two
of the leading contract circuit manufacturers in the world. Maintaining
electronics manufacturing capacity requires a substantial capital investment.
There is a growing trend among computer and telecommunications companies such as
Hewlett-Packard and Cisco Systems to subcontract this activity to specialists
such as Sanmina and Jabil Circuit, which are among only a handful of firms that
can provide global state-of-the art production capability.
We also bought energy services companies after oil and natural gas prices
dropped this winter. As a result of years of fundamental restructuring in this
industry, we're seeing accelerating earnings that we believe are sustainable.
Here, as in other industries, technology is driving increased productivity. For
example, geologists now routinely analyze three-dimensional seismic data to find
oil and natural gas below the ocean floor. With this more accurate view of the
size and location of undersea reserves, energy companies can drill profitable
wells in locations that were previously economically unfeasible.
14 Vista American Century Investments
VISTA
WHAT DO YOU THINK WILL CAUSE THE MARKET FOR MID- AND SMALL-CAP GROWTH STOCKS TO
TURN AROUND?
The outperformance of large-cap stocks over the past year has coincided with a
period of better-than-average (and better-than-expected) earnings growth, which
we think is attributable to the surprisingly robust economy. For the past two
years the largest stocks in the S&P 500 index have seemingly offered everything
an investor could desire: strong earnings growth, above average returns, low
volatility and superior liquidity. To some extent, the extraordinary returns
have also been self-perpetuating, as momentum-following market participants have
sold their underperforming stocks (often small-cap) in order to buy the
large-cap leaders.
We think that a change in market leadership will probably begin with a
deteriorating outlook for earnings, and that change may not be too far away. The
economy is finally showing signs of slower growth, and the Federal Reserve seems
intent on ensuring that trend. Slower growth, higher interest rates and a strong
dollar all put pressure on the earnings growth rates of larger companies. With
the profit margins at large-cap companies already at historically high levels,
it seems probable that their earnings growth rates will decline over the next
few quarters. Some smaller companies will suffer the same deterioration, but
those that can buck the trend should attract growth-oriented investors. The
inexpensive relative valuation of mid- and small-cap stocks should also
contribute to their recovery.
The year-long divergence between large- and smaller-cap stocks is very unusual,
which suggests the strong possibility of a mid- and small-cap rebound.
Unfortunately there is no telling precisely when this might happen or to what
degree. We avoid trying to time the market (and we discourage fund investors
from doing so) because market trends can reverse abruptly and without warning.
Instead, we concentrate on keeping the fund well positioned with investments in
good, growing businesses with the strongest fundamental outlook we can find. We
don't have any control over the timing of how the market reacts, but we can
control our investment strategy and goals.
EDITOR'S NOTE ON JUNE 6, 1997:
SINCE APRIL 30, VISTA'S SHARE VALUE HAS RISEN BY 15%, COMPARED TO AN INCREASE OF
7% IN THE S&P 500. THE CHANGE IN MARKET SENTIMENT REGARDING SMALL COMPANIES MAY
HAVE BEGUN.
Semiannual Report Vista 15
SCHEDULE OF INVESTMENTS
VISTA
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 4.9%
627,900 BioChem Pharma Inc.(1) $ 11,302
162,000 Biogen, Inc.(1) 5,204
1,100,000 Centocor, Inc.(1) 31,006
540,000 IDEC Pharmaceuticals Corp.(1)(2) 9,652
250,000 Protein Design Labs, Inc.(1) 6,266
460,000 Vertex Pharmaceuticals, Inc.(1) 14,548
------------
77,978
------------
BUSINESS SERVICES & SUPPLIES -- 10.0%
1,800,000 AccuStaff, Inc.(1) 32,850
700,000 Corestaff, Inc.(1) 12,119
1,000,000 Corrections Corp. of America(1) 32,625
457,600 National Data Corp. 17,160
537,500 Quintiles Transnational Corp.(1) 27,345
1,200,000 U.S. Filter Corp.(1) 36,450
------------
158,549
------------
COMMUNICATIONS EQUIPMENT -- 10.4%
1,512,500 Brightpoint, Inc.(1)(2) 33,086
205,500 Cable Design Technologies Corp.(1) 3,879
1,300,000 Comverse Technology, Inc.(1)(2) 51,350
1,050,000 P-COM, Inc.(1)(2) 29,794
1,820,000 PairGain Technologies, Inc.(1)(2) 47,206
------------
165,315
------------
COMPUTER PERIPHERALS -- 4.5%
710,000 Applied Magnetics Corp.(1) 17,839
515,000 Quantum Corp.(1) 21,469
715,000 Seagate Technology, Inc.(1) 32,801
------------
72,109
------------
COMPUTER SOFTWARE & SERVICES -- 13.0%
215,000 Acxiom Corp.(1) 2,849
565,000 Aspen Technology, Inc.(1)(2) 17,338
1,420,000 Cognos Incorporated(1)(2) 36,032
875,000 HBO & Co. 46,758
1,400,000 Hyperion Software Corp.(1)(2) 22,575
1,130,000 McAfee Associates, Inc.(1) 62,998
1,300,000 Rational Software Corp.(1)(2) 17,956
------------
206,506
------------
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
EDUCATION -- 1.4%
800,000 Apollo Group Inc. Cl A(1) $ 21,550
------------
ELECTRICAL & ELECTRONIC
COMPONENTS -- 7.0%
531,100 Jabil Circuit, Inc.(1) 25,659
450,000 Lattice Semiconductor Corp.(1) 25,200
850,000 Sanmina Corp.(1)(2) 42,553
74,600 Solectron Corp.(1) 4,280
450,000 Vitesse Semiconductor Corp.(1) 14,259
------------
111,951
------------
ENERGY (SERVICES) -- 10.0%
280,000 Atwood Oceanics, Inc.(1) 17,255
244,000 Diamond Offshore Drilling(1) 15,707
1,620,000 Marine Drilling Companies, Inc.(1) 25,717
800,000 Petroleum Geo-Services A/S ADR(1) 30,800
725,000 Smith International, Inc.(1) 34,347
860,000 Tidewater Inc. 34,508
------------
158,334
------------
ENVIRONMENTAL SERVICES -- 6.3%
1,650,000 USA Waste Services, Inc.(1) 54,037
1,368,000 United Waste Systems, Inc.(1) 46,085
------------
100,122
------------
HEALTHCARE -- 6.3%
317,500 CRA Managed Care, Inc.(1) 11,271
1,175,000 Health Management Associates, Inc.(1) 31,431
330,000 OccuSystems, Inc.(1) 6,744
380,000 Oxford Health Plans, Inc.(1) 25,010
1,000,000 Tenet Healthcare Corp.(1) 26,000
------------
100,456
------------
LEISURE -- 4.3%
970,000 HFS, Inc.(1) 57,472
390,700 Regal Cinemas, Inc.(1) 10,671
------------
68,143
------------
MACHINERY & EQUIPMENT -- 2.3%
825,800 Diebold, Inc. 27,664
250,000 Dynatech Corp.(1) 8,688
------------
36,352
------------
METALS & MINING -- 1.1%
650,000 Titanium Metals Corporation(1) 16,859
------------
See Notes to Financial Statements
16 Vista American Century Investments
SCHEDULE OF INVESTMENTS
VISTA
APRIL 30, 1997 (UNAUDITED)
Shares/Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS -- 6.8%
2,000,000 Dura Pharmaceuticals, Inc.(1)(2) $ 58,125
728,000 Jones Medical Industries, Inc. 25,889
945,000 Medicis Pharmaceutical Corp.(1)(2) 23,212
------------
107,226
------------
RETAIL (APPAREL) -- 2.4%
750,000 Jones Apparel Group, Inc.(1) 31,313
270,000 Ross Stores, Inc. 7,628
------------
38,941
------------
RETAIL (GENERAL MERCHANDISE) -- 1.0%
380,000 Consolidated Stores Corp.(1) 15,200
------------
RETAIL (SPECIALTY) -- 2.5%
1,300,000 Corporate Express, Inc.(1) 12,837
235,000 Fastenal Company 9,121
830,000 Hollywood Entertainment Corp.(1) 17,586
------------
39,544
------------
TOTAL COMMON STOCKS-- 94.2% 1,495,135
(Cost $1,281,258) ============
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(3)
- --------------------------------------------------------------------------------
$50,000 par value FHLMC Discount Note,
5.36%, 5/2/97 49,993
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 5.29%,
dated 4/30/97, due 5/1/97
(Delivery value $42,506) 42,500
------------
TOTAL TEMPORARY CASH
INVESTMENTS-- 5.8% 92,493
(Cost $92,493) ------------
TOTAL INVESTMENT SECURITIES-- 100.0% $1,587,628
(Cost $1,373,751) ============
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLMC = Federal Home Loan Mortgage Corporation
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the six months ended April 30, 1997.)
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
See Notes to Financial Statements
Semiannual Report Vista 17
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED) ULTRA VISTA
- ------------------------------------------------------------------------------------------------------------------------
ASSETS ($ in Thousands Except Per-Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities, at value (identified cost of $14,596,672
and $1,373,751, respectively) (Note 3)......................................... $18,844,985 $1,587,628
Cash ........................................................................... 12,048 2,095
Receivable for forward foreign currency exchange contracts.......................... 713 --
Receivable for investments sold..................................................... 279,145 27,602
Receivable for capital shares sold.................................................. 1,216 440
Dividends and interest receivable................................................... 22,359 6
------------ ------------
19,160,466 1,617,771
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash...................................... 19,719 3,281
Payable for forward foreign currency exchange contracts............................. 106 --
Payable for investments purchased................................................... 215,358 24,875
Payable for capital shares redeemed................................................. 18,894 1,113
Accrued management fees (Note 2).................................................... 14,867 1,323
Distribution fees payable (Note 2).................................................. 3 1
Service fees payable (Note 2)....................................................... 3 1
Other liabilities................................................................... 43 8
------------ ------------
268,993 30,602
------------ ------------
Net Assets.......................................................................... $18,891,473 $1,587,169
============ ============
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------
Capital (par value and paid in surplus)............................................. $12,188,420 $1,477,930
Undistributed net investment income (loss).......................................... 9,399 (7,534)
Accumulated undistributed net realized gain (loss) on investment
and foreign currency transactions.............................................. 2,444,631 (97,103)
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies (Note 3)....................... 4,249,023 213,876
------------ ------------
$18,891,473 $1,587,169
============ ============
Investor Class ($ and shares in full)
Net assets.......................................................................$18,873,513,420 $1,568,832,615
Shares outstanding.................................................................. 648,373,654 136,742,803
Net asset value per share........................................................... $29.11 $11.47
Advisor Class ($ and shares in full)
Net assets.......................................................................... $17,856,877 $5,088,240
Shares outstanding ................................................................. 614,327 444,136
Net asset value per share........................................................... $29.07 $11.46
Institutional Class ($ and shares in full)
Net assets.......................................................................... $102,764 $13,248,422
Shares outstanding ................................................................. 3,527 1,153,594
Net asset value per share........................................................... $29.14 $11.48
</TABLE>
See Notes to Financial Statements
18 Statements of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED) ULTRA VISTA
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME ($ in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $627 and $0, respectively).............. $95,926 $618
Interest ........................................................................... 8,908 1,891
------------ ------------
104,834 2,509
------------ ------------
Expenses (Note 2):
Management fees..................................................................... 94,121 10,017
Distribution fees - Advisor Class................................................... 19 7
Shareholder service fees - Advisor Class............................................ 19 7
Directors' fees and expenses........................................................ 125 12
------------ ------------
94,284 10,043
------------ ------------
Net investment income (loss)........................................................ 10,550 (7,534)
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments......................................................................... 2,454,966 (96,194)
Foreign currency transactions....................................................... 24,959 --
------------ ------------
2,479,925 (96,194)
------------ ------------
Change in net unrealized appreciation on:
Investments......................................................................... (1,697,933) (321,757)
Translation of assets and liabilities in foreign currencies......................... (308) --
------------ ------------
(1,698,241) (321,757)
------------ ------------
Net realized and unrealized gain (loss) on investments.............................. 781,684 (417,951)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..................... $792,234 $(425,485)
============ ============
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Operations 19
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996 ULTRA VISTA
Increase (Decrease) in Net Assets 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS ($ in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income (loss)..................... $10,550 $(31,468) $(7,534) $(14,784)
Net realized gain (loss) on investments
and foreign currency transactions........... 2,479,925 1,037,212 (96,194) 171,813
Change in net unrealized appreciation
on investments and translation of assets
and liabilities in foreign currencies....... (1,698,241) 777,976 (321,757) (24,182)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................... 792,234 1,783,720 (425,485) 132,847
------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net realized gains from investment transactions:
Investor Class.............................. (1,044,610) (673,603) (168,259) (111,473)
Advisor Class............................... (778) -- (449) --
Institutional Class......................... (547) -- (225) --
In excess of net realized gain:
Investor Class.............................. -- (9,858) -- (1,791)
------------ ------------ ------------ ------------
Decrease in net assets from distributions........ (1,045,935) (683,461) (168,933) (113,264)
------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions.................. 866,228 2,802,785 (99,891) 585,978
------------ ------------ ------------ ------------
Net increase (decrease) in net assets............ 612,527 3,903,044 (694,309) 605,561
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
Beginning of period.............................. 18,278,946 14,375,902 2,281,478 1,675,917
------------ ------------ ------------ ------------
End of period.................................... $18,891,473 $18,278,946 $1,587,169 $2,281,478
============ ============ ============ ============
Undistributed net investment income (loss)....... $9,399 -- $(7,534) --
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
20 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Twentieth Century Ultra Fund
(Ultra) and American Century Twentieth Century Vista Fund (Vista) (the Funds)
are two of the seventeen series of funds issued by the Corporation. The Funds'
investment objective is to seek capital growth by investing primarily in equity
securities. On September 3, 1996, the Funds implemented a multiple class
structure whereby each Fund is authorized to issue three classes of shares: the
Investor Class, the Advisor Class, and the Institutional Class. The shares
outstanding prior to September 3, 1996, were designated as Investor Class
shares. The three classes of shares differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All shares of
each Fund represent an equal pro rata interest in the 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. Sale of the Institutional Class commenced on November 14, 1996. The
following significant accounting policies related to all classes of the Funds
are in accordance with accounting policies generally accepted in the investment
company industry.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and premiums.
FOREIGN CURRENCY TRANSACTIONS -- The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of portfolio securities are a component of realized
gain (loss) on investments and unrealized appreciation (depreciation) on
investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Funds may enter into forward
foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Funds will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of risk in excess
of the amount reflected in the Statement of Assets and Liabilities. The Funds
bear the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
REPURCHASE AGREEMENTS -- The Funds may enter into repurchase agreements with
institutions the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each Fund requires that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable
each Fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the value of the
securities transferred to ensure that the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to each Fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, each Fund, along with other registered investment
companies having management agreements with ACIM and Benham
Semiannual Report Notes to Financial Statements 21
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
Management Corporation, 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 policy of the Funds to distribute all taxable
income and capital 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 federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net realized
gains are declared and paid annually.
The 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 are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION -- Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., ACIS, and the Corporation's transfer agent, American Century
Services Corporation.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that provides
the Funds with investment advisory and management services in exchange for a
single, unified management fee per class. Additional fees apply to the Advisor
Class, as described in the respective propectus. The Agreement provides that all
expenses of the Funds, except brokerage commissions, taxes, interest, expenses
of those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's average daily closing net assets during the previous month. The
annual management fee is 1.00% for the Investor Class, 0.75% for the Advisor
Class, and 0.80% for the Institutional Class.
The Board of Directors has adopted a shareholder services and distribution plan
for the Advisor Class, pursuant to Rule 12b-1 of the Investment Company Act of
1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Funds will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred in connection with distributing shares of the Advisor Class
including, but not limited to, payments to brokers, dealers, and financial
institutions that have entered into sales agreements with ACIS and/or ACIM. The
service fee provides compensation for shareholder and administrative services
rendered by ACIM, its affiliates or independent third party providers. Fees
incurred under the Master Distribution and Shareholder Services Plan during the
six months ended April 30, 1997, were $37,498 for Ultra and $14,597 for Vista.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the six months ended April 30, 1997, for Ultra and Vista
totaled $9,422,636,011, and $937,170,568, respectively, for common stocks.
Proceeds from investment securities sold (excluding short-term investments)
totaled $9,963,937,511 and $1,208,825,581, respectively, for common stocks.
As of April 30, 1997, accumulated net unrealized appreciation for Ultra and
Vista was $4,211,447,185 and $211,628,438, respectively, based on the aggregate
cost of investments for federal income tax purposes of $14,633,537,685 and
$1,375,999,180, respectively. Accumulated net unrealized appreciation consisted
of unrealized appreciation of $4,417,903,003 and $330,896,602 for Ultra and
Vista, respectively, and unrealized depreciation of $206,455,818 and
$119,268,164, respectively.
22 Notes to Financial Statements American Century Investments
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
4. Capital Share Transactions
There are 750,000,000 shares of the Investor Class, 312,500,000 shares of the
Advisor Class, and 125,000,000 shares of the Institutional Class authorized for
issuance in Ultra. There are 500,000,000 shares of the Investor Class,
210,000,000 shares of the Advisor Class, and 80,000,000 shares of the
Institutional Class authorized for issuance in Vista. All shares are $0.01 par
value. Transactions in shares of the Funds were as follows:
<TABLE>
<CAPTION>
ULTRA VISTA
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended April 30, 1997
<S> <C> <C> <C> <C>
Sold ............................................ 109,972 $3,251,197 35,756 $499,140
Issued in reinvestment of distributions.......... 35,345 1,024,465 11,437 164,510
Redeemed......................................... (115,658) (3,415,367) (55,625) (780,590)
------------ ------------ ------------ ------------
Net increase (decrease).......................... 29,659 $860,295 (8,432) $(116,940)
============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1996
Sold ............................................ 194,099 $5,275,609 92,373 $1,404,556
Issued in reinvestment of distributions.......... 26,782 669,557 7,805 109,657
Redeemed......................................... (114,976) (3,155,542) (61,545) (934,295)
------------ ------------ ------------ ------------
Net increase..................................... 105,905 $2,789,624 38,633 $579,918
============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended April 30, 1997
Sold ............................................ 298 $8,547 224 $2,968
Issued in reinvestment of distributions.......... 27 778 31 449
Redeemed......................................... (153) (4,292) (171) (2,158)
------------ ------------ ------------ ------------
Net increase..................................... 172 $5,033 84 $1,259
============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------------
October 2, 1996(1) through October 31, 1996
Sold ............................................ 443 $13,191 364 $6,124
Redeemed......................................... (1) (30) (4) (64)
------------ ------------ ------------ ------------
Net increase..................................... 442 $13,161 360 $6,060
============ ============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------------
November 14, 1996(2) through April 30, 1997
Sold ............................................ 328 $10,075 1,138 $15,564
Issued in reinvestment of distributions.......... 19 547 16 226
Redeemed......................................... (343) (9,722) -- --
------------ ------------ ------------ ------------
Net increase..................................... 4 $900 1,154 $15,790
============ ============ ============ ============
(1) Commencement of sale of the Advisor Class.
(2) Commencement of sale of the Institutional Class.
</TABLE>
Semiannual Report Notes to Financial Statements 23
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer who is or was an affiliate at or
during the six months ended April 30, 1997, follows:
<TABLE>
Share Realized
Balance Purchase Sales Gain Share Market
Fund/Issuer 10/31/96 Cost Cost (Loss) Income Balance Value
- ---------------------------------------------------------------------------------------------------------------------------
ULTRA ($ in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Altera Corp. -- $220,321 $25,521 $1,902 -- 4,745,000(1) $235,174
Ascend Communications, Inc. 11,288,000 127,783 340,678 316,191 -- -- --
BMC Software, Inc. 2,675,000 97,614 49,774 8,851 -- 4,522,400(1) 195,311
C-Cube Microsystems Inc. 2,750,000 102,346 250,884 (54,799) -- -- --
Cascade Communications Corp. 7,450,000 29,475 107,335 174,582 -- -- --
Citrix Systems, Inc. 1,900,000 51,851 73,263 (31,276) -- -- --
DSP Communications, Inc. -- 57,346 57,346 (36,516) -- -- --
Evergreen Media Corporation 2,172,500 -- 13,976 3,219 -- 1,700,000 54,931
FORE Systems, Inc. 4,900,000 31,821 142,037 53,568 -- -- --
Iomega Corporation 7,300,000 115,315 181,589 (7,643) -- -- --
LSI Logic Corp. -- 235,172 -- -- -- 7,000,000 267,750
Novellus Systems, Inc. -- 127,347 127,347 (44,860) -- -- --
Peoplesoft, Inc. 2,900,000 13,524 81,015 164,390 -- -- --
Seagate Technology, Inc. -- 238,124 112,966 (22,482) -- 6,600,000(1) 302,775
Starbucks Corp. 4,000,000 40,857 32,542 (3,172) -- 3,000,000 89,250
Storage Technology Corp. -- 125,865 25,205 (8,066) -- 2,600,000 91,325
Sun Microsystems, Inc. 13,450,000 -- 262,213 87,605 -- 14,537,800(1) 418,870
Teva Pharmaceutical
Industries Ltd. ADR -- 156,245 -- -- $177 2,850,000 143,925
U.S. Robotics Corp. 6,600,000 32,221 211,357 223,056 -- -- --
Western Digital Corp. -- 241,875 -- -- -- 3,500,000 215,688
---------- ---------- ---------- ---------- ----------
$2,045,102 $2,095,048 $824,550 $177 $2,014,999
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------
VISTA
- ------------------------------------------------------------------------------------------------------------------------
Aspen Technology, Inc. 500,000 $5,666 $11,337 $1,032 -- 565,000(1) $17,338
Brightpoint, Inc. -- 30,937 -- -- -- 1,512,500(1) 33,086
Cognos Incorporated 2,250,000 -- 10,834 11,550 -- 1,420,000 36,032
Comverse Technology, Inc. 1,650,000 57,514 17,195 1,405 -- 1,300,000 51,350
Dura Pharmaceuticals, Inc. 2,200,000 12,362 6,487 1,746 -- 2,000,000 58,125
Employee Solutions, Inc. 2,600,000 20,809 42,840 (9,102) -- -- --
Hyperion Software Corp. -- 12,658 -- -- -- 1,400,000 22,575
IDEC Pharmaceuticals Corp. 1,000,000 32,350 9,872 (324) -- 540,000 9,652
Medicis Pharmaceutical Corp. 450,000 5,015 19,088 13,821 -- 945,000(1) 23,212
Oregon Metallurgical Corp. 754,600 15,488 23,125 (5,850) -- -- --
P-COM, Inc. 850,000 7,304 -- -- -- 1,050,000 29,794
PairGain Technologies, Inc. 2,200,000 30,246 40,583 45,853 -- 1,820,000(1) 47,206
Rational Software Corp. 2,200,000 -- 22,506 (8,697) -- 1,300,000 17,956
Sanmina Corp. -- 9,663 20,744 (381) -- 850,000 42,553
Whole Foods Market, Inc. 950,000 33,246 37,055 (10,979) -- -- --
---------- ---------- ---------- ---------- ----------
$273,258 $261,666 $40,074 -- $388,879
========== ========== ========== ========== ==========
(1) Includes adjustments for shares received from stock split and/or stock
spinoff during the period.
</TABLE>
24 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
6. CORPORATE EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Funds' Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Funds: American Century - Twentieth Century Ultra Fund Ultra Investors
American Century - Twentieth Century Vista Fund Vista Investors
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Semiannual Report Notes to Financial Statements 25
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
ULTRA
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
Investor Class
----------------------------------------------------------
1997(1) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $29.52 $28.03 $21.16 $21.61 $15.46 $15.53
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss)........................... 0.02(2) (0.05)(2) (0.07)(2) (0.03) (0.09) (0.05)
Net Realized and Unrealized Gain (Loss)
on Investment Transactions............................. 1.26 2.84 7.58 (0.42) 6.24 (0.02)
------- ------- ------- ------- ------- -------
Total From Investment Operations....................... 1.28 2.79 7.51 (0.45) 6.15 (0.07)
------- ------- ------- ------- ------- -------
Distributions
From Net Realized Gains
on Investment Transactions............................. (1.69) (1.19) (0.64) -- -- --
Distributions in Excess
of Net Realized Gains.................................. -- (0.11) -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.................................... (1.69) (1.30) (0.64) -- -- --
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $29.11 $29.52 $28.03 $21.16 $21.61 $15.46
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total Return(3)........................................ 4.35% 10.79% 36.89% (2.08)% 39.78% (0.45)%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets.................................. 1.00%(4) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets.................................. 0.11%(4) (0.20)% (0.30)% (0.10)% (0.60)% (0.40)%
Portfolio Turnover Rate................................ 51% 87% 87% 78% 53% 59%
Average Commission Paid per
Investment Security Traded............................. $0.0327 $0.0350 $0.0330 --(5) --(5) --(5)
Net Assets, End of Period (in millions)................ $18,874 $18,266 $14,376 $10,344 $8,037 $4,275
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
26 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
ULTRA
For a Share Outstanding Throughout the Periods Ended as Indicated
ADVISOR
CLASS
1997(1) 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................................................................. $29.52 $29.55
------- -------
Income From Investment Operations
Net Investment Loss(3).......................................................................... (0.02) (0.02)
Net Realized and Unrealized Gain (Loss) on Investment Transactions.............................. 1.26 (0.01)
------- -------
Total From Investment Operations................................................................ 1.24 (0.03)
------- -------
Distributions
From Net Realized Gains on Investment Transactions.............................................. (1.69) --
------- -------
Net Asset Value, End of Period....................................................................... $29.07 $29.52
------- -------
------- -------
Total Return(4)................................................................................. 4.21% (0.10)%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets............................................... 1.25%(5) 1.25%(5)
Ratio of Net Investment Income to Average Net Assets...........................................(0.14)%(5) (0.80)%(5)
Portfolio Turnover Rate......................................................................... 51% 87%
Average Commission Paid per Investment Security Traded.......................................... $0.0327 $0.0350
Net Assets, End of Period (in millions)......................................................... $18 $13
(1) Six months ended April 30, 1997 (unaudited).
(2) October 2, 1996 (commencement of sale of Advisor Class) through October 31, 1996.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 27
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
ULTRA
For a Share Outstanding Throughout the Period Ended as Indicated
INSTITUTIONAL
CLASS
------------------
1997(1)
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period............................................................................ $30.78
-------
Income From Investment Operations
Net Investment Income(2)................................................................................... 0.03
Net Realized and Unrealized Gain on Investment Transactions................................................ 0.02
-------
Total From Investment Operations........................................................................... 0.05
-------
Distributions
From Net Realized Gains on Investment Transactions......................................................... (1.69)
-------
Net Asset Value, End of Period.................................................................................. $29.14
-------
-------
Total Return(3)............................................................................................ 0.18%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets.......................................................... 0.80%(4)
Ratio of Net Investment Income to Average Net Assets....................................................... 0.21%(4)
Portfolio Turnover Rate.................................................................................... 51%
Average Commission Paid per Investment Security Traded..................................................... $0.0327
Net Assets, End of Period (in thousands)................................................................... $103
(1) November 14, 1996 (commencement of sale of Institutional Class) through April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
28 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
VISTA
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
INVESTOR CLASS
---------------------------------------------------------------------
1997(1) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $15.68 $15.73 $10.94 $12.24 $11.01 $10.53
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Loss....................................(0.06)(2) (0.11)(2) (0.08)(2) (0.08) (0.07) (0.04)
Net Realized and Unrealized Gain (Loss)
on Investment Transactions............................. (2.97) 1.09 4.90 0.45 1.95 0.52
------- ------- ------- ------- ------- -------
Total From Investment Operations....................... (3.03) 0.98 4.82 0.37 1.88 0.48
------- ------- ------- ------- ------- -------
Distributions
From Net Realized Gains
on Investment Transactions............................. (1.18) (1.02) (0.03) (1.66) (0.64) --
Distributions in Excess of Net Realized Gains.......... -- (0.01) -- (0.01) (0.01) --
------- ------- ------- ------- ------- -------
Total Distributions.................................... (1.18) (1.03) (0.03) (1.67) (0.65) --
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.............................. $11.47 $15.68 $15.73 $10.94 $12.24 $11.01
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total Return(3)........................................ (20.79)% 6.96% 44.20% 4.16% 17.71% 4.55%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets.................................. 1.00%(4) 0.99% 0.98% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets..................................(0.75)%(4) (0.70)% (0.60)% (0.80)% (0.60)% (0.40)%
Portfolio Turnover Rate................................ 49% 91% 89% 111% 133% 87%
Average Commission Paid per
Investment Security Traded............................. $0.0264 $0.0280 $0.0330 --(5) --(5) --(5)
Net Assets, End of Period (in millions)................ $1,569 $2,276 $1,676 $792 $847 $830
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 29
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
VISTA
For a Share Outstanding Throughout the Periods Ended as Indicated
Advisor Class
--------------------------
1997(1) 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................................................................. $15.67 $16.87
------- -------
Income From Investment Operations
Net Investment Loss(3).......................................................................... (0.06) (0.02)
Net Realized and Unrealized Loss on Investment Transactions..................................... (2.97) (1.18)
------- -------
Total From Investment Operations................................................................ (3.03) (1.20)
------- -------
Distributions
From Net Realized Gains on Investment Transactions.............................................. (1.18) --
------- -------
Net Asset Value, End of Period....................................................................... $11.46 $15.67
------- -------
------- -------
Total Return(4)................................................................................. (20.89)% (7.11)%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets............................................... 1.25%(5) 1.25%(5)
Ratio of Net Investment Income to Average Net Assets............................................(1.00)%(5) (1.20)%(5)
Portfolio Turnover Rate......................................................................... 49% 91%
Average Commission Paid per Investment Security Traded.......................................... $0.0264 $0.0280
Net Assets, End of Period (in millions)......................................................... $5 $6
(1) Six months ended April 30, 1997 (unaudited).
(2) October 2, 1996 (commencement of sale of Advisor Class) through October 31, 1996.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
</TABLE>
See Notes to Financial Statements
30 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
VISTA
For a Share Outstanding Throughout the Period Ended as Indicated
INSTITUTIONAL
CLASS
------------------
1997(1)
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period............................................................................. $15.73
-------
Income From Investment Operations
Net Investment Income(2).................................................................................... (0.03)
Net Realized and Unrealized Loss on Investment Transactions................................................. (3.04)
-------
Total From Investment Operations............................................................................ (3.07)
-------
Distributions
From Net Realized Gains on Investment Transactions.......................................................... (1.18)
-------
Net Asset Value, End of Period................................................................................... $11.48
-------
-------
Total Return(3)............................................................................................. (21.02)%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets........................................................... 0.80%(4)
Ratio of Net Investment Income to Average Net Assets........................................................(0.50)%(4)
Portfolio Turnover Rate..................................................................................... 49%
Average Commission Paid per Investment Security Traded...................................................... $0.0264
Net Assets, End of Period (in millions)..................................................................... $13
(1) November 14, 1996 (commencement of sale of Institutional Class) through April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 31
SHARE CLASS AND RETIREMENT ACCOUNT
INFORMATION
SHARE CLASSES
Until September 3, 1996, Ultra and Vista issued one class of fund shares,
reflecting the fact that most investors bought their shares directly from
American Century. All investors paid the same annual unified management fee and
did not pay any commissions or other fees to purchase shares from American
Century.
But increasing numbers of investors are purchasing fund shares through financial
intermediaries who are ordinarily compensated for the additional services they
provide. In September 1996, American Century began to offer three classes of
shares for many of its funds, including Ultra and Vista. One class is for
investors who still buy directly from American Century, one is for investors who
buy through financial intermediaries, and the third is for large institutional
customers.
The original class of Ultra and Vista shares is called the INVESTOR CLASS. All
shares issued and outstanding before September 3, 1996, have been designated as
Investor Class shares. Investor Class shares may also be purchased after
September 3, 1996. Investor Class shareholders do not pay any commissions or
other fees for purchase of fund shares directly from American Century. Investors
who buy Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee. THE PRICE AND PERFORMANCE OF THE INVESTOR CLASS
SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS CURRENTLY LISTED.
In addition, there is an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class shares
are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of that fee
is available to pay for recordkeeping and administrative services, and half is
available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class shares is 0.25% higher than the total expense
ratio of the Investor Class shares.
There is also an INSTITUTIONAL CLASS, which is available to endowments,
foundations, defined benefit pension plans or financial intermediaries serving
these investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class shares is 0.20% less
than the total expense ratio of the Investor Class shares. All classes of shares
represent a pro rata interest in the funds and generally have the same rights
and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
32 Share Class and Retirement Account Information American Century Investments
NOTES
Semiannual Report Notes 33
NOTES
34 Notes American Century Investments
NOTES
Semiannual Report Notes 35
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Twentieth Century Group offers nine equity funds that invest in the stocks
of growing companies, both domestically and internationally. The philosophy
behind these growth funds focuses on three important principles. First, the
funds seek to own successful companies, which we define as those with growing
earnings and revenues. Second, we attempt to keep the funds fully invested,
regardless of short-term market activity. Experience has shown that market gains
can occur in unpredictable spurts and that missing those opportunities can
significantly limit the potential for gain. Third, the funds are managed by
teams, rather than by one "star." We believe this allows us to make better, more
consistent management decisions.
In addition to these principles, each fund has its own investment policies:
TWENTIETH CENTURY ULTRA generally invests in the securities of mid-sized and
larger companies that exhibit growth. It will typically have significant price
fluctuations.
TWENTIETH CENTURY VISTA invests mainly in the securities of smaller or
medium-sized firms that exhibit growth. Although Vista has been one of American
Century's more volatile funds over the short term, it has also offered high
potential for long-term growth.
FUND MANAGEMENT TEAM LEADERS
- ---------------------------------------------
Ultra:
Portfolio Manager Jim Stowers III
Portfolio Manager Bruce Wimberly
Vista:
Portfolio Manager Glenn Fogle
Portfolio Manager John Seitzer
- ---------------------------------------------
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of the 500 largest
publicly traded U.S. companies. Created by Standard & Poor's Corporation, it is
considered to be a broad measure of U.S. stock market performance.
The S&P MIDCAP 400 is a capitalization-weighted index of the stocks of the 400
largest publicly traded U.S. companies not included in the S&P 500. Created by
Standard & Poor's Corporation, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It measures the
performance of the 2,000 smallest of the 3,000 largest publicly-traded U.S.
companies based on total market capitalization. The Russell 2000 represents
approximately 10% of the total market capitalization of the top 3,000 companies.
The average market capitalization of the index is approximately $420 million.
The RUSSELL 2500 INDEX was created by the Frank Russell Company. It measures the
performance of the 2,500 smallest of the 3,000 largest publicly-traded U.S.
companies based on total market capitalization. The Russell 2500 represents
approximately 23% of the total market capitalization of the top 3,000 companies.
The average market capitalization of the index is approximately $650 million.
The RUSSELL 2500 GROWTH INDEX measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth values.
The NASDAQ COMPOSITE INDEX is a market capitalization price-only index that
reflects the aggregate performance of domestic common stocks traded
"over-the-counter" on the regular Nasdaq market, as well as national market
system-traded foreign common stocks and American Depositary Receipts. It is
considered to represent the performance of smaller capitalization and
growth-oriented U.S. stocks.
36 Background Information American Century Investments
GLOSSARY
RETURNS
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 26-31.
PORTFOLIO STATISTICS
o Number of Companies-- the number of different companies held by a fund on a
given date.
o Price/Earnings (P/E) Ratio-- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
o Portfolio Turnover-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o Expense Ratio-- the operating expenses of the fund, expressed as a percentage
of average net assets. Share-holders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF STOCKS
o Blue-Chip Stocks-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
o Cyclical Stocks-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
o Growth Stocks-- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
o Large-Capitalization ("Large-Cap") Stocks-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
o Medium-Capitalization ("Mid-Cap") Stocks-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
o Small-Capitalization ("Small-Cap") Stocks-- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
o Value Stocks-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
STATISTICAL TERMINOLOGY
o Price/Book Ratio-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
Semiannual Report Glossary 37
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein 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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8626 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
APRIL 30, 1997
TWENTIETH
CENTURY
GROUP
Giftrust
[front cover]
TABLE OF CONTENTS
Report Highlights...........................................................1
Our Message to You..........................................................2
Period Overview.............................................................3
Performance & Portfolio Information.........................................4
Management Q & A............................................................5
Schedule of Investments.....................................................8
Statement of Assets and Liabilities.....................................10
Statement of Operations....................................................11
Statements of Changes in Net Assets........................................12
Notes to Financial Statements..............................................13
Financial Highlights.......................................................15
Background Information
Investment Philosophy and Policies......................................16
Comparative Indices.....................................................16
Fund Management Team Leaders............................................16
Glossary...................................................................17
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
Benham Group American Century Group Twentieth Century Group
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Giftrust
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o The U.S. stock market produced widely divergent returns over the period. The
S&P 500's 14.74% six-month total return continued a three-year trend of
unusually strong performance by large-cap stocks. By contrast, the S&P MidCap
400 posted a 6.88% return, and the small-cap Russell 2000 returned just 1.61%.
o Factors that were in the S&P 500's favor included: equity investors seeking
stability and liquidity; strong economic growth with low inflation; and the
success of index funds.
o The fast-growing companies targeted by Giftrust didn't benefit from the
factors that drove investors to the S&P 500. This happened despite strong
earnings growth on the part of most companies owned by the fund.
GIFTRUST
o Giftrust suffered one of the steepest short-term declines in the fund's
13-year history. The drop resulted from the decline of small-capitalization
(small-cap) growth stocks, compounded by the fund's focus on the most rapidly
growing companies within that group.
o The technology sell-off allowed the investment team to build positions in more
seasoned, high quality names. These are the stocks the team believes will
rebound strongly when the market again favors fast-growing companies.
o Holdings increased in semiconductor companies, energy services companies and
biotechnology firms. Among semiconductor companies, the fund has invested in a
small group of elite manufacturers of specialized, high-speed computer chips.
These chips are in demand as telecommunications networks expand around the
globe.
o The management team reduced computer software holdings because of increasing
competition and low barriers to entry in this industry.
o For the past two years the largest stocks in the S&P 500 index have seemingly
offered everything an investor could desire: strong earnings growth, above
average returns, low volatility and superior liquidity. To some extent the
extraordinary returns have also been self-perpetuating, as momentum-following
market participants have sold their underperforming stocks (often small-cap) to
buy the large-cap leaders. Giftrust's management team believes a change in
market leadership will probably begin with a deteriorating outlook for earnings,
and that change may not be too far away.
GIFTRUST
TOTAL RETURNS: AS OF 4/30/97
6 Months -24.36%(1)
1 Year -27.08%
NET ASSETS: $723 million
(AS of 4/30/97)
INCEPTION DATE: 11/25/83
TICKER SYMBOL: TWGTX
(1) Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
17.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
April 30, 1997, marked the end of an eventful period for the company and the
Twentieth Century aggressive growth funds. We entered 1997 with a new
identity--American Century Investments. American Century encompasses the skills,
talent and resources brought together when Twentieth Century Mutual Funds and
The Benham Group merged during 1995 and 1996.
Changing the company's name after being known as Twentieth Century Mutual Funds
for almost 40 years was a significant step. Although our core investment
disciplines remain unchanged, the combination of Twentieth Century and Benham
allows us to bring you a full menu of nearly 70 funds. Our offerings range from
conservative money market funds carrying the Benham name to the nine equity
growth funds that still carry the Twentieth Century name and employ our hallmark
growth-oriented investment approach.
The six-month period ended April 30, 1997, was a challenge for aggressive growth
funds such as Giftrust. As investors sought size, stability and familiarity, the
S&P 500 and funds that mirror the index outperformed growth funds investing in
smaller companies and emerging industries. These factors had an especially large
impact on the short-term performance of Giftrust.
Given this environment, it is important to remember that investing in aggressive
growth funds involves significant short-term volatility. Over the long term,
however, an aggressive growth strategy can provide the kind of significant
capital growth that builds wealth. Investors need patience to weather the
market's cycles and realize the strategy's potential benefits.
We have steadily refined the growth discipline pioneered at Twentieth Century
over the past 25 years, enabling our teams to identify and invest in businesses
that are among the fastest growing in the world. We are confident that our
approach will continue to reward patient investors who stay the course.
A large part of helping investors remain patient and confident in their funds is
regularly providing the best possible information in a helpful format. Based on
investors' feedback, we have redesigned our shareholder reports to include new
features such as a one-page report summary, a glossary, more charts and graphs,
and expanded Management Q&A and background information sections. This report
displays the new format.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
[line graph - data below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the six monthes ended April 30, 1997
- -------------------------------------------------------------------
DATE S&P 500 S&P 400 RUSSELL 2000
10/31/96 $1.00 $1.00 $1.00
11/30/96 $1.07 $1.06 $1.04
12/31/96 $1.06 $1.06 $1.07
1/31/97 $1.12 $1.10 $1.09
2/28/97 $1.13 $1.09 $1.06
3/31/97 $1.08 $1.04 $1.01
4/30/97 $1.15 $1.07 $1.02
S&P 500..............14.74%
S&P MidCap 400 ...... 6.88%
Russell 2000..........1.61%
Source: Lipper Analytical Services, Inc.
WIDELY DIVERGENT RETURNS
The six-month period ended April 30, 1997, produced widely divergent returns for
U.S. stock investors. In general, the shares of large companies (large-cap
stocks), particularly relatively stable, industry-leading firms in the S&P 500,
significantly outperformed the shares of faster-growing, smaller companies (mid-
and small-cap stocks). Value stocks (shares of companies that are lower priced)
generally outperformed growth stocks (those of companies demonstrating
above-average earnings growth) as investors placed a higher premium on earnings
stability than on earnings growth.
STRONG RETURNS FOR THE S&P 500
The S&P 500 typically represents the large-cap sector of the U.S. stock market.
Many investors also use the index as a proxy for the U.S. market as a whole. The
sustained advance of the S&P 500 was one of the key success stories of the
period. The index posted a 14.74% total return during the six months, continuing
a three-year trend of unusually strong results. Factors that supported the S&P
500's performance included:
o Investors seeking predictable earnings and liquidity because they feared
rising interest rates and an economic slowdown. The shares of large, well-known
firms such as Johnson & Johnson and Microsoft rallied appreciably.
o Favorable economic conditions (robust growth and low inflation) and
particularly strong earnings growth for large-cap companies.
o The popularity and success of S&P 500 index funds. With more investor dollars
chasing stocks in the S&P 500, the prices of those shares rose much faster than
the prices of mid- and small-cap stocks.
LOWER RETURNS FOR SMALLER-CAP STOCKS
Many analysts use the S&P MidCap 400 Index and the Russell 2000 Index to
represent mid- and small-cap stocks, respectively. As shown in the accompanying
graph, the S&P 500 significantly outperformed the smaller-cap indices.
While the S&P 500 and its component companies were considered a relatively safe
haven during the period, many investors viewed mid- and small-cap growth
companies as too volatile and unpredictable. Valuations for the stocks of these
companies declined as the market priced mid- and small-cap growth stocks more
conservatively, weighting current earnings more heavily than projected future
earnings. Investors also became less willing to pay a premium for fast-growing
technology and healthcare shares.
The resulting price declines were generally based more on market perception than
on changes in actual fundamental indicators such as earnings and revenue. Many
companies experienced lower share prices despite continuing to show strong
operating results. Defensive-minded analysts questioned whether the earnings and
revenue projections of mid- and small-cap companies would be realized, and
investors refused to pay the higher prices these shares have been awarded in the
past.
Semiannual Report Period Overview 3
PERFORMANCE & PORTFOLIO INFORMATION
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
GIFTRUST.............. -24.36% -27.08% 10.56% 17.16% 14.74%
Russell 2000 Growth... -7.36% -13.61% 9.39% 9.69% 7.26%
See pages 16 and 17 for more information about the Russell 2000 Growth Index and
returns.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Companies 73 70
Median Price/Earnings Ratio 27.9 47.8
Portfolio Turnover 68%(1) 121%(2)
Expense Ratio 1.00%(3) 0.98%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/97.
(3) Annualized.
[line graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
VALUE ON 4/30/97:
"$39,536 " GIFTRUST
"$30,175 " NASDAQ
"$20,156 " RUSSELL 2000 GROWTH
GIFTRUST NASDAQ RUSSELL 2000 GROWTH
DATE ACCT VALUE ACCT VALUE ACCT VALUE
4/30/87 $10,000 $10,000 $10,000
4/30/88 $8,756 $9,077 $8,734
4/30/89 $10,495 $10,233 $9,860
4/30/90 $11,881 $10,054 $9,924
4/30/91 $13,797 $11,601 $11,193
4/30/92 $17,907 $13,850 $12,695
4/30/93 $22,528 $15,831 $13,444
4/30/94 $29,251 $17,564 $15,398
4/30/95 $38,680 $20,200 $16,743
4/30/96 $54,215 $28,495 $23,332
4/30/97 $39,536 $30,175 $20,156
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing Giftrust's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return lines of the indices do not.
[bar chart - data below]
GIFTRUST'S ONE-YEAR RETURNS OVER 10 YEARS (Periods ended April 30)
GIFTRUST RUSSELL 2000
DATE RETURN RETURN
4/30/88 -12.44% -12.66%
4/30/89 19.86% 12.89%
4/30/90 13.21% 0.64%
4/30/91 16.12% 12.79%
4/30/92 29.79% 13.42%
4/30/93 25.80% 5.90%
4/30/94 29.84% 14.54%
4/30/95 32.24% 8.73%
4/30/96 40.16% 39.35%
4/30/97 -27.08% -13.61%
This chart illustrates the fund's returns over the past 10 years and compares
them with the Russell 2000 Growth's returns. Giftrust's total returns include
operating expenses, while the Russell 2000 Growth's returns do not. See page 16
for a description of the index. Past performance is no guarantee of future
results.
4 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Glenn Fogle and John Seitzer, portfolio managers on the
Giftrust management team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED APRIL 30?
Giftrust's total return of -24.36% represented one of the steepest short-term
declines in the fund's 13-year history. The fund's negative performance resulted
from the generally unfavorable investment environment for small-capitalization
(small-cap) growth stocks, compounded by our focus on the most rapidly growing
companies within that sector of the market. Our concentration on these
businesses, hardest hit by the market's turbulence, caused the fund to suffer a
greater decline than benchmark market indices.
When reflecting on this six-month performance, it's important to remember that
we manage Giftrust aggressively for optimum long-term returns. As a result, the
fund historically has been very volatile, sometimes underperforming the market
dramatically and other times outperforming it significantly. (To view how
Giftrust's performance has varied over short-term periods, see the One-Year
Return graph on page 4.) Giftrust has rebounded sharply from similar performance
downswings. We cannot predict when this might occur, but we can assure investors
that we are accustomed to managing through periods of intense market volatility
as well as the peaks and valleys in Giftrust's performance resulting from our
investment style.
HOW LARGE WAS THE GENERAL DECLINE OF SMALL-CAP GROWTH STOCKS FOR THE PERIOD?
Many investment analysts consider the Russell 2000 Growth Index to be the most
appropriate proxy for small-cap growth stock performance. This index posted a
- -7.36% total return for the period. Stocks in this sector suffered sharp
devaluations caused by investors fearing volatility and questioning the validity
of earnings and revenue projections for small-cap technology companies.
WHY WAS THE FUND'S PERFORMANCE BENCHMARK CHANGED FROM THE NASDAQ COMPOSITE INDEX
TO THE RUSSELL 2000 GROWTH INDEX?
The benchmark should resemble the holdings in Giftrust's portfolio as closely as
possible. The problem with the Nasdaq index is that it contains a number of
large-cap companies such as Microsoft and Intel that have market capitalizations
in excess of $100 billion and do not appear in Giftrust's portfolio. The Nasdaq
index's performance can be greatly skewed by these heavyweight companies. The
component companies in the Russell index are closer in size to those in
Giftrust. The average market capitalization of companies in the Russell 2000
Growth Index is approximately $400 million. This corresponds with Giftrust's
median market capitalization of $436 million at the end of the period.
WHY DID GIFTRUST'S PERFORMANCE DIFFER SO MARKEDLY FROM THAT OF THE RUSSELL 2000
GROWTH INDEX?
Unlike an index fund, Giftrust makes no attempt to match any benchmark returns
over short-term periods. In seeking superior long-term returns, the fund owns
companies that have much higher growth rates than those in the index. As a
result, the fund usually appears more expensive than the index on valuation
measures. Over time, we expect the exceptional earnings growth potential of the
stocks Giftrust owns to more than offset the premium paid to buy these
companies. In the short run, however, the fund can be very votatile and markedly
underperform the index.
Our management of the fund has remained consistent with our long-held investment
discipline. We bought and now own some great growth businesses. Unfortunately,
as sometimes happens, the prices of many of those stocks have fallen since we
acquired them in spite of strong earnings reports. We are prepared to retain the
shares of good businesses that meet our investment standards even if they fall
temporarily out of favor and their share prices lag for a while. While the past
is no guarantee of the future, our experience tells us that over the long term
we'll be rewarded with higher share prices.
Semiannual Report Management Q & A 5
CAN YOU GIVE INVESTORS ENCOURAGEMENT ABOUT THE FUND'S PERFORMANCE?
There are several factors that encourage us about the prospects for Giftrust.
The number of new stock offerings (IPOs) has declined dramatically in 1997
compared to the prior two years, stemming the flood of new issues that were
crowding the market. The sell-off in small-cap growth stocks has brought their
valuation relative to large-cap stocks down to historically low levels. Finally,
the companies Giftrust owns continue to report dynamic growth in their revenues
and earnings.
In terms of its investment philosophy and objectives, Giftrust is still
essentially the same fund it was two years ago when it was generating high
returns. We've stuck to our basic investment discipline, even though it's
currently out of favor. We've remained focused on long-term results. The stock
market, like the economy, moves in cycles. Periods like the recent one, when
uncertainty about the strength of the economy and the direction of interest
rates make stock investors more conservative, are normal. Eventually, market
sentiment should shift again, and when it does we would expect the fast-growing
stocks owned in Giftrust to reward investors for their patience.
WHAT CHANGES DID YOU MAKE IN THE FUND'S INVESTMENT STRATEGY OR HOLDINGS BASED ON
THE MARKET ENVIRONMENT?
We still own a significant number of technology stocks because the sector
continues to produce high and rising earnings growth rates. However, within the
technology group we shifted our focus to somewhat stronger companies with more
secure businesses. Because the sell-off in technology shares hit industry
leaders as well as less established companies, we were able to build positions
in several more seasoned, high quality names. These are the stocks we believe
will rebound strongly when the market once again favors fast-growing companies.
An example of our shift toward industry leaders is HBO & Company, a software
provider to the healthcare industry (not Home Box Office, the cable television
network). A dominant force in this specialized field, HBO provides software to
help hospitals manage back-office administrative functions, track clinical data
and manage patient information flow. The company has expanded to serve physician
groups, home healthcare and managed care organizations seeking to improve
efficiency.
WHAT OTHER CHANGES DID YOU MAKE IN THE FUND'S TECHNOLOGY HOLDINGS?
Apart from software companies with a unique niche such as HBO, we made a
strategic decision to reduce our investment in the software group because of
increasing competition and low barriers to entry. On the other hand, we
increased our holdings in a small group of elite manufacturers of specialized,
high-speed computer chips. These companies make semiconductors out of a
substance called gallium arsenide, which
TOP TEN HOLDINGS % of fund investments
As of As of
4/30/97 10/31/96
McAfee Associates, Inc. 3.2% 1.0%
PAREXEL International Corp. 3.1% 1.8%
HBO & Co. 2.9% --
CBT Group Plc ADR 2.5% 4.8%
P-COM, Inc. 2.5% 1.4%
Jabil Circuit, Inc. 2.5% --
Vitesse Semiconductor Corp. 2.3% --
Agouron Pharmaceuticals, Inc. 2.0% --
Herman Miller, Inc. 2.0% --
ANADIGICS, Inc. 1.9% --
TOP FIVE INDUSTRIES % of fund investments
As of As of
4/30/97 10/31/96
Computer Software & Services 14.3% 23.3%
Electrical & Electronic
Components 8.6% 0.9%
Communications Equipment 6.9% 5.1%
Energy (Services) 6.9% 0.5%
Biotechnology 6.5% 4.4%
6 Management Q & A American Century Investments
MANAGEMENT Q & A
processes data at faster speeds than conventional silicon. Demand for the chips
is exploding and there are only a few suppliers capable of manufacturing them.
Vitesse Semiconductor Corporation and ANADIGICS, Inc., two companies the fund
owns, provide chips to telecommunications companies serving the rapidly
expanding global telecommunications market. Gallium arsenide chips are playing a
key role in the expansion of internet access and in the deployment of standard
phone service via wireless networks in emerging countries.
IN WHAT OTHER INDUSTRIES IS GIFTRUST INVESTING?
We bought energy services companies after oil and gas prices dropped this
winter. As a result of fundamental restructuring in this industry, we're seeing
accelerating earnings that we believe are sustainable. Here, as in other
industries, technology is driving increased productivity. For example,
geologists now routinely analyze three-dimensional seismic data to find oil and
natural gas below the ocean floor. With this more accurate view of the size and
location of undersea reserves, energy companies can drill profitable wells in
locations that were previously economically unfeasible.
Biotechnology is another sector where we see attractive investment
opportunities. Many of the leading companies have new products in late stages of
development that should come to market within the next 12 months. For example,
Agouron Pharmaceuticals, Inc., a company the fund owns, received Food & Drug
Administration approval in March to market a new drug for treating AIDS patients
called Viracept. When used in combination with other drugs it has relatively few
side effects and significantly reduces the amount of HIV in patients' bodies.
Sales of Viracept are accelerating as more patients add it to their therapy.
WHAT DO YOU THINK WILL CAUSE THE MARKET FOR SMALL-CAP GROWTH STOCKS TO TURN
AROUND?
The outperformance of large-cap stocks over the past year has coincided with a
period of better than average (and better than expected) earnings growth, which
we think is attributable to the surprisingly robust economy. For the past two
years the largest stocks in the S&P 500 index have seemingly offered everything
an investor could desire: strong earnings growth, above average returns, low
volatility and superior liquidity.
We think that a change in market leadership will probably begin with a
deteriorating outlook for earnings, and that change may not be too far away. The
pace of economic growth in the first months of 1997 is not sustainable, and the
Federal Reserve seems intent on ensuring that the economy cools down. Slower
growth, higher interest rates and a strong dollar all put pressure on the
earnings growth rates of larger companies. With the profit margins at large-cap
companies already at historically high levels, it seems probable that their
earnings growth rates will decline over the next few quarters. Some smaller
companies will suffer the same deterioration, but those that can buck the trend
should attract growth-oriented investors. The inexpensive relative valuation of
small-cap stocks should also contribute to their recovery.
The year-long divergence between small-cap and large-cap stocks is very unusual,
which suggests the strong possibility of a small-cap rebound. Unfortunately
there is no telling precisely when this might happen or to what degree. We avoid
trying to time the market (and we discourage fund investors from doing so)
because market trends can reverse abruptly and without warning. Instead, we
concentrate on keeping the fund well positioned with investments in good,
growing businesses with the strongest fundamental outlook we can find. We don't
have any control over the timing of how the market reacts, but we can control
our investment strategy and goals.
EDITOR'S NOTE ON JUNE 6, 1997:
SINCE APRIL 30, GIFTRUST'S SHARE VALUE HAS RISEN BY 19% COMPARED TO AN INCREASE
OF ONLY 7% IN THE S&P 500. THE CHANGE IN MARKET SENTIMENT REGARDING SMALL
COMPANIES MAY HAVE BEGUN.
Semiannual Report Management Q & A 7
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- ------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--3.4%
500,000 DONCASTERS plc ADR(1)(2) $ 11,250
630,000 Wyman-Gordon Co.(1) 13,309
--------
24,559
--------
AGRICULTURE--0.7%
437,600 Northland Cranberries, Inc. 5,087
--------
BIOTECHNOLOGY--6.5%
230,000 Agouron Pharmaceuticals, Inc.(1) 14,734
430,000 Centocor, Inc.(1) 12,121
266,800 Incyte Pharmaceuticals, Inc.(1) 11,539
175,000 Protein Design Labs, Inc.(1) 4,386
246,900 Sangstat Medical Corp.(1) 4,259
--------
47,039
--------
BUSINESS SERVICES & SUPPLIES--5.7%
382,500 ABR Information Services, Inc.(1) 7,746
600,000 PMT Services, Inc.(1) 7,200
800,000 PAREXEL International Corp.(1)(2) 22,450
50,000 Romac International, Inc.(1) 978
220,000 Wackenhut Corrections Corp.(1) 3,465
--------
41,839
--------
COMMUNICATIONS EQUIPMENT--6.9%
406,400 Boston Technology, Inc.(1) 8,128
300,000 Coherent Communications
Systems Corp.(1) 4,987
650,000 P-COM, Inc.(1) 18,444
213,100 PairGain Technologies, Inc.(1) 5,527
600,000 Teledata Communications(1)(2) 13,312
--------
50,398
--------
COMMUNICATIONS SERVICES--2.8%
286,000 Pacific Gateway Exchange, Inc.(1) 6,900
960,000 Tel-Save Holdings, Inc.(1) 13,560
--------
20,460
--------
COMPUTER PERIPHERALS--4.9%
350,000 Advanced Digital Information Corp.(1) 5,709
300,000 Applied Magnetics Corp.(1) 7,537
310,000 Innovex, Inc. 9,862
120,000 Network Appliances, Inc.(1) 3,465
300,000 RadiSys Corp.(1)(2) 8,794
--------
35,367
--------
Shares ($ in Thousands) Value
- ------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES--14.3%
380,000 CBT Group Plc ADR(1) $ 18,525
390,000 HBO & Co. 20,841
460,000 HCIA(1)(2) 9,574
150,000 Intelligroup, Inc.(1) 1,500
130,000 Keane, Inc.(1) 6,029
145,000 Manugistics Group, Inc.(1) 7,794
415,000 McAfee Associates, Inc.(1) 23,136
20,900 Pomeroy Computer Resources, Inc.(1) 502
450,000 Transaction Systems Architects, Inc.(1) 13,416
150,000 Vantive Corp.(1) 2,991
--------
104,308
--------
CONSUMER PRODUCTS--2.1%
600,000 NBTY, Inc.(1)(2) 11,287
80,000 Nu Skin Asia Pacific Inc.(1) 2,080
175,000 USA Detergents, Inc.(1) 2,012
--------
15,379
--------
ELECTRICAL & ELECTRONIC
COMPONENTS--8.6%
502,500 ANADIGICS, Inc.(1) 14,070
150,000 Cymer, Inc.(1) 6,159
378,000 Jabil Circuit, Inc.(1) 18,262
170,000 Micrel, Inc.(1) 7,374
520,000 Vitesse Semiconductor Corp.(1) 16,477
--------
62,342
--------
ENERGY (PRODUCTION & MARKETING)--1.0%
340,000 Petroleum Securities
Australia Ltd. ADR(1) 7,374
--------
ENERGY (SERVICES)--6.9%
330,000 Global Marine Inc.(1) 6,641
425,000 Hvide Marine, Inc.(1) 7,225
800,000 Marine Drilling Companies, Inc.(1) 12,700
600,000 Noble Drilling Corp.(1) 10,425
375,000 Trico Marine Services, Inc.(1) 13,266
--------
50,257
--------
ENVIRONMENTAL SERVICES--1.8%
400,000 USA Waste Services, Inc.(1) 13,100
--------
FOOD & BEVERAGE--1.3%
400,000 Morningstar Group Inc.(1) 9,750
--------
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
Shares ($ in Thousands) Value
- ------------------------------------------------------------------------
FURNITURE & FURNISHINGS--2.0%
447,500 Miller (Herman), Inc. $ 14,460
--------
HEALTHCARE--4.4%
345,000 OccuSystems, Inc.(1) 7,051
250,000 Pediatrix Medical Group Inc.(1) 8,250
300,000 Quorum Health Group, Inc.(1) 9,300
130,000 Renal Care Group Inc.(1) 3,949
110,000 Total Renal Care Holdings, Inc.(1) 3,534
--------
32,084
--------
LEISURE--1.8%
210,000 Imax Corporation(1) 7,534
250,000 Signature Resorts(1) 5,531
--------
13,065
--------
MACHINERY & EQUIPMENT--2.4%
265,000 DT Industries, Inc. 6,956
575,000 U.S. Rentals, Inc.(1) 10,925
--------
17,881
--------
MEDICAL EQUIPMENT & SUPPLIES--1.2%
300,000 Spine-Tech, Inc.(1) 8,662
--------
PHARMACEUTICALS--4.1%
661,000 Capstone Pharmacy Services, Inc.(1) 5,556
320,000 Kos Pharmaceuticals, Inc.(1) 7,240
305,000 NCS HealthCare, Inc. Cl A(1) 6,977
400,000 Omnicare, Inc. 9,750
--------
29,523
--------
PRINTING & PUBLISHING--1.5%
450,000 Consolidated Graphics, Inc.(1) 10,969
--------
RESTAURANTS--0.3%
90,000 Rainforest Cafe, Inc.(1) 2,132
--------
RETAIL (GENERAL MERCHANDISE)--1.0%
270,000 Family Dollar Stores, Inc. 7,054
--------
RETAIL (SPECIALTY)--4.5%
780,000 Finish Line, Inc.(1) 8,044
270,000 MSC Industrial Direct Co., Inc.(1) 8,302
400,000 Pacific Sunwear of California(1) 12,600
240,000 Wilmar Industries, Inc.(1) 4,050
--------
32,996
--------
See Notes to Financial Statements
Shares ($ in Thousands) Value
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS--90.1% $656,085
--------
(Cost $662,332)
TEMPORARY CASH INVESTMENTS(3)
$13,100 par value FHLMC Discount Note,
5.39%, 5/19/97 13,065
Repurchase Agreement, Goldman Sachs & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 5.29%, dated 4/30/97,
due 5/1/97 (Delivery value $23,503) 23,500
Repurchase Agreement, J.P. Morgan Securities, Inc.,
(U.S. Treasury obligations), in a joint trading
account at 5.375%, dated 4/30/97,
due 5/1/97 (Delivery value $35,305) 35,300
--------
TOTAL TEMPORARY CASH INVESTMENTS--9.9% 71,865
(Cost $71,865) --------
TOTAL INVESTMENT SECURITIES--100.0% $727,950
(Cost $734,197) ========
Notes to Schedule of Investments
ADR = American Depositary Receipt
FHLMC = Federal Home Loan Mortgage Corporation
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 4 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the six months ended April 30, 1997.)
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
Semiannual Report Schedule of Investments 9
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
ASSETS ($ in Thousands Except Per-Share Amount)
<S> <C>
Investment securities, at value (identified cost of $734,197) (Note 3)...................$727,950
Cash..........................................................................................373
Receivable for investments sold............................................................11,415
Dividends and interest receivable..............................................................10
---------
739,748
---------
LIABILITIES
Disbursements in excess of demand deposit cash................................................243
Payable for investments purchased..........................................................16,013
Payable for capital shares redeemed............................................................69
Accrued management fees (Note 2)..............................................................601
Other liabilities...............................................................................1
---------
16,927
---------
Net Assets Applicable to Outstanding Shares..............................................$722,821
=========
CAPITAL SHARES, $0.01 PAR VALUE (In Thousands)
Authorized ...............................................................................200,000
=========
Outstanding ...............................................................................38,258
=========
Net Asset Value Per Share .................................................................$18.89
=========
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus)..................................................$752,413
Undistributed net investment loss.........................................................(2,943)
Accumulated undistributed net realized loss on investment transactions...................(20,402)
Net unrealized depreciation on investments (Note 3).......................................(6,247)
---------
$722,821
=========
</TABLE>
See Notes to Financial Statements
10 Statement of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME ($ in Thousands)
Income:
<S> <C>
Interest...............................................................................$ 1,123
Dividends......................................................................................65
----------
1,188
----------
Expenses (Note 2):
Management fees.............................................................................4,126
Directors' fees and expenses....................................................................5
----------
4,131
----------
Net investment loss.......................................................................(2,943)
----------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 3)
Net realized loss on investments (19,307)
Change in net unrealized appreciation on investments....................................(202,854)
----------
Net realized and unrealized loss
on investments..........................................................................(222,161)
----------
Net Decrease in Net Assets
Resulting from Operations..............................................................$(225,104)
==========
</TABLE>
See Notes to Financial Statements
Semiannual Report Statement of Operations 11
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996
Increase (Decrease) in Net Assets 1997 1996
OPERATIONS ($ in Thousands)
<S> <C> <C>
Net investment loss............................................................$ (2,943) $ (5,739)
Net realized gain (loss) on investments..........................................(19,307) 25,992
Change in net unrealized appreciation on investments............................(202,854) 51,469
--------- ---------
Net increase (decrease) in net assets resulting from operations.................(225,104) 71,722
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains on investment transactions...............................(27,036) (48,106)
--------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.........................................................89,942 242,811
Proceeds from reinvestment of distributions.......................................27,030 48,106
Payments for shares redeemed......................................................(7,761) (9,895)
--------- ---------
Net increase in net assets from capital share transactions.......................109,211 281,022
--------- ---------
Net increase (decrease) in net assets...........................................(142,929) 304,638
NET ASSETS
Beginning of period..............................................................865,750 561,112
--------- ---------
End of period...................................................................$722,821 $865,750
========= =========
Undistributed net investment loss...............................................$ (2,943) $ --
========= =========
TRANSACTIONS IN SHARES OF THE FUND (In Thousands)
Sold ..............................................................................3,892 10,014
Issued in reinvestment of distributions............................................1,126 2,075
Redeemed............................................................................(332) (413)
--------- ---------
Net increase.......................................................................4,686 11,676
========= =========
</TABLE>
See Notes to Financial Statements
12 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Giftrust (the Fund) is one of the seventeen
series of funds issued by the Corporation. The Fund's investment objective is to
seek capital growth by investing primarily in common stocks. The following
significant accounting policies related to the Fund are in accordance with
accounting policies generally accepted in the investment company industry.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and premiums.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the securities purchased 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 value of the securities
transferred to ensure that 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 other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 policy of the Fund to distribute all taxable income
and capital 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 federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on the
ex-dividend date. Distributions from net investment income and net realized
gains are declared and paid annually.
The 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 are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION--Certain officers and directors of the Corporation are
also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., and the Corporation's transfer agent, American Century Services
Corporation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that provides
the Fund with investment advisory and management services in exchange for a
single, unified fee. The Agreement provides that all expenses of the Fund,
except brokerage commissions, taxes, interest, expenses of those directors who
are not considered "interested persons" as defined in the Investment Company Act
of 1940 (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the Fund's average
daily closing net assets during the previous month. The annual management fee
for the Fund is 1%.
Semiannual Report Notes to Financial Statements 13
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of common stock for the six months ended April 30, 1997,
were $597,118,643 and $525,374,280, respectively. As of April 30, 1997,
accumulated net unrealized depreciation on investments, based on the aggregate
cost of investments of $734,820,046 for federal income tax purposes, was
$6,869,732, consisting of unrealized appreciation of $65,325,391 and unrealized
depreciation of $72,195,123.
- --------------------------------------------------------------------------------
4. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer who is or was an affiliate at or
during the six months ended April 30, 1997, follows:
<TABLE>
Share Realized April 30, 1997
Balance Purchase Sales Gain Share Market
10/31/1996 Cost Cost (Loss) Balance Value
- -----------------------------------------------------------------------------------------------------------------------------
ISSUER(1) ($ in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACT Networks, Inc. -- $11,990 $11,990 $ (6,184) --
DONCASTERS plc ADR -- 9,545 -- -- 500,000 $11,250
HCIA-- 23,487 11,106 (2,459) 460,000 9,574
NBTY, Inc. -- 17,002 8,254 (260) 600,000 11,287
PAREXEL International Corp. -- 15,802 -- -- 800,000(2) 22,450
RadiSys Corp. 541,000 23,889 13,101 (5,084) 300,000 8,794
Teledata Communications -- 12,999 -- -- 600,000 13,312
-------- -------- --------- --------
$114,714 $44,451 $(13,987) $76,667
======== ======== ========= ========
(1) None of the securities produced income during the period.
(2) Includes adjustments for shares received from stock split and/or stock
spinoff during the period.
</TABLE>
- --------------------------------------------------------------------------------
5. CORPORATE EVENTS
<TABLE>
The following name changes became effective January 1, 1997:
NEW NAMES FORMER NAMES
<S> <C> <C>
Fund's Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Fund: American Century - Twentieth Century Giftrust Giftrust Investors
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
14 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993 1992
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period...........................$25.79 $25.63 $20.50 $19.23 $13.57 $12.94
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Loss.......................(0.08)(2) (0.20)(2) (0.16)(2) (0.10) (0.09) (0.08)
Net Realized and Unrealized Gain
(Loss) on Investment Transactions.........(6.04) 2.46 6.37 3.28 7.18 1.41
--------- --------- --------- --------- --------- ---------
Total From
Investment Operations.....................(6.12) 2.26 6.21 3.18 7.09 1.33
--------- --------- --------- --------- --------- ---------
Distributions
From Net Realized Gains on
Investment Transactions...................(0.78) (2.10) (1.08) (1.91) (1.42) (0.70)
Distributions in Excess
of Net Realized Gains......................-- -- -- -- (0.01) --
--------- --------- --------- --------- --------- ---------
Total Distributions.......................(0.78) (2.10) (1.08) (1.91) (1.43) (0.70)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period................$18.89 $25.79 $25.63 $20.50 $19.23 $13.57
========= ========= ========= ========= ========= =========
Total Return(3)..........................(24.36)% 9.72% 32.52% 18.75% 55.84% 10.32%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........................1.00%(4) 0.98% 0.98% 1.00% 1.00% 1.00%
Ratio of Net Investment Loss
to Average Net Assets.......................(0.71)(4) (0.80)% (0.70)% (0.70)% (0.70)% (0.70)%
Portfolio Turnover Rate...........................68% 121% 105% 115% 143% 134%
Average Commission Paid per
Investment Security Traded....................$0.0263 $0.0230 $0.0260 --(5) --(5) --(5)
Net Assets, End
of Period (in millions)..........................$723 $866 $561 $266 $154 $78
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
Seminnual Report Financial Highlights 15
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Twentieth Century Group offers nine equity funds that invest in the stocks
of growing companies, both domestically and internationally. The philosophy
behind these growth funds focuses on three important principles. First, the
funds seek to own successful companies, which we define as those with growing
earnings and revenues. Second, we attempt to keep the funds fully invested,
regardless of short-term market activity. Experience has shown that market gains
can occur in unpredictable spurts and that missing those opportunities can
significantly limit the potential for gain. Third, the funds are managed by
teams, rather than by one "star." We believe this allows us to make better, more
consistent management decisions.
In addition to these principles, each fund has its own investment policies.
TWENTIETH CENTURY GIFTRUST generally invests in the securities of small
companies with accelerating growth. Shares of Giftrust can be given only as a
gift, and all investments must remain in the fund for a minimum of 10 years or
until the recipient reaches the age of majority, whichever is later. Giftrust is
a volatile investment with high long-term growth potential.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of the 500 largest
publicly traded U.S. companies. Created by Standard & Poor's Corporation, it is
considered to be a broad measure of U.S. stock market performance.
The NASDAQ COMPOSITE INDEX is a market capitalization price-only index that
reflects the aggregate performance of domestic common stocks traded "over the
counter" on the regular Nasdaq market, as well as national market system-traded
foreign common stocks and American Depositary Receipts. It is considered to
represent the performance of smaller capitalization and growth-oriented U.S.
stocks.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It measures the
performance of the 2,000 smallest of the 3,000 largest publicly-traded U.S.
companies, based on total market capitalization. The Russell 2000 represents
approximately 10% of the total market capitalization of the top 3,000 companies.
The index is further broken down into two mutually exclusive indices. The
RUSSELL 2000 GROWTH INDEX, used in this report, measures the performance of
those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth rates.
FUND MANAGEMENT TEAM LEADERS
Portfolio Manager Glenn Fogle
Portfolio Manager John Seitzer
16 Background Information American Century Investments
GLOSSARY
Returns
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 15.
PORTFOLIO STATISTICS
o NUMBER OF COMPANIES--the number of different companies held by a fund on a
given date.
o PRICE/EARNINGS (P/E) RATIO--a stock value measurement calculated by dividing a
company's stock price by its earnings per share, with the result expressed as a
multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
o PORTFOLIO TURNOVER--the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF STOCKS
o BLUE-CHIP STOCKS--stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS--generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
o GROWTH STOCKS--stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staples companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be stocks of
companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
o VALUE STOCKS--generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
STATISTICAL TERMINOLOGY
o PRICE/BOOK RATIO--a stock value measurement calculated by dividing a company's
stock price by its book value per share, with the result expressed as a multiple
instead of as a percentage. (Book value per share is calculated by subtracting a
company's liabilities from its assets, then dividing that value by the number of
outstanding shares.)
Semiannual Report Glossary 17
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein 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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8633 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
APRIL 30, 1997
TWENTIETH
CENTURY
GROUP
Select
Heritage
Growth
[front cover]
TABLE OF CONTENTS
Report Highlights.......................................................... 1
Our Message to You......................................................... 2
Period Overview............................................................ 3
Select
Performance & Portfolio Information................................... 4
Management Q & A...................................................... 5
Schedule of Investments............................................... 8
Financial Highlights.................................................. 32
Heritage
Performance & Portfolio Information................................... 11
Management Q & A...................................................... 12
Schedule of Investments............................................... 15
Financial Highlights.................................................. 33
Growth
Performance & Portfolio Information................................... 18
Management Q & A...................................................... 19
Schedule of Investments............................................... 22
Financial Highlights.................................................. 34
Statements of Assets and Liabilities....................................... 25
Statements of Operations................................................... 26
Statements of Changes in Net Assets........................................ 27
Notes to Financial Statements.............................................. 28
Share Class and Retirement
Account Information...................................................... 35
Background Information
Investment Philosophy and Policies.................................... 36
Comparative Indices................................................... 36
Fund Management Team Leaders.......................................... 36
Glossary................................................................... 37
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios. To
help you find the funds that may meet your needs, we have divided American
Century funds into three groups based on investment style and objectives. These
groups, which appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
Benham Group American Century Group Twentieth Century Group
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Select
Heritage
Growth
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o The U.S. stock market produced widely divergent returns over the period.
The S&P 500's 14.74% six-month total return continued a three-year trend of
unusually strong performance by large-cap stocks. By contrast, the S&P
MidCap 400 posted a 6.88% return.
o Factors that were in the S&P 500's favor included: equity investors seeking
stability and liquidity; strong economic growth with low inflation; and the
success of index funds.
SELECT
o A new portfolio manager, Jean Ledford, and two new investment analysts were
added to the fund management team.
o The fund performed well for the six months ended April 30, 1997, with a
return of 10.96%. That was not enough to catch its benchmark, the S&P 500,
which posted a 14.74% total return. Select's returns have matched the S&P
500 so far this calendar year but they lagged the index in late 1996, when
profit taking and the market's move to more defensive stocks hurt some of
Select's technology holdings.
o The fund's investments in defensive stocks increased during the period as
the market cycle matured. Because many pharmaceutical stocks met the fund's
criteria for a high level of sustainable growth, holdings of these stocks
increased.
HERITAGE
o The fund posted a 4.80% return for the six months ended April 30, 1997,
compared to a return of 6.88% for the S&P MidCap 400. The fund surpassed
most of its peers due mainly to its investment style, which is more
conservative than many mid-cap growth funds.
o Fund performance benefited from holdings in several industries that are
consolidating. Returns were dampened by the market's tepid response during
the period to fast growing, medium-capitalization companies.
o Fund managers decreased holdings in the business services sector and
increased holdings in computer software and services during the period.
GROWTH
o Growth's total return for the six months ended April 30, 1997, was 5.13%.
This compared to a return of 14.74% for the S&P 500. The fund has nearly
matched the S&P 500 for the calendar year-to-date, due to a strong rebound
in technology stocks.
o Fund managers increased holdings in pharmaceutical companies during the
period to take advantage of a new cycle of product introductions. Holdings
in computer networking stocks were trimmed as these companies' earnings
growth slowed.
SELECT
INVESTOR CLASS(1)
Total Returns: AS OF 4/30/97
6 Months 10.96%(2)
1 Year 20.54%
Net Assets: $4.2 billion
(AS of 4/30/97)
Inception Date: 10/31/58
Ticker Symbol: TWCIX
HERITAGE
Total Returns: AS OF 4/30/97
6 Months 4.80%(2)
1 Year 6.01%
Net Assets: $1.1 billion
(AS of 4/30/97)
Inception Date: 11/10/87
Ticker Symbol: TWHIX
GROWTH
Total Returns: AS OF 4/30/97
6 Months 5.13%(2)
1 Year 13.30%
Net Assets: $4.4 billion
(AS of 4/30/97)
Inception Date: 10/31/58
Ticker Symbol: TWCGX
(1) See Share Classes, page 35.
(2) Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
37.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photograph of James E. Stowers, Jr. and James E. Stowers III]
April 30, 1997, marked the end of an eventful period for the company and
the Twentieth Century growth funds. We entered 1997 with a new identity --
AMERICAN CENTURY INVESTMENTS. American Century encompasses the skills, talent
and resources brought together when Twentieth Century Mutual Funds and The
Benham Group merged during 1995 and 1996.
Changing the company's name after being known as Twentieth Century Mutual
Funds for almost 40 years was a significant step. Although our core investment
disciplines remain unchanged, the combination of Twentieth Century and Benham
allows us to bring you a full menu of nearly 70 funds. Our offerings range from
conservative money market funds carrying the Benham name to the nine equity
growth funds that still carry the Twentieth Century name and employ our hallmark
growth-oriented investment approach.
The six-month period ended April 30, 1997, was challenging for funds that
did not invest in the largest, most familiar names in the S&P 500. As investors
sought size, stability and liquidity, the S&P 500 and funds that mirror the
index outperformed growth funds investing in smaller companies and emerging
industries. This explains why Select, the most conservative of our three growth
funds, performed best during the period. Heritage, which invests in the mid-cap
market, performed in line with small- and mid-cap stocks while Growth, which
seeks out the fastest growing companies in the large-cap universe, trailed its
benchmark.
This environment highlights the importance of diversifying your portfolio.
At any one time, one segment of the market will lead all others and money will
follow that performance. No one can predict how long the market will favor
large, established stocks. That is why it is important to maintain exposure to
different-sized stocks and different investment styles.
We also encourage investors to not focus on short-term performance. Over
the long term, a growth strategy can provide the kind of significant capital
growth that builds wealth. However, investors need patience to weather the
market's cycles and realize the strategy's potential benefits.
We have steadily refined the growth discipline pioneered at Twentieth
Century over the past 25 years, enabling our teams to identify and invest in
businesses that are among the fastest growing in the world. We are confident
that our approach will continue to reward patient investors who stay the course.
A large part of helping investors remain patient and confident in their
funds is providing the best possible information regularly in a helpful format.
Based on investors' feedback, we have redesigned our shareholder reports to
include new features such as a one-page report summary, a glossary, more charts
and graphs, and expanded Management Q&A and background information sections.
This report displays the new format.
We appreciate your confidence in American Century and look forward to
continuing to serve you.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
WIDELY DIVERGENT RETURNS
The six-month period ended April 30, 1997, produced widely divergent
returns for U.S. stock investors. In general, the shares of large companies
(large-cap stocks), particularly relatively stable, industry-leading firms in
the S&P 500, significantly outperformed the shares of faster-growing, smaller
companies (mid- and small-cap stocks). Value stocks (shares of companies that
are lower priced) generally outperformed growth stocks (those of companies
demonstrating above-average earnings growth) as investors placed a higher
premium on earnings stability than on earnings growth.
STRONG RETURNS FOR THE S&P 500
The S&P 500 typically represents the large-cap sector of the U.S. stock
market. Many investors also use the index as a proxy for the U.S. market as a
whole. The sustained advance of the S&P 500 was one of the key success stories
of the period. The index posted a 14.74% total return during the six months,
continuing a three-year trend of unusually strong results. Factors that
supported the S&P 500's performance included:
o Investors seeking predictable earnings and liquidity because they feared
rising interest rates and an economic slowdown. The shares of large, well-known
firms such as Johnson & Johnson and Microsoft rallied appreciably.
o Favorable economic conditions (robust growth and low inflation) and
particularly strong earnings growth for large-cap companies.
o The popularity and success of S&P 500 index funds. With more investor
dollars chasing stocks in the S&P 500, the prices of those shares rose much
faster than the prices of mid- and small-cap stocks.
LOWER RETURNS
FOR AGGRESSIVE
GROWTH STOCKS
Many analysts use the S&P MidCap 400 Index and the Russell 2000 Index to
represent mid- and small-cap stocks, respectively. As shown in the accompanying
graph, the S&P 500 significantly outperformed the smaller-cap indices.
While the S&P 500 and its component companies were considered a relatively
safe haven during the period, many investors viewed high growth companies of all
sizes as too volatile and unpredictable. As a result, the market priced these
stocks more conservatively, weighting current earnings more heavily than
projected future earnings. Investors also became less willing to pay a premium
for fast-growing technology and healthcare shares.
The resulting price declines were generally based more on market perception
than on actual fundamental indicators such as earnings and revenue. Many
companies experienced lower share prices despite continuing to show strong
operating results. Defensive-minded analysts questioned whether the earnings and
revenue projections of mid- and small-cap companies would be realized, and
investors refused to pay the higher prices these shares have been awarded in the
past.
[line graph - data below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the six months ended April 30, 1997
Value on 4/30/97
S&P 500
$1.15
S&P MidCap 400
$1.07
Russell 2000
$1.02
DATE S&P 500 S&P 400 RUSSELL 2000
10/31/96 $1.00 $1.00 $1.00
11/30/96 $1.07 $1.06 $1.04
12/31/96 $1.06 $1.06 $1.07
1/31/97 $1.12 $1.10 $1.09
2/28/97 $1.13 $1.09 $1.06
3/31/97 $1.08 $1.04 $1.01
4/30/97 $1.15 $1.07 $1.02
S&P 500......................................14.74%
S&P MidCap 400................................6.88%
Russell 2000..................................1.61%
Source: Lipper Analytical Services, Inc.
Semiannual Report Period Overview 3
<TABLE>
<CAPTION>
SELECT
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS LIFE OF FUND
INVESTOR CLASS (inception 6/30/71)(1)
<S> <C> <C> <C> <C> <C> <C>
SELECT......... 10.96% 20.54% 15.67% 11.35% 10.40% 16.71%
S&P 500........ 14.74% 25.10% 24.08% 17.07% 14.10% 12.62%
INSTITUTIONAL CLASS (inception 3/14/97)
SELECT.................................................................. 2.50%
S&P 500................................................................. 1.50%
</TABLE>
(1) This inception date corresponds with the management company's implementation
of its current investment philosophy and practices.
See pages 35-37 for more information about share classes, the S&P 500 and
returns.
[line graph - data below]
GROWTH OF $10,000 OVER 20 YEARS (Investor Class)
$10,000 investment made 4/30/97
Value on 4/30/97:
Select
$331,138
S & P 500
$176,417
DATE SELECT S & P 500
4/30/77 $10,000 $10,000
4/30/78 $14,419 $10,342
4/30/79 $18,552 $11,452
4/30/80 $24,081 $12,633
4/30/81 $40,330 $16,579
4/30/82 $36,357 $15,366
4/30/83 $66,469 $22,888
4/30/84 $59,917 $23,268
4/30/85 $68,432 $27,370
4/30/86 $98,208 $37,274
4/30/87 $123,166 $47,165
4/30/88 $110,594 $44,128
4/30/89 $129,971 $54,179
4/30/90 $150,658 $59,836
4/30/91 $174,929 $70,344
4/30/92 $193,445 $80,229
4/30/93 $205,839 $87,623
4/30/94 $213,900 $92,290
4/30/95 $229,150 $108,364
4/30/96 $274,717 $141,019
4/30/97 $331,138 $176,417
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above).
The line representing Select's total return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
return line of the S&P 500 does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Companies 89 77
Median Price/Earnings Ratio 24.6 24.6
Portfolio Turnover 57%(1) 105%(2)
Expense Ratio (for Investor Class) 1.00%(3) 1.00%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/96.
(3) Annualized.
4 Select American Century Investments
SELECT
MANAGEMENT Q & A
An interview with Jean Ledford and Chuck Duboc, portfolio managers on the
Select management team. Jean joined the Select team in January. She brings 17
years of investment management experience, most recently as lead manager on a $5
billion large-cap portfolio in the Wisconsin state pension plan.
HOW DID SELECT PERFORM?
Select's total return for the six months ended April 30, 1997 was 10.96%, a
favorable return for the period in absolute terms. However, in comparative
terms, the fund underperformed its benchmark, the S&P 500, which posted a 14.74%
total return. Select's returns have matched the S&P 500 so far this calendar
year but they lagged the index in late 1996. (For a more extensive discussion of
the market environment, see the Period Overview on page 3.)
WHAT HAPPENED IN LATE 1996?
The last two months of the year were marked by profit taking, as many
investors sold stocks with strong 1996 performance and retreated to a more
defensive position. Stocks that are perceived to be sensitive to changing
economic conditions were sold in favor of those considered to have more immunity
to an economic slowdown. Among Select's holdings, several technology issues,
such as Cascade Communications and Premisys Communications, declined in price as
investors' perceptions turned more negative. Other holdings affected by the
sell-off were consumer giants Wal-Mart Stores and Nike Inc.
The fund was also underweighted relative to the S&P 500 in financial
stocks, which enjoyed strong performance during the period. We were
underweighted in this sector because we expected the Federal Reserve to raise
interest rates earlier and higher than it did. Such a move would have negatively
affected earnings at banks and insurance companies.
[bar graph - data below]
SELECT'S ONE-YEAR RETURNS OVER 10 YEARS (1) (Periods ended April 30)
DATE SELECT(1) S & P 500
4/88 -10.21% -6.44%
4/89 17.52% 22.78%
4/90 15.92% 10.44%
4/91 16.11% 17.56%
4/92 10.58% 14.05%
4/93 6.41% 9.22%
4/94 3.92% 5.33%
4/95 7.13% 17.42%
4/96 19.89% 30.13%
4/97 20.54% 25.10%
This chart illustrates the fund's returns over the past 10 years and compares
them with the S&P 500's returns. The fund's total returns include operating
expenses, while the S&P 500's returns do not. See page 36 for a description of
the index. Past performance is no guarantee of future results.
(1) Investor Class.
Semiannual Report Select 5
SELECT
WHAT STOCKS ADDED MOST TO RETURNS DURING THE PERIOD?
The fund's top performers were Microsoft Corp. and Intel Corp., which
dominate their industries and have become popular with many mutual fund
managers. We also achieved significant gains by taking large positions in
stocks that are not as widely held. Warner-Lambert Co. and Tyco International
are two examples.
Warner-Lambert, a pharmaceutical and consumer health company, won
regulatory approval for two new drugs during the period. These drugs, which
combat problems associated with diabetes and high cholesterol, collectively have
a market potential of more than $1 billion in sales. The profit margins for
these new products are much higher than those of the over-the-counter health and
beauty aids that sustained the company during the new products' research and
development phase. Anticipation of higher earnings from the new drugs boosted
the stock price during the period.
Tyco has been one of the fund's largest holdings for several years. The
company is a diversified manufacturer that leads the world in fire protection
systems. It also makes disposable medical products and underwater communications
and power cables. Tyco's profit margins have been rising and its growth rate
accelerating for successive quarters. The stock appreciated during the period as
it announced multiple positive earnings surprises and several sizable
acquisitions. Tyco typifies the kind of investments we seek; it benefits from
being a global leader in its industry and its growing market share continues to
boost earnings.
WHICH STOCKS LOWERED THE FUND'S RETURNS?
The shares of Cascade Communications, a computer services firm, were
punished by the market as its sales slowed. Another disappointment was in oil
drilling stocks, where Select's holdings included Reading and Bates Corp.,
Falcon Drilling and Diamond Offshore Drilling. The stocks began the period
strongly but corrected early this year as oil and gas prices fell. Many
investors feared oil companies would cut back on exploration budgets and rent
fewer rigs from these contract drilling firms. However, demand for offshore
drilling rigs remains strong and day rates continue to increase. These trends
should continue as long as commodity prices are reasonably stable.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PERIOD?
We moved more of the fund's investments into defensive stocks because we
are well into the market cycle. As always, we continue to look for accelerating
growth and a high level of growth rates. But we are also increasing the emphasis
on the sustainability of earnings growth. Because many pharmaceutical companies
met these criteria, our holdings of these stocks climbed to
TOP TEN HOLDINGS % of fund investments
As of As of
4/30/97 10/31/96
General Electric Co. 3.7% 2.6%
Tyco International, Ltd. 3.3% 3.3%
Procter & Gamble Co. (The) 3.1% --
Microsoft Corp. 2.9% 2.1%
Coca-Cola Company (The) 2.4% 1.1%
United Technologies Corp. 2.2% 2.2%
Intel Corp. 2.2% 3.3%
Textron Inc. 2.0% 1.7%
Lilly (Eli) & Co. 2.0% 1.7%
Royal Dutch Petroleum Co. 1.9% --
TOP FIVE INDUSTRIES % of fund investments
As of As of
4/30/97 10/31/96
Pharmaceuticals 13.7% 8.6%
Diversified Companies 11.6% 6.6%
Energy (Production & Marketing) 7.8% 6.1%
Computer Software & Services 6.8% 9.5%
Energy (Services) 5.5% 9.5%
6 Select American Century Investments
SELECT
nearly 15.0% of the portfolio compared with 8.6% six months earlier. Select also
built positions in food, beverage and household products companies during the
period.
ARE THERE OTHER CHANGES TO SELECT'S MANAGEMENT TEAM?
Yes, we have added support from seasoned portfolio analysts. Rick Petran,
who worked with Jean for 12 years as an investment analyst in Wisconsin, joined
the team in February. And Richard Welsh joined the team last year, moving from
our quantitative research team. Ken Crawford, who has worked on Select since
mid-1995, remains on the team. These new resources have improved our ability to
identify and invest in the most attractive large-cap growth stocks.
DO YOU BELIEVE THE LARGE-CAP MARKET IS OVERPRICED?
While it is true that stock prices for large-cap issues have risen, so have
earnings. Large-cap stocks have produced more positive earnings surprises than
their smaller brethren in the marketplace and share prices reflect this
phenomenon. We believe the trend of strong earnings will persist as these
companies continue to reap the rewards of a decade of restructuring and
increased concentration on their core businesses. Over time, we believe the fund
will benefit not simply from investing in large-cap stocks, but from selecting
the companies with continuing high growth rates.
Semiannual Report Select 7
SCHEDULE OF INVESTMENTS
SELECT
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--5.5%
373,000 AlliedSignal Inc. $ 26,949
250,000 Boeing Co. 24,656
775,000 Textron Inc. 86,316
1,250,000 United Technologies Corp. 94,531
------------
232,452
------------
BANKING--5.1%
1,350,000 Bank of New York Co., Inc. (The) 53,325
455,000 BankAmerica Corp. 53,178
300,000 Chase Manhattan Corp. 27,787
315,000 Citicorp 35,477
1,000,000 Northern Trust Corp. 44,563
------------
214,330
------------
BROADCASTING & MEDIA--0.9%
800,000 Time Warner Inc. 36,000
------------
CHEMICALS & RESINS--2.8%
400,000 du Pont (E.I.) de Nemours & Co. 42,450
1,011,300 Monsanto Co. 43,233
1,070,000 Sherwin-Williams Co. 32,368
------------
118,051
------------
COMMUNICATIONS EQUIPMENT--2.5%
650,000 Ericsson (L.M.) Telephone Co. ADR 21,897
700,200 Lucent Technologies, Inc. 41,399
735,000 Motorola Inc. 42,079
------------
105,375
------------
COMPUTER PERIPHERALS--0.6%
500,000 Cisco Systems Inc.(1) 25,906
------------
COMPUTER SOFTWARE & SERVICES--6.8%
536,000 Automatic Data Processing, Inc. 24,254
950,000 BMC Software, Inc.(1) 41,028
125,000 Computer Associates
International, Inc. 6,500
315,000 Computer Sciences Corp.(1) 19,687
975,000 First Data Corp. 33,637
1,000,000 Microsoft Corp.(1) 121,563
1,000,000 Oracle Systems Corp.(1) 39,812
------------
286,481
------------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMPUTER SYSTEMS--2.7%
500,000 Compaq Computer Corp.(1) $ 42,687
450,000 International Business
Machines Corp. 72,338
------------
115,025
------------
CONSUMER PRODUCTS--5.1%
400,000 Clorox Company 50,950
400,000 Gillette Company 34,000
1,050,000 Procter & Gamble Co. (The) 132,038
------------
216,988
------------
DIVERSIFIED COMPANIES--11.6%
1,400,000 Corning Inc. 67,550
1,400,000 General Electric Co. 155,225
700,000 Honeywell Inc. 49,438
500,000 Minnesota Mining &
Manufacturing Co. 43,500
2,273,800 Tyco International Ltd. 138,702
200,000 Unilever N.V. 39,250
------------
493,665
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--3.9%
600,000 Intel Corp. 91,875
800,000 Rockwell International Corp. 53,200
225,000 Texas Instruments Inc. 20,081
------------
165,156
------------
ENERGY (PRODUCTION & MARKETING)--7.8%
800,000 Apache Corp. 27,200
300,000 British Petroleum Co. p.l.c. ADR 41,287
585,000 Coastal Corp. (The) 27,787
900,000 Exxon Corp. 50,963
843,900 Falcon Drilling Co. Inc(1) 32,279
450,000 Royal Dutch Petroleum Co. 81,113
550,000 Sonat Inc. 31,419
180,000 Texaco Inc. 18,990
250,000 Total-Cie Franc Des ORD 20,764
------------
331,802
------------
See Notes to Financial Statements
8 Select American Century Investments
SCHEDULE OF INVESTMENTS
SELECT
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
ENERGY (SERVICES)--5.5%
950,000 BJ Services Co.(1) $ 44,769
900,000 Baker Hughes Inc. 31,050
700,000 Diamond Offshore Drilling(1) 45,062
350,000 Halliburton Co. 24,719
2,500,000 Reading & Bates Corp.(1) 55,937
250,000 Schlumberger Ltd. 27,688
66,100 Western Atlas Inc.(1) 4,098
------------
233,323
------------
FINANCIAL SERVICES--2.4%
500,000 Federal Home Loan
Mortgage Corporation 15,938
1,250,000 Federal National
Mortgage Association 51,406
600,000 Travelers Group, Inc. 33,225
------------
100,569
------------
FOOD & BEVERAGE--5.1%
700,000 Anheuser-Busch Companies, Inc. 30,012
1,625,000 Coca-Cola Company (The) 103,391
1,600,000 PepsiCo, Inc. 55,800
650,000 Sara Lee Corp. 27,300
------------
216,503
------------
HEALTHCARE--1.7%
475,000 Baxter International, Inc. 22,741
950,000 Cardinal Health, Inc. 50,587
------------
73,328
------------
INSURANCE--2.3%
500,000 Allstate Corp. 32,750
510,000 American International Group, Inc. 65,535
------------
98,285
------------
LEISURE--3.0%
1,300,000 Carnival Corp. Cl A 47,937
865,000 Disney (Walt) Co. 70,930
125,000 Eastman Kodak Co. 10,438
------------
129,305
------------
MEDICAL EQUIPMENT & SUPPLIES--0.8%
500,000 Medtronic, Inc. 34,625
------------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
OFFICE EQUIPMENT--0.5%
375,000 Xerox Corp. $ 23,062
------------
PAPER & FOREST PRODUCTS--2.4%
429,700 Boise Cascade Corp. 14,288
358,600 Bowater Inc. 15,509
800,000 Kimberly-Clark Corp. 41,000
296,300 Mead Corp. (The) 16,630
325,000 Weyerhaeuser Co. 14,869
------------
102,296
------------
PHARMACEUTICALS--13.7%
1,025,000 Abbott Laboratories 62,525
1,040,000 Bristol-Myers Squibb Co. 68,120
1,125,000 Johnson & Johnson 68,906
975,000 Lilly (Eli) & Co. 85,678
850,000 Merck & Co., Inc. 76,925
32,000 Novartis ORD 42,246
840,000 Pfizer, Inc. 80,640
290,000 SmithKline Beecham plc ADR 23,381
725,000 Warner-Lambert Co. 71,050
------------
579,471
------------
RESTAURANTS--0.8%
650,000 McDonald's Corp. 34,856
------------
RETAIL (FOOD & DRUG)--1.1%
1,000,000 Walgreen Co. 46,000
------------
RETAIL (GENERAL MERCHANDISE)--1.0%
1,550,000 Wal-Mart Stores, Inc. 43,788
------------
RETAIL (SPECIALTY)--0.5%
330,000 Home Depot, Inc. 19,140
------------
TOBACCO--1.6%
1,775,000 Philip Morris Companies Inc. 69,891
------------
TOTAL COMMON STOCKS--97.7% 4,145,673
------------
(Cost $3,291,960)
See Notes to Financial Statements
Semiannual Report Select 9
SCHEDULE OF INVESTMENTS
SELECT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- -----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(2)
$24,675 par value FNMA Discount Note,
5.38%, 5/5/97 $ 24,660
$25,000 par value FNMA Discount Note,
5.38%, 5/15/97 24,948
Repurchase Agreement, Goldman Sachs
& Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 5.29%,
dated 4/30/97, due 5/1/97
(Delivery value $48,707) 48,700
------------
TOTAL TEMPORARY
CASH INVESTMENTS--2.3% 98,308
------------
(Cost $98,308)
TOTAL INVESTMENT SECURITIES--100.0% $4,243,981
============
(Cost $3,390,268)
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value Gain
---------------------- ---------------- -------------- --------------
92,720,000 FRF 6/30/97 $15,976 $ 3
48,256,000 CHF 6/30/97 33,023 87
-------------- --------------
$48,999 $90
============== ==============
(Value on Settlement Date $49,089)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
FNMA = Federal National Mortgage Association
FRF = French Franc
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
See Notes to Financial Statements
10 Select American Century Investments
<TABLE>
<CAPTION>
HERITAGE
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND(1)
<S> <C> <C> <C> <C> <C>
HERITAGE.................. 4.80% 6.01% 11.95% 12.96% 15.27%
S&P MidCap 400............ 6.88% 10.13% 16.21% 14.56% 18.32% (2)
(1) Inception was November 10, 1987.
(2) For the period from 11/30/87 (the date nearest the fund's inception for
which data are available) to 4/30/97.
</TABLE>
See pages 36 and 37 for more information about the comparative indices and
returns.
[line graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 4/30/97:
S&P MidCap 400
$48,757
S&P 500
$46,169
Heritage
$38,860
DATE HERITAGE S & P 500 S & P 400
11/30/87 $10,000 $10,000 $10,000
4/30/88 $12,095 $11,548 $12,238
4/30/89 $14,857 $14,179 $15,036
4/30/90 $16,201 $15,659 $16,434
4/30/91 $18,314 $18,409 $20,584
4/30/92 $21,128 $20,996 $24,709
4/30/93 $24,470 $22,931 $28,292
4/30/94 $27,685 $24,152 $31,067
4/30/95 $29,318 $28,359 $34,108
4/30/96 $36,657 $36,905 $44,257
4/30/97 $38,860 $46,169 $48,757
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing Heritage's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return lines of the indices do not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Companies 92 92
Median Price/Earnings Ratio 20.3 21.4
Portfolio Turnover 27%(1) 122%(2)
Expense Ratio 1.00%(3) 0.99%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/96.
(3) Annualized.
Semiannual Report Heritage 11
HERITAGE
MANAGEMENT Q & A
An interview with Nancy Prial and Kevin Lewis, portfolio managers on the
Heritage management team.
HOW DID HERITAGE PERFORM?
Heritage posted a 4.80% total return for the six months ended April 30,
1997, compared to a return of 6.88% for the S&P MidCap 400, an index that is
used as a proxy for the performance of stocks in the medium capitalization
market.
WHY WERE RETURNS FOR THE FUND LOWER THAN THOSE OF ITS BENCHMARK?
Company size was a big factor in determining stock performance during the
period, with investor dollars chasing the largest stocks in the market. On
average, the companies in Heritage's portfolio are smaller than those in its
benchmark, which largely explains its lower return. Also, some of the fund's
higher-growth stocks declined in price in November and December as investors
sought liquidity. These stocks, which include Eagle Hardware & Garden and
Norrell Corp., rebounded strongly in May when they reported strong earnings,
helping to move the fund ahead of the S&P 400 year to date (as of May 31, 1997).
HOW DID THE FUND'S RETURNS FOR THE PERIOD COMPARE TO THOSE OF ITS PEER GROUP?
The fund was far ahead of its peers. The average mid-cap growth fund
returned -3.11% for the period, according to Lipper Analytical Services. Within
the universe of mid-cap growth stock funds, Heritage is relatively conservative.
We manage the fund so that it is well diversified across industry sectors; we
purchase stocks before their prices reflect the acceleration in earnings we see
arising from improving company fundamentals; and we invest most of the portfolio
in companies that pay dividends. This
[bar graph - data below]
HERITAGE'S ONE-YEAR RETURNS OVER 10 YEARS (Periods ended April 30)
DATE HERITAGE S & P MidCap 400
4/88 20.95% (1) 22.38%(1)
4/89 22.84% 22.86%
4/90 9.04% 9.30%
4/91 13.05% 25.25%
4/92 15.36% 20.04%
4/93 15.82% 14.50%
4/94 13.14% 9.81%
4/95 5.90% 9.79%
4/96 25.04% 29.81%
4/97 6.01% 10.13%
This chart illustrates the fund's returns since its inception and compares them
with the index's returns. Heritage's total returns include operating expenses,
while the S&P MidCap 400's returns do not. See page 36 for a description of the
index. Past performance is no guarantee of future results.
(1) Returns from 11/30/87, the date nearest to the fund's inception date for
which data is available, to 4/30/88.
12 Heritage American Century Investments
HERITAGE
combination of factors positioned the fund to benefit from equity investors'
more conservative behavior in the face of potentially higher interest rates.
WHAT STOCKS ADDED MOST TO RETURNS DURING THE PERIOD?
The fund successfully invested in companies that led the way in
consolidating their industries. Life insurance, banking and oil companies are
some of the areas where the fund has benefited from this trend. All three have
been going through a period of acquisitions that have reduced competition and
capacity. The acquirers gain economies of scale, improved profit margins and
expanded growth rates from their successfully merged businesses.
Two insurance companies, Conseco Inc. and SunAmerica Inc., were among the
fund's top performers. Both benefited from improved product sales and
consolidation. Earnings per share also were boosted by stock buy-back programs,
which reduce the number of shares in circulation. In addition, with strong cash
flows, they have been raising their dividends.
Washington Mutual Savings Bank in Seattle saw its stock price rise as it
successfully expanded into California through acquisitions. The company has
strong management and has benefited from improved economic conditions in
Washington and California.
Another top performer in the fund, Tosco Corp., is one of the largest
independent oil refining companies in the U.S. It also has acquired competitors
in an industry that has suffered from overcapacity for several years. We believe
that industry leaders like Tosco will be able to improve profitability going
forward because profit margins are still significantly below previous highs.
WHICH STOCKS NEGATIVELY AFFECTED THE FUND'S PERFORMANCE?
Fila Holding SPA, an Italian retailer specializing in sports clothing,
sustained the largest price decline of any stock in the portfolio. The company
grew at above average rates in 1996 due to an expansion in athletic footwear
stores and sales of Olympics-related merchandise. As the company's growth rate
returned to a more normal level this year, the stock price fell
disproportionately to its lessened growth rate.
Many of the companies the fund invests in performed spectacularly on a
fundamental basis yet their stocks were punished by a market focused on
large-cap stocks. One example is Technology Solutions, which writes software to
help companies automate call centers, develops custom software packages for
clients and designs systems that measure productivity and track incoming and
outgoing calls. The company's earnings grew 44% for the year ended Feb. 28,
meeting all analyst estimates, and it is a leader in its industry. Yet the price
investors were
TOP TEN HOLDINGS % of fund investments
As of As of
4/30/97 10/31/96
Conseco Inc. 4.3% 3.2%
Nokia Corp. Cl A ADR 2.9% 1.9%
Perkin-Elmer Corp. 2.6% 2.4%
SunAmerica, Inc. 2.6% 2.2%
Washington Mutual, Inc. 2.5% 1.9%
Tosco Corp. 2.5% 1.6%
Reynolds & Reynolds Co. 2.0% 2.8%
DEKALB Genetics Corp. 2.0% 1.4%
BMC Industries, Inc. 1.9% 1.8%
State Street Boston Corp. 1.8% 2.0%
TOP FIVE INDUSTRIES % of fund investments
As of As of
4/30//97 10/31/96
Computer Software & Services 9.3% 7.2%
Energy (Production & Marketing) 8.6% 5.4%
Insurance 8.6% 5.4%
Communications Equipment 7.5% 9.6%
Electrical & Electronic
Components 6.4% 2.7%
Semiannual Report Heritage 13
HERITAGE
willing to pay dropped as they favored larger companies with slower growth
rates. Technology Solutions remains a significant holding because it has strong
fundamentals and accelerating growth.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PERIOD?
We reduced our investments in business services from 8.00% of the fund's
holdings at the beginning of the period to 4.90% at the end. Some of the
business services companies that were long-time holdings in the fund had become
richly valued by the market, even as the rate of earnings acceleration had
slowed. We sold these companies and replaced them with other holdings with
greater upside potential. An example of a stock we sold is Paychex, which we
bought at $10 in mid 1994 and sold for between $29 and $37 during the period.
The fund's shift out of business services is representative of the
continuous evaluation process our team practices. We decide which companies have
matured in their earnings acceleration cycle and which are at the beginning of
that trend. This process forces us to choose what we believe to be the best
names within a sector and sell others to make room for stocks with stronger
growth potential.
On the buy side, we increased our investment in computer software and
services companies to 9.35% at the end of the period from 7.20% at the
beginning. Within this sector, we own mostly computer services firms because, as
corporate spending on technology continues to rise, the demand for computer
service and outsourcing companies is steadily increasing. One such holding is
Getronics, a Dutch firm that European companies have turned to for help with
converting to a common European currency and with getting computer systems to
recognize the year 2000. We were able to buy this company's stock at favorable
prices because European investors were less willing than investors in U.S.
markets to put a high value on growth stocks. The stock appreciated partly
because of earnings growth and partly because other investors recognized the
underlying strength of the business.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The market uncertainty that existed during the period is actually quite
good for Heritage and could help the fund going forward. The fund's appreciation
comes from buying the stocks of companies that are growing more quickly than is
reflected in the current stock price. As investors flock to the names of the
largest stocks in the S&P 500, we are able to buy the stocks of higher growth
companies at relatively lower prices.
HERITAGE INVESTORS HAVE BEEN ASKED TO APPROVE A DECREASE IN THE PROPORTION OF
DIVIDEND-PAYING COMPANIES TO 60%. HOW WILL THAT AFFECT THE FUND?
If approved, the change will increase the available universe of companies
we can invest in that show the attractive growth characteristics we seek. The
change should not, however, materially increase the fund's volatility because of
several factors that shape our investment decisions. We focus on stocks that are
less volatile and less widely followed than the shares favored by many of our
growth fund peers. We also focus on the valuations applied to the growth stocks
we buy. We seek to buy stocks when they are selling at a discount to their
long-term growth rate. These factors, combined with the dividend policy,
decrease volatility for our investors while optimizing long-term returns.
(Shareholders of record as of May 16, 1997, are eligible to vote and should have
received a proxy statement in the mail. Please read the statement carefully
before voting.)
14 Heritage American Century Investments
SCHEDULE OF INVESTMENTS
HERITAGE
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--3.0%
325,000 AAR CORP. $ 9,669
375,000 BE Aerospace, Inc.(1) 9,164
240,000 Precision Castparts Corp. 12,840
------------
31,673
------------
BANKING--4.8%
250,000 Ahmanson (H.F.) & Co. 9,531
365,000 North Fork Bancorporation, Inc. 14,463
540,000 Washington Mutual, Inc. 26,595
------------
50,589
------------
BIOTECHNOLOGY--0.6%
100,000 Agouron Pharmaceuticals, Inc.(1) 6,406
------------
BUILDING & HOME IMPROVEMENTS--2.3%
930,000 Apogee Enterprises, Inc. 13,892
479,100 Interface, Inc. 10,630
------------
24,522
------------
BUSINESS SERVICES & SUPPLIES--4.9%
200,000 National Computer Systems, Inc. 5,012
570,000 Norrell Corp. 15,034
80,000 Paychex, Inc. 3,745
1,025,000 Reynolds & Reynolds Co. 21,269
690,000 SITEL Corp.(1) 6,814
------------
51,874
------------
COMMUNICATIONS EQUIPMENT--7.5%
480,000 ADC Telecommunications, Inc.(1) 12,540
400,000 Newbridge Networks Corp.(1) 12,700
480,000 Nokia Corp. Cl A ADR 31,020
290,000 Sensormatic Electronics Corp. 4,350
375,000 Tellabs, Inc.(1) 14,930
455,500 Wireless Telecom Group 4,384
------------
79,924
------------
COMMUNICATIONS SERVICES--0.9%
170,000 Cincinnati Bell Inc. 9,520
------------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMPUTER PERIPHERALS--5.3%
700,000 BMC Industries, Inc. $ 20,300
580,000 Inacom Corp.(1)(2) 12,724
300,000 SCI Systems, Inc.(1) 18,525
260,000 Zero Corp. 5,070
------------
56,619
------------
COMPUTER SOFTWARE & SERVICES--9.3%
295,000 Adobe Systems Inc. 11,505
515,000 BDM International Inc.(1) 12,167
250,000 Cap Gemini ORD 8,173
275,000 Comdisco, Inc. 8,731
460,000 Getronics Geveke N.V. ORD 13,950
335,000 HBO & Co. 17,902
400,000 Henry (Jack) & Associates, Inc. 7,750
550,000 Spectrum HoloByte, Inc.(1) 3,334
605,000 Technology Solutions Co.(1) 16,108
------------
99,620
------------
CONSUMER PRODUCTS--3.5%
80,000 Adidas AG ORD 8,350
299,300 Fila Holding S.p.A. ADR 12,945
625,000 Herbalife International, Inc. 10,273
400,000 Stride Rite Corp. (The) 5,500
------------
37,068
------------
CONTROL & MEASUREMENT--3.8%
380,000 Perkin-Elmer Corp. 27,597
230,000 Tektronix, Inc. 12,449
------------
40,046
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--6.4%
325,000 AVX Technology 7,272
175,000 Charter Power System, Inc. 4,988
195,000 Cohu, Inc. 4,887
100,000 Dallas Semiconductor Corp. 3,650
248,979 LSI Logic Corp.(1) 9,523
170,000 Micron Technology, Inc. 5,993
750,000 Oak Technology, Inc.(1) 6,023
425,000 Pioneer Standard Electronics, Inc. 5,153
120,000 Raychem Corp. 7,740
160,000 STB Systems, Inc.(1) 4,130
250,000 Wyle Electronics 8,469
------------
67,828
------------
See Notes to Financial Statements
Semiannual Report Heritage 15
SCHEDULE OF INVESTMENTS
HERITAGE
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
ENERGY (PRODUCTION & MARKETING)--8.6%
425,000 Camco International, Inc. $ 18,859
650,000 Lomak Petroleum, Inc. 10,969
335,000 Newpark Resources, Inc.(1) 15,033
300,000 Pennzoil Co. 14,775
200,000 Sun Company, Inc. 5,475
895,000 Tosco Corp. 26,514
------------
91,625
------------
FINANCIAL SERVICES--1.8%
250,000 State Street Boston Corp. 19,688
------------
FOOD & BEVERAGE--4.8%
50,000 Coca-Cola Enterprises, Inc. 3,019
330,000 DEKALB Genetics Corp. 20,955
200,000 Earthgrains Company 11,450
770,000 Richfood Holdings, Inc. 15,689
------------
51,113
------------
INSURANCE--8.6%
1,105,000 Conseco Inc. 45,719
205,000 Loews Corp. 18,834
595,000 SunAmerica, Inc. 27,370
------------
91,923
------------
MACHINERY & EQUIPMENT--0.9%
235,000 Cincinnati Milacron Inc. 4,759
200,000 DT Industries, Inc. 5,250
------------
10,009
------------
MEDICAL EQUIPMENT & SUPPLIES--2.5%
400,000 Advanced Technology
Laboratories, Inc.(1) 13,200
300,000 AmeriSource Health Corp.(1) 13,388
------------
26,588
------------
OFFICE EQUIPMENT & SUPPLIES--1.0%
290,000 Avery Dennison Corp. 10,658
------------
PAPER & FOREST PRODUCTS--0.8%
175,000 Union Camp Corp. 8,509
------------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
PHARMACEUTICALS--2.5%
250,000 Mylan Laboratories $ 3,000
500,000 Omnicare, Inc. 12,187
225,000 Teva Pharmaceutical
Industries Ltd. ADR 11,363
------------
26,550
------------
RETAIL (APPAREL)--4.7%
350,000 AnnTaylor Stores Corp.(1) 8,488
240,000 Gucci Group N.V. 16,650
345,000 Liz Claiborne, Inc. 15,611
245,000 St. John Knits, Inc. 9,402
------------
50,151
------------
RETAIL (SPECIALTY)--3.6%
530,000 Eagle Hardware & Garden, Inc.(1) 9,871
875,000 Food Lion, Inc. Cl A 5,824
350,000 Hasbro, Inc. 8,750
325,000 Heilig-Meyers Co. 4,875
250,000 Lowe's Companies, Inc. 9,500
------------
38,820
------------
TRANSPORTATION--0.9%
380,000 Expeditors International of
Washington, Inc. 9,571
------------
MISCELLANEOUS--2.4%
387,500 Miller Industries(1) 4,602
225,000 Timken Co. 13,078
200,000 Valmont Industries, Inc. 7,937
------------
25,617
------------
TOTAL COMMON STOCKS--95.4% 1,016,511
------------
(Cost $815,175)
CONVERTIBLE PREFERRED STOCKS--0.6%
COMPUTER SOFTWARE & SERVICES
200,000 Vanstar Financing Trust (Acquired
9/27/96 through 10/24/96)(3) 6,475
------------
(Cost $10,274)
See Notes to Financial Statements
16 Heritage American Century Investments
SCHEDULE OF INVESTMENTS
HERITAGE
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- -----------------------------------------------------------------------------
CONVERTIBLE BONDS
COMPUTER PERIPHERALS--0.7%
$ 4,000 Quantum Corp., 5.00%, 3/1/03
(Acquired 1/29/97 through
3/17/97, Cost $6,748)(3) $ 7,790
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--1.2%
6,000 C-Cube Microsystems, Inc.,
5.875%, 11/1/05 6,023
7,500 VLSI Technology, Inc.,
8.25%, 10/1/05 7,106
------------
13,129
------------
MEDICAL EQUIPMENT & SUPPLIES--1.0%
10,000 Heartport, Inc., 7.25%,
5/1/04 (Acquired
4/15/97, Cost $10,000)(3) 10,600
------------
TOTAL CONVERTIBLE BONDS--2.9% 31,519
------------
(Cost $31,749)
TEMPORARY CASH INVESTMENTS--1.1%
Repurchase Agreement, J. P. Morgan
Securities, Inc., (U.S. Treasury
obligations), in a joint
trading account at 5.375%,
dated 4/30/97, due 5/1/97
(Delivery value $11,202) 11,200
------------
(Cost $11,200)
TOTAL INVESTMENT SECURITIES--100.0% $1,065,705
============
(Cost $868,398)
FORWARD FOREIGN CURRENCY CONTRACTS
Contracts Settlement Unrealized
to Sell Dates Value Gain
--------------------- ---------------- -------------- --------------
11,328,000 DEM 6/30/97 $ 6,580 $ 2
37,676,000 NLG 6/30/97 19,448 46
-------------- --------------
$26,028 $48
============== ==============
(Value on Settlement Date $26,076)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
DEM = German Mark
NLG = Netherlands Guilder
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the six months ended April 30, 1997.)
(3) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at April 30, 1997, was $24,865, which represented
2.3% of the net assets of Heritage.
See Notes to Financial Statements
Semiannual Report Heritage 17
<TABLE>
<CAPTION>
GROWTH
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS
<S> <C> <C> <C> <C> <C> <C>
GROWTH......... 5.13% 13.30% 11.96% 9.57% 11.31% 19.96%
S&P 500........ 14.74% 25.10% 24.08% 17.07% 14.10% 15.43%
</TABLE>
See pages 36 and 37 for more information about the S&P 500 and returns.
[line graph data]
GROWTH OF $10,000 OVER 20 YEARS
$10,000 investment made 4/30/97
Value on 4/30/97:
Growth
$381,024
S & P 500
$176,417
DATE GROWTH S & P 500
4/30/77 $10,000 $10,000
4/30/78 $14,910 10,342
4/30/79 $21,950 $11,452
4/30/80 $29,989 $12,633
4/30/81 $56,532 $16,579
4/30/82 $43,209 $15,366
4/30/83 $70,009 $22,888
4/30/84 $61,012 $23,268
4/30/85 $65,799 $27,370
4/30/86 $98,673 $37,274
4/30/87 $130,547 $47,165
4/30/88 $113,932 $44,128
4/30/89 $138,804 $54,179
4/30/90 $159,606 $59,836
4/30/91 $200,909 $70,344
4/30/92 $241,279 $80,229
4/30/93 $238,001 $87,623
4/30/94 $271,410 $92,290
4/30/95 $289,145 $108,364
4/30/96 $336,311 $141,019
4/30/97 $381,024 $176,417
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing Growth's total return includes operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
return line of the S&P 500 does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Companies 63 64
Median Price/Earnings Ratio 25.1 25.9
Portfolio Turnover 41%(1) 122%(2)
Expense Ratio 1.00%(3) 1.00%
(1) Six months ended 4/30/97.
(2) Year ended 10/31/96.
(3) Annualized.
18 Growth American Century Investments
GROWTH
MANAGEMENT Q & A
An interview with Jim Stowers III, lead manager of the Growth management
team.
HOW DID GROWTH PERFORM?
The fund posted a modest return for the six months ended April 30, 1997,
but more than doubled that return year-to-date (as of May 31, 1997). For the six
months ended April 30, 1997, the fund's total return was 5.13%, but for the five
months ended May 31, 1997, the fund's total return was 13.76%.
WHY WAS GROWTH'S YEAR-TO-DATE PERFORMANCE (AS OF MAY 31, 1997) HIGHER THAN ITS
PERFORMANCE DURING THE PERIOD?
Simply put, the year-to-date return includes May and excludes November and
December. Late in 1996, the stocks of several of our larger technology holdings
dropped as investors anticipated that interest rates would increase in 1997.
Many investors shunned the stocks of rapidly growing companies, preferring to
own defensive stocks, such as companies that produce consumer goods. In May, the
sentiment shifted and many technology companies' stocks soared. We held onto
many of the companies that performed poorly late in 1996 because we recognized
their growth potential did not change, even though market sentiment had. ADC
Telecommunications, Tellabs, Inc. and Newbridge Networks Corp. are all examples
of stocks that hurt the fund late last year and are boosting returns now. These
companies provide telecommunications equipment to cable companies, telephone
companies, internet providers and other service providers in the expanding
information industry.
We have held true to our discipline of investing in fast growing companies
with accelerating earnings, even though the market does not always reward this
strategy. Over time, we believe these companies will outperform the broader
market as investor dollars reward a high rate of earnings growth.
[bar graph - data below]
GROWTH'S ONE-YEAR RETURNS OVER 10 YEARS (Periods ended April 30)
DATE GROWTH S & P 500
4/88 -12.73% -6.44%
4/89 21.83% 22.78%
4/90 14.99% 10.44%
4/91 25.88% 17.56%
4/92 20.09% 14.05%
4/93 -1.36% 9.22%
4/94 14.04% 5.33%
4/95 6.53% 17.42%
4/96 16.31% 30.13%
4/97 13.30% 25.10%
This chart illustrates the fund's returns over the past 10 years and compares
them with the S&P 500's returns. Growth's total returns include operating
expenses, while the S&P 500's returns do not. See page 36 for a description of
the index. Past performance is no guarantee of future results.
Semiannual Report Growth 19
GROWTH
WHEN DO YOU SELL A STOCK WHOSE PERFORMANCE IS HURTING THE FUND?
When we are convinced that the acceleration in earnings and revenue growth
is slowing and/or when we see an unfavorable change in a company's business
prospects. While we held onto the telecommunications providers listed above, we
sold computer networking companies late last year when they were slow to
introduce new products and their earnings per share growth began to decelerate.
We continue to like the technology sector because of the accelerating earnings
these companies produce, but we constantly monitor which stocks have strong
future prospects and which do not.
WHAT STOCKS ADDED MOST TO RETURNS DURING THE PERIOD?
As a group, the insurance stocks we owned performed well. These included
Conseco Inc., Travelers Group Inc. and Allstate Corp. The fund's insurance
holdings appreciated for a variety of reasons, but common themes included
industry consolidation through acquisitions, reductions in the frequency and
severity of claims and share buy-back programs. By using income from premiums to
buy shares instead of writing policies, the companies reduced competition and
boosted profits. Earnings per share improved as profits strengthened and the
amount of outstanding stock declined.
The stock that contributed most to Growth's performance for the six months
was First USA Inc., a credit card issuer. We began purchasing the stock in June,
1996, in the mid-$20 range and sold the majority of it earlier this year when it
was trading in the upper $40 range. We began to sell the stock after Ohio
banking giant BancOne announced it was acquiring First USA on Jan. 20.
WHICH STOCKS DISAPPOINTED YOU?
Computer networking stocks Xylan Corp. and Cisco Systems Inc. were among
the fund's poorer performers. The market punished these companies for
reporting lower revenues than analysts expected.
First Data Corp. also suffered a price decline during the period but
remains a significant holding because of its excellent prospects for
accelerating earnings. The company handles credit card processing and account
statements for credit card issuers, such as banks. We expect this company to
benefit from a long-term consumer trend toward use of debit and credit cards and
away from cash and paper checks. Part of the reason the company's earnings
suffered during the period was capital spending to address the year 2000 issue,
which all companies relying on computers must face.
TOP TEN HOLDINGS % of fund investments
As of As of
4/30/97 10/31/96
Lilly (Eli) & Co. 3.9% 1.7%
Conseco Inc. 3.8% 1.7%
Merck & Co., Inc. 3.4% 1.4%
Compuware Corp. 3.4% 1.8%
Tellabs, Inc. 3.2% 4.9%
Texas Instruments Inc. 3.1% --
Allstate Corp. 3.1% 1.3%
Newbridge Networks Corp. 3.1% 4.5%
Avon Products, Inc. 2.8% 1.6%
Worldcom Inc. 2.6% 0.8%
TOP FIVE INDUSTRIES % of fund investments
As of As of
4/30/97 10/31/96
Communications Equipment 12.4% 15.4%
Computer Software & Services 10.7% 12.8%
Insurance 9.6% 4.9%
Pharmaceuticals 9.2% 6.7%
Electrical & Electronic
Components 8.0% 2.3%
20 Growth American Century Investments
GROWTH
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PERIOD?
The team continually evaluates the stocks in which the fund invests to weed
out companies that are late in the cycle of accelerating earnings and to buy
companies in the early stages of that cycle. Sometimes that results in shifts in
the sector weightings in the fund.
We increased Growth's holdings in pharmaceutical stocks to take advantage
of a new cycle of product introductions. Drug companies' heavy investment in
research and development is paying off with many new products coming to market.
These new products, combined with the favorable demographic trends of the aging
U.S. population, give us confidence that many companies in this industry will
see earnings acceleration.
We reduced computer networking stocks during the period for the reasons
cited earlier.
WHAT IS YOUR ROLE ON THE GROWTH FUND TEAM? WHAT IS THE OUTLOOK FOR THE FUND?
I have worked with the fund on and off over the past 15 years and have
rejoined the team recently. Chris Boyd, who helped manage the fund for five
years, left early this year. The team is composed of two other investment
professionals with a combined 14 years of investing experience.
One of my goals is to keep the fund focused on the stocks of solid growth
companies that have a global presence and a strong franchise in their respective
fields. By sharpening the fund's focus on the large-cap part of the market, we
intend to improve performance over time.
Semiannual Report Growth 21
SCHEDULE OF INVESTMENTS
GROWTH
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--0.6%
250,000 Boeing Co. $ 24,656
------------
BANKING--4.1%
800,000 Citicorp 90,100
300,000 First Union Corp. 25,200
350,000 Norwest Corp. 17,456
3,232,941 Standard Chartered plc ORD 49,075
------------
181,831
------------
BIOTECHNOLOGY--0.9%
700,000 Amgen Inc. 41,169
------------
BUSINESS SERVICES & SUPPLIES--1.1%
1,600,000 U.S. Filter Corp.(1) 48,600
------------
CHEMICALS & RESINS--1.2%
700,000 Potash Corp. of Saskatchewan Inc. 53,813
------------
COMMUNICATIONS EQUIPMENT--12.4%
3,200,000 ADC Telecommunications, Inc.(1) 83,600
1,600,000 Ericsson (L.M.) Telephone Co. ADR 53,900
1,295,000 Lucent Technologies, Inc. 76,567
4,300,000 Newbridge Networks Corp.(1) 136,525
900,000 Nokia Corp. Cl A ADR 58,163
3,500,000 Tellabs, Inc.(1) 139,344
------------
548,099
------------
COMMUNICATIONS SERVICES--3.5%
200,000 SBC Communications Inc. 11,100
900,000 Teleport Communications
Group Inc.(1) 25,762
4,882,500 Worldcom Inc.(1) 116,875
------------
153,737
------------
COMPUTER PERIPHERALS--0.6%
300,000 Cisco Systems Inc.(1) 15,544
650,000 Xylan Corp. (1)(2) 9,750
------------
25,294
------------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES--10.7%
1,660,000 Cambridge Technology
Partners, Inc.(1) $ 43,990
4,000,000 Compuware Corp.(1) 151,000
1,900,000 Concord EFS, Inc.(1) 37,762
1,900,000 First Data Corp. 65,550
600,000 Microsoft Corp.(1) 72,938
1,250,000 Oracle Systems Corp.(1) 49,766
1,200,000 SunGard Data Systems Inc.(1) 53,325
------------
474,331
------------
COMPUTER SYSTEMS--3.3%
1,150,000 Compaq Computer Corp.(1) 98,181
300,000 International Business
Machines Corp. 48,225
------------
146,406
------------
CONSUMER PRODUCTS--3.4%
2,000,000 Avon Products, Inc. 123,250
300,000 Gillette Company 25,500
------------
148,750
------------
DIVERSIFIED COMPANIES--2.8%
1,000,000 General Electric Co. 110,875
180,000 Tyco International Ltd. 10,980
------------
121,855
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--8.0%
600,000 Applied Materials, Inc.(1) 32,887
600,000 Intel Corp. 91,875
1,200,000 LSI Logic Corp.(1) 45,900
1,450,000 Microchip Technology Inc.(1) 45,403
1,550,000 Texas Instruments Inc. 138,338
------------
354,403
------------
ENERGY (PRODUCTION & MARKETING)--3.1%
650,000 Amoco Corp. 54,356
200,000 British Petroleum Co. p.l.c. ADR 27,525
779,700 Chevron Corp. 53,409
------------
135,290
------------
See Notes to Financial Statements
22 Growth American Century Investments
SCHEDULE OF INVESTMENTS
GROWTH
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
FINANCIAL SERVICES--4.4%
2,200,000 Federal National
Mortgage Association $ 90,475
400,000 First USA, Inc. 19,250
1,500,000 Travelers Group, Inc. 83,063
------------
192,788
------------
HEALTHCARE--2.3%
800,000 Oxford Health Plans, Inc.(1) 52,650
1,000,000 United HealthCare Corp. 48,625
------------
101,275
------------
INSURANCE--9.6%
875,000 Ace, Ltd. 52,500
2,100,000 Allstate Corp. 137,550
525,000 American International Group, Inc. 67,462
4,063,000 Conseco Inc. 168,107
------------
425,619
------------
LEISURE--0.8%
605,000 HFS, Inc.(1) 35,846
------------
MEDICAL EQUIPMENT & SUPPLIES--0.8%
1,050,000 US Surgical Corp. 35,963
------------
METALS & MINING--0.5%
350,000 Reynolds Metals Co. 23,756
------------
OFFICE EQUIPMENT & SUPPLIES--2.2%
1,550,000 Xerox Corp. 95,325
------------
PHARMACEUTICALS--9.2%
1,300,000 Abbott Laboratories 79,300
1,975,000 Lilly (Eli) & Co. 173,553
1,675,000 Merck & Co., Inc. 151,588
------------
404,441
------------
RETAIL (APPAREL)--1.8%
850,000 Gucci Group N.V. 58,969
900,000 Nautica Enterprises Inc.(1) 19,800
------------
78,769
------------
RETAIL (FOOD & DRUG)--1.6%
1,400,000 CVS Corp. 69,475
------------
Shares/Principal Amount ($ in Thousands) Value
- -----------------------------------------------------------------------------
RETAIL (SPECIALTY)--3.2%
2,000,000 CompUSA Inc.(1) $ 38,500
1,350,000 Home Depot, Inc. 78,300
947,700 Tech Data Corp.(1) 23,159
------------
139,959
------------
TOBACCO--1.4%
1,550,000 Philip Morris Companies Inc. 61,031
------------
TOTAL COMMON STOCKS--93.5% 4,122,481
------------
(Cost $3,152,359)
TEMPORARY CASH INVESTMENTS(3)
$91,000 par value FHLB Discount Notes,
5.34%-5.39%, 5/1/97 through 5/19/97 90,829
$180,000 par value, FNMA Discount Notes,
5.38%-5.58%, 5/5/97 through 5/23/97 179,679
$17,475 par value, SLMA Discount Notes,
5.28%, 5/1/97 17,475
------------
TOTAL TEMPORARY
CASH INVESTMENTS--6.5% 287,983
------------
(Cost $287,983)
TOTAL INVESTMENT SECURITIES--100.0% $4,410,464
------------
(Cost $3,440,342)
FORWARD FOREIGN CURRENCY CONTRACTS
Contract Settlement Unrealized
to Sell Date Value Loss
--------------------- ----------------- -------------- --------------
22,194,782 GBP 6/30/97 $36,051 $(43)
============== ==============
(Value on Settlement Date $36,008)
See Notes to Financial Statements
Semiannual Report Growth 23
SCHEDULE OF INVESTMENTS
GROWTH
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
FNMA = Federal National Mortgage Association
GBP = British Pound
SLMA = Student Loan Marketing Association
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in the
Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer who is or was an
affiliate at or during the six months ended April 30, 1997.)
(3) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
See Notes to Financial Statements
24 Growth American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED) SELECT HERITAGE GROWTH
ASSETS ($ in Thousands Except Per-Share Amounts)
<S> <C> <C> <C>
Investment securities, at value (identified cost of $3,390,268, $868,398,
$3,440,342, respectively) (Note 3).............................................$ 4,243,981 $ 1,065,705 $ 4,410,464
Cash.............................................................................. 1,358 147 491
Receivable for forward foreign currency contracts................................. 90 48 --
Receivable for investments sold................................................... 79,525 14,603 52,363
Receivable for capital shares sold................................................ 173 55 190
Dividends and interest receivable................................................. 3,753 953 2,698
-------------- -------------- --------------
4,328,880 1,081,511 4,466,206
-------------- -------------- --------------
LIABILITIES
Disbursements in excess of demand deposit cash.................................... 7,622 1,875 7,655
Payable for forward foreign currency contracts.................................... -- -- 43
Payable for investments purchased................................................. 96,200 6,142 51,474
Payable for capital shares redeemed............................................... 2,815 364 28,073
Accrued management fees (Note 2).................................................. 3,293 868 3,478
Other liabilities................................................................. 11 3 12
-------------- -------------- --------------
109,941 9,252 90,735
-------------- -------------- --------------
NET ASSETS........................................................................$ 4,218,939 $ 1,072,259 $ 4,375,471
============== ============== ==============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus)...........................................$ 2,936,936 $ 806,055 $ 3,038,722
Undistributed net investment income (loss)........................................ 4,620 (137) 1,833
Accumulated undistributed net realized gain on
investment and foreign currency transactions................................... 423,643 68,987 364,837
Net unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies (Note 3)....................... 853,740 197,354 970,079
-------------- -------------- --------------
$ 4,218,939 $ 1,072,259 $ 4,375,471
============== ============== ==============
INVESTOR CLASS ($ AND SHARES IN FULL)
Net assets........................................................................$4,208,281,319 $1,072,258,602 $4,375,471,367
Shares outstanding............................................................... . 100,683,228 89,233,864 190,955,985
Net asset value per share.........................................................$ 41.80 $ 12.02 $ 22.91
INSTITUTIONAL CLASS ($ AND SHARES IN FULL)
Net assets........................................................................$ 10,657,882 N/A N/A
Shares outstanding................................................................ 254,922 N/A N/A
Net asset value per share.........................................................$ 41.81 N/A N/A
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Assets and Liabilities 25
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED) SELECT HERITAGE GROWTH
INVESTMENT INCOME ($ in Thousands)
INCOME:
<S> <C> <C> <C>
Dividends (net of foreign taxes withheld of $254, $69 and $408, respectively)..... $ 25,253 $ 4,821 $ 20,315
Interest.......................................................................... 2,346 786 4,576
-------------- -------------- --------------
27,599 5,607 24,891
-------------- -------------- --------------
EXPENSES (NOTE 2):
Management fees................................................................... 20,464 5,580 22,930
Directors' fees and expenses...................................................... 26 7 28
-------------- -------------- --------------
20,490 5,587 22,958
-------------- -------------- --------------
NET INVESTMENT INCOME............................................................. 7,109 20 1,933
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN (LOSS) ON:
Investments....................................................................... 422,136 65,798 376,078
Foreign currency transactions..................................................... 4,907 5,442 (122)
-------------- -------------- --------------
427,043 71,240 375,956
-------------- -------------- --------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments....................................................................... (5,185) (19,315) (149,223)
Translation of assets and liabilities in foreign currencies....................... (322) (95) (43)
-------------- -------------- --------------
(5,507) (19,410) (149,266)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................................... 421,536 51,830 226,690
-------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $428,645 $51,850 $228,623
============== ============== ==============
</TABLE>
See Notes to Financial Statements
26 Statements of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996 SELECT HERITAGE GROWTH
INCREASE (DECREASE) IN NET ASSETS 1997 1996 1997 1996 1997 1996
OPERATIONS ($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss)........................... $ 7,109 $ 21,045 $ 20 $ (125) $ 1,933 $ (3,163)
Net realized gain on investments and
foreign currency transactions..................... 427,043 364,952 71,240 69,544 375,956 104,580
Change in net unrealized appreciation
on investments and translation of assets
and liabilities in foreign currencies............. (5,507) 324,433 (19,410) 34,728 (149,266) 253,622
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting from operations... 428,645 710,430 51,850 104,147 228,623 355,039
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class.................................... (31,065) (26,725) (8,095) (4,182) (38,510) (14,900)
From net realized gains from investment transactions:
Investor Class.................................... (353,996) (462,881) (62,011) (53,228) (51,784) (642,609)
In excess of net realized gain:
Investor Class.................................... -- -- -- -- -- (16,441)
---------- ---------- ---------- ---------- ---------- ----------
Decrease in net assets from distributions.............. (385,061) (489,606) (70,106) (57,410) (90,294) (673,950)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets from
capital share transactions........................ 136,676 (190,583) 7,364 28,091 (528,282) (45,559)
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS.................. 180,260 30,241 (10,892) 74,828 (389,953) (364,470)
NET ASSETS
Beginning of period.................................... 4,038,679 4,008,438 1,083,151 1,008,323 4,765,424 5,129,894
---------- ---------- ---------- ---------- ---------- ----------
End of period.......................................... $4,218,939 $4,038,679 $1,072,259 $1,083,151 $4,375,471 $4,765,424
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Changes in Net Assets 27
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Twentieth Century Select Fund
(Select), American Century - Twentieth Century Heritage Fund (Heritage), and
American Century - Twentieth Century Growth Fund (Growth) (the Funds) are three
of the seventeen series of funds issued by the Corporation. The Funds'
investment objective is to seek capital growth by investing primarily in equity
securities. As a matter of fundamental policy, 80% of the assets of Select and
Heritage must be invested in securities of companies that have a record of
paying dividends or have committed themselves to the payment of regular
dividends, or otherwise produce income. On September 3, 1996, the Funds
implemented a multiple class structure whereby each Fund is authorized to issue
three classes of shares: the Investor Class, the Advisor Class and the
Institutional Class. The shares outstanding prior to September 3, 1996, were
designated as Investor Class shares. The three classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of each Fund represent an equal pro rata interest
in the 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. Sale of the Institutional Class for
Select commenced on March 14, 1997. Sale of the Advisor Class and Institutional
Class for Heritage and Growth had not commenced as of April 30, 1997. The
following significant accounting policies related to the Funds are in accordance
with accounting policies generally accepted in the investment company industry.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through valuations obtained
from a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any)
is recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes amortization of discounts and premiums.
FOREIGN CURRENCY TRANSACTIONS -- The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Funds may enter into
forward foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Funds will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Funds and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of risk in excess
of the amount reflected in the Statement of Assets and Liabilities. The Funds
bear the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
REPURCHASE AGREEMENTS -- The Funds may enter into repurchase agreements
with institutions the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to
28 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
criteria adopted by the Board of Directors. Each repurchase agreement is
recorded at cost. Each Fund requires that the securities purchased in a
repurchase transaction be transferred to the custodian in a manner sufficient to
enable each Fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the value of the
securities transferred to ensure that the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to each Fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each Fund, along with other registered
investment companies having management agreements with ACIM and Benham
Management Corporation, 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 policy of the Funds to distribute all
taxable income and capital 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 federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income and net
realized gains are declared and paid annually.
The 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 are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION -- Certain officers and directors of the
Corporation are also officers and/or directors, and, as a group, controlling
stockholders of American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., ACIS, and the Corporation's transfer agent,
American Century Services Corporation.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
- -----------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Funds with investment advisory and management services in exchange
for a single, unified management fee per class. Additional fees apply to the
Advisor Class, as described in the respective prospectus. The Agreement provides
that all expenses of the Funds, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid
monthly based on each Fund's average daily closing net assets during the
previous month. The annual management fee for each class is 1.00% and 0.80% for
the Investor Class and Institutional Class, respectively.
The Board of Directors has adopted a shareholder services and distribution
plan for the Advisor Class, pursuant to Rule 12b-1 of the Investment Company Act
of 1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Funds will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred in connection with distribution shares of the Advisor Class
including, but not limited to, payments to brokers, dealers, and financial
institutions that have entered into sales agreements with ACIS and/or ACIM. The
service fee provides compensation for shareholder and administrative services
rendered by ACIM, its affiliates or independent third party providers.
Semiannual Report Notes to Financial Statements 29
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period
ended April 30, 1997 were as follows:
SELECT HERITAGE GROWTH
PURCHASES ($ in Thousands)
Common Stocks.................. $2,303,127 $261,233 $1,813,109
Other Debt Obligations......... -- 32,508 --
PROCEEDS FROM SALES
Common Stocks.................. $2,506,201 $343,445 $2,555,456
Preferred Stocks............... 17,183 -- --
Other Debt Obligations......... -- 4,370 --
On April 30, 1997, the composition of unrealized appreciation and
(depreciation) of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
SELECT HERITAGE GROWTH
($ in Thousands)
Appreciation................... $ 865,910 $246,120 $1,010,232
(Depreciation)................. (15,540) (50,718) (51,548)
Net............................ 850,370 195,402 958,684
Federal Tax Cost............... 3,393,611 870,303 3,451,780
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
There are 250,000,000, 250,000,000, and 500,000,000 shares of the Investor
Class authorized for issuance by Select, Heritage, and Growth, respectively.
There are 41,000,000 shares of the Institutional Class authorized for issuance
by Select. All shares are $0.01 par value.
Transactions in shares of the Funds were as follows:
<TABLE>
SELECT HERITAGE GROWTH
Shares Amount Shares Amount Shares Amount
INVESTOR CLASS (In Thousands)
SIX MONTHS ENDED APRIL 30, 1997:
<S> <C> <C> <C> <C> <C> <C>
Sold........................................ 8,841 $ 361,200 15,311 $ 189,210 19,893 $ 454,016
Issued in reinvestment of distributions..... 9,469 371,412 5,793 68,885 3,935 87,875
Redeemed.................................... (14,906) (606,276) (20,354) (250,731) (47,398) (1,070,173)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)..................... 3,404 $ 126,336 750 $ 7,364 (23,570) $ (528,282)
=========== =========== =========== =========== =========== ===========
INVESTOR CLASS
YEAR ENDED OCTOBER 31, 1996:
Sold........................................ 10,936 $ 416,837 22,820 $ 266,770 34,900 $ 721,179
Issued in reinvestment of distributions..... 13,373 471,136 5,129 56,471 34,403 659,172
Redeemed.................................... (28,464) (1,078,556) (25,302) (295,150) (69,582) (1,425,910)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)..................... (4,155) $ (190,583) 2,647 $ 28,091 (279) $ (45,559)
=========== =========== =========== =========== =========== ===========
</TABLE>
30 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONT.)
SELECT
Shares Amount
INSTITUTIONAL CLASS (In Thousands)
MARCH 14, 1997(1) THROUGH APRIL 30, 1997:
Sold........................................ 255 $10,340
-------- --------
Net increase................................ 255 $10,340
======== ========
(1) Sale of the Institutional Class for Select commenced on March 14, 1997.
Sale of the Institutional Class had not commenced for Heritage and Growth
as of April 30, 1997.
- --------------------------------------------------------------------------------
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer who is or was an affiliate at or
during the six months ended April 30, 1997, follows:
<TABLE>
April 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Share Realized
Balance Purchase Sales Gain Share Market
Fund/Issuer(1) 10/31/96 Cost Cost (Loss) Balance Value
HERITAGE ($ in Thousands)
Inacom Corp. -- $ 16,310 -- -- 580,000 $12,724
========== ========== ========== ==========
GROWTH
Xylan Corp. -- $118,765 $95,886 $(58,870) 650,000 $ 9,750
========== ========== ========== ==========
(1) None of the securities produced income during the period held.
</TABLE>
- -----------------------------------------------------------------------------
6. CORPORATE EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
FUNDS' ISSUER: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
FUNDS: American Century - Twentieth Century Select Fund Select Investors
American Century - Twentieth Century Heritage Fund Heritage Investors
American Century - Twentieth Century Growth Fund Growth Investors
PARENT COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Semiannual Report Notes to Financial Statements 31
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
SELECT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
Investor Institutional
Class Class
1997(1) 1996 1995 1994 1993 1992 1997(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $41.52 $39.52 $37.67 $45.76 $39.18 $40.79 $40.79
--------- --------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income.................... 0.07(3) 0.20(3) 0.33(3) 0.40 0.46 0.53 0.01(3)
Net Realized and Unrealized Gain
(Loss) on Investment Transactions........ 4.21 6.73 4.68 (3.59) 7.94 0.34 1.01
--------- --------- --------- --------- --------- --------- ---------
Total From
Investment Operations.................... 4.28 6.93 5.01 (3.19) 8.40 0.87 1.02
--------- --------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income............... (0.32) (0.27) (0.28) (0.43) (0.49) (0.65) -
From Net Realized Gains
on Investment Transactions............... (3.68) (4.66) (2.75) (4.47) (1.31) (1.83) -
Distributions in Excess
of Net Realized Gains.................... - - (0.13) - (0.02) - -
--------- --------- --------- --------- --------- --------- ---------
Total Distributions...................... (4.00) (4.93) (3.16) (4.90) (1.82) (2.48) -
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.............. $41.80 $41.52 $39.52 $37.67 $45.76 $39.18 $41.81
========= ========= ========= ========= ========= ========= =========
Total Return(4).......................... 10.96% 19.76% 15.02% (7.37)% 22.20% 1.76% 2.50%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets....................... 1.00%(5) 1.00% 1.00% 1.00% 1.00% 1.00% 0.80%(5)
Ratio of Net Investment Income to
Average Net Assets.......................... 0.35%(5) 0.50% 0.90% 1.00% 1.10% 1.40% 0.05%(5)
Portfolio Turnover Rate..................... 57% 105% 106% 126% 82% 95% 57%
Average Commission Paid per
Investment Security Traded.................. $0.0457 $0.0410 $0.0460 -(6) -(6) -(6) $0.0457
Net Assets, End
of Period (in millions)..................... $4,208 $4,039 $4,008 $4,278 $5,160 $4,534 $11
(1) Six months ended April 30, 1997 (unaudited).
(2) March 14, 1997 (commencement of sale of Institutional Class) through April
30, 1997 (unaudited).
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
32 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
HERITAGE
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993 1992
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period....................... $12.24 $11.75 $10.32 $11.03 $9.30 $8.59
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ................. -(2) -(2) 0.05(2) 0.07 0.07 0.10
Net Realized and Unrealized Gain
(Loss) on Investment Transactions...... 0.58 1.15 1.96 (0.21) 2.43 0.72
--------- --------- --------- --------- --------- ---------
Total From
Investment Operations.................. 0.58 1.15 2.01 (0.14) 2.50 0.82
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income............. (0.09) (0.05) (0.03) (0.06) (0.09) (0.11)
From Net Realized Gains on
Investment Transactions................ (0.71) (0.61) (0.52) (0.50) (0.68) -
Distributions in Excess of
Net Realized Gains..................... - - (0.03) (0.01) - -
--------- --------- --------- --------- --------- ---------
Total Distributions.................... (0.80) (0.66) (0.58) (0.57) (0.77) (0.11)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period............ $12.02 $12.24 $11.75 $10.32 $11.03 $9.30
========= ========= ========= ========= ========= =========
Total Return(3)........................ 4.80% 10.44% 21.04% (1.13)% 28.64% 9.65%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets..................... 1.00%(4) 0.99% 0.99% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets..................... - - 0.50% 0.70% 0.70% 1.10%
Portfolio Turnover Rate................... 27% 122% 121% 136% 116% 119%
Average Commission Paid per
Investment Security Traded................ $0.0464 $0.0420 $0.0420 -(5) -(5) -(5)
Net Assets, End
of Period (in millions)................... $1,072 $1,083 $1,008 $897 $702 $369
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 33
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GROWTH
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993 1992
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period....................... $22.21 $23.88 $22.99 $25.27 $23.64 $22.32
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss)......... 0.02(2) (0.01)(2) 0.08(2) 0.06 0.06 (0.02)
Net Realized and Unrealized Gain
on Investment Transactions........... 1.11 1.47 4.08 0.48 1.94 1.35
--------- --------- --------- --------- --------- ---------
Total From
Investment Operations................ 1.13 1.46 4.16 0.54 2.00 1.33
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income........... (0.18) (0.07) (0.05) (0.06) - (0.01)
From Net Realized Gains on
Investment Transactions.............. (0.25) (2.98) (3.18) (2.76) (0.36) -
Distributions in Excess of
Net Realized Gains................... - (0.08) (0.04) - (0.01) -
--------- --------- --------- --------- --------- ---------
Total Distributions.................. (0.43) (3.13) (3.27) (2.82) (0.37) (0.01)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period............ $22.91 $22.21 $23.88 $22.99 $25.27 $23.64
========= ========= ========= ========= ========= =========
Total Return(3)...................... 5.13% 8.18% 22.31% 2.66% 8.48% 5.96%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets..................... 1.00%(4) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income (Loss)
to Average Net Assets..................... 0.08%(4) (0.10)% 0.40% 0.30% 0.20% (0.10)%
Portfolio Turnover Rate................... 41% 122% 141% 100% 94% 53%
Average Commission Paid per
Investment Security Traded................ $0.0380 $0.0360 $0.0400 -(5) -(5) -(5)
Net Assets, End
of Period (in millions)................... $4,375 $4,765 $5,130 $4,363 $4,641 $4,472
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
</TABLE>
See Notes to Financial Statements
34 Financial Highlights American Century Investments
SHARE CLASS AND
RETIREMENT ACCOUNT INFORMATION
SHARE CLASSES
Until September 3, 1996, the Select, Heritage and Growth funds issued one
class of fund shares, reflecting the fact that most investors in the funds were
individuals investing on their own behalf. To serve the diverse needs of
American Century's investors, additional classes of shares are now available in
Select, Heritage and Growth.
The original class of Select, Heritage and Growth fund shares is called the
INVESTOR CLASS. All shares issued and outstanding before September 3, 1996, have
been designated as Investor Class shares. Investor Class shares may still be
purchased after September 3, 1996. Investor Class shareholders do not pay any
commissions or other fees for purchase of fund shares directly from American
Century. Investors who buy Investor Class shares through a broker-dealer may be
required to pay the broker-dealer a transaction fee. THE PRICE AND PERFORMANCE
OF THE INVESTOR CLASS SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS
CURRENTLY LISTED.
In addition, there is an INSTITUTIONAL CLASS, which is available to
endowments, foundations, defined benefit pension plans or financial
intermediaries serving these investors. This class of shares recognizes the
relatively lower cost of serving institutional customers and others who invest
at least $5 million in an American Century fund or at least $10 million in
multiple funds. In recognition of the larger investments and comparatively lower
transaction costs, the total expense ratio of the Institutional Class shares is
0.20% less than the total expense ratio of the Investor Class. As of April 30,
1997, American Century had begun selling these shares in Select but not Heritage
and Growth.
There is also an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. The sale of this
class had not commenced as of April 30, 1997. All classes of shares represent a
pro rata interest in the funds and generally have the same rights and
preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/ Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
Semiannual Report Share Class and Retirement Account Information 35
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Twentieth Century Group offers nine equity funds that invest in the
stocks of growing companies, both domestically and internationally. The
philosophy behind these growth funds focuses on three important principles.
First, the funds seek to own successful companies, which we define as those with
growing earnings and revenues. Second, we attempt to keep the funds fully
invested, regardless of short-term market activity. Experience has shown that
market gains can occur in unpredictable spurts and that missing those
opportunities can significantly limit potential for gain. Third, the funds are
managed by teams, rather than by one "star." We believe this allows us to make
better, more consistent management decisions.
In addition to these principles, each fund has its own investment policies:
TWENTIETH CENTURY SELECT seeks large, established companies that show
accelerating growth rates; also, at least 80% of the fund's assets must be
invested in stocks or securities that pay regular dividends or otherwise produce
income. These dividends, and the established nature of the companies in which
Select invests, help lessen the fund's short-term price fluctuations.
TWENTIETH CENTURY HERITAGE seeks smaller and mid-sized firms showing
accelerating growth rates, and at least 80% of its assets must be in stocks or
securities paying regular dividends or otherwise producing income. While
Heritage's dividend requirement should make the fund less volatile than funds
without dividends, it should also display somewhat more price variability -- and
greater long-term growth potential -- than Select.
TWENTIETH CENTURY GROWTH invests in larger, more established firms that
exhibit accelerating growth. Because the value of established firms tends to
change relatively slowly, Growth can ordinarily be expected to show more
moderate price fluctuations than the growth funds that invest in smaller or
mid-sized firms.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of the 500
largest publicly traded companies. Created by Standard & Poor's Corporation, it
is considered to be a broad measure of U.S. stock market performance.
The S&P MIDCAP 400 INDEX is a capitalization-weighted index of the stocks
of the 400 largest publicly traded U.S. companies not included in the S&P 500.
Created by Standard & Poor's Corporation, it is considered to represent the
performance of mid-capitalization stocks generally. The index was created in
March 1994. Data presented for prior periods have been provided by S&P.
FUND MANAGEMENT TEAM LEADERS
SELECT:
Portfolio Manager Jean Ledford
Portfolio Manager Chuck Duboc
HERITAGE:
Portfolio Manager Nancy Prial
Portfolio Manager Kevin Lewis
GROWTH:
Portfolio Manager James Stowers III
36 Background Information American Century Investments
GLOSSARY
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 32-34.
PORTFOLIO STATISTICS
o NUMBER OF COMPANIES -- the number of different companies held by a fund on a
given date.
o PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
o PORTFOLIO TURNOVER -- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
o EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF STOCKS
o BLUE-CHIP STOCKS -- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
o GROWTH STOCKS -- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- generally considered to be stocks
of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Russell 2000 Index.
o VALUE STOCKS -- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
STATISTICAL TERMINOLOGY
o PRICE/BOOK RATIO -- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
Semiannual Report Glossary 37
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein 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.
American Century Investment Services, Inc.
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<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
APRIL 30, 1997
TWENTIETH
CENTURY
GROUP
NEW OPPORTUNITIES
[front cover]
TABLE OF CONTENTS
Report Highlights........................................................ 1
Our Message to You....................................................... 2
Period Overview.......................................................... 3
Performance & Portfolio Information...................................... 4
Management Q & A......................................................... 5
Schedule of Investments.................................................. 8
Statement of Assets & Liabilities........................................ 10
Statement of Operations.................................................. 11
Statement of Changes in Net Assets....................................... 12
Notes to Financial Statements............................................ 13
Financial Highlights..................................................... 15
Retirement Account Information........................................... 16
Background Information
Investment Philosophy and Policies.................................. 20
Comparative Indices................................................. 20
Fund Management Team Leaders........................................ 20
Glossary................................................................. 21
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios. To
help you find the funds that may meet your needs, we have divided American
Century funds into three groups based on investment style and objectives. These
groups, which appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
Benham Group American Century Group Twentieth Century Group
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
New Opportunities
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o The U.S. stock market produced widely divergent returns over the period.
The S&P 500's 14.74% six-month total return continued a three-year trend of
unusually strong performance by large-cap stocks. By contrast, the S&P
MidCap 400 posted a 6.88% return, and the small-cap Russell 2000 returned
just 1.61%.
o Factors that were in the S&P 500's favor included: equity investors seeking
stability and liquidity; strong economic growth with low inflation; and the
success of S&P 500 index funds.
o The fast-growing companies targeted by New Opportunities didn't benefit
from the factors that drove investors to the S&P 500. They lagged despite
reporting strong earnings growth in most cases. Many companies that
experienced share price declines during the period continued to show strong
fundamentals.
o While the S&P 500 and its component companies were considered a relatively
safe haven during the period, many investors viewed mid- and small-cap
growth companies as too volatile and unpredictable. Valuations declined as
the market priced these stocks by weighting current earnings more heavily
than projected future earnings.
NEW OPPORTUNITIES
o New Opportunities had a rocky start, declining 20.00% since its inception.
The negative performance resulted from the decline of small-capitalization
(small-cap) growth companies, compounded by the fund's focus on the most
rapidly growing stocks within this universe.
o The companies New Opportunities owns continue to report dynamic growth in
their revenues and earnings. This growth, combined with the attractive
valuation of small-cap stocks relative to large-cap shares, has put the
fund in a position to benefit from a small-cap rebound.
o The management team reduced holdings in software providers because of
increasing competition in that industry. In addition, the team increased
holdings in a small group of elite manufacturers of specialized computer
chips.
o For the past two years the largest stocks in the S&P 500 index have
seemingly offered everything an investor could desire; strong earnings
growth, above average returns, low volatility and superior liquidity. To
some extent the extraordinary returns have also been self-perpetuating,
as momentum-following market participants have sold their underperforming
stocks (often small-cap) to buy the large-cap leaders. New Opportunities'
management team believes a change in market leadership will probably
begin with a deteriorating outlook for corporate earnings in general.
That change may not be too far away.
NEW OPPORTUNITIES
TOTAL RETURNS: AS OF 4/30/97
Since Inception -20.00%(1)
NET ASSETS: $148 million
(AS of 4/30/97)
INCEPTION DATE: 12/26/96
TICKER SYMBOL: TWNOX
(1) Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
21.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo James E. Stowers, Jr. and James E. Stowers III]
Twentieth Century New Opportunities Fund was launched on December 26, 1996,
as part of our commitment to offer additional funds and services for our
Priority Investors. We wish there were better results to talk about on the
occasion of the fund's first report to share-holders. Unfortunately, the fund's
early months of operation coin-cided with an extremely difficult stock market
environment for small, rapidly growing companies.
You may recall that New Opportunities takes a very aggressive investment
stance. It seeks smaller companies with strong earnings trends and favorable
expectations. Historically, this form of investing has been both rewarding and
very volatile, and it demands that investors be willing to accept short-term
risk on the way to long-term results.
As with our other aggressive equity funds, we strive to keep New
Opportunities fully invested in stocks. As early results show, this approach
doesn't provide much cushion when our investment style is out of favor. On the
other hand, we are always in position to take full advantage of market surges,
which can be swift, powerful and unanticipated.
A significant portion of New Opportunities' assets represent investments
from American Century employees. We ourselves have personal stakes in the fund,
so we're also affected by down periods. We know from experience, though, that
one of the worst things an investor can do is abandon a proven long-term
investment approach to chase whatever style might be working at the time.
Aggressive equity investing takes patience and discipline. We have plenty of
both, and are confident that New Opportunities will meet its goal of providing
you with solid results over time.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
WIDELY DIVERGENT RETURNS
The six-month period ended April 30, 1997, produced widely divergent
returns for U.S. stock investors. In general, the shares of large companies
(large-cap stocks), particularly relatively stable, industry-leading firms in
the S&P 500, significantly outperformed the shares of faster-growing, smaller
companies (mid- and small-cap stocks). Value stocks (shares of companies that
are lower-priced) generally out-performed growth stocks (those of companies
demonstrating above-average earnings growth) as investors placed a higher
premium on earnings stability than on earnings growth.
STRONG RETURNS FOR THE S&P 500
The S&P 500 typically represents the large-cap sector of the U.S. stock
market. Many investors also use the index as a proxy for the U.S. market as a
whole. The sustained advance of the S&P 500 was one of the key success stories
of the period. The index posted a 14.74% total return during the six months,
continuing a three-year trend of unusually strong results. Factors that
supported the S&P 500's performance included:
o Investors seeking predictable earnings and liquidity because they feared
rising interest rates and an economic slowdown. The shares of large,
well-known firms such as Johnson & Johnson and MicroSoft rallied
appreciably.
o Favorable economic conditions (robust growth and low inflation) and
particularly strong earnings growth for large-cap companies.
o The popularity and success of S&P 500 index funds. With more investor
dollars chasing stocks in the S&P 500, the prices of those shares rose much
faster than the prices of mid- and small-cap stocks.
LOWER RETURNS FOR SMALLER-CAP STOCKS
Many analysts use the S&P 400 MidCap Index and the Russell 2000 Index to
represent mid- and small-cap stocks, respectively. As shown in the accompanying
graph, the S&P 500 significantly outperformed the smaller cap indices.
While the S&P 500 and its component companies were considered a relatively
safe haven during the period, many investors viewed mid- and small-cap growth
companies as too volatile and unpredictable. Valuations for the stocks of these
companies declined as the market priced mid- and small-cap growth stocks more
conservatively, weighting current earnings more heavily than projected future
earnings. Investors also became less willing to pay a premium for fast-growing
technology and healthcare shares.
The resulting share price declines were generally based more on market
perception than on changes in actual fundamental indicators such as earnings and
revenue. Many companies experienced lower share prices despite continuing to
show strong operating results. Defensive-minded analysts questioned whether the
earnings and revenue projections for small companies would be realized, and
investors refused to pay the higher prices these shares have been awarded in the
past.
[line graph - data below]
U.S. STOCK MARKET PERFORMANCE (Growth of $1.00)
For the six monthes ended April 30, 1997
- --------------------------------------------------------
DATE S&P 500 S&P 400 RUSSELL 2000
10/31/96 $1.00 $1.00 $1.00
11/30/96 $1.07 $1.06 $1.04
12/31/96 $1.06 $1.06 $1.07
1/31/97 $1.12 $1.10 $1.09
2/28/97 $1.13 $1.09 $1.06
3/31/97 $1.08 $1.04 $1.01
4/30/97 $1.15 $1.07 $1.02
S&P 500..............14.74%
S&P MidCap 400 ...... 6.88%
Russell 2000..........1.61%
Source: Lipper Analytical Services, Inc.
Semiannual Report Period Overview 3
PERFORMANCE & PORTFOLIO INFORMATION
LIFE OF FUND(1)
TOTAL RETURNS AS OF APRIL 30,1997
New Opportunities............................................ -20.00%(2)
Russell 2000 Growth Index..................................... -11.59%(2)(3)
(1) Inception was December 26, 1996.
(2) Not annualized.
(3) Return since 12/31/96, the date nearest the fund's inception for which data
are available.
See pages 20 and 21 for more information about the Russell 2000 Growth Index and
returns.
PORTFOLIO AT A GLANCE
4/30/97
Number of Companies 68
Median Price/Earnings Ratio 27.9
Portfolio Turnover 40%
Expense Ratio 1.50%(1)
(1) Annualized.
[line graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 4/30/97
Russell 2000 Growth $8,841
New Opportunities $7,859
New Russell 2000
Opportunities Growth
$10,000 $10,000
$9,745 $10,242
$8,762 $9,623
$7,957 $8,944
$7,859 $8,844
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing New Opportunities' total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return line of the Russell 2000 Growth Index does not.
4 Performance & Portfolio Information American Century Investments
MANAGEMENT Q&A
An interview with Glenn Fogle and John Seitzer, portfolio managers on the
New Opportunities management team.
HOW DID THE FUND PERFORM FROM ITS INCEPTION UNTIL APRIL 30?
New Opportunities suffered a rocky start, declining 20.00% since its
inception. The fund's negative performance resulted from the decline in
small-capitalization (small-cap) growth stocks, compounded by our focus on the
most rapidly growing companies within this sector of the equity market. Our
concentration on these businesses, hardest hit by negative investor sentiment,
caused the fund to suffer a greater decline than benchmark market indices.
When reflecting on New Opportunities' performance during its early months,
it is important to keep in mind that we manage the fund aggressively for
long-term returns. As a result, the fund can be very volatile, sometimes
significantly underperforming the market and at other times significantly
outperforming it.
Our management of the fund has been consistent with our long-held
aggressive growth investment discipline. We bought and now own some great growth
companies. Unfortunately, as sometimes happens, the prices of many of those
stocks have fallen since we acquired them, in spite of strong earnings reports.
We are prepared to retain the shares of good businesses that meet our investment
standards even if they fall temporarily out of favor and their share prices lag
for a while. While the past is no guarantee of the future, our experience tells
us that over the long-term we should be rewarded with higher share prices.
HOW DID SMALL-CAP GROWTH STOCKS PERFORM IN GENERAL?
The Russell 2000 Growth Index, which many investment analysts consider to
be an appropriate proxy for small-cap growth stock performance, is the
performance benchmark for the fund. It declined 11.59% during the period. The
median market capitalization of the Russell 2000 Growth Index is approximately
$400 million, which makes it a close match with New Opportunities' median market
capitalization of $345 million.
WHY DID NEW OPPORTUNITIES' PERFORMANCE LAG THAT OF ITS BENCHMARK?
Unlike an index fund, New Opportunities makes no attempt to match any
benchmark returns over short-term periods. In seeking superior long-term
returns, the fund's holdings will typically have much higher growth rates than
the Russell index average and the fund will usually appear more expensive on
absolute valuation measures. Over time, we expect the exceptional earnings
growth potential of the stocks New Opportunities owns to more than offset the
premium we may pay to buy them. In the short term, however, the fund can be very
volatile and markedly underperform the index.
The performance of technology stocks had a large impact on the fund's
returns. We built fairly substantial positions in the shares of companies such
as Vantive Corporation, which makes call-tracking software, and Rational
Software, a provider of software development tools. Many technology stocks are
appealing to us because innovation in these areas continues to produce rapid
sales growth and rising profit margins. However, the software field is highly
competitive. A software company's asset base is intellectual property--which can
become less valuable as competitors introduce new products. Given this uncertain
and fast-changing environment, investors grew increasingly concerned that
earnings were becoming less predictable, so many technology stocks declined
despite the earnings growth they reported. This flight to larger, more stable
stocks accounted for a significant portion of the fund's
Semiannual Report Management Q&A 5
MANAGEMENT Q&A
underperformance during the period.
CAN YOU GIVE INVESTORS ENCOURAGEMENT ABOUT THE FUND'S PERFORMANCE?
There are several factors that encourage us about the long-term prospects
for New Opportunities. The number of new stock offerings (IPOs) has declined
dramatically in 1997 compared to the prior two years, stemming the flood of new
issues that were crowding the market. The sell-off in small-cap growth stocks
has brought their valuation relative to large-cap stocks down to historically
low levels. Finally, the companies that New Opportunities owns continue to
report dynamic growth in their revenues and earnings.
We've learned from years of experience that the stock market moves in
cycles. Periods such as the recent one, when uncertainty about the strength of
the economy and the direction of interest rates makes stock investors more
conservative, are normal. Our investment discipline is currently out of favor,
but significant shifts in the small-cap market can be swift. We believe that the
best strategy for the fund is to stick with our proven style rather than become
defensive and risk missing part of the market rebound in these stocks. We
believe that eventually market sentiment should shift again, and when it does we
would expect these fast-growing companies to reward investors for their
patience. We continue to believe in the long-term prospects of the fund.
WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO, IF ANY, DURING ITS INITIAL MONTHS
OF OPERATION?
Our sector weightings have not changed significantly. However, we have
shifted our focus somewhat within those sectors. For example, the sell-off in
technology shares hit industry leaders as well as less established companies,
which enabled us to build positions in companies showing stronger current
earnings acceleration. We moved generally from software providers such as
Vantive and Rational Software to manufacturers such as Jabil Circuit, Inc., a
contract manufacturer of electronic components. We've also increased our
holdings in a small group of elite manufacturers that produce specialized,
high-speed computer chips. These chips are made out of a substance called
gallium arsenide, which processes data at faster speeds than conventional
silicon. Demand for the chips is exploding and only a few suppliers are capable
of manufacturing them.
In the area of retail merchandise, we shifted money from weakening stocks
to those with fresh signs of accelerating growth. For example, we reduced our
position in Finish Line, Inc., an athletic shoe retailer. We were concerned that
Nike, which comprises 70% of the company's revenues, may see some slowing in
sales following an extremely strong 1996. We also bought shares of Pacific
Sunwear, a mall-based retailer of casual apparel and accessories for teens and
young adults, based on the stock's accelerating earnings and revenue growth. We
continue to see opportunities in
TOP TEN HOLDINGS % of fund investments
As of
4/30/97
HBO & Co. 3.5%
PAREXEL International Corp. 3.1%
Wolverine World Wide, Inc. 3.1%
Action Performance Cos. Inc. 2.7%
Innovex, Inc. 2.6%
McAfee Associates, Inc. 2.4%
Helen of Troy Ltd. 2.3%
Veeco Instruments Inc. 2.1%
Vitesse Semiconductor Corp. 2.0%
Applied Magnetics Corp. 2.0%
TOP FIVE INDUSTRIES % of fund investments
As of
4/3097
Electrical & Electronic
Components 9.1%
Communications Equipment 8.9%
Computer Software & Services 8.8%
Consumer Products 7.3%
Machinery & Equipment 7.1%
6 Management Q&A American Century Investments
MANAGEMENT Q&A
retail apparel, and believe we are well-positioned going forward.
WHAT IS YOUR OUTLOOK FOR SMALL-CAPITALIZATION STOCKS?
The outperformance of large-cap stocks over the past year has coincided
with a period of better-than-average (and better-than-expected) earnings growth,
which we think is attributable to the surprisingly robust economy. For the past
two years the largest stocks in the S&P 500 index have seemingly offered
everything an investor could desire: strong earnings growth, above average
returns, low volatility and superior liquidity. To some extent, the
extraordinary returns have also been self-perpetuating, as momentum-following
market participants have sold their underperforming stocks (often small-cap) in
order to buy the large-cap leaders.
We think that a change in market leadership will probably begin with a
deteriorating outlook for earnings, and that change may not be too far away. The
pace of economic growth in the first months of 1997 does not appear to be
sustainable, and the Federal Reserve seems intent on ensuring that the economy
cools down. Slower growth, higher interest rates and a strong dollar all put
pressure on the earnings growth rates of larger companies. With profit margins
at many of the large-cap companies already at historically high levels, it seems
probable that their earnings growth rates will decline over the next few
quarters. Some smaller companies will suffer the same deterioration, but those
that can buck the trend should attract growth-oriented investors. The
inexpensive relative valuation of small-cap stocks should also contribute to
their recovery.
The year-long divergence between small-cap and large-cap stocks is very
unusual, which suggests the strong possibility of a small-cap rebound.
Unfortunately, there is no telling precisely when this might happen or to what
degree. We avoid trying to time the market (and we discourage fund investors
from doing so) because market trends can reverse abruptly and without warning.
Instead, we concentrate on keeping the fund well positioned with investments in
healthy, growing businesses with the strongest fundamental outlook we can find.
We don't have any control over the timing of how the market reacts, but we can
control our investment strategy and implementation. We appreciate our investors'
patience and ongoing trust in us.
EDITOR'S NOTE ON JUNE 6, 1997:
SINCE APRIL 30, NEW OPPORTUNITIES' SHARE VALUE HAS RISEN BY 21.5%, COMPARED
TO AN INCREASE OF 7.1% IN THE S&P 500. THE CHANGE IN MARKET SENTIMENT REGARDING
SMALL COMPANIES MAY HAVE BEGUN.
Semiannual Report Management Q&A 7
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE & DEFENSE--1.8%
107,300 Triumph Group, Inc.(1) $ 2,723
----------
AGRICULTURE--1.1%
142,000 Northland Cranberries, Inc. 1,651
----------
AUTOMOBILES & AUTO PARTS--2.0%
80,000 Tower Automotive, Inc.(1) 2,960
----------
BIOTECHNOLOGY--4.5%
22,700 Agouron Pharmaceuticals, Inc.(1) 1,454
62,800 Centocor, Inc.(1) 1,770
59,000 PathoGenesis Corp.(1) 1,541
46,700 Sangstat Medical Corp.(1) 806
37,000 Vertex Pharmaceuticals, Inc.(1) 1,170
----------
6,741
----------
BUSINESS SERVICES & SUPPLIES--3.7%
41,000 Administaff, Inc.(1) 764
20,000 IBAH, Inc.(1) 90
167,000 PAREXEL International Corp.(1) 4,686
----------
5,540
----------
COMMUNICATIONS EQUIPMENT--8.9%
72,600 Boston Technology, Inc.(1) 1,452
100,375 Brightpoint, Inc.(1) 2,196
81,000 Coherent Communications
Systems Corp.(1) 1,347
40,000 Davox Corp.(1) 1,340
113,100 Natural MicroSystems Corp.(1) 2,375
119,800 REMEC, Inc.(1) 2,680
87,000 Teledata Communications(1) 1,930
----------
13,320
----------
COMPUTER PERIPHERALS--5.1%
65,000 AccelGraphics, Inc.(1) 691
118,400 Applied Magnetics Corp.(1) 2,975
123,000 Innovex, Inc. 3,913
----------
7,579
----------
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES--8.8%
98,000 HBO & Co. $ 5,237
119,900 HCIA(1) 2,495
75,000 JDA Software Group, Inc.(1) 1,927
63,000 McAfee Associates, Inc.(1) 3,512
----------
13,171
----------
CONSUMER PRODUCTS--7.3%
149,000 Helen of Troy Ltd.(1) 3,492
152,700 NBTY, Inc.(1) 2,873
113,300 Wolverine World Wide, Inc. 4,560
----------
10,925
----------
EDUCATION--4.5%
57,600 Apollo Group Inc. Cl A(1) 1,552
90,000 Computer Learning Centers, Inc.(1) 2,385
86,900 Learning Tree International, Inc.(1) 2,770
----------
6,707
----------
ELECTRICAL & ELECTRONIC
COMPONENTS--9.1%
10,000 Burr-Brown Corp.(1) 297
19,000 Cymer, Inc.(1) 780
96,000 II-VI, Inc.(1) 1,788
35,400 Jabil Circuit, Inc.(1) 1,710
50,000 NeoMagic Corporation(1) 584
59,300 Sanmina Corp.(1) 2,969
100,000 Sipex Corp.(1) 2,437
94,000 Vitesse Semiconductor Corp.(1) 2,979
----------
13,544
----------
ENERGY (SERVICES)--6.9%
33,200 Atwood Oceanics, Inc.(1) 2,046
125,600 Hvide Marine, Inc.(1) 2,135
100,000 Marine Drilling Companies, Inc.(1) 1,587
46,700 Smith International, Inc.(1) 2,212
65,000 Trico Marine Services, Inc.(1) 2,299
----------
10,279
----------
ENTERTAINMENT--1.0%
50,000 Carmike Cinemas, Inc.(1) 1,550
----------
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Shares ($ in Thousands) Value
- -----------------------------------------------------------------------------
ENVIRONMENTAL SERVICES--2.8%
126,400 Superior Services Inc.(1) $ 2,844
40,000 United Waste Systems, Inc.(1) 1,348
----------
4,192
----------
HEALTHCARE--2.4%
112,000 Advanced Health Corp.(1) 1,904
49,200 CRA Managed Care, Inc.(1) 1,747
----------
3,651
----------
LEISURE--1.2%
180,000 Vistana, Inc.(1) 1,721
----------
MACHINERY & EQUIPMENT--7.1%
45,000 CFM Technologies, Inc.(1) 1,482
49,350 Diebold, Inc. 1,653
151,500 Intevac, Inc.(1) 1,979
180,000 OmniQuip International, Inc.(1) 2,385
99,300 Veeco Instruments Inc.(1) 3,116
----------
10,615
----------
MEDICAL EQUIPMENT & SUPPLIES--1.9%
74,600 Sabratek Corp.(1) 1,627
68,900 SeaMED Corp.(1) 1,163
----------
2,790
----------
METALS & MINING--0.9%
50,000 Titanium Metals Corporation(1) 1,297
----------
PHARMACEUTICALS--5.3%
86,000 Dura Pharmaceuticals, Inc.(1) 2,499
130,000 Kos Pharmaceuticals, Inc.(1) 2,941
103,200 Medicis Pharmaceutical Corp.(1) 2,535
----------
7,975
----------
RESTAURANTS--1.8%
110,200 Rainforest Cafe, Inc.(1) 2,610
----------
RETAIL (SPECIALTY)--5.0%
154,000 Action Performance Cos. Inc.(1) 4,052
129,100 Finish Line, Inc.(1) 1,331
67,000 Pacific Sunwear of California(1) 2,111
----------
7,494
----------
Shares/Principal Amount ($ in Thousands) Value
- -----------------------------------------------------------------------------
TOBACCO--2.0%
60,000 Consolidated Cigar Holdings, Inc.(1) $ 1,380
65,000 General Cigar Holdings, Inc.(1) 1,536
----------
2,916
----------
TRANSPORTATION--0.4%
33,000 Eagle USA Airfreight, Inc.(1) 664
----------
TOTAL COMMON STOCKS--95.5% 142,615
----------
(Cost $157,383)
TEMPORARY CASH INVESTMENTS--4.5%(2)
$6,800 par value FFCB Discount
Note, 5.30%, 5/5/97 6,796
----------
(Cost $6,796)
TOTAL INVESTMENT SECURITIES--100.0% $149,411
==========
(Cost $164,179)
NOTES TO SCHEDULE OF INVESTMENTS FFCB = Federal Farm Credit Bank
(1) Non-income producing.
(2) The rates for U.S. Government Agency discount notes are the yield to
maturity at purchase.
See Notes to Financial Statements
Semiannual Report Schedule of Investments 9
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
ASSETS ($ in Thousands Except Per Share Amount)
<S> <C>
Investment securities, at value
(identified cost of $164,179) (Note 3)....................................... $149,411
Cash......................................................................... 1,037
Receivable for investments sold.............................................. 1,868
Receivable for capital shares sold........................................... 86
Dividends and interest receivable............................................ 3
--------
152,405
--------
LIABILITIES
Payable for investments purchased............................................ 4,438
Payable for capital shares redeemed.......................................... 15
Accrued management fees (Note 2)............................................. 175
--------
4,628
--------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES.................................. $147,777
========
CAPITAL SHARES, $0.01 PAR VALUE (in Thousands)
Authorized................................................................... 100,000
========
Outstanding.................................................................. 36,937
========
Net Asset Value Per Share.................................................... $4.00
========
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus)...................................... $175,465
Undistributed net investment loss............................................ (284)
Accumulated undistributed net realized
loss from investment transactions............................................ (12,636)
Net unrealized depreciation on investments (Note 3).......................... (14,768)
--------
$147,777
========
</TABLE>
See Notes to Financial Statements
10 Statement of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
DECEMBER 26, 1996 (INCEPTION) THROUGH APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME ($ in Thousands)
INCOME:
<S> <C>
Interest.................................................................... $234
Dividends................................................................... 13
---------
247
---------
EXPENSES:
Management fees (Note 2).................................................... 530
Directors' fees and expenses................................................ 1
---------
531
---------
NET INVESTMENT LOSS......................................................... (284)
---------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 3)
Net realized loss........................................................... (12,636)
Change in net unrealized depreciation....................................... (14,768)
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS............................. (27,404)
---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................................... $(27,688)
=========
</TABLE>
See Notes to Financial Statements
Semiannual Report Statement of Operations 11
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
DECEMBER 26, 1996 (INCEPTION) THROUGH
APRIL 30, 1997 (UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS ($ in Thousands)
<S> <C>
Net investment loss.......................................................... $(284)
Net realized loss on investments............................................. (12,636)
Change in net unrealized depreciation on investments......................... (14,768)
--------
Net decrease in net assets resulting from operations......................... (27,688)
--------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................................................... 178,917
Payments for shares redeemed................................................. (3,452)
--------
Net increase in net assets from capital share transactions................... 175,465
--------
NET INCREASE IN NET ASSETS................................................... 147,777
NET ASSETS
Beginning of period.......................................................... -
--------
End of period................................................................ $147,777
========
Undistributed net investment loss............................................ $(284)
========
TRANSACTIONS IN SHARES OF THE FUND (in Thousands)
Sold......................................................................... 37,693
Redeemed..................................................................... (756)
--------
Net increase................................................................. 36,937
========
</TABLE>
See Notes to Financial Statements
12 Statement of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Twentieth Century New
Opportunities Fund (the Fund) is one of the seventeen series of funds issued by
the Corporation. The Fund's investment objective is to seek capital growth by
investing primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation. The following significant
accounting policies related to the Fund are in accordance with accounting
policies generally accepted in the investment company industry.
SECURITY VALUATIONS--Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. When valuations are
not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and premiums.
FOREIGN CURRENCY TRANSACTIONS--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of portfolio securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Fund may enter into
forward foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Fund will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of risk in excess
of the amount reflected in the Statement of Assets and Liabilities. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
institutions the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agree-ment is recorded at
cost. The Fund requires that the securities purchased 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 value of the securities
transferred to ensure that 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 other registered
investment companies having management agreements with ACIM and Benham
Management Corporation, 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 policy of the Fund to distribute all taxable
income and capital 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 federal income taxes.
Semiannual Report Notes to Financial Statements 13
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income and net
realized gains are declared and paid annually.
The 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 are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION--Certain officers and directors of the
Corporation are also officers and/or directors, and, as a group, controlling
stockholders of American Century Companies, Inc., the parent of the
Corporation's investment manager, ACIM, the Corporation's distributor, American
Century Investment Services, Inc., and the Corporation's transfer agent,
American Century Services Corporation.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Fund with investment advisory and management services in exchange
for a single, unified management fee. The Agreement provides that all expenses
of the Fund, except brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on the Fund's average daily closing net assets during the previous month. The
annual management fee is 1.50%.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the six months ended April 30, 1997, totaled $207,892,375 for
common stocks. Proceeds from investment securities sold (excluding short-term
investments) totaled $37,873,228 for common stocks.
As of April 30, 1997, accumulated net unrealized depreciation was
$14,767,855. Accumulated net unrealized depreciation consisted of unrealized
appreciation of $7,768,611 and unrealized depreciation of $22,536,466. The
aggregate cost of investments for federal income tax purposes was the same as
the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENTS
<TABLE>
The following name changes became effective January 1, 1997:
NEW NAMES FORMER NAMES
<S> <C> <C>
Fund's Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Fund: American Century -- Twentieth Century New Opportunities Fund
Twentieth Century New Opportunities Fund
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
14 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Indicated
1997(1)
PER-SHARE DATA
Net Asset Value,
<S> <C>
Beginning of Period........................................................ $5.00
---------
Income From Investment Operations
Net Investment Loss................................................... (0.01)
Net Realized and Unrealized Loss on Investment Transactions........... (0.99)
---------
Total From Investment Operations...................................... (1.00)
---------
Net Asset Value, End of Period............................................. $4.00
=========
Total Return(2)....................................................... (20.00)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets(3).................. 1.50%
Ratio of Net Investment Income to Average Net Assets(3)............... (2.73)%
Portfolio Turnover Rate............................................... 40%
Average Commission Paid per Investment Security Traded................ $0.0242
Net Assets, End of Period (in thousands).............................. $147,777
(1) December 26, 1996 (inception) through April 30, 1997 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 15
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
16 Retirement Account Information American Century Investments
NOTES
Semiannual Report Notes 17
NOTES
18 Notes American Century Investments
NOTES
Semiannual Report Notes 19
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Twentieth Century Group offers nine equity funds that invest in the
stocks of growing companies, both domestically and internationally. The
philosophy behind these growth funds focuses on three important principles.
First, the funds seek to own successful companies, which we define as those with
growing earnings and revenues. Second, we attempt to keep the funds fully
invested, regardless of short-term market activity. Experience has shown that
market gains can occur in unpredictable spurts and that missing those
opportunities can significantly limit the potential for gain. Third, the funds
are managed by teams rather than by one "star." We believe this allows us to
make better, more consistent management decisions.
In addition to these principles, each fund has its own investment policies.
TWENTIETH CENTURY NEW OPPORTUNITIES generally invests in the securities of small
companies with accelerating growth. The fund is a volatile investment with high
long-term growth potential.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of the 500
largest publicly traded U.S. companies. Created by Standard & Poor's
Corporation, it is considered to be a broad measure of U.S. stock market
performance.
The S&P MIDCAP 400 is a capitalization-weighted index of the stocks of the
400 largest publicly traded U.S. companies not included in the S&P 500. Created
by Standard & Poor's Corporation, it is considered to represent the performance
of mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest
publicly-traded U.S. companies based on total market capitalization. The Russell
2000 represents approximately 10% of the total market capitalization of the top
3,000 companies. The average market capitalization of the index is approximately
$420 million. The Russell 2000 Growth Index measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher forecasted
growth rates.
FUND MANAGEMENT TEAM LEADERS
Portfolio Manager Glenn Fogle
Portfolio Manager John Seitzer
20 Background Information American Century Investments
GLOSSARY
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that
would have produced the fund's cumulative total returns if the fund's
performance had been constant over the entire period. Average annual
returns smooth out variations in a fund's return; they are not the same as
fiscal year-by-year results. For fiscal year-by-year total returns, please
refer to the "Financial Highlights" on page 15.
PORTFOLIO STATISTICS
o NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
o AVERAGE DIVIDEND YIELD OF HOLDINGS-- a percentage return calculated by
dividing a company's annual cash dividend by the current market value of
the company's stock.
o PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.)
o PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that
is replaced during a given time period, usually a year. Actively managed
portfolios tend to have higher turnover than passively managed portfolios
such as index funds.
o EXPENSE RATIO-- the operating expenses of the fund expressed as a
percentage of average net assets. Shareholders pay an annual fee to the
investment manager for investment advisory and management services. The
expenses and fees are deducted from fund income, not from each shareholder
account. (See Note 2 in the Notes to Financial Statements.)
TYPES OF STOCKS
o BLUE-CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth
potential. Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS-- generally considered to be stocks whose price and
earnings fluctuations tend to follow the ups and downs of the business
cycle. Examples include the stocks of automobile manufacturers, steel
producers and textile operators.
o GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks
often sell at high P/E ratios. Examples can include the stocks of
high-tech, healthcare and consumer staple companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- generally considered to be
stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $5 billion. These tend to be the
stocks that make up the Dow Jones Industrial Average and the S&P 500.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--generally considered to be
stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $1 billion and $5 billion. These
tend to be the stocks that make up the S&P 400.
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- generally considered to be
stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $1 billion. These tend to be the
stocks that make up the Russell 2000 Index.
o VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized
by low P/E ratios.
STATISTICAL TERMINOLOGY
o PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result
expressed as a multiple instead of as a percentage. (Book value per share
is calculated by subtracting a company's liabilities from its assets, then
dividing that value by the number of outstanding shares.)
Semiannual Report Glossary 21
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein 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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8635 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
April 30, 1997
BENHAM
GROUP
Cash Reserve
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Corporate Credit Review..................................... 4
Performance & Portfolio Information......................... 5
Management Q & A............................................ 6
Schedule of Investments..................................... 8
Statement of Assets and Liabilities.........................11
Statement of Operations.....................................12
Statements of Changes in Net Assets.........................13
Notes to Financial Statements...............................14
Financial Highlights........................................17
Share Class and Retirement
Account Information.........................................18
Background Information
Investment Philosophy & Policies.......................20
Comparative Indices....................................20
Lipper Rankings........................................20
Portfolio Management Team..............................20
Credit Research Team...................................20
Glossary....................................................21
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Cash Reserve
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
PERIOD OVERVIEW
o U.S. economic growth accelerated during the six months ended April 30,
1997, while inflation remained relatively subdued.
o The Federal Reserve raised short-term interest rates in March to head off
potential inflation and slow the rapid pace of economic growth.
o As a direct result of the Fed's increase in short-term rates, U.S. money
market yields rose during the six-month period.
o The market anticipated the Fed rate hike--money market yields rose steadily
in the weeks prior to the Fed's action.
o Money market yields leveled off in April as mixed economic signals cast
doubts about future Fed interest rate policy.
CORPORATE CREDIT REVIEW
o A strong U.S. economy led to improved corporate credit conditions during
the six-month period.
o Despite the generally positive credit conditions, many "sub-prime" auto
lenders--so called because they make loans to borrowers with poor credit
histories--defaulted on debt payments or suffered credit rating downgrades.
o The Japanese banking system continued to struggle under the weight of bad
real estate loans and sluggish loan activity.
CASH RESERVE
o According to Lipper Analytical Services, the fund outperformed the average
money market fund during the six months ended April 30, 1997.
o The fund was positioned defensively throughout the period, with an average
maturity of 40-45 days.
o The fund's short maturity enabled it to quickly reflect the Fed interest
rate increase in March.
o Some money market funds were hit by defaults and rating downgrades on debt
issued by sub-prime auto lenders, but the fund was unaffected because these
issuers failed to meet our strict credit criteria.
o Going forward, we expect short-term interest rates to trend higher as
economic growth remains healthy.
Cash Reserve
INVESTOR CLASS(1)
Total Returns: AS OF 4/30/97
6 Months 2.40%(2)
1 Year 4.89%
7-Day Current Yield: 4.94%
(AS OF 4/30/97)
Net Assets: $1.2 billion
(AS OF 4/30/97)
Inception Date: 3/1/85
Ticker Symbol: TWCXX
(1) See Share Classes, page 18.
(2) Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 21.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
April 30, 1997, marked the end of an eventful period for our company and U.S.
money market rates. Over the past six months, money market rates rose as the
Federal Reserve raised short-term interest rates to head off potential
inflation. In the following pages, our investment management team provides
further details about the market and how your fund was managed during the
period.
In January, nearly two years of integration between Twentieth Century and The
Benham Group culminated when we began serving you as American Century
Investments. Under this new name we have combined our offerings of nearly 70
funds.
The new name also introduces three new groupings for the funds--the Benham Group
(money market and bond funds), the American Century Group (asset allocation,
balanced, conservative equity and specialty funds) and the Twentieth Century
Group (aggressive growth and international equity funds). Cash Reserve has
joined the Benham Group because its investment goals--current income and the
preservation of principal--match key attributes of that group.
By now, you should have received a proxy statement and ballot; we strongly
encourage you to read it carefully and take part in the proxy vote if you have
not already done so.
In reviewing this report, you may notice some changes. Based on investors'
feedback, our shareholder reports have been redesigned with added features,
including a report summary, a glossary, more charts and graphs, and expanded
management Q&A and background information sections. All American Century
shareholder reports have been converted to this format.
During the past year, we also began to offer two classes of shares for many
funds, including Cash Reserve. One class (the Investor Class) is designed for
investors who buy directly from us, and the other (the Advisor Class) is
designed for investors who buy through certain financial intermediaries. We've
introduced the Advisor Class so financial intermediaries can be compensated for
the additional services they provide. (See page 18 for more information about
share classes.)
These are examples of how we continue working to provide information and
services that are useful and convenient to investors in our funds. We look
forward to sharing other helpful changes with you.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
U.S. economic growth accelerated during the six months ended April 30, 1997.
After moderating throughout the summer of 1996, economic growth rebounded in the
fourth quarter as strong employment growth, increased consumer spending and a
robust housing market fueled an annualized growth rate of 3.8%. The U.S. economy
continued to pick up speed in the first quarter of 1997, surging ahead at a 5.8%
annual rate.
Although such a strong level of economic growth has historically been
accompanied by rising prices, inflation remained under control--the consumer
price index rose at an annual rate of 3.2% during the six-month period. But
recent evidence of increasing wage pressures--which are often passed on to
consumers in the form of higher prices--led the Federal Reserve to make a
pre-emptive strike against inflation by raising short-term interest rates in
March. The Fed raised its federal funds rate target (the overnight lending rate
targeted by the Fed for large loans between commercial banks) from 5.25% to
5.50%.
Money Market Securities
Money market yields pushed higher during the six months ended April 30, 1997.
The three-month Treasury bill yield rose from 5.15% at the beginning of the
period to 5.25% on April 30, but it fluctuated between 4.92% and 5.40% during
the period. The overall increase in money market rates was a direct result of
the Fed's short-term interest rate increase in March.
The accompanying graph illustrates the change in money market rates during the
period. The graph features the three-month London Interbank Offered Rate
(LIBOR), a money market rate that most banks and corporations track when
determining the rate they'll pay to investors on short-term debt. Three-month
LIBOR has typically reflected the money market's future expectations for
short-term interest rates. As the graph illustrates, the market anticipated the
Fed's action in March--three-month LIBOR rose steadily in the weeks leading up
to the Fed interest rate increase.
Money market yields continued to rise after the Fed rate hike, reflecting
expectations of further Fed interest rate increases in 1997. However, mixed
economic signals in April cast doubt on this outlook and helped money market
yields stabilize by the end of the period.
[line graph - data below]
FEDERAL FUNDS RATE TARGET VS. THREE-MONTH LIBOR
October '96 through April '97
Three-Month LIBOR Fed Funds Rate Target
10/31/96 5.5% 5.25%
11/8/96 5.5 5.25
11/15/96 5.5 5.25
11/22/96 5.5 5.25
11/29/96 5.5 5.25
12/6/96 5.54688 5.25
12/13/96 5.55078 5.25
12/20/96 5.59375 5.25
12/27/96 5.61719 5.25
1/3/97 5.5625 5.25
1/10/97 5.5625 5.25
1/17/97 5.5625 5.25
1/24/97 5.5625 5.25
1/31/97 5.5625 5.25
2/7/97 5.54297 5.25
2/14/97 5.49609 5.25
2/21/97 5.47266 5.25
2/28/97 5.53906 5.25
3/7/97 5.5625 5.25
3/14/97 5.59766 5.25
3/21/97 5.71875 5.25
3/28/97 5.77344 5.5
4/4/97 5.8125 5.5
4/11/97 5.81641 5.5
4/18/97 5.83594 5.5
4/25/97 5.85156 5.5
4/30/97 5.81641 5.5
Source: DRI/McGraw Hill
Semiannual Report Period Overview 3
CORPORATE CREDIT REVIEW
A strong U.S. economy led to improved corporate credit conditions during the six
months ended April 30, 1997. Steady corporate earnings growth contributed to a
record number of corporate credit rating upgrades. According to bond-rating
agency Moody's Investors Service, upgrades outpaced downgrades in 1996 by 283 to
184, a ratio of 3 to 2.
Specific industries benefiting from the upgrade trend included industrial
companies, most recently in the airline sector. In the financial sector, banks
remained stable and strong after several years of credit upgrades, while a
rising stock market and heavy initial public offering activity translated into
upgrades for brokerage firms.
Despite the favorable credit environment, we continue to monitor a few negative
credit trends evident during the period. Two problem areas highlight how our
proactive and conservative approach to credit analysis helps limit the fund's
credit risk.
So far in 1997, several "sub-prime" auto lenders-- so called because they make
loans to borrowers with poor credit histories--have defaulted on debt payments
or experienced credit rating downgrades. For example, sub-prime lender Mercury
Finance defaulted on its debt payments, even though Mercury's direct debt issues
were considered "tier 1" according to SEC standards.
The SEC defines a "tier 1" security as an issue that has received the highest
possible short-term rating from two independent rating agencies. Our standards
for considering a security for purchase are more stringent; Mercury's debt
failed to clear even the first hurdle in our internal rating process.
Another development we're watching closely is the ongoing Japanese banking
crisis. Japanese banks have suffered since 1990, when speculative bubbles in
both the Japanese real estate and stock markets burst. Japan's economy is
recovering slowly, while its real estate and stock markets continue to
deteriorate. Surprisingly, many Japanese banks reported positive earnings for
the fiscal year ended March 31, largely because they wrote off fewer bad real
estate loans than in previous years.
But Japanese banks are not out of the woods yet. They still face some lingering
bad real estate debt, as well as falling equity positions and sluggish loan
activity. In addition, Japanese interest rates are expected to rise later this
year, which would raise the funding costs of Japanese banks and cut into their
interest income.
When the banking crisis was at its peak, the Japanese government announced it
would back the 20 largest Japanese banks. We've pared down that list of 20 to
only those banks that can function independently. In practice, that means the
list of Japanese banks with which we'll do business is much shorter than the
list of 20 that others find acceptable. Cash Reserve currently has no Japanese
bank exposure.
[line graph - data below]
IMPROVING CORPORATE CREDIT QUALITY
Downgrades Upgrades
'87 189 102
'88 237 138
'89 339 138
'90 433 98
'91 350 119
'92 227 136
'93 154 163
'94 160 183
'95 221 205
'96 184 283
Source: Moody's Investors Service
4 Corporate Credit Review American Century Investments
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS LIFE OF FUND
INVESTOR CLASS (inception 3/1/85)
<S> <C> <C> <C> <C> <C> <C>
Cash Reserve 2.40% 4.89% 4.92% 3.94% 5.40% 5.61%
90-Day Treasury Bill Index 2.56% 5.17% 5.22% 4.40% 5.57% 5.76%
Average Money Market
Instrument Fund(1) 2.35% 4.77% 4.86% 4.03% 5.50% 5.69%(2)
Fund's Ranking Among
Money Market
Instrument Funds(1) -- 128 out of 293 106 out of 228 115 out of 177 73 out of 106 59 out of 88(2)
ADVISOR CLASS (inception 4/1/97)
Cash Reserve 0.37%
90-Day Treasury Bill Index 0.43%
(1) According to Lipper Analytical Services.
(2) Since 3/31/85, the date nearest the fund's inception for which data are
available.
</TABLE>
See pages 20-21 for more information about returns, the comparative index and
Lipper fund rankings.
YIELDS AS OF APRIL 30, 1997
7-DAY 7-DAY
CURRENT EFFECTIVE
YIELD YIELD
Cash Reserve 4.94% 5.06%
Yields are defined in the Glossary on page 21.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 69 84
Weighted Average Maturity 44 days 46 days
Expense Ratio (for Investor Class) 0.70%* 0.70%
* Annualized.
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
Semiannual Report Performance & Portfolio Information 5
MANAGEMENT Q&A
An interview with Bob Gahagan and Denise Tabacco, portfolio managers on the
Benham Cash Reserve management team.
How did the fund perform?
The fund outperformed its peer group average. For the six months ended April 30,
1997, the fund's Investor Class shares posted a total return of 2.40%, compared
with the 2.35% average return of the 304 "Money Market Instrument Funds" tracked
by Lipper Analytical Services. (See the Total Returns table on the previous page
for other fund performance comparisons.)
How was the fund positioned during the period?
We positioned the fund defensively throughout the six-month period, keeping the
fund's average maturity around its neutral range of 40-45 days. This defensive
positioning was based on our expectation of an interest rate increase by the
Federal Reserve-- a shorter average maturity enables the fund to reinvest its
maturing assets more quickly in higher-yielding securities. The Fed ultimately
raised rates in late March, and by the end of the period, the fund's yield fully
reflected the rise in rates.
Some money market funds were hit in early 1997 by defaults and rating downgrades
on debt issued by some of the more aggressive auto loan companies, called
"sub-prime lenders." Did the fund hold any of these securities?
No. The consistent, disciplined application of our conservative credit criteria
is one reason we weren't affected by the problems that plagued some of our
competitors. We simply don't want to increase our credit risk for a slightly
higher yield. We rely on our high credit standards to narrow the list of debt
issuers to those we feel are the most creditworthy. From that exclusive list, we
do our homework to uncover the best yield and return stories.
You increased the fund's holdings of asset-backed securities. What's the
attraction?
Asset-backed securities enable the fund to reach for higher yields while
retaining a high degree of credit quality. Asset-backed securities are debt
securities that represent ownership in a pool of assets, such as auto loans or
credit cards. These securities typically have higher yields than commercial
paper and CDs, and they generally have very high credit quality
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Commercial Paper 74%
Floating-Rate Notes 13%
Asset-Backed Securities 5%
U.S. Government Agency
Securities 5%
Certificates of Deposit 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Commercial Paper 73%
U.S. Government Agency
Securities 12%
Floating-Rate Notes 12%
Certificates of Deposit 2%
Asset-Backed Securities 1%
6 Management Q & A American Century Investments
MANAGEMENT Q&A
because many carry credit enhancements, such as bond insurance. Asset-backed
securities are also often overcollateralized, which means the securities contain
more assets than are required to pay off the debt. Consistent with our
conservative approach to managing credit risk, we've added specialists in
asset-backed securities to our credit research staff.
What's your outlook for money market rates going forward?
The apparent strength of the economy should continue to put upward pressure on
short-term interest rates. Although the blistering pace of economic growth in
the first quarter of 1997 is clearly unsustainable, we feel that the pieces are
in place for healthy economic growth going forward.
A 28-year high in consumer confidence, the lowest unemployment rate in 23 years,
and solid income growth suggest the possibility of increased consumer spending
in the months ahead. Unless we see convincing evidence of an economic slowdown,
we expect the trend toward higher interest rates to continue.
With that outlook in mind, how will you manage the fund over the next six
months?
We plan to maintain the fund's defensive position in the coming months. We'll
also look to maintain or even increase the fund's holdings of floating-rate
notes. This positioning should enable the fund's yield to quickly reflect rising
interest rates. We also expect to continue working closely with our credit
research staff to uncover value among asset-backed securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
A1+ 77%
A1 20%
A2 3%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
A1+ 80%
A1 18%
A2 2%
Semiannual Report Management Q & A 7
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER(1)
BANKING--8.1%
$ 2,900 Bil North America, Inc., 5.42%,
5/21/97 $ 2,891
15,000 Galicia Funding Corp., 5.39%,
5/30/97 (Acquired 3/3/97,
Cost $14,804)(2) 14,935
16,000 Generale Bank S.A., 5.40%,
6/3/97 15,921
9,000 IMI Funding Co. (USA), 5.40%,
6/4/97 8,954
19,500 Morgan (J.P.) & Co. Inc., 5.50%,
7/9/97 19,299
20,000 National Australia, 5.48%, 7/3/97 19,804
15,000 Nordbanken N.A., Inc., 5.42%,
6/9/97 14,909
------
96,713
------
CONVENIENCE STORES--0.5%
6,000 Southland Corp., 5.43%, 5/20/97 5,983
------
DIVERSIFIED COMPANIES--6.2%
35,000 General Electric Capital Corp.,
5.39%, 5/29/97 through
5/30/97 34,850
15,000 Mitsubishi International, 5.44%,
6/18/97 14,889
25,000 Mitsubishi International, 5.52%,
7/17/97 24,701
------
74,440
------
EDUCATION--0.4%
5,000 Leland Stanford University, 5.42%,
6/10/97 4,971
------
FINANCIAL SERVICES--20.6%
25,000 American Express Co., 5.42%,
5/21/97 24,927
15,000 Ameritech Capital Funding Corp.,
5.47%, 5/5/97 (Acquired
11/4/96, Cost $14,600)(2) 14,991
27,244 Bass Finance (C.I.) Ltd., 5.46%,
5/9/97 27,212
10,000 Demir Funding, 5.57%, 7/16/97 9,881
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 10,500 Ford Motor Credit, 5.42%,
6/11/97 $ 10,434
12,400 Ford Motor Credit, 5.50%, 7/9/97 12,267
20,000 Ford Motor Credit, 5.53%, 7/21/97 19,747
8,300 General Motors Acceptance Co.,
5.45%, 5/15/97 8,283
12,500 General Motors Acceptance Co.,
5.56%, 8/4/97 12,322
15,000 General Motors Acceptance Co.,
5.59%, 8/25/97 14,743
11,400 Hitachi Credit America Corp.,
5.42%, 5/23/97 11,363
20,500 Hitachi Credit America Corp.,
5.48%, 6/30/97 20,307
24,200 Metlife Funding, Inc., 5.46%,
5/7/97 24,179
17,251 Metlife Funding, Inc., 5.40%,
6/3/97 17,164
20,000 Prudential Funding, 5.47%,
5/5/97 19,988
------
247,808
-------
HOUSEHOLD AUDIO & VIDEO--1.5%
17,700 Panasonic Finance, 5.40%, 6/3/97
(Acquired 4/7/97,
Cost $17,544)(2) 17,610
------
INSURANCE--0.4%
5,300 American Family Mutual Insurance
Co., 5.45%, 5/15/97 5,289
------
MACHINERY--1.1%
13,750 Dover Corp., 5.43%, 5/20/97 13,710
------
METALS & MINING--2.6%
15,000 RTZ America Inc., 5.42%, 6/9/97 14,912
14,700 U.S. Borax, Inc., 5.40%, 5/28/97 14,642
1,400 U.S. Borax, Inc., 5.46%, 6/23/97 1,388
------
30,942
------
OFFICE EQUIPMENT & SUPPLIES--1.2%
15,000 Hitachi America, Ltd., 5.47%,
5/6/97 14,989
------
PETROLEUM REFINING--8.5%
13,000 Chevron Transport, 5.39%,
5/30/97 (Acquired 3/10/97,
Cost $12,844)(2) 12,944
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 10,000 Chevron Transport, 5.42%,
6/10/97 (Acquired 11/13/96,
Cost $9,693)(2) $ 9,941
15,000 Chevron Transport, 5.43%,
5/19/97 (Acquired 4/1/97,
Cost $14,888)(2) 14,958
10,000 Chevron U.K. Investment PLC,
5.45%, 5/14/97 9,980
14,379 Petroleo Brasileiro S.A., 5.42%,
5/22/97 14,332
40,000 Statoil-Den Norske Stats, 5.46%,
5/8/97 39,957
------
102,112
-------
PHARMACEUTICALS--4.1%
23,000 Bayer Corp., 5.47%, 5/6/97
(Acquired 2/21/97,
Cost $22,752)(2) 22,983
26,700 Glaxo Wellcome PLC, 5.46%,
6/23/97 (Acquired 4/21/97,
Cost $26,441)(2) 26,482
------
49,465
------
PUBLISHING--2.1%
25,000 Reed Elsevier Inc., 5.41%, 6/6/97 24,866
------
SECURITY BROKERS & DEALERS--9.7%
25,000 BT Securities Corp., 5.59%,
8/26/97 24,564
27,000 Goldman Sachs Group L.P., 5.40%,
5/28/97 26,888
25,000 Merrill Lynch & Co., 5.39%,
5/30/97 24,888
9,500 Merrill Lynch & Co., 5.42%,
5/22/97 9,469
10,000 Morgan Stanley Group, Inc., 5.42%,
5/23/97 9,968
21,000 Morgan Stanley Group, Inc., 5.44%,
5/16/97 20,953
------
116,730
-------
SOVEREIGN GOVERNMENTS
& AGENCIES--1.0%
12,000 Canadian Wheat Board, 5.45%,
5/15/97 11,975
------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
TRANSPORTATION--3.6%
$ 18,023 Cosco (Cayman) Company, 5.42%,
5/21/97 $ 17,968
25,000 Cosco (Cayman) Company, 5.45%,
5/13/97 24,955
------
42,923
------
UTILITIES (ELECTRIC)--1.8%
21,200 National Rural Utilities Cooperative
Finance Corp., 5.43%, 6/13/97 21,059
------
TOTAL COMMERCIAL PAPER--73.4% 881,585
-------
CERTIFICATES OF DEPOSIT
10,000 Bankers Trust New York Corp.,
5.48%, 6/10/97 10,000
30,000 Westdeutsche Landesbank, 5.62%,
6/2/97 30,000
------
TOTAL CERTIFICATES OF DEPOSIT--3.3% 40,000
------
OTHER CORPORATE DEBT
23,750 American Express Centurion Bank,
VRN, 5.66%, 5/23/97, resets
monthly off the 1-month LIBOR
minus 0.03% with no caps, final
maturity 12/23/97 23,750
14,500 First Bank Minneapolis, VRN,
5.65%, 5/21/97, resets monthly
off the 1-month LIBOR minus
0.04% with no caps, final
maturity 11/19/97 14,500
40,000 General American Life, VRN,
5.83%, 5/21/97, resets monthly
off the 1-month LIBOR plus 0.20%
with no caps, final maturity 1/6/98 (Acquired
1/3/97, Cost $40,000)(2) 40,000
22,000 PNC Bank, N.A., VRN, 5.59%,
5/1/97, resets monthly off the
1-month LIBOR minus 0.10%
with no caps, final maturity
7/1/97 21,998
17,000 PNC Bank, N.A., VRN, 5.59%,
5/15/97, resets monthly off the
1-month LIBOR minus 0.10%
with no caps, final maturity
5/15/97 16,999
See Notes to Financial Statements
Semiannual Report Schedule of Investments 9
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 17,000 Prudential Funding, VRN, 5.65%,
5/27/97, resets monthly off the
1-month LIBOR minus 0.04%
with no caps, final maturity
11/26/97 (Acquired 11/25/96,
Cost $17,000)(2) $ 17,000
25,000 Wachovia Bank of NC, VRN,
5.56%, 5/28/97, resets monthly
off the 1-month LIBOR minus
0.125% with no caps, final
maturity 5/28/97 24,998
------
TOTAL OTHER CORPORATE DEBT--13.3% 159,245
-------
ASSET-BACKED SECURITIES
17,305 Ford Credit Auto Lease Trust,
Series 1996-1, Class A1, 5.45%,
11/15/97 17,304
4,043 Ford Credit Auto Owner Trust,
Series 1996-B, Class A1, 5.51%,
10/15/97 4,043
25,715 Money Store Inc. (The) Auto
Grantor Trust, Series 1996-2,
Class A1, 5.51%, 1/15/98 25,715
18,000 WFS Financial Owner Trust, Series
1997-A, Class A1, 5.63%,
3/20/98 18,000
------
TOTAL ASSET-BACKED SECURITIES--5.4% 65,062
------
U.S. GOVERNMENT AGENCY SECURITIES
25,000 FHLB, VRN, 5.68%, 5/1/97,
resets daily off the Fed Funds
rate plus 0.15% with no caps,
final maturity 8/1/97 25,000
30,000 FNMA, MTN, VRN, 5.63%, 5/1/97,
resets daily off the Fed Funds rate
plus 0.01% with no caps, final
maturity 5/5/97 30,000
------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES--4.6% 55,000
------
TOTAL INVESTMENT SECURITIES--100.0% $1,200,892
==========
See Notes to Financial Statements
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
FNMA = Federal National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
April 30, 1997.
(1)The rates for commercial paper are the yield to maturity at April 30, 1997.
(2)Security was purchased under Rule 144A or Section 4(2) of the Securities Act
of 1933 or is otherwise restricted as to resale and, unless registered under the
Act or exempted from registration, may only be sold to qualified institutional
investors. The aggregate value of restricted securities at April 30, 1997, was
$230,565,000, which represented 19.2% of net assets.
10 Schedule of Investments American Century Investments
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
($ in Thousands Except Per-Share Amounts)
ASSETS
Investment securities, at value (amortized cost) (Note 3) ......... $1,200,892
Cash .............................................................. 9,919
Interest receivable ............................................... 3,013
-----
1,213,824
---------
LIABILITIES
Disbursements in excess of demand deposit cash .................... 5,179
Payable for capital shares redeemed ............................... 3,376
Dividends payable ................................................. 813
Accrued management fees (Note 2) .................................. 733
Other liabilities ................................................. 3
------
10,104
------
Net Assets ........................................................ $1,203,720
==========
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ........................... $1,203,800
Accumulated undistributed net realized loss
from investment transactions ................................... (80)
----
$1,203,720
==========
Investor Class
Net assets ........................................................ $1,203,070
Shares outstanding ................................................ 1,203,150
Net asset value per share ......................................... $ 1.00
Advisor Class
Net assets ........................................................ $ 650
Shares outstanding ................................................ 650
Net asset value per share ......................................... $ 1.00
See Notes to Financial Statements
Semiannual Report Statement of Assets and Liabilities 11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
($ in Thousands)
INVESTMENT INCOME
Income:
Interest .................................................... $36,124
-------
Expenses:
Management fees (Note 2) .................................... 4,597
Directors' fees and expenses ................................ 8
-------
4,605
-------
Net investment income ....................................... 31,519
-------
NET REALIZED LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................ (2)
-------
Net Increase in Net Assets Resulting from Operations ........ $31,517
=======
See Notes to Financial Statements
12 Statement of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996
Decrease in Net Assets 1997 1996
($ in Thousands)
OPERATIONS
<S> <C> <C>
Net investment income .................................... $ 31,519 $ 67,104
Net realized gain (loss) on investments .................. (2) 2
------ ------
Net increase in net assets resulting from operations ..... 31,517 67,106
------ ------
DISTRIBUTIONS TO SHAREHOLDERS From net investment income:
Investor Class ......................................... (31,517) (67,104)
Advisor Class .......................................... (2)
------ ------
Decrease in net assets from distributions ................ (31,519) (67,104)
------- -------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net decrease in net assets from capital share transactions (143,378) (122,448)
-------- --------
Net decrease in net assets ............................... (143,380) (122,446)
NET ASSETS
Beginning of period ...................................... 1,347,100 1,469,546
--------- ---------
End of period ............................................ $ 1,203,720 $ 1,347,100
=========== ===========
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Changes in Net Assets 13
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Benham Cash Reserve Fund (the
Fund) is one of the seventeen series of funds issued by the Corporation. The
Fund's investment objective is to obtain maximum current income consistent with
the preservation of principal and maintenance of liquidity. The Fund intends to
pursue its investment objective by investing substantially all of its assets in
a portfolio of money market instruments and maintaining a weighted average
maturity of not more than 90 days. On September 3, 1996, the Fund implemented a
multiple class structure whereby the Fund is authorized to issue two classes of
shares: The Investor Class and the Advisor Class. The shares outstanding prior
to September 3, 1996, are designated as Investor Class shares. The two classes
of shares differ principally in their respective shareholder servicing fees and
distribution fees. All shares of the Fund represent an equal pro rata interest
in the Fund 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. Sale of
the Advisor Class commenced on April 1, 1997. The following significant
accounting policies, related to the Fund, are in accordance with accounting
policies generally accepted in the investment company industry.
Security Valuations--Securities are valued at amortized cost, which approximates
current value. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Discounts and premiums are amortized
daily on a straight-line basis.
Repurchase Agreements--The Fund may enter into repurchase agreements with
institutions the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the securities purchased 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 value of the securities
transferred to ensure that 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 other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 policy of the Fund to distribute all taxable income
and net capital 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 federal income taxes.
Distributions--Distributions from net investment income are declared daily and
distributed monthly. The Fund does not expect to realize any long-term capital
gains, and accordingly, does not expect to pay any capital gains distributions.
Supplementary Information--Certain officers and directors of the Corporation are
also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., ACIS, and the Corporation's transfer agent, American Century
Services Corporation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
14 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Corporation has entered into a Management Agreement with ACIM that provides
the Fund with investment advisory and management services in exchange for a
single, unified management fee per class. The Agreement provides that all
expenses of the Fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's average daily closing net assets during the previous month. The
annual management fee for each class is 0.70% and 0.45% for the Investor Class
and Advisor Class, respectively.
The Board of Directors has adopted a shareholder services and distribution plan
for the Advisor Class, pursuant to Rule 12b-1 of the Investment Company Act of
1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Fund will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred in connection with distributing shares of the Advisor Class
including, but not limited to, payments to brokers, dealers, and financial
institutions that have entered into sales agreements with ACIS and/or ACIM. The
service fee provides compensation for shareholder and administrative services
rendered by ACIM, its affiliates or independent third party providers. Fees
incurred under the Master Distribution and Shareholder Services Plan during the
period April 1, 1997 (commencement of sale of Advisor class) through April 30,
1997, were $221.
Semiannual Report Notes to Financial Statements 15
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
3. Capital Share Transactions
There are 2,000,000,000 and 1,000,000,000 shares of the Investor Class and
Advisor Class authorized for issuance, respectively. All shares are $0.01 par
value. Transactions in shares of the Fund were as follows:
Shares Amount
(In Thousands)
INVESTOR CLASS Six Months Ended April 1, 1997:
Sold ................................... 1,294,912 $ 1,294,912
Issued in reinvestment of distributions 30,592 30,592
Redeemed ............................... (1,469,532) (1,469,532)
---------- ----------
Net increase ........................... (144,028) $ (144,028)
======== ===========
Year Ended October 31, 1996:
Sold ................................... 2,137,139 $ 2,137,139
Issued in reinvestment of distributions 64,608 64,608
Redeemed ............................... (2,324,195) (2,324,195)
---------- ----------
Net increase ........................... (122,448) $ (122,448)
======== ===========
ADVISOR CLASS
April 1, 1997(1) through April 30, 1997:
Sold ................................... 648 $ 648
Issued in reinvestment of distributions 2 2
---------- ----------
Net increase ........................... 650 $ 650
======== ===========
(1) Commencement of sale of the Advisor Class.
- --------------------------------------------------------------------------------
4. Corporate Events
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
Fund's Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Fund: American Century - Benham Cash Reserve Fund Cash Reserve
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
16 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
Investor Advisor
Class Class
1997(1) 1996 1995 1994 1993(2) 1992(2) 1997(3)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period ................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- -----
Income From Investment Operations
Net Investment Income ............. 0.02 0.05 0.05 0.03 0.02 0.04 --
---- ---- ---- ---- ---- ---- -----
Distributions
From Net Investment Income ........ (0.02) (0.05) (0.05) (0.03) (0.02) (0.04) --
---- ---- ---- ---- ---- ---- -----
Net Asset Value, End of Period ...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total Return(4) ................... 2.40% 4.99% 5.38% 3.21% 2.30% 3.74% 0.37%
RATIOS/SUPPLEMENTAL RATIOS
Ratio of Expenses to
Average Net Assets .................. 0.70%(5) 0.70% 0.70% 0.80% 1.00% 0.98%(6) 0.95%(5)
Ratio of Net Investment Income
to Average Net Assets ............... 4.77%(5) 4.88% 5.27% 3.18% 2.30% 3.62% 4.70%(5)
Net Assets End
of Period (in thousands) ...........$1,203,720 $1,347,106 $1,469,546 $1,298,982 $1,256,012 $1,487,961 $650
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 100 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) April 1, 1997 (commencement of sale of Advisor Class) through April 30,
1997 (unaudited).
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
(6) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 17
SHARE CLASS AND RETIREMENT ACCOUNT
INFORMATION
Share Classes
Until September 3, 1996, Cash Reserve issued one class of fund shares,
reflecting the fact that most investors bought their shares directly from
American Century. All investors paid the same annual unified management fee and
did not pay any commissions or other fees to purchase shares from American
Century.
But increasing numbers of investors are purchasing fund shares through financial
intermediaries who are ordinarily compensated for the additional services they
provide. In September, American Century began to offer two classes of shares for
Cash Reserve. One class is for investors who still buy directly from American
Century, the other for investors who buy through financial intermediaries.
The original class of Cash Reserve shares is called the Investor Class. All
shares issued and outstanding before September 3, 1996, have been designated as
Investor Class shares. Investor Class shares may still be purchased after
September 3, 1996. Investor Class shareholders do not pay any commissions or
other fees for purchase of fund shares directly from American Century. Investors
who buy Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee.
In addition, there is an Advisor Class, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class
shares, which commenced sales on April 1, 1997, are subject to a 0.50% Rule
12b-1 service and distribution fee. Half of that fee is available to pay for
recordkeeping and administrative services, and half is available to pay for
distribution services provided by the financial intermediary through which the
Advisor Class shares are purchased. The total expense ratio of the Advisor Class
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the fund and generally
have the same rights and preferences.
Retirement Account Information
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
18 Share Class and Retirement Account Information American Century Investments
NOTES
Semiannual Report Notes 19
BACKGROUND INFORMATION
Investment Philosophy & Policies
The Benham Group offers 42 fixed-income funds, ranging from money market funds
to long-term bond funds and including both taxable and tax-exempt funds.
Cash Reserve is a money market fund that seeks to provide interest income by
investing in a diversified portfolio of short-term money market securities. The
fund must maintain a weighted average maturity of 90 days or less.
An investment in Cash Reserve is neither insured nor guaranteed by the U.S.
government. Yields will fluctuate, and there can be no assurance that the fund
will be able to maintain a stable net asset value of $1 per share.
Comparative Indices
The following index is used in the report as a fund performance comparison. It
is not an investment product available for purchase.
The 90-Day Treasury Bill Index is derived from secondary market interest rates
as published by the Federal Reserve Bank.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service
that groups funds according to their investment objectives. Rankings are based
on average annual returns for each fund in a given category for the periods
indicated. Rankings are not included for periods less than one year.
The Lipper category for Cash Reserve is:
Money Market Instrument Funds--funds that intend to maintain a stable net asset
value and that invest in high-quality financial instruments rated in the top two
grades with dollar-weighted average maturities of less than 90 days.
PORTFOLIO MANAGEMENT TEAM
Senior Portfolio Manager Bob Gahagan
Portfolio Managers Amy O'Donnell, Denise Tabacco
CREDIT RESEARCH TEAM
Credit Analysts Edward Grant, Tanya Fleischer,
Michael Difley, Tom Vaiana,
John Walsh
Associate Credit
Research Analysts Sudha Mani, Richard McClung
20 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on page 17.
Yields
o 7-day Current Yield is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
o 7-day Effective Yield is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
Portfolio Statistics
o Number of Securities--the number of different securities held by a fund on a
given date.
o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
Types of Money Market Securities
o Asset-Backed Securities--debt securities that represent ownership in a pool of
receivables, such as credit card debt, auto loans or mortgages.
o Certificates of Deposit (CDs)--CDs represent a bank's obligation to repay
money deposited with it for a specified period of time. Different types of CDs
have different issuers. For example, Yankee CDs are issued by U.S. branches of
foreign banks, and Eurodollar CDs are issued in London by Canadian, European and
Japanese banks.
o Commercial Paper (CP)--short-term debt issued by large corporations to raise
cash and to cover current expenses in anticipation of future revenues. The
maximum maturity for CP is 270 days, although most CP is issued in a one- to
50-day maturity range. CP rates generally track those of other widely traded
money market instruments, such as Treasury bills and certificates of deposit,
but they are also influenced by the maturity date and the size and credit rating
of the issuer.
o Floating-Rate Notes (Floaters)--debt securities whose interest rates change
when a designated base rate changes. The base rate is often the federal funds
rate, the 90-day Treasury bill rate or the London Interbank Offered Rate
(LIBOR). Floaters are considered derivatives because they "derive" their
interest rates from their designated base rates. However, floaters are not
"risky" derivatives--their behavior is similar to that of their designated base
rates. The SEC has recognized this similarity and does not consider floaters to
be inappropriate investments for money market funds.
o U.S. Government Agency Notes--intermediate-term debt securities issued by U.S.
government agencies (such as the Federal Farm Credit Bank and the Federal Home
Loan Bank). Some agency notes are backed by the full faith and credit of the
U.S. government, while most are guaranteed only by the issuing agency. These
notes are issued with maturities ranging from three months to 30 years. Money
market funds invest in these securities when they have remaining maturities of
13 months or less.
Semiannual Report Glossary 21
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT
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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8695 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
APRIL 30, 1997
AMERICAN
CENTURY
GROUP
Balanced
[front cover]
TABLE OF CONTENTS
Report Highlights ...................................................... 1
Our Message to You ..................................................... 2
Period Overview ........................................................ 3
Performance & Portfolio Information .................................... 4
Management Q & A ....................................................... 5
Schedule of Investments ................................................ 8
Statement of Assets and Liabilities ....................................12
Statement of Operations ................................................13
Statements of Changes in Net Assets ....................................14
Notes to Financial Statements ..........................................15
Financial Highlights ...................................................19
Share Class and Retirement Account
Information .........................................................21
Background Information
Investment Philosophy and Policies ................................24
Comparative Indices ...............................................24
Fund Management Team Leaders ......................................24
Glossary ...............................................................25
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments
Benham American Century Twentieth Century(R)
Group(R) Group Group
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Balanced
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o The U.S. stock market produced widely divergent returns over the period. The
S&P 500's 14.74% six-month total return continued a three-year trend of
unusually strong performance by large-cap stocks. By contrast, the S&P MidCap
400 posted a 6.88% return, and the small-cap Russell 2000 returned just 1.61%.
Factors that were in the S&P 500's favor included: investors seeking stability
and liquidity; strong economic growth with low inflation; and the success of S&P
500 index funds.
o The shares of fast-growing mid- and small-cap growth companies didn't benefit
from the factors that drove investors to the S&P 500. They lagged despite
reporting strong earnings growth in many cases.
o U.S. bonds produced modest returns during the period. Rising interest rates
caused bond prices to fall, but the interest income paid out to bondholders
offset the price declines for the most part. Short-term securities, which
usually suffer less price depreciation than longer term securities when interest
rates are rising, were the best performers during the period.
Balanced
o Balanced's total return was 1.94%, reflecting the combined performance of the
fund's stock and bond components. The fund's bond portfolio nearly matched the
general performance of bonds during the period, but the fund's equity portfolio
significantly underperformed the equity returns of its benchmark index.
This underperformance resulted from the fund's weighting in smaller,
faster-growing stocks, which declined sharply during the period.
o The fund's holdings in energy-related companies proved disappointing as oil
and gas prices fell. The fund managers continue to like technology stocks due to
their attractive earnings and revenue growth; however, their valuations were
depressed during the period by skeptical investors and analysts who feared these
companies could not sustain their growth rates.
o Management increased the equity portfolio's average market capitalization by
adding more quality mid-cap stocks. The fund managers believe these securities
will provide a measure of growth and also lend greater stability to the
portfolio. In addition, management increased holdings in pharmaceutical
companies to take advantage of a new cycle of product introductions.
o Balanced's bond portfolio performed as well as could be expected in a period
that was not favorable for bonds. The portfolio team assumed a steady,
conservative approach, keeping the port-folio's duration at or below the fund's
neutral level for much of the period. This short duration proved to be a benefit
in the relatively volatile interest rate environment.
o During the period, the difference in yields between corporate and Treasury
bonds with similar maturities dropped to ten-year lows. Manage-ment reduced the
fund's exposure to corporate bonds as they became less attractive in terms of
yield.
Balanced
INVESTOR CLASS(1)
Total Returns: AS OF 4/30/97
6 Months 1.94%(2)
1 Year 10.24%
Net Assets: $852 million
(As of 4/30/97)
Inception Date: 10/20/88
Ticker Symbol: TWBIX
(1) See Share Classes, page 21.
(2) Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
25.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
April 30, 1997, marked the end of an eventful period for our company and the
Balanced fund. We entered 1997 with a new identity--AMERICAN CENTURY
INVESTMENTS. American Century encompasses the skills, talents and resources
brought together when Twentieth Century Mutual Funds and The Benham Group merged
during 1995 and 1996.
Changing the company's name after being known as Twentieth Century Mutual Funds
for almost 40 years was a significant step. Although our core investment
disciplines remain unchanged, the combination of Twentieth Century and Benham
allows us to bring you a full menu of nearly 70 funds. We've also introduced
three new groups for the funds--the Benham Group (money market and bond funds),
the American Century Group (asset allocation, balanced, conservative equity and
specialty funds) and the Twentieth Century Group (aggressive growth and
international equity funds). Balanced is part of the American Century Group
because its investment approach--long-term growth with less volatility than our
pure equity growth funds--matches key attributes of that group.
During the past six months, we also began to offer multiple classes of shares
for many funds. These new share classes acknowledge the differences in the types
of investors who invest in our funds and the growing role of financial advisors
and financial institutions as a distribution channel for fund shares. Balanced
now has three share classes--the Investor Class, designed for investors who buy
directly from American Century, the Advisor Class, designed for investors who
buy through certain financial intermediaries, and the Institutional Class,
although no shares of this class have been sold yet.
Another part of serving investors is providing the best possible information
regularly in a helpful format. Based on investors' feedback, we have redesigned
our shareholder reports to include new features, such as a one-page report
summary, a glossary, more charts and graphs, and expanded Management Q&A and
background information sections. This report displays the new format.
We appreciate your confidence in American Century and look forward to continuing
to serve you.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder President and Chief Executive Officer
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. STOCK MARKET
The six-month period ended April 30, 1997, produced widely divergent returns for
U.S. stock investors. In general, the shares of large companies (large-cap
stocks), particularly relatively stable, industry-leading firms in the S&P 500,
significantly outperformed the shares of faster-growing, smaller companies (mid-
and small-cap stocks). Value stocks (shares of companies that are lower priced)
generally outperformed growth stocks (those of companies demonstrating
above-average earnings growth) as investors placed a higher premium on earnings
stability than on earnings growth.
The S&P 500 typically represents the large-cap sector of the U.S. stock market.
Many investors also use the index as a proxy for the U.S. market as a whole. The
sustained advance of the S&P 500 was one of the key success stories of the
period. The index posted a 14.74% total return during the six months, continuing
a three-year trend of unusually strong large-cap performance. Factors that
supported the S&P 500's performance included:
o Investors seeking predictable earnings and liquidity because they feared
rising interest rates and an economic slowdown. The shares of large, well-known
firms such as Johnson & Johnson and Microsoft rallied appreciably.
o Favorable economic conditions (robust growth and low inflation) and
particularly strong earnings growth for large-cap companies.
o The popularity and success of S&P 500 index funds. With more investor dollars
chasing stocks in the S&P 500, the prices of those shares rose much faster than
the prices of mid- and small-cap stocks.
U.S. BOND MARKET
U.S. bonds produced modest returns during the period. Recent evidence of
increasing wage pressures--which are often passed on to consumers in the form of
higher prices--led the Federal Reserve (the Fed) to make a pre-emptive strike
against inflation by raising short-term interest rates in March. The Fed raised
its federal funds rate target (the overnight lending rate targeted for large
loans between commercial banks) from 5.25% to 5.50%. Rising interest rates
caused bond prices to fall, but the interest income paid out to bondholders
offset the price declines for the most part. Short-term securities, which
usually suffer less price depreciation than longer-term securities when interest
rates are rising, were the best performers during the period. For example, the
two-year Treasury note posted a 2.38% return for the six-month period, while the
30-year Treasury bond returned 0.74%.
[line graph - data below]
COMPARATIVE PERFORMANCE (Growth of $1.00)
For the six-month period ended April 30, 1997
LEHMAN
INTERMEDIATE
GOVT/CORP BLENDED
BOND INDEX S&P 500 INDEX
Oct-96 $1.00 $1.00 $1.00
Nov-96 $1.04 $1.07 $1.05
Dec-96 $1.01 $1.06 $1.04
Jan-97 $1.06 $1.12 $1.08
Feb-97 $1.03 $1.13 $1.08
Mar-97 $0.99 $1.08 $1.05
Apr-97 $1.02 $1.15 $1.10
S&P 500 14.74%
Blended Index 9.52%
Lehman Intermediate Govt/Corp
Bond Index 1.74%
SOURCE: LIPPER ANALYTICAL SERVICES, INC.
Semiannual Report Period Overview 3
<TABLE>
<CAPTION>
PERFORMANCE & PORTFOLIO INFORMATION
TOTAL RETURNS AS OF APRIL 30, 1997
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
INVESTOR CLASS (inception 10/20/88)
<S> <C> <C> <C> <C> <C>
Balanced 1.94% 10.24% 11.42% 8.83% 11.71%
Blended Index 9.52% 17.64% 17.25% 12.95% 13.19%(1)
ADVISOR CLASS (inception 1/6/97)
Balanced -0.57%
Blended Index 1.72%(2)
</TABLE>
(1) Return from 10/31/88, the date nearest the class's inception for which data
are available.
(2) Return from 1/31/97, the date nearest the class's inception for which data
are available.
See pages 21, 24 and 25 for more information about share classes, the Blended
Index and returns.
[line graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND (Investor Class)
VALUE ON 4/30/97
Blended Index $29,863
Balanced $25,940
BLENDED
BALANCED INDEX
10/31/88 $10,000 $10,000
4/30/89 $10,620 $10,872
4/30/90 $12,060 $11,947
4/30/91 $14,585 $13,875
4/30/92 $16,992 $15,643
4/30/93 $17,345 $17,261
4/30/94 $18,747 $17,906
4/30/95 $20,025 $20,333
4/30/96 $23,530 $24,959
4/30/97 $25,940 $29,863
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. Data quoted is for Investor Class only; performance for other
classes will vary due to differences in fee structure (see the Total Returns
table above).
The line representing Balanced's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the Blended Index does not.
[pie chart]
ASSET ALLOCATION (as of April 30, 1997)
Common Stocks 58%
Corporate Bonds 23%
U.S. Treasury Securities 7%
Mortgage & Asset-Backed Securities 6%
Other 6%
4 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
An interview with Bruce Wimberly and Jeff Houston, two of the portfolio managers
on the Balanced management team.
HOW DID THE FUND PERFORM?
For the six-month period ended April 30, 1997, the fund's total return was
1.94%, reflecting the combined performance of the fund's stock and bond
portfolios. Stocks represent approximately 60% of the fund's assets, while the
remaining assets are invested in bonds. Balanced's mix of stocks and bonds is
designed to provide investors with a buffer in varying market and economic
environments.
Unfortunately, the fund's small- and mid-cap stock holdings were out of favor,
as discussed in the Period Overview on page 3, and its bond holdings also
suffered as interest rates rose. For the period, the fund's stock portfolio
returned 1.93%, compared with 14.74% for the S&P 500, while the bond portfolio
returned 1.48%, compared to the 1.74% return posted by its benchmark index, the
Lehman Intermediate Government/Corporate Bond Index. The fund's benchmark, the
Blended Index, posted a 9.52% total return for the period. This index combines
the S&P 500 Index and the Lehman Intermediate Government/Corporate Index in
proportion to the asset mix of the fund.
WHY DID THE BLENDED INDEX OUTPERFORM THE FUND?
While the performance of the fund's bond portfolio nearly matched the returns of
the bond portion of the index, the fund's stock portfolio significantly
underperformed the stock returns of the index. The benchmark was heavily
influenced by the exceptionally strong performance of the S&P 500, which
represents 60% of the Blended Index. The S&P 500 reflects the performance of the
U.S. stock market generally, but it has a large-capitalization bias. Company
size was a significant factor in stock performance during the period, with
large-cap stocks generally outperforming mid- and small-cap companies. This
market trend worked against the fund, since we had purchased some attractive
smaller-cap stocks late last year in an effort to improve the fund's
performance. We think that blending these smaller, faster-growing companies with
the fund's traditional holdings of
[bar chart - data below]
BALANCED's ONE-YEAR RETURNS OVER THE LIFE OF THE FUND
(Periods ending April 30)
BLENDED
BALANCED(1) INDEX
4/89 6.20%(2) 8.72%(2)
4/90 13.56% 9.85%
4/91 20.94% 16.02%
4/92 16.50% 12.62%
4/93 2.08% 10.48%
4/94 8.09% 3.59%
4/95 6.81% 13.07%
4/96 17.51% 21.24%
4/97 10.24% 17.64%
This chart illustrates Balanced's returns since its inception and compares them
with the Blended Index's returns. The fund's total returns include operating
expenses, while the index's returns do not. See page 24 for a description of the
index. Past performance is no guarantee of future results.
(1) Investor Class (2) Return from 10/31/88 (the date nearest the fund's
inception date for which data are available) to 4/30/89.
Semiannual Report Period Overview 5
MANAGEMENT Q & A
larger, blue-chip firms will enhance returns over time. This strategy meant
Balanced was more heavily weighted in stocks of smaller, more aggressive
companies than the S&P 500. The underperformance of these stocks, which were
largely out of favor during the period, reduced the performance of the fund's
stock portfolio below that of its the benchmark. We believe, however, that these
holdings will reward us over time.
WHAT SPECIFIC STOCKS OR SECTORS OF THE MARKET HAD THE GREATEST IMPACT ON THE
PERFORMANCE OF THE FUND'S STOCK PORTFOLIO?
Some energy-related and technology companies proved disappointing. In the energy
sector, for example, Balanced was heavily weighted in the shares of several
oil-drilling companies, including Global Marine and Falcon Drilling, which
demonstrated impressive growth and whose stock appreciated steadily during the
previous six months. We held on to these stocks because we expected to continue
to benefit from increasing demand for new oil supplies. However, the stocks
began sliding in mid-January as oil and gas prices fell.
We continue to like technology stocks because of the accelerating earnings many
of these companies produce, but some sectors within the technology group
struggled. For example, Balanced's 6% weighting in companies such as Western
Digital and Applied Magnetics Corporation, which manufacture disk drives for
computers, far exceeded the S&P 500's 1% weighting in this industry. These
stocks tend to be very volatile in response to fluctuating levels of supply and
demand. During the period, many of these companies continued to show strong
earnings and revenue growth, but their valuations were depressed by skeptical
investors and analysts who did not believe they could sustain their growth
rates.
TOP TEN EQUITY HOLDINGS % of equity portfolio
As of As of
4/30/97 10/31/96
Western Digital Corp. 4.3% --
Warner-Lambert Co. 4.1% 1.9%
General Electric Co. 3.8% 2.9%
Intel Corp. 3.8% 4.3%
Johnson & Johnson 3.6% 3.2%
Pfizer, Inc. 3.3% 2.8%
Lilly (Eli) & Co. 3.1% 2.4%
Merck & Co., Inc. 3.0% 2.3%
Chase Manhattan Corp. 2.8% 1.9%
United Technologies Corp. 2.8% 2.9%
TOP FIVE INDUSTRIES % of equity portfolio
As of As of
4/30/97 10/31/96
Pharmaceuticals 20.1% 15.9%
Electrical & Electronic Components 12.1% 5.0%
Energy (Production & Marketing) 8.3% 5.6%
Computer Peripherals 8.2% --
Diversified Companies 7.7% 3.6%
WHAT CHANGES ARE YOU MAKING TO THE FUND'S STOCK PORTFOLIO?
We have increased the portfolio's market capitalization by adding more quality
mid-cap stocks, which still provide a measure of growth while lending greater
stability to the equity portion of the portfolio. For example, we have moved
into some high-end, mid-cap retail names, such as Estee Lauder and Gucci, which
are demonstrating strong earnings here in the U.S. and abroad. We're attracted
to these companies because they are well managed, generate a strong cash flow
and are expanding globally.
We've also bought some pharmaceutical companies, such as Eli Lilly and Pfizer,
Inc., to take advantage of a new product cycle. Large-scale investment in
research and development by drug companies is starting to result in many new
products coming to the market. These new drugs, combined with the favorable
demographic trends of the aging U.S. population, give us confidence that many
companies in this industry should see share price appreciation.
We're reducing our concentrations in several sectors,
6 Performance & Portfolio Information American Century Investments
MANAGEMENT Q & A
such as energy and technology, to provide broader diversification in the
portfolio. By doing so we expect to reduce the impact of the fund's more
volatile holdings.
HOW WAS THE FUND'S BOND PORTFOLIO POSITIONED DURING THE PERIOD?
The bond portion of the fund performed about as well as could be expected in a
period that was not favorable for bonds. We assumed a defensive posture, keeping
the portfolio's duration at or below the fund's neutral level for most of the
period. The fund's relatively short duration was a benefit in the somewhat
volatile interest rate environment of the past year. Rather than try to guess
the direction of interest rates, we took a steady, conservative approach to
managing the bond portion of fund.
We also continued to hold our positions in mortgage-backed securities, which
were the top-performing fixed-income sector for the period. Mortgage-backed
securities, with their relatively high yields, tend to perform best when
interest rates are flat or moving within a fairly narrow band, as they were for
most of the period.
HOW HAS THE LONG-RUNNING EXPANSION OF THE U.S. ECONOMY AFFECTED THE CORPORATE
BOND MARKET?
Corporate bonds typically offer higher yields than Treasury debt to compensate
investors for their increased risk. The difference in yields is known as the
"spread." Spreads between corporate and Treasury bonds with similar maturities
have fallen to ten-year lows. A vibrant U.S. economy has fueled this trend; the
strong economy helped to improve corporate balance sheets, which translated into
credit upgrades and higher prices for corporate debt. Heavy demand from mutual
fund managers and foreign buyers also helped increase prices and lower yields on
corporate bonds. Despite this improvement in credit quality, we reduced our
corporate exposure during the period because the compression of spreads between
corporate and Treasury securities has made corporate securities relatively less
attractive. We've increased our exposure to Treasuries. However, if spreads
widen, we would likely raise our exposure to corporate debt.
BALANCED'S FIXED-INCOME PORTFOLIO
As of As of
4/30/97 10/31/96
PORTFOLIO SENSITIVITY TO INTEREST RATES
Weighted Average Maturity 6.28 years 6.1 years
Duration 4.10 years 3.9 years
PORTFOLIO CREDIT QUALITY % of fixed income portfolio
(S&P Ratings)
AAA 41% 40%
AA 6% 7%
A 36% 37%
BBB 17% 16%
------ ------
100% 100%
====== ======
See Glossary on page 25.
WHAT IS YOUR OUTLOOK FOR THE FUND'S BOND PORTFOLIO?
It is uncertain if the Federal Reserve's interest rate hike in March was an
isolated event or the first in a series of moves. However, high levels of
consumer confidence, a robust housing market and rising employment and wage
growth all seem to argue for continued strong U.S. economic progress. Inflation
has remained tame, but we are skeptical that prices can remain subdued with the
economy growing at an annual rate of over 4%. Given that, we will continue to
maintain the defensive posture of the fund's bond portfolio. Rather than try to
guess the Fed's interest rate intentions, we'll continue to conservatively
manage the portfolio's duration and average maturity.
Semiannual Report Management Q & A 7
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
SHARES ($ IN THOUSANDS) VALUE
COMMON STOCKS
Aerospace & Defense--3.5%
440,000 BE Aerospace, Inc.(1) $10,752
55,000 Boeing Co. 5,424
180,000 United Technologies Corp. 13,613
----------
29,789
----------
BANKING--4.4%
105,000 BankAmerica Corp. 12,272
150,000 Chase Manhattan Corp. 13,894
100,000 Citicorp 11,262
----------
37,428
----------
BIOTECHNOLOGY--0.3%
165,000 Bio-Technology General Corp.(1) 2,393
----------
BROADCASTING & MEDIA--2.4%
226,700 Clear Channel Communications, Inc.(1) 10,995
328,800 Outdoor Systems, Inc.(1) 9,083
----------
20,078
----------
COMPUTER PERIPHERALS--4.8%
360,000 Applied Magnetics Corp.(1) 9,045
400,000 Read-Rite Corp.(1) 10,375
340,000 Western Digital Corp.(1) 20,952
----------
40,372
----------
COMPUTER SOFTWARE & SERVICES--3.6%
154,600 BMC Software, Inc.(1) 6,677
270,000 Compuware Corp.(1) 10,192
300,000 Electronics for Imaging, Inc.(1) 11,737
50,000 Oracle Systems Corp.(1) 1,991
----------
30,597
----------
COMPUTER SYSTEMS--2.0%
140,000 Compaq Computer Corp.(1) 11,953
165,000 Sun Microsystems, Inc.(1) 4,754
----------
16,707
----------
CONSUMER PRODUCTS--3.9%
90,000 Avon Products, Inc. 5,546
150,000 Estee Lauder Companies, Inc. 6,863
130,000 Gillette Company 11,050
75,000 Procter & Gamble Co. (The) 9,431
----------
32,890
----------
SHARES ($ IN THOUSANDS) VALUE
DIVERSIFIED COMPANIES--4.4%
170,000 General Electric Co. $18,849
135,000 Honeywell Inc. 9,534
100,000 Johnson Controls, Inc. 3,837
145,100 U.S. Industries, Inc.(1) 5,242
----------
37,462
----------
ELECTRICAL & ELECTRONIC
COMPONENTS--7.0%
145,000 Altera Corp.(1) 7,187
120,000 Intel Corp. 18,375
280,000 KLA Instruments Corp.(1) 12,477
275,000 LSI Logic Corp.(1) 10,519
200,000 Phillips Electronics N.V. 10,700
----------
59,258
----------
ENERGY (PRODUCTION & MARKETING)--4.8%
135,000 Diamond Offshore Drilling, Inc.(1) 8,691
70,000 Energy Ventures, Inc.(1) 4,681
351,300 Falcon Drilling Co. Inc.(1) 13,437
425,000 Global Marine Inc.(1) 8,553
325,000 Tubos de Acero de Mexico, S.A. ADR(1) 5,322
----------
40,684
----------
ENVIRONMENTAL SERVICES--0.3%
90,000 USA Waste Services, Inc.(1) 2,948
----------
FINANCIAL SERVICES--0.5%
100,000 Federal National Mortgage Association 4,113
----------
FOOD & BEVERAGE--0.6%
175,000 Panamerican Beverages Inc. 5,075
----------
HEALTHCARE--0.7%
120,000 Cardinal Health, Inc. 6,390
----------
INSURANCE--2.3%
225,000 Conseco Inc. 9,309
230,000 SunAmerica, Inc. 10,580
----------
19,889
----------
PHARMACEUTICALS--11.6%
110,000 American Home Products Corp. 7,288
290,000 Johnson & Johnson 17,763
170,000 Lilly (Eli) & Co. 14,939
160,000 Merck & Co., Inc. 14,480
5,653 Novartis ORD 7,463
See Notes to Financial Statements
8 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
SHARES/PRINCIPAL AMOUNT ($ IN THOUSANDS) VALUE
170,000 Pfizer, Inc. $16,320
205,000 Warner-Lambert Co. 20,090
----------
98,343
----------
RETAIL (APPAREL)--0.6%
75,000 Gucci Group N.V. 5,203
----------
TOTAL COMMON STOCKS--57.7% 489,619
----------
(Cost $399,980)
U.S. TREASURY SECURITIES
$12,350 U.S. Treasury Notes,
6.125%, 3/31/98 12,377
5,000 U.S. Treasury Notes,
6.00%, 9/30/98 4,992
4,075 U.S. Treasury Notes,
7.75%, 2/15/01 4,242
2,000 U.S. Treasury Notes,
6.625%, 6/30/01 2,005
12,500 U.S. Treasury Notes,
5.75%, 8/15/03 11,930
2,050 U.S. Treasury Notes,
5.875%, 2/15/04 1,962
4,000 U.S. Treasury Notes,
7.25%, 5/15/04 4,125
5,000 U.S. Treasury Notes,
7.25%, 8/15/04 5,158
3,800 U.S. Treasury Notes,
7.00%, 7/15/06 3,863
4,300 U.S. Treasury Notes,
6.25%, 2/15/07 4,159
6,500 U.S. Treasury Bonds,
7.625%, 2/15/25 6,961
----------
TOTAL U.S. TREASURY SECURITIES--7.3% 61,774
----------
(Cost $62,364)
MORTGAGE-BACKED SECURITIES(2)
239 FHLMC Series 1239--
EPAC REMIC, 6.80%, 1/15/16 239
909 FHLMC Series 106--
EPAC REMIC, 6.95%, 12/15/20 908
2,000 FHLMC Series 77--
HPAC REMIC, 8.50%, 9/15/20 2,113
7,489 FNMA Pool #050985,
6.00%, 3/1/00 7,191
PRINCIPAL AMOUNT ($ IN THOUSANDS) VALUE
$ 387 FNMA 89 Series 85--
DPAC REMIC, 7.60%, 5/25/18 $388
1,597 FNMA 90 Series 98--
HPAC REMIC, 7.50%, 10/25/19 1,600
8,151 FNMA Pool #250627,
8.00%, 7/1/26 8,283
7,291 GNMA Pool #002202,
7.00%, 4/20/26 7,042
----------
TOTAL MORTGAGE-BACKED SECURITIES--3.3% 27,764
----------
(Cost $27,876)
ASSET-BACKED SECURITIES(2)
3,750 FNMA Whole Loan, Series 1995-W1,
Class A6, 8.10%, 4/25/25 3,862
5,000 First Merchants Auto Receivables
Corp., Series 1996-B, Class A2,
6.80%, 5/15/01 5,038
5,000 NationsBank Auto Owner Trust,
Series 1996-A, Class B1,
6.75%, 6/15/01 5,029
5,000 Premier Auto Trust, Series 1996-4,
Class CTFS, 6.65%, 8/6/02 4,966
3,000 Union Acceptance Corp., Series
1996-D, Class A3, 6.30%, 1/8/04 2,944
4,350 United Companies Financial Corp.,
Series 1996-D1, Class A4,
6.776%, 2/15/16 4,298
----------
TOTAL ASSET-BACKED SECURITIES--3.1% 26,137
----------
(Cost $26,133)
CORPORATE BONDS
AUTOMOBILES & AUTO PARTS--2.1%
6,500 Ford Motor Credit Corp.,
6.75%, 5/15/05 6,289
7,000 General Motors Acceptance Corp.,
MTN, 6.375%, 10/12/99 6,974
5,000 General Motors Acceptance Corp.,
MTN, 5.45%, 2/22/00 4,831
----------
18,094
----------
BANKING--4.3%
4,000 Capital One Financial Corp.,
8.125%, 3/1/00 4,100
See Notes to Financial Statements
Semiannual Report Schedule of Investments 9
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
PRINCIPAL AMOUNT ($ IN THOUSANDS) VALUE
$2,000 Citicorp, MTN, 7.125%, 9/1/05 $1,987
5,000 First Union Corp., 8.77%, 11/15/04 5,219
1,200 MBNA Corp., 6.875%, 6/1/05 1,159
4,730 National Bank of Canada, 8.125%,
8/15/04 4,961
5,150 NationsBank Capital Trust III,
VRN, 6.37%, 1/15/07, resets
quarterly off the 3-month LIBOR
plus 0.55% with no caps, final
maturity 1/15/27 5,013
4,000 National Westminster Bank PLC, VRN,
7.75%, 10/16/07, resets semi-
annually off the 6-month LIBOR
plus 1.45% with no caps, final
maturity 4/29/49 4,050
5,000 NationsBank Corp., 6.875%, 2/15/05 4,881
5,150 Santander Financial Issuances Ltd.,
7.00%, 4/1/06 5,041
----------
36,411
----------
COMMUNICATIONS SERVICES--1.4%
3,000 GTE South, 7.25%, 8/1/02 3,045
1,500 Tele-Communications, Inc., 8.25%,
1/15/03 1,523
7,000 WorldCom, Inc., 7.75%, 4/1/07 6,991
----------
11,559
----------
DIVERSIFIED COMPANIES--0.6%
5,000 Hanson Overseas BV, 6.75%,
9/15/05 4,831
----------
FINANCIAL SERVICES--5.4%
4,000 Associates First Capital Corp.,
6.75%, 7/15/01 3,980
2,000 Comdisco, Inc., 6.375%, 11/30/01 1,947
5,000 Deutsche Bank AG, 6.70%,
12/13/06 4,800
5,000 First USA, Inc., 7.00%, 8/20/01 4,975
3,000 Greyhound Financial Corp., 6.75%,
3/25/99 3,011
3,000 Lehman Brothers, Inc., 5.75%,
11/15/98 2,970
6,000 Lehman Brothers Holdings, Inc.,
6.625%, 11/15/00 5,940
3,000 Money Store Inc. (The), 8.05%,
4/15/02 3,030
PRINCIPAL AMOUNT ($ IN THOUSANDS) VALUE
$6,000 Norwest Financial, Inc., 6.25%,
11/1/02 $5,850
4,750 Salomon Brothers Inc., 6.50%,
3/1/00 4,697
5,000 Travelers/Aetna Property Casualty
Corp., 6.75%, 4/15/01 4,969
----------
46,169
----------
INDUSTRIAL EQUIPMENT & MACHINERY--0.5%
4,750 Anixter International Inc., 8.00%,
9/15/03 4,792
----------
INSURANCE--1.6%
5,000 Aetna Services Inc., 6.75%,
8/15/01 4,975
3,750 Nationwide Mutual Insurance Co.,
6.50%, 2/15/04
(Acquired 2/9/96, Cost $3,781)(3) 3,581
5,000 Underwriters Reinsurance Co.,
7.875%, 6/30/06
(Acquired 8/6/96, Cost $5,156)(3) 5,119
----------
13,675
----------
PUBLISHING--0.7%
5,750 Time Warner Inc., 8.11%, 8/15/06 5,872
----------
REAL ESTATE--1.4%
6,800 Price REIT, Inc. (The), 7.25%,
11/1/00 6,792
5,000 Spieker Properties, Inc., 6.80%,
12/15/01 4,937
----------
11,729
----------
RETAIL (GENERAL MERCHANDISE)--0.9%
2,500 Dayton Hudson Corp., 9.25%,
3/1/06 2,669
4,500 Sears, Roebuck & Co., MTN, 8.23%,
10/21/04 4,770
----------
7,439
----------
TOBACCO PRODUCTS--1.7%
6,550 Philip Morris Companies Inc., 6.80%,
12/1/03 6,370
5,500 Philip Morris Companies Inc., 6.95%,
6/1/06 5,493
2,175 RJR Nabisco, Inc., 8.75%, 4/15/04 2,213
----------
14,076
----------
See Notes to Financial Statements
10 Schedule of Investments American Century Investments
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
PRINCIPAL AMOUNT ($ IN THOUSANDS) VALUE
UTILITIES--1.9%
$6,750 China Light & Power Co. Ltd., 7.50%,
4/15/06 $6,758
2,000 Kansas Power & Light Co., 8.875%,
3/1/00 2,097
5,600 Public Service Electric & Gas Co.,
6.00%, 5/1/00 5,474
2,000 Texas Utilities Electric Co., 8.125%,
2/1/02 2,087
----------
16,416
----------
TOTAL CORPORATE BONDS--22.5% 191,063
----------
(Cost $188,339)
SOVEREIGN GOVERNMENTS & AGENCIES
6,000 Hydro-Quebec, MTN, 7.02%,
3/23/05 5,917
4,125 Korea Development Bank, 6.50%,
11/15/02 4,001
5,000 Korea Electric Power, 6.375%,
12/1/03 4,813
----------
TOTAL SOVEREIGN GOVERNMENTS
& Agencies--1.7% 14,731
----------
(Cost $18,692)
TEMPORARY CASH INVESTMENTS(4)
$18,700 par value FHLB Discount Note,
5.34%, 5/1/97 18,700
Repurchase Agreement, J.P. Morgan Securities,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.375%, dated 4/30/97,
due 5/1/97 (Delivery value $18,303) 18,300
----------
TOTAL TEMPORARY CASH INVESTMENTS--4.4% 37,000
----------
(Cost $37,000)
TOTAL INVESTMENT SECURITIES--100.0% $848,088
==========
(Cost $760,384)
FORWARD FOREIGN CURRENCY CONTRACTS
Contract Settlement Unrealized
to Sell Date Value Gain
----------------- -------------- ------------ -------------
8,524,724 CHF 6/30/97 $5,834 $15
============ =============
(Value on Settlement Date $5,849)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
Resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
ORD = Foreign Ordinary Share
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
April 30, 1997.
(1) Non-income producing.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(3) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be sold
to qualified institutional investors. The aggregate value of restricted
securities at April 30, 1997, was $8,700,000, which represented 1.0% of net
assets.
(4) The rates for U.S. Government Agency discount notes are the yield to
maturity at April 30, 1997.
See Notes to Financial Statements
Semiannual Report Schedule of Investments 11
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
ASSETS ($ in Thousands Except for Per-Share Amounts)
Investment securities, at value
(identified cost of $760,384) (Note 3) ................... $848,088
Cash .......................................................... 178
Receivable for forward foreign currency contract .............. 15
Receivable for investments sold ............................... 14,216
Receivable for capital shares sold ............................ 213
Dividends and interest receivable ............................. 5,088
------------
867,798
------------
LIABILITIES
Disbursements in excess of demand deposit cash ................ 1,546
Payable for investments purchased ............................. 6,910
Payable for capital shares redeemed ........................... 3,507
Accrued management fees (Note 2) .............................. 692
Distribution fees payable (Note 2) ............................ 1
Service fees payable (Note 2) ................................. 1
Other liabilities ............................................. 3
------------
12,660
------------
Net Assets .................................................... $855,138
============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ....................... $724,392
Undistributed net investment income ........................... 1,870
Accumulated net realized gain on investment
and foreign currency transactions ........................ 41,160
Net unrealized appreciation on investments
and translation of assets and
liabilities in foreign currencies (Note 3) ............... 87,716
------------
$855,138
============
INVESTOR CLASS ($ AND SHARES IN FULL)
Net assets .................................................... $851,652,189
Shares outstanding ............................................ 49,194,260
Net asset value per share ..................................... $17.31
ADVISOR CLASS ($ AND SHARES IN FULL)
Net assets .................................................... $3,486,144
Shares outstanding ............................................ 201,464
Net asset value per share ..................................... $17.30
See Notes to Financial Statements
12 Statement of Assets and Liabilities American Century Investments
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME ($ in Thousands)
INCOME:
Interest ........................................................ $11,941
Dividends (net of foreign taxes withheld of $21) ................ 2,087
----------
14,028
----------
EXPENSES (NOTE 2):
Management fees ................................................. 4,358
Distribution fees--Advisor Class ................................ 2
Shareholder service fees--Advisor Class ......................... 2
Directors' fees and expenses .................................... 6
----------
4,368
----------
NET INVESTMENT INCOME ........................................... 9,660
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (NOTE 3)
NET REALIZED GAIN ON:
Investments ..................................................... 40,539
Foreign currency transactions ................................... 794
----------
41,333
----------
Change in net unrealized appreciation (depreciation) on:
Investments ..................................................... (33,742)
Translation of assets and liabilities in foreign currencies ..... 13
----------
(33,729)
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ............................................. 7,604
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................................... $17,264
==========
See Notes to Financial Statements
Semiannual Report Statement of Operations 13
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996
INCREASE (DECREASE) IN NET ASSETS 1997 1996
OPERATIONS ($ in Thousands)
Net investment income .............................. $9,660 $21,381
Net realized gain on investments
and foreign currency transactions ............. 41,333 66,241
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
in foreign currencies ......................... (33,729) 24,176
---------- ----------
Net increase in net assets resulting
from operations ............................... 17,264 111,798
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................................ (10,691) (21,812)
Advisor Class ................................. (11) --
From net realized gains from investment transactions:
Investor Class ................................ (64,787) (46,792)
Advisor Class ................................. -- --
---------- ----------
Decrease in net assets from distributions .......... (75,489) (68,604)
---------- ----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from capital
share transactions ............................ 34,195 20,404
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS .............. (24,030) 63,598
NET ASSETS
Beginning of period ................................ 879,168 815,570
---------- ----------
End of period ...................................... $855,138 $879,168
========== ==========
Undistributed net investment income ................ $1,870 $2,912
========== ==========
See Notes to Financial Statements
14 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION---American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century Balanced Fund (the Fund) is one
of the seventeen series of funds issued by the Corporation. The Fund's
investment objective is to seek capital growth and current income. It is
management's intention to maintain approximately 60% of the Fund's assets in
common stocks and the remainder in bonds and other fixed income securities. On
September 3, 1996, the Fund implemented a multiple class structure whereby the
Fund is authorized to issue three classes of shares: the Investor Class, the
Advisor Class, and the Institutional Class. The shares outstanding prior to
September 3, 1996, were designated as Investor Class shares. The three classes
of shares differ principally in their respective shareholder servicing and
distribution expenses and arrangements. All shares of the Fund represent an
equal pro rata interest in the 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. Sale of the Advisor Class
commenced on January 6, 1997. Sale of the Institutional Class had not commenced
as of April 30, 1997. The following significant accounting policies related to
the Fund are in accordance with accounting policies generally accepted in the
investment company industry.
SECURITY VALUATIONS---Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through valuations obtained
from a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are valued
at fair value as determined in accordance with procedures adopted by the Board
of Directors.
SECURITY TRANSACTIONS---Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME---Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of discounts and premiums.
FOREIGN CURRENCY TRANSACTIONS---The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Net realized foreign currency exchange gains or losses arise from sales of
foreign currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the amounts
actually received or paid. Net unrealized foreign currency exchange gains or
losses arise from changes in the value of assets and liabilities, other than
portfolio securities, resulting from changes in the exchange rates.
Net realized and unrealized foreign currency exchange gains or losses occurring
during the holding period of portfolio securities are a component of realized
gain (loss) on investments and unrealized appreciation (depreciation) on
investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS---The Fund may enter into forward
foreign currency exchange contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or to hedge
the Fund's exposure to foreign currency exchange rate fluctuations. When
required, the Fund will segregate assets in an amount sufficient to cover its
obligations under the hedge contracts. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. Forward contracts involve elements of risk in excess
of the amount reflected in the Statement of Assets and Liabilities. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
REPURCHASE AGREEMENTS---The Fund may enter into repurchase agreements with
institutions the Fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Fund requires that the securities purchased 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 value of the securities
transferred to ensure that 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.
Semiannual Report Notes to Financial Statements 15
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the Fund, along with other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 policy of the Fund to distribute all taxable
income and capital 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 federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS---Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income are declared and
paid quarterly. Distributions from net realized gains are declared and paid
annually.
The 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 are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
SUPPLEMENTARY INFORMATION---Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., ACIS, and the Corporation's transfer agent, American Century
Services Corporation.
USE OF ESTIMATES---The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that provides
the Fund with investment advisory and management services in exchange for a
single, unified management fee per class. Additional fees apply to the Advisor
Class, as described in the respective prospectus. The Agreement provides that
all expenses of the Fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the Investment Company Act of 1940 (including counsel fees) and
extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid
monthly based on the Fund's average daily closing net assets during the previous
month. The annual management fee is 1.00% for the Investor Class and 0.75% for
the Advisor Class.
The Board of Directors has adopted a shareholder services and distribution plan
for the Advisor Class, pursuant to Rule 12b-1 of the Investment Company Act of
1940. The Advisor Class Master Distribution and Shareholder Services Plan
provides that the Fund will pay ACIM an annual distribution fee equal to 0.25%
and service fee equal to 0.25%. The fees are computed daily and paid monthly
based on the Advisor Class's average daily closing net assets during the
previous month. The distribution fee provides compensation for distribution
expenses incurred in connection with distributing shares of the Advisor Class
including, but not limited to, payments to brokers, dealers, and financial
institutions that have entered into sales agreements with ACIS and/or ACIM. The
service fee provides compensation for shareholder and administrative services
rendered by ACIM, its affiliates or independent third party providers. Fees
incurred under the Master Distribution and Shareholder Services Plan during the
six months ended April 30, 1997, were $4,510.
16 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased (excluding short-term
investments) for the six months ended April 30, 1997, totaled $372,853,132 for
common stocks, $71,476,450 for U.S. Treasury and Agency obligations, and
$85,758,513 for other debt obligations. Proceeds from investment securities sold
(excluding short-term investments) totaled $402,686,136 for common stocks,
$99,215,532 for U.S. Treasury and Agency obligations, and $70,735,044 for other
debt obligations.
As of April 30, 1997, accumulated net unrealized appreciation for Balanced was
$87,559,121, based on the aggregate cost of investments of $760,528,603 for
federal income tax purposes. Accumulated net unrealized appreciation consisted
of unrealized appreciation of $101,305,968 and unrealized depreciation of
$13,746,847.
- --------------------------------------------------------------------------------
4. Capital Share Transactions
There are 100,000,000 shares of the Investor Class and 50,000,000 shares of the
Advisor Class authorized for issuance. All shares are $0.01 par value.
Transactions in shares of the Fund were as follows:
BALANCED
Shares Amount
INVESTOR CLASS (In Thousands)
SIX MONTHS ENDED APRIL 30, 1997:
Sold ........................................... 7,549 $134,277
Issued in reinvestment of distributions ........ 4,253 74,226
Redeemed ....................................... (10,012) (177,847)
---------- ----------
Net increase ................................... 1,790 $30,656
========== ==========
YEAR ENDED OCTOBER 31, 1996:
Sold ........................................... 11,553 $202,311
Issued in reinvestment of distributions ........ 3,994 67,547
Redeemed ....................................... (14,226) (249,454)
---------- ----------
Net increase ................................... 1,321 $20,404
========== ==========
ADVISOR CLASS
JANUARY 6, 1997(1) THROUGH APRIL 30, 1997:
Sold ........................................... 203 $3,556
Issued in reinvestment of distributions ........ 1 11
Redeemed ....................................... (2) (28)
---------- ----------
Net increase ................................... 202 $3,539
========== ==========
(1) Commencement of sale of the Advisor Class.
Semiannual Report Notes to Financial Statements 17
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
5. CORPORATE EVENTS
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
--------------------------------------------------------------------------------------
<S> <C> <C>
FUNDS' ISSUER: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
FUND: American Century Balanced Fund Balanced Investors
PARENT COMPANY: American Century Companies, Inc. Twentieth Century Companies, Inc.
DISTRIBUTOR: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
TRANSFER AGENT: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
18 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INVESTOR CLASS
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993 1992
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................... $18.55 $17.70 $15.94 $16.52 $14.89 $15.11
--------- -------- -------- -------- ------- -------
Income From Investment Operations
Net Investment Income ..................................... 0.20(2) 0.44(2) 0.48(2) 0.42 0.38 0.33
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................................ 0.16 1.88 2.03 (0.58) 1.62 (0.23)
--------- -------- -------- -------- ------- -------
Total From Investment Operations .......................... 0.36 2.32 2.51 (0.16) 2.00 0.10
--------- -------- -------- -------- ------- -------
Distributions
From Net Investment Income ................................ (0.22) (0.46) (0.48) (0.42) (0.37) (0.32)
From Net Realized Gains on Investment Transactions ........ (1.38) (1.01) (0.27) -- -- --
--------- -------- -------- -------- ------- -------
Total Distributions ....................................... (1.60) (1.47) (0.75) (0.42) (0.37) (0.32)
--------- -------- -------- -------- ------- -------
Net Asset Value, End of Period ................................. $17.31 $18.55 $17.70 $15.94 $16.52 $14.89
========= ======== ======== ======== ======= =======
Total Return(3) ........................................... 1.94% 14.04% 16.36% (0.93)% 13.64% 0.63%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 1.00%(4) 0.99% 0.98% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets ........... 2.22%(4) 2.50% 2.90% 2.70% 2.40% 2.40%
Portfolio Turnover Rate ........................................ 63% 130% 85% 94% 95% 100%
Average Commission Paid per Investment Security Traded ......... $0.0352 $0.0400 $0.0390 --(5) --(5) --(5)
Net Assets, End of Period (in millions) ........................ $852 $879 $816 $704 $706 $654
</TABLE>
(1) Six months ended April 30, 1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year
are not annualized.
(4) Annualized.
(5) Disclosure of average commission paid per investment security traded was
not required prior to the year ended October 31, 1995.
See Notes to Financial Statements
Semiannual Report Financial Highlights 19
FINANCIAL HIGHLIGHTS
ADVISOR CLASS
For a Share Outstanding Throughout the Period Indicated
1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................... $17.46
---------
Income From Investment Operations
Net Investment Income ......................................... 0.11(2)
Net Realized and Unrealized Loss
on Investment Transactions .................................... (0.21)
---------
Total From Investment Operations .............................. (0.10)
---------
Distributions
From Net Investment Income .................................... (0.06)
---------
Net Asset Value, End of Period ..................................... $17.30
=========
Total Return(3) ............................................... (0.57)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .................. 1.25%(4)
Ratio of Net Investment Income to Average Net Assets ............... 1.99%(4)
Portfolio Turnover Rate ............................................ 63%
Average Commission Paid per Investment Security Traded ............. $0.0352
Net Assets, End of Period (in thousands) ........................... $3,486
(1) January 6, 1997 (commencement of sale of Advisor Class) through April 30,
1997 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
See Notes to Financial Statements
20 Financial Highlights American Century Investments
SHARE CLASS AND RETIREMENT
ACCOUNT INFORMATION
SHARE CLASSES
Until September 3, 1996, Balanced issued one class of fund shares, reflecting
the fact that most investors bought their shares directly from American Century.
All investors paid the same annual unified management fee and did not pay any
commissions or other fees to purchase shares from American Century.
But increasing numbers of investors are purchasing fund shares through financial
intermediaries who are ordinarily compensated for the additional services they
provide. In September, American Century began to offer three classes of shares
for Balanced. One class is for investors who still buy directly from American
Century, one is for investors who buy through financial intermediaries, and the
third class is for large institutional customers and others who invest at least
$5 million in an American Century fund or at least $10 million in multiple
funds.
The original class of Balanced shares is called the Investor Class. All shares
issued and outstanding before September 3, 1996, have been designated as
Investor Class shares. Investor Class shares may also be purchased after
September 3, 1996. Investor Class shareholders do not pay any commissions or
other fees for purchase of fund shares directly from American Century. Investors
who buy Investor Class shares through a broker-dealer may be required to pay the
broker-dealer a transaction fee. THE PRICE AND PERFORMANCE OF THE INVESTOR CLASS
SHARES ARE LISTED IN NEWSPAPERS. NO OTHER CLASS IS CURRENTLY LISTED.
In addition, there is an ADVISOR CLASS, which is sold through banks,
broker-dealers, insurance companies and financial advisors. Advisor Class shares
are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of that fee
is available to pay for recordkeeping and administrative services, and half is
available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class is 0.25% higher than the total expense ratio
of the Investor Class.
The third class, the Institutional Class, had not been sold as of April 30,
1997.
All classes of shares represent a pro rata interest in the funds and generally
have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/ Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
Semiannual Report Share Class and Retirement Account Information 21
NOTES
22 Notes American Century Investments
NOTES
Semiannual Report Notes 23
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The American Century Group consists of moderate risk and specialty funds
including conservative equity, balanced, asset allocation, gold, natural
resources, utilities and real estate funds. In general, aside from the specialty
funds which have unique risks, this fund group is for investors seeking core
portfolio holdings in the middle ground between aggressive stock funds and money
market and bond funds.
AMERICAN CENTURY BALANCED's investment philosophy focuses on four important
principles:
We attempt to keep the fund fully invested at all times, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing even some of those opportunities may
significantly limit the potential for gain.
For the equity portfolio, the management team seeks to own highly successful
companies, which we define as those whose earnings and revenues are growing at
accelerating rates.
For the fixed-income portfolio, "quality first" is the rule. The management team
seeks only investment-grade bonds--those rated in the top four quality
categories by nationally recognized statistical organizations.
Each portfolio is managed by a team, rather than by one "star" manager. We
believe this allows us to make better, more consistent management decisions.
The fund seeks to provide long-term growth with less volatility than funds that
are 100% invested in growth stocks. The fund keeps about 60% of its assets in
the stocks of firms with accelerating growth rates. Under normal market
conditions, the remaining assets are held in quality intermediate-term bonds.
COMPARATIVE INDICES
The indices listed below are used in the report to serve as a comparison for the
performance of the fund. They are not investment products available for
purchase.
The BLENDED INDEX is considered the benchmark for Balanced. It combines two
widely known indices in proportion to the asset mix of the fund. Accordingly,
60% of the index is represented by the S&P 500, which reflects the 60% of the
fund's assets invested in equity securities. The remaining 40% of the index is
represented by the Lehman Intermediate Government/Corporate Index, which
reflects the 40% of the fund's assets invested in intermediate-term bonds and
other fixed-income securities.
The LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE INDEX is considered to represent
the performance of a portfolio of intermediate-term U.S. government and
corporate bonds. The index includes the Lehman Government and Corporate Bond
Indices, which are composed of U.S. government, Treasury and agency securities
with one- to 10-year maturities, as well as corporate and Yankee bonds with one-
to 10-year maturities.
The S&P 500 is a capitalization-weighted index of the stocks of the 500 largest
publicly traded U.S. companies. Created by Standard & Poor's Corporation, it is
considered to be a broad measure of U.S. stock market performance.
FUND MANAGEMENT TEAM LEADERS
EQUITY PORTFOLIO:
Portfolio Manager Jim Stowers III
Portfolio Manager Bruce Wimberly
FIXED-INCOME PORTFOLIO:
Portfolio Manager Bud Hoops
Portfolio Manager Jeff Houston
24 Background Information American Century Investments
GLOSSARY
FIXED INCOME TERMS
o CREDIT QUALITY reflects the financial strength of a debt security issuer and
the likelihood of timely payment of interest and principal.
o DURATION is a measure of the sensitivity of a fixed income portfolio to
changes in interest rates. As the duration of a portfolio increases, the impact
of a change in interest rates on the value of the portfolio also increases.
o STANDARD & POOR'S (S&P) is an independent rating company, one of the two best
known in the U.S. (the other is Moody's). The credit ratings issued by S&P and
Moody's reflect the perceived financial strength (credit quality) of debt
issuers. Debt securities rated "investment grade" (deemed to be of high enough
credit quality to be appropriate investments for banks and other institutions)
by S&P are those rated BBB or higher (the highest rating is AAA).
o WEIGHTED AVERAGE MATURITY (WAM), another measurement of the sensitivity of a
fixed income portfolio to interest rate changes, indicates the average time
until the principal in the portfolio is expected to be repaid, weighted by
dollar amount. The longer the WAM, the more interest rate exposure and interest
rate sensitivity the portfolio has.
RETURNS
o TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 19.
EQUITY TERMS
o BLUE-CHIP STOCKS---generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential. Examples include General Electric and Coca-Cola.
o CYCLICAL STOCKS---generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
o GROWTH STOCKS---generally considered to be the stocks of companies that have
experienced above-average earnings growth and appear likely to continue such
growth. These stocks often sell at high P/E ratios. Examples can include the
stocks of high-tech, healthcare and consumer staple companies.
o LARGE-CAPITALIZATION ("LARGE-CAP") Stocks---generally considered to be the
stocks of companies with a market capitalization (the total value of a company's
outstanding stock) of more than $5 billion. These tend to be the stocks that
make up the Dow Jones Industrial Average, the S&P 500 and the Russell 1000
Index.
o MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS---generally considered to be the
stocks of companies with a market capitalization (the total value of a company's
outstanding stock) between $1 billion and $5 billion. These tend to be the
stocks that make up the S&P MidCap 400.
o PRICE/EARNINGS (P/E) RATIO---a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
o SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS---generally considered to be the
stocks of companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1 billion. These tend to be the stocks that
make up the Nasdaq Composite Index and the Russell 2000 Index.
o VALUE STOCKS---generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
Semiannual Report Glossary 25
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
INVESTOR SERVICES:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 or 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
Kansas City, Missouri
This report and the financial statements contained herein 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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8636 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
April 30, 1997
BENHAM
GROUP
Limited-Term Tax-Exempt
Intermediate-Term Tax-Exempt
Long-Term Tax-Exempt
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Municipal Credit Review..................................... 4
Limited-Term Tax-Exempt
Performance & Portfolio Information.................... 5
Management Q & A....................................... 6
Schedule of Investments................................ 9
Financial Highlights...................................30
Intermediate-Term Tax-Exempt
Performance & Portfolio Information....................11
Management Q & A.......................................12
Schedule of Investments................................15
Financial Highlights...................................31
Long-Term Tax-Exempt
Performance & Portfolio Information....................18
Management Q & A.......................................19
Schedule of Investments................................22
Financial Highlights...................................32
Statements of Assets and Liabilities........................25
Statements of Operations....................................26
Statements of Changes in Net Assets.........................27
Notes to Financial Statements...............................28
Background Information
Investment Philosophy & Policies.......................36
Comparative Indices....................................36
Lipper Rankings........................................36
Portfolio Management Team..............................36
Glossary....................................................37
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
merican Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Limited-TermTax-Exempt
Intermediate-Term
Tax-Exempt
Long-Term Tax-Exempt
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o The U.S. economy grew vigorously during the six months ended April 30,
1997, while inflation remained relatively subdued.
o Uncertainty about the strength of the U.S. economy caused shifting
expectations for the direction of interest rates, limiting gains for
municipal bonds.
o Concerned that robust economic growth would foster a faster rate of
inflation, the Federal Reserve raised short-term interest rates in March.
o With the possibility of higher interest rates on the horizon, municipal
bond yields ended the six months at their highest levels for the period.
Municipal Credit Review
o Municipal credit quality continued to improve, partially because of
favorable U.S. economic conditions.
o The number of credit upgrades has continued to improve over the last few
years; however, that trend has been slowing in recent months.
Limited-Term Tax-Exempt
o The fund's return reflected the bearish environment that prevailed during
the first four months of 1997.
o In mid-March we began adjusting the fund's average maturity to better
reflect the change in the fund's name and investment policies that took
place on March 1.
o Looking forward, we will likely maintain the fund's bullet structure as an
added precaution in case rates move sharply higher.
Intermediate-Term Tax-Exempt
o Reflecting the bearish environment that prevailed during the first four
months of 1997, the fund posted modest returns.
o Though we made only slight adjustments to the fund's average maturity, we
shifted the fund toward more of a bullet structure.
o Going forward, we will continue to utilize our strong credit research team
to add securities that we believe will appreciate in value.
Long-Term Tax-Exempt
o For the six-month period, the fund essentially matched the average return
of its peers and slightly trailed the return of its benchmark.
o Choosing a more conservative approach, we maintained the fund's duration (a
measure of interest rate sensitivity) in a relatively narrow range around
our benchmark.
o Going forward, we will likely keep the fund conservatively positioned in
case rates continue to rise.
Limited-Term
Total Returns:AS OF 4/30/97
6 Months 1.45%*
1 Year 3.87%
Net Assets:$45.6 million
(AS of 4/30/97)
Inception Date: 3/1/93
Ticker Symbol: TWTSX
Intermediate-Term
Total Returns:AS OF 4/30/97
6 Months 1.50%*
1 Year 4.85%
Net Assets:$72.2 million
(AS of 4/30/97)
Inception Date: 3/2/87
Ticker Symbol: TWTIX
Long-Term
Total Returns:AS OF 4/30/97
6 Months 1.63%*
1 Year 7.10%
Net Assets:$56.3 million
(AS of 4/30/97)
Inception Date: 3/2/87
Ticker Symbol: TWTLX
* Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 37.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
April 30, 1997, marked the end of an eventful period for our company and U.S.
municipal bond markets. Though municipal bond returns were modest for the
six-month period, they exceeded those of Treasury securities as accelerating
first-quarter economic growth sent bond yields higher. In the following pages,
our investment management team provides further details about the market and how
your fund was managed during the period.
In January, nearly two years of integration between Twentieth Century and The
Benham Group culminated when we began serving you as American Century
Investments. Under this new name we have combined our offerings of nearly 70
funds.
The new name also introduces three new groupings for the funds--the Benham Group
(money market and bond funds), the American Century Group (asset allocation,
balanced, conservative equity and specialty funds) and the Twentieth Century
Group (aggressive growth and international equity funds). The Tax-Exempt Bond
funds have joined the Benham Group because their investment goals match key
attributes of that group.
By now, you should have received a proxy statement and ballot that proposes
several changes to your fund. In order to streamline and simplify our list of
fund offerings, we are proposing to merge several funds whose characteristics
and investment objectives are very similar or identical. The proxy statement
includes proposals to merge the Intermediate-Term Tax-Exempt fund into the
existing Intermediate-Term Tax-Free fund and the Long-Term Tax-Exempt fund into
the existing Long-Term Tax-Free fund. It also proposes that the name of the
Limited-Term Tax-Exempt fund be changed to the Limited-Term Tax-Free fund. The
proxy statement contains more details about the proposed changes; we strongly
encourage you to read it carefully and take part in the proxy vote if you have
not already done so.
In reviewing this report, you may notice some changes. Based on investors'
feedback, our shareholder reports have been redesigned with added features,
including a report summary, a glossary, more charts and graphs, and expanded
management Q & A and background information sections.
These are examples of how we continue working to provide information and
services that are useful and convenient to investors in our funds. We look
forward to sharing other helpful changes with you.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
The U.S. economy grew vigorously during the six months ended April 30, 1997.
Fueling surprisingly strong growth were low unemployment, strong job growth,
consumer spending and a robust housing market that hovered near record levels.
This combination of factors caused the economy to expand at a healthy 3.8%
annual rate during the fourth quarter of 1996. During the first quarter of 1997,
economic growth continued to pick up steam, reaching a 10-year high of 5.8%.
Concerned that vigorous economic growth would foster a faster rate of inflation,
the Federal Reserve (the Fed) raised short-term interest rates in March, marking
the first increase since February 1995.
While the economy continued its impressive growth, inflation remained relatively
subdued. Overall consumer prices--as measured by the government's consumer price
index-- rose at a 3.2% annual rate during the six-month period. This unusual
combination of strong growth and relatively subdued inflation sent a barrage of
mixed signals to bond investors.
Municipal Bond Market
Municipal bonds produced modest returns for the six-month period. Uncertainty
concerning the strength of the U.S. economy caused shifting expectations for the
direction of interest rates, limiting bond market gains.
The effects of these shifts are demonstrated by the accompanying graph. As the
six-month period began, evidence of a moderating economy finally convinced many
municipal bond investors that inflation would remain under control. By December,
municipal yields had fallen 15 to 18 basis points from where they began the
period, reflecting investor optimism that well-contained inflation would allow
the Fed to hold short-term interest rates steady.
Helping the late-1996 rally was strong demand from insurance companies for
longer-maturity municipal securities. Many of these companies made "crossover"
buys--that is, they purchased municipal bonds instead of comparable-maturity
Treasury bonds because of the relatively attractive yields offered by
municipals.
However, bond yields headed higher at the end of the first quarter of 1997, as a
March tightening move by the Fed sparked concern that interest rates were upward
bound. As a result, municipal bond yields at the end of April were at their
highest levels for the period.
Although municipal yields rose overall during the six months, municipals
weathered the market's gyrations much better than did their Treasury
counterparts as bond prices fell. The change in bond yields illustrates this
divergence--yields on short-term municipal bonds ended the period around 25
basis points higher than where they began, while yields on short-term Treasury
bonds ended nearly 50 basis points higher. Among longer-term securities, 30-year
municipal yields ended virtually unchanged, while 30-year Treasury yields
finished the period nearly 25 basis points higher.
Robust demand from retail investors helped fuel the outperformance of municipal
securities, particularly as interest rates rose during the first four months of
1997. At the same time, new municipal issuance remained fairly low compared to
the early 1990s. This favorable supply and demand relationship also helped
dampen market volatility.
[line graph - data below]
Shifting Municipal Yield Curve
Years to Maturity 10/31/96 12/5/96 4/30/97
0.25 3.25 3.10 3.48
0.50 3.45 3.30 3.66
1.00 3.65 3.50 3.92
2.00 3.95 3.80 4.22
3.00 4.15 4.00 4.42
4.00 4.30 4.12 4.57
5.00 4.40 4.22 4.67
6.00 4.50 4.32 4.76
7.00 4.60 4.42 4.84
8.00 4.70 4.52 4.91
9.00 4.80 4.62 4.98
10.00 4.90 4.72 5.05
11.00 4.98 4.81 5.12
12.00 5.07 4.90 5.18
13.00 5.15 4.98 5.25
14.00 5.24 5.07 5.31
15.00 5.32 5.16 5.38
16.00 5.35 5.19 5.41
17.00 5.38 5.22 5.44
18.00 5.42 5.24 5.47
19.00 5.45 5.27 5.50
20.00 5.48 5.30 5.53
21.00 5.49 5.31 5.54
22.00 5.50 5.32 5.55
23.00 5.50 5.32 5.55
24.00 5.51 5.33 5.56
25.00 5.52 5.34 5.57
26.00 5.52 5.34 5.57
27.00 5.53 5.35 5.58
28.00 5.53 5.35 5.58
29.00 5.54 5.36 5.59
30.00 5.54 5.36 5.59
Source: Bloomberg Financial Markets
Semiannual Report Period Overview 3
MUNICIPAL CREDIT REVIEW
Municipal credit quality continued to improve during the six months ended April
30, 1997, in part because of the favorable economic conditions discussed on page
3. Credit upgrades outpaced credit downgrades by more than 3 to 1 during 1996.
The number of credit upgrades has continued to improve since 1995, when
downgrades outnumbered upgrades; however, in recent months that trend has been
slowing.
Regionally, the Rocky Mountain states and the Southwest continued to display the
strongest economic growth in the nation, and this strength has expanded to the
West Coast (see the accompanying graph). California's economic turnaround is the
result of strong growth in the high-technology industries and California's
position as the nation's leading exporter. The Midwest continued to grow at a
relatively steady pace, while the southeastern portion of the country also
remained healthy. The Great Lakes areas, Louisiana, the Mid-Atlantic and the
Northeast still lag the rest of the nation, but even these regions have seen
improved economic conditions in 1996 and 1997.
General obligation (GO) bonds and other forms of tax-supported municipal debt
have benefited from the increased tax revenues that healthy economic growth is
providing. However, federal policy decisions related to health and welfare
reform may pose longer-term concerns for state and local governments. A
widespread trend toward managed care continues to cause credit pressures for
health care. In addition, many bonds issued by public power companies are being
adversely affected by the deregulation of the electric utilities industry.
Please keep in mind that this analysis provides only a broad glimpse of general
municipal market trends. Growing market complexity and issue disparities point
to a continuing need for thorough case-by-case credit analysis that encompasses
more than sector analysis alone can provide--although sector analysis remains an
integral element in municipal research.
CREDIT QUALITY TRENDS
(graphic of U.S. map)
Improving:
Arizona
California
Colorado
Georgia
Idaho
Massachussetts
Minnesota
Mississippi
Nevada
New Hampshire
New Mexico
North Carolina
Oregon
South Dakota
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Stable:
(all other states)
4 Municipal Credit Review American Century Investments
<TABLE>
<CAPTION>
LIMITED-TERM TAX-EXEMPT
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C> <C>
Limited-Term Tax-Exempt 4.05% 5.63% 5.87% 6.33% 6.71%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF APRIL 30, 1997
Limited-Term Tax-Exempt .................................. 1.45% 3.87% 4.45% 4.07%
Merrill Lynch 0- to 3-Year Muni Index .................... 1.47% 3.74% 4.25% 3.97%
Average Short Municipal
Debt Fund(1) ............................................. 1.65% 4.01% 4.31% 3.83%(2)
Fund's Ranking Among Short
Municipal Debt Funds(1) .................................. -- 13 out of 30 6 out of 18 2 out of 11
</TABLE>
(1) According to Lipper Analytical Services.
(2) Return since 3/31/93, the date nearest the fund's inception for which return
data are available. Inception date was March 1, 1993.
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Limited-Term Tax-Exempt $11,809
Merrill Lynch 0- to 3-Year Muni Index $11,762
Limited-Term Tax-Exempt Merrill Lynch 0- to 3-Year Muni Index
03/01/93 $10,000 $10,000
Mar-93 $10,014 $9,992
Jun-93 $10,132 $10,110
Sep-93 $10,227 $10,149
Dec-93 $10,336 $10,322
Mar-94 $10,322 $10,318
Jun-94 $10,426 $10,395
Sep-94 $10,524 $10,498
Dec-94 $10,592 $10,457
Mar-95 $10,791 $10,693
Jun-95 $10,965 $10,903
Sep-95 $11,111 $11,063
Dec-95 $11,307 $11,212
Mar-96 $11,365 $11,324
Jun-96 $11,436 $11,402
Sep-96 $11,565 $11,535
Dec-96 $11,723 $11,673
Mar-97 $11,769 $11,728
Apr-97 $11,809 $11,762
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 40 44
Weighted Average Maturity 3.6 years 2.3 years
Average Duration 3.0 years 2.1 years
Expense Ratio 0.60%* 0.60%
* Annualized.
Semiannual Report Limited-Term Tax-Exempt 5
LIMITED-TERM TAX-EXEMPT
Management Q & A
An inverview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
funds management team.
How did the fund perform?
The fund's return reflects the bearish bond environment that prevailed during
the first four months of 1997. For the six-month period ended April 30, 1997,
the fund's total return was 1.45%, compared with the 1.65% average return of the
30 funds in Lipper's "Short Municipal Debt Funds" category and the 1.47% return
of the fund's benchmark, the Merrill Lynch 0- to 3-Year Municipal Bond Index.
(See the Total Returns table on the previous page for other fund performance
comparisons.)
The fund's average maturity lengthened from 2.3 years to 3.6 years by the end of
the period. Was the change made to reflect the fund's recent shift from a
"short-term" fund to a "limited-term" fund?
That's correct. Until mid-March, we made only slight adjustments to the fund's
average maturity, within a narrow range around 2.5 years. At that time we
decided to take advantage of rising interest rates and began lengthening the
fund's average maturity to better reflect the fund's new name and investment
policies.
We are in the process of changing the fund's Lipper category from its current
designation to Lipper's "Other State's Short-Intermediate Municipal Debt Funds"
category, which contains municipal funds that maintain average maturities of
three to five years.
[bar graph - data below]
LIMITED-TERM TAX-EXEMPT'S ONE-YEAR RETURNS SINCE INCEPTION
(Periods ended April 30)
Limited-Term Tax-Exempt Merrill Lynch Muni (O- to 3-Year) Index
4/30/93 0.50% 0.36%
4/30/94 3.12% 3.43%
4/30/95 4.41% 3.56%
4/30/96 5.08% 5.47%
4/30/97 3.87% 3.74%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 36 for a definition of the index.
* Return from the fund's 3/1/93 inception date to 4/30/93.
6 Limited-Term Tax-Exempt American Century Investments
LIMITED-TERM TAX-EXEMPT
We think it important to note that although the fund underperformed its old peer
group for the six-month period, the fund's year-to-date returns through April
placed it among the old peer group's higher performers, and allowed it to finish
even better among its new peer group.
You increased the fund's holdings of municipals rated BBB from 16% to 26%. What
was your strategy?
The main vehicle we used to enhance the fund's returns during the period was
careful selection of lower-rated municipal bonds. With that in mind, we expanded
the amount of securities rated BBB in the fund to provide higher yields and in
anticipation of continued credit strength across the nation.
Nationally improving credit conditions also caused the yield spread--or interest
rate difference--between comparable-maturity municipal securities with different
credit ratings to decrease as investors reached for higher yields. We were able
to overcome this obstacle and locate attractively valued securities thanks
largely to our strong credit research team.
The percentage of GOs in the fund's portfolio dropped by almost a third, while
the percentage of COPs and lease agreements tripled. Why the change?
In a market where interest rates tend to stay within a given range, interest
payments generally contribute more to a fund's returns. Because GOs tend to
offer lower yields than COPs and lease agreements, we chose to replace some of
our maturing GOs with New York-issued COPs and leases.
We purchased New York COPs and leases for the fund's portfolio because of the
state's generally improving economic conditions. As other market participants
began to realize the potential value of these securities, rising demand caused
these COPs and leases to appreciate.
What is your outlook for the municipal market over the next six months?
Bond yields rose during the first four months of 1997, largely because the U.S.
economy showed faster-than-normal growth as wages edged higher. While these
factors led the Federal Reserve (the Fed) to raise short-term interest rates in
March, the recent
TOP FIVE STATES (% of fund investments)
As of As of
4/30/97 10/31/9
New York 15% Texas 10%
Missouri 10% California 9%
Texas 8% Pennsylvania 7%
Colorado 7% Arizona 7%
Florida 6% Colorado 6%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Revenue Bonds 46%
GO 26%
COPs/Leases 22%
Prerefunded/ETM 6%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Revenue Bonds 48%
GO 36%
Prerefunded/ETM 9%
COPs/Leases 7%
Semiannual Report Limited-Term Tax-Exempt 7
LIMITED-TERM TAX-EXEMPT
moderating trend of economic growth allowed the Fed to hold interest rates
steady after its May meeting. Whether the Fed will continue to stand pat or
decide to raise rates again soon is uncertain. Current economic conditions
suggest that inflation can remain tame even as the economy flourishes.
As such, we believe that the Fed should not need to raise rates dramatically to
keep inflation within reasonable levels. If U.S. economic growth slows of its
own accord, municipal securities could rally; but with wage pressures increasing
the threat of a Fed rate hike, any signs of an overheating economy will likely
push municipal bond prices lower.
Another development we will monitor closely is the relative performance between
municipal and Treasury securities (see page 3). Lately, municipals have
significantly outperformed Treasurys, a situation caused in part by relatively
low municipal issuance. Although municipal issuance should remain fairly light
in the near future, the likelihood that municipal bonds will continue this
outperformance is diminishing--their prices have reached levels where they are
considered historically expensive compared with like-maturity Treasurys. If
municipals continue this trend, investor demand could eventually shift back to
Treasurys, removing a key supporting factor for municipal bond prices.
With this outlook in mind, what are your plans for the fund going forward?
Currently, the market seems to expect that economic growth will continue to
slow, allowing the Fed to hold short-term rates steady; however, we are inclined
to somewhat disagree with that notion. As such, we will likely maintain the
fund's bullet structure for now as an added precaution in case rates move
sharply higher or lower. If the economic outlook changes dramatically, we
believe that this position will allow us to respond appropriately. We will also
continue to utilize our credit research team to look for securities that we
believe will add value to the fund's returns.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 51%
AA 17%
A 6%
BBB 26%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 45%
AA 20%
A 19%
BBB 16%
8 Limited-Term Tax-Exempt American Century Investments
SCHEDULE OF INVESTMENTS
LIMITED-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Alaska--1.6%
$ 735 Anchorage Alaska GO, Series A,
5.50%, 8/1/99 (AMBAC) $ 750
------
Arizona--3.9%
1,000 Arizona State Transportation Board
Excise Tax Rev., (Maricopa County),
5.60%, 7/1/02 (AMBAC) 1,034
750 Maricopa County Certificates of
Participation, 5.625%, 6/1/00 762
------
1,796
------
California--2.2%
1,000 Central Valley Financing Auth. Rev.,
(Cogeneration Project), 5.00%,
7/1/98 1,005
------
Colorado--6.9%
1,140 Denver Colorado City & County
Airport Rev., Series D, 6.80%,
11/15/97 1,155
1,000 Denver Colorado City & County
Airport Rev., Series B, 5.25%,
11/15/02 (MBIA) 1,011
1,000 Highlands Ranch Metropolitan
District #2, 6.00%, 6/15/02 (FSA) 1,053
------
3,219
------
Connecticut--4.4%
2,000 Connecticut State Special Tax
Obligation Rev., (Transportation
Infrastructure), 5.50%, 10/1/00
(FGIC) 2,057
------
Florida--5.6%
1,500 Hillsborough County School Board
Sales Tax Rev., 5.00%, 10/1/02
(AMBAC) 1,512
1,000 Jacksonville Electric Auth. Rev., (St.
John's River), 6.00%, 10/1/04 1,062
------
2,574
------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Guam--3.2%
$ 1,000 Government of Guam GO, Series A,
5.50%, 8/15/97 $1,003
500 Guam Power Auth. Rev., Series A,
5.20%, 10/1/97 502
------
1,505
------
Idaho--2.1%
1,000 ADA & Canyon Counties Joint
School District No. 2 GO, 4.25%,
7/30/99 997
------
Illinois--4.4%
1,015 Cook County GO, Series A, 5.75%,
11/15/99 (MBIA) 1,046
1,000 Southern Illinois University Rev.,
(Housing and Auxiliary Facilities),
5.00%, 4/1/00 (MBIA) 1,009
------
2,055
------
Maryland--2.2%
1,000 Baltimore County GO, 5.00%,
8/1/01 1,014
------
Michigan--4.1%
385 Detroit Michigan GO, Series B,
5.10%, 4/1/99 387
500 Michigan Hospital Finance Auth.
Rev., (Genesys Health Systems),
6.40%, 10/1/97 504
1,000 Michigan State Building Auth. Rev.,
Series I, 5.00%, 10/1/00 1,012
------
1,903
------
Minnesota--2.8%
1,200 Minneapolis Hospital Rev.,
(Lifespan Inc.- Abbott
Northwestern), 7.00%, 12/1/01,
Prerefunded 12/1/99 at 102%
of Par(1) 1,295
------
Mississippi--2.1%
1,000 Mississippi State Lease Rev.
Certificates of Participation,
Series A, 4.60%, 4/15/99
(AMBAC) 1,000
------
See Notes to Financial Statements
Semiannual Report Limited-Term Tax-Exempt 9
SCHEDULE OF INVESTMENTS
LIMITED-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Missouri--10.2%
$ 1,000 Kansas City Port Auth. Facilities
Rev., Series A, (Riverfront Park
Project), 5.75%, 10/1/98 $1,015
1,675 North Kansas City Missouri School
District GO, 5.00%, 3/1/00 1,693
2,000 Springfield Missouri State Highway
Improvement Corp. Rev., 5.05%,
8/1/03 (AMBAC) 2,007
------
4,715
------
New Jersey--3.9%
1,750 West Windsor Plainsboro GO,
5.25%, 12/1/02 (FGIC) 1,789
------
New York--14.5%
2,145 Municipal Assistance Corp. for City
of New York, Series I, 5.25%,
7/1/02 2,179
1,000 New York City GO, Series A,
6.25%, 8/1/03 1,045
2,000 New York State Certificates of
Participation, 4.40%, 8/1/98 2,001
1,000 New York State Serial Bonds GO,
6.70%, 11/15/99 1,052
445 Port Auth. of New York and New
Jersey Rev., Consolidated Notes,
Series SS, 4.90%, 9/1/97 445
------
6,722
------
Ohio--4.5
2,070 Ohio State Building Auth. Rev.,
Series A, (Highway Safety
Building), 5.00%, 10/1/03
(AMBAC) 2,075
------
Pennsylvania--4.4%
2,000 Philadelphia Gas Works Rev., 14th
Series, 5.40%, 7/1/98 2,024
------
South Carolina--2.3%
145 Piedmont Municipal Power Agency
Rev., Series A, 6.00%,
1/1/02 (FGIC)(1) 152
855 Piedmont Municipal Power Agency
Rev., Series A, 6.00%, 1/1/02
(FGIC) 893
------
1,045
------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Texas--7.8%
$ 1,780 Brownsville Utility System Rev.,
5.00%, 9/1/00 (AMBAC) $ 1,798
1,000 Colorado River Municipal Water
District Rev., Series A, 8.50%,
1/1/01, Prerefunded 1/1/01 at
100% of Par (AMBAC)(1) 1,126
685 Denison Hospital Auth. Rev.,
(Texoma Medical Center), 5.00%,
8/15/00 684
------
3,608
------
Virginia--2.2%
1,000 Virginia State Public Building Auth.
Rev., Series A, 5.70%, 8/1/00 1,033
------
Washington--4.7%
1,680 Snohomish County Public Utility
District #1 Electric Rev., Series B,
4.75%, 1/1/00 1,674
515 Washington Public Power Supply
System Rev., Series C, (Nuclear
Project #1), 4.50%, 7/1/98 517
------
2,191
------
TOTAL INVESTMENT SECURITIES--100.0% $46,372
(Cost $46,419) =======
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GO = General Obligation
MBIA = Municipal Bond Insurance Association
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
10 Limited-Term Tax-Exempt American Century Investments
<TABLE>
<CAPTION>
INTERMEDIATE-TERM TAX-EXEMPT
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C> <C>
Intermediate-Term Tax-Exempt 4.57% 6.35% 6.62% 7.14% 7.57%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF APRIL 30, 1997
Intermediate-Term Tax-Exempt ............... 1.50% 4.85% 5.60% 5.71% 6.28%
Lehman 5-Year General Obligation Index ..... 1.58% 4.81% 5.71% 5.98% 6.61%
Average Intermediate Municipal
Debt Fund(1) ............................... 1.55% 4.97% 5.63% 6.00% 6.87%
Fund's Ranking Among Intermediate
Municipal Debt Funds(1) .................... -- 0 out of 136 51 out of 98 24 out of 34 15 out of 18
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain grpah - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 04/30/97
Intermediate-Term Tax-Exempt $18,381
Lehman 5-Year GO Index $18,972
Intermediate-Term Tax-Exempt Lehman 5-Year GO Index
Apr-87 $10,000 $10,000
Jun-87 $10,219 $10,211
Sep-87 $10,078 $10,001
Dec-87 $10,406 $10,383
Mar-88 $10,612 $10,705
Jun-88 $10,785 $10,750
Sep-88 $10,909 $10,872
Dec-88 $11,032 $10,939
Mar-89 $11,021 $10,908
Jun-89 $11,367 $11,421
Sep-89 $11,477 $11,548
Dec-89 $11,766 $11,800
Mar-90 $11,813 $11,857
Jun-90 $12,001 $12,123
Sep-90 $12,131 $12,250
Dec-90 $12,506 $12,657
Mar-91 $12,770 $12,929
Jun-91 $12,965 $13,156
Sep-91 $13,359 $13,624
Dec-91 $13,764 $14,080
Mar-92 $13,840 $14,069
Jun-92 $14,224 $14,527
Sep-92 $14,490 $14,888
Dec-92 $14,751 $15,124
Mar-93 $15,117 $15,508
Jun-93 $15,474 $15,875
Sep-93 $15,868 $16,218
Dec-93 $16,089 $16,417
Mar-94 $15,519 $15,899
Jun-94 $15,699 $16,112
Sep-94 $15,823 $16,243
Dec-94 $15,757 $16,190
Mar-95 $16,414 $16,846
Jun-95 $16,790 $17,275
Sep-95 $17,184 $17,747
Dec-95 $17,636 $18,072
Mar-96 $17,550 $18,128
Jun-96 $17,601 $18,208
Sep-96 $17,916 $18,504
Dec-96 $18,331 $18,907
Mar-97 $18,293 $18,877
Apr-97 $18,381 $18,972
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 50 57
Weighted Average Maturity 7.2 years 7.1 years
Average Duration 5.4 years 5.3 years
Expense Ratio 0.60%* 0.60%
* Annualized.
Semiannual Report Intermediate-Term Tax-Exempt 11
INTERMEDIATE-TERM TAX-EXEMPT
Management Q & A
An inverview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
funds management team.
How did the fund perform?
Reflecting the bearish bond environment that prevailed during the first four
months of 1997, the fund posted modest returns. For the six-month period ended
April 30, 1997, the fund's total return was 1.50%, essentially matching the
1.55% average return of the 136 funds in Lipper's "Intermediate Municipal Debt
Funds" category and the 1.58% return of the fund's benchmark. (See the Total
Returns table on the previous page for other fund performance comparisons.)
Did you change the fund's positioning during the period?
We made only slight adjustments to the fund's average maturity, but we did make
some structural changes during the period. Choosing a more conservative
approach, we kept the fund's average maturity in a relatively narrow range
around 7 years, lengthening or shortening slightly as conditions warranted.
The fund's barbell structure buoyed its returns in early 1997 as concerns that
the Federal Reserve would raise rates caused the yield curve to flatten.
However, we have recently been shifting the fund's structure to more of a bullet
position--which tends to perform best when the yield curve is moving from flat
to steep--because economic fundamentals seem to be changing.
[bar graph - data below]
INTERMEDIATE-TERM TAX-EXEMPT'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods
ended April 30)
Intermediate-Term Tax-Exempt Lehman 5-Year GO Index
4/30/88 6.72% 8.03%
4/30/89 4.26% 2.71%
4/30/90 5.46% 6.52%
4/30/91 9.89% 10.77%
4/30/92 7.99% 8.41%
4/30/93 9.32% 9.97%
4/30/94 2.53% 2.89%
4/30/95 5.38% 5.18%
4/30/96 6.59% 7.16%
4/30/97 4.85% 4.81%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 36 for a definition of the index.
12 Intermediate-Term Tax-Exempt American Century Investments
INTERMEDIATE-TERM TAX-EXEMPT
In what other ways did you add value to the fund?
Careful selection of attractively priced securities was the main vehicle we used
to enhance the fund's returns. Along those lines, we sold some California GOs at
a profit and used the proceeds to purchase lower-rated New York COPs and lease
agreements that we felt were attractively valued. However, nationally improving
credit conditions made such securities difficult to find. That's because the
yield spread--or interest rate difference--between comparable-maturity municipal
securities with different credit ratings continued to decrease as investors
reached for higher yields. Thanks in part to our strong credit research team,
however, we were able to find many securities that were undervalued and
subsequently appreciated in price.
What impact did the federal budget agreement have on the municipal market?
Not much. While a strong budget deal could have sparked a bond rally, the
version that passed failed to have that effect. Although steps toward a balanced
budget are generally positive for the bond market, the recent accord fails to
deal with two very controversial issues, Medicare and Social Security. As a
result, the positive impact of Congress reaching an agreement was muted by the
realization that critical steps are still needed if our economy is to gain any
long-term benefits from a budget plan.
The most interesting part of the agreement will likely be the type of tax cuts
that are finally ratified. If a strong capital gains cut is set into place, it
could have a negative impact on bonds, as a lower capital gains tax rate would
increase the after-tax returns of stocks.
In July, fund shareholders will be voting on a proposal to merge the fund with
the Benham Intermediate-Term Tax-Free fund. If this merger is approved, how will
it affect the fund's management?
Shareholders will see no change to the fund's management. The new combined fund
will retain all of this fund's investment objectives and policies, so we'll
continue to manage the new fund in the same way we've managed this one. The only
significant difference is that the new fund will have lower management fees and
expenses.
TOP FIVE STATES (% of fund investments)
As of As of
4/30/97 10/31/96
New York 16% New York 14%
Texas 13% Texas 12%
Pennsylvania 11% Massachusetts 10%
Massachusetts 10% Pennsylvania 10%
Ohio 7% Ohio 8%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Revenue Bonds 67%
GO 17%
COPs/Leases 14%
Prerefunded/ETM 2%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Revenue Bonds 68%
GO 16%
COPs/Leases 12%
Prerefunded/ETM 4%
Semiannual Report Intermediate-Term Tax-Exempt 13
INTERMEDIATE-TERM TAX-EXEMPT
What is your outlook for the municipal market over the next six months?
Bond yields rose during the first four months of 1997, largely because the U.S.
economy showed faster-than-normal growth and wages rose. While these factors led
the Federal Reserve (the Fed) to raise short-term interest rates in March, the
recent moderating trend of economic growth allowed the Fed to hold interest
rates steady after its May meeting. Whether the Fed will continue to stand pat
or decide to raise rates again soon is uncertain. Current economic conditions
suggest that inflation can remain tame even as the economy flourishes.
As such, we believe that the Fed should not need to raise rates dramatically to
keep inflation within reasonable levels. If U.S. economic growth slows of its
own accord, municipal securities could rally; but with wage pressures increasing
the threat of a Fed rate hike, any signs of an overheating economy will likely
push municipal bond prices lower.
Another development we will monitor closely is the relative performance between
municipal and Treasury securities (see page 3). Lately, municipals have
significantly outperformed Treasurys, a situation caused in part by relatively
low municipal issuance. Although municipal issuance should remain fairly light
in the near future, the likelihood that municipal bonds will continue this
outperformance is diminishing--their prices have reached levels where they are
considered historically expensive compared with like-maturity Treasurys. If
municipals continue this trend, investor demand could eventually shift back to
Treasurys, removing a key supporting factor for municipal bond prices.
With this outlook in mind, what are your plans for the fund going forward?
Currently, the market seems to expect that economic growth will continue to
slow, allowing the Fed to hold short-term rates steady; however, we are inclined
to somewhat disagree with that notion. As such, we will likely maintain the
fund's bullet structure for now as an added precaution in case rates move
sharply higher or lower. If the economic outlook changes dramatically, we
believe that this position will allow us to respond appropriately. We will also
continue to utilize our credit research team to look for securities that we
believe will add value to the fund's returns.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 76%
AA 10%
A 6%
BBB 8%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 75%
AA 9%
A 11%
BBB 5%
14 Intermediate-Term Tax-Exempt American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Arizona--1.0%
$ 750 Maricopa County Certificates of
Participation, 5.625%, 6/1/00 $ 761
------
Colorado--1.5%
1,000 Denver Sales Tax Rev., Series A,
(Major League Baseball Stadium
District), 6.10%, 10/1/01
(FGIC) 1,055
------
District of Columbia--1.4%
1,000 District of Columbia Hospital Rev.,
Series A, (Medlantic Health Care
Group), 5.25%, 8/15/02 (MBIA) 1,014
------
Florida--1.5%
1,000 Lakeland Electric and Water Rev.,
Series B, 6.00%, 10/1/09
(FGIC) 1,072
------
Georgia--3.7%
1,000 Atlanta Airport Facilities Rev.,
7.00%, 1/1/01 1,067
500 Georgia State GO, Series B, 6.30%,
3/1/08 551
1,000 Metropolitan Atlanta Rapid Transit
Auth. Sales Tax Rev., Series M,
6.05%, 7/1/01 1,046
------
2,664
------
Illinois--6.1%
2,000 Chicago O'Hare International
Airport Rev., Series A, 5.00%,
1/1/00 (MBIA) 2,009
2,250 Illinois State GO, 6.00%, 10/1/01 2,353
------
4,362
------
Massachusetts--9.9%
2,605 Massachusetts Bay Transportation
Auth. Rev., Series C, 5.40%,
3/1/00 2,656
2,000 Massachusetts Housing Finance
Agency Rev., Series A, 5.90%,
1/1/03 (AMBAC) 2,068
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 1,500 Massachusetts State GO, Series A,
(Consolidated Loan), 5.00%,
3/1/06 (AMBAC) $1,492
1,000 Massachusetts State GO, Series D,
(Consolidated Loan), 5.00%,
11/1/16 (AMBAC) 921
------
7,137
------
Mississippi--2.8%
2,000 Mississippi Hospital Equipment and
Facilities Auth. Rev., (North Miss.
Health Service), 5.00%,
5/15/00 (AMBAC) 2,016
------
Missouri--1.5%
1,000 Missouri Board of Public Buildings
State Office Buildings Special
Obligation Rev., 6.30%,
12/1/05 1,063
------
Nebraska--2.9%
2,000 Nebraska Investment Finance
Auth. Hospital Rev., (Methodist
Health System), 6.55%, 3/1/99
(MBIA) 2,072
------
New Jersey--6.5%
1,030 Atlantic City Board of Education
GO, 6.00%, 12/1/06 (AMBAC) 1,089
1,410 New Jersey Educational Facility
Auth. Rev., Series A, (New Jersey
Institute of Technology), 5.90%,
7/1/08 (MBIA) 1,486
1,000 New Jersey Health Care Facilities
Financing Auth. Rev., (Atlantic
City Medical Center), 6.15%,
7/1/99 1,027
1,000 New Jersey State Turnpike Auth.
Rev., Series A, 6.20%, 1/1/00 1,035
------
4,637
------
New York--16.2%
1,950 City University of New York
Certificates of Participation,
(John Jay College), 5.00%,
8/15/09 (AMBAC) 1,880
2,500 Nassau County, Series T, 5.20%,
9/1/05 (FGIC) 2,526
See Notes to Financial Statements
Semiannual Report Intermediate-Term Tax-Exempt 15
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 1,500 New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5/15/04 $ 1,595
1,000 New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5/15/06 1,067
1,125 New York State Medical Care
Facilities Finance Agency Rev.,
(Hospital and Nursing Home),
5.95%, 8/15/09 (FHA) 1,149
1,160 New York State Thruway Auth. Rev.,
(Service Contract), 5.50%,
4/1/06 1,157
1,000 New York State Thruway Auth. Rev.,
Series B, 5.125%, 4/1/15
(MBIA) 939
1,260 New York State Urban
Development Corp. Rev.,
(Correctional Facilities), 5.40%,
1/1/06 (AMBAC) 1,284
------
11,597
------
Ohio--6.7%
1,200 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12/1/07 (FGIC) 1,234
3,320 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12/1/05 (MBIA) 3,541
------
4,775
------
Oregon--4.2%
1,805 Lane County School District No. 19
GO, (Springfield), 6.375%,
10/15/05 (MBIA) 1,970
1,000 Oregon State Department
Transportation Rev., 5.50%,
6/1/00 (MBIA) 1,026
------
2,996
------
Pennsylvania--10.6%
1,000 Harrisburg Auth. Lease Rev.,
6.25%, 6/1/00 (FSA)(1) 1,044
1,500 Pennsylvania Turnpike Commission
Rev., Series L, 6.25%, 6/1/01
(AMBAC) 1,582
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 2,000 Philadelphia Gas Works Rev., 14th
Series, 5.70%, 7/1/00 (FSA) $2,060
2,000 Philadelphia Water & Wastewater
Rev., 5.15%, 6/15/04 (FGIC) 1,999
1,000 Philadelphia Water & Wastewater
Rev., 5.00%, 6/15/12 (FGIC) 939
------
7,624
------
Texas--12.6%
2,000 Brazos Higher Education Auth.
Rev., Series A-1, 5.50%,
12/1/98 2,039
1,875 Brownsville Utility System Rev.,
6.00%, 9/1/08 (AMBAC) 1,995
1,000 Dallas-Fort Worth Regional Airport
Rev., Series A, 5.90%, 11/1/08
(MBIA) 1,038
1,340 Harris County Health Facilities
Development Corp. Hospital Rev.,
(St. Luke's Episcopal Hospital),
6.40%, 2/15/00 1,394
1,000 Tarrant County Health Facility
Development Corporation Health
System Rev., (Harris Methodist
Health System), 5.00%, 9/1/07
(AMBAC) 979
1,500 Texas State Public Finance Auth.
Building Rev., (Technical College),
6.25%, 8/1/09 (MBIA) 1,632
------
9,077
------
Utah--1.5%
1,000 Salt Lake County Municipal
Building Auth. Lease Rev., Series
A, 6.00%, 10/1/07 (MBIA) 1,056
------
Virginia--1.9%
1,275 Metropolitan Washington D.C.
Airports Auth. Rev., Series A,
6.30%, 10/1/03 (MBIA) 1,361
------
See Notes to Financial Statements
16 Intermediate-Term Tax-Exempt American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Washington--3.7%
$ 500 Snohomish County School District
GO, (Edmonds School District
No. 15), 6.00%, 6/1/06 (FGIC) $ 530
1,000 Tacoma Electric System Rev.,
6.10%, 1/1/07 (FGIC) 1,060
1,000 Washington State Public Power
Supply Rev., Series C, (Project 2),
7.30%, 7/1/00 1,069
------
2,659
------
West Virginia--1.5%
1,090 West Virginia State GO, Series D,
5.00%, 11/1/10 (FGIC) 1,052
------
Wisconsin--2.3%
1,590 Wisconsin State Health and
Educational Facility Auth. Rev.,
(Aurora Medical Group), 6.00%,
11/15/10 (FSA) 1,679
------
TOTAL INVESTMENT SECURITIES--100.0% $71,729
(Cost $70,586) =======
Notes to Schedule of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FHA = Federal Housing Authority
FSA = Financial Security Association
GO = General Obligation
MBIA = Municipal Bond Insurance Association
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
Semiannual Report Intermediate-Term Tax-Exempt 17
<TABLE>
<CAPTION>
LONG-TERM TAX-EXEMPT
30-Day 30-Day Tax-Equivalent Yields
SEC 28% 31% 36% 39.6%
Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket
CURRENT YIELDS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C> <C>
Long-Term Tax-Exempt 5.00% 6.94% 7.25% 7.81% 8.28%
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF APRIL 30, 1997
Long-Term Tax-Exempt ....................... 1.63% 7.10% 6.77% 6.73% 7.66%
Lehman Long-Term Municipal Bond Index ...... 1.86% 7.99% 8.19% 7.95% 9.07%
Average General Municipal
Debt Fund(1) ............................... 1.68% 6.13% 6.28% 6.65% 7.62%
Fund's Ranking Among General
Municipal Debt Funds(1) .................... -- 37 out of 231 48 out of 170 46 out of 105 34 out of 67
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 4/30/97
Long-Term Tax-Exempt $20,924
Lehman Long-Term Municipal Index $23,832
Long-Term Tax-Exempt Lehman Long-Term Municipal Index
Apr-87 $10,000 $10,000
Jun-87 $10,120 $10,205
Sep-87 $9,715 $9,922
Dec-87 $10,427 $10,373
Mar-88 $10,684 $10,758
Jun-88 $10,890 $11,065
Sep-88 $11,190 $11,437
Dec-88 $11,507 $11,773
Mar-89 $11,557 $11,891
Jun-89 $12,246 $12,714
Sep-89 $12,140 $12,647
Dec-89 $12,605 $13,183
Mar-90 $12,512 $13,210
Jun-90 $12,832 $13,550
Sep-90 $12,719 $13,440
Dec-90 $13,382 $14,135
Mar-91 $13,588 $14,460
Jun-91 $13,816 $14,829
Sep-91 $14,388 $15,496
Dec-91 $14,990 $16,051
Mar-92 $15,003 $16,107
Jun-92 $15,572 $16,817
Sep-92 $15,961 $17,277
Dec-92 $16,130 $17,693
Mar-93 $16,708 $18,464
Jun-93 $17,232 $19,227
Sep-93 $17,848 $19,996
Dec-93 $18,090 $20,302
Mar-94 $17,103 $18,674
Jun-94 $17,217 $18,808
Sep-94 $17,324 $18,885
Dec-94 $17,080 $18,455
Mar-95 $18,221 $20,293
Jun-95 $18,603 $20,758
Sep-95 $19,120 $21,324
Dec-95 $20,239 $22,753
Mar-96 $19,682 $22,159
Jun-96 $19,763 $22,421
Sep-96 $20,346 $23,116
Dec-96 $20,865 $23,758
Mar-97 $20,717 $23,554
Apr-97 $20,924 $23,832
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 50 55
Weighted Average Maturity 18.0 years 17.8 years
Average Duration 8.3 years 8.3 years
Expense Ratio 0.60%* 0.59%
* Annualized.
18 Long-Term Tax-Exempt American Century Investments
LONG-TERM TAX-EXEMPT
Management Q & A
An inverview with Dave MacEwen, a senior municipal portfolio manager on the
Tax-Exempt funds management team.
How did the fund perform?
The fund's return reflects the bearish bond environment that prevailed during
the first four months of 1997. For the six-month period ended April 30, 1997,
the fund's total return of 1.63% essentially matched the 1.68% average return of
the 231 funds in Lipper's "General Municipal Debt Funds" category and slightly
trailed the 1.86% return of the fund's benchmark.
However, the fund's one-year return of 7.10% placed it in the top 20% of its
peer group. This return reflected the more bullish conditions that were in
evidence during mid-1996. (See the Total Returns table on the previous page for
other fund performance comparisons.)
Did you change the fund's positioning during the period?
We made only slight adjustments to the fund. Choosing a more conservative
approach, we maintained the fund's duration in a relatively narrow range around
8 years. Since long-term municipal bond rates fluctuated mildly compared with
other maturity sectors, we felt the best strategy was to maintain a neutral
duration relative to our peers.
[bar charts - data below]
LONG-TERM TAX-EXEMPT'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods ended
April 30)
Long-Term Tax-Exempt Lehman Long-Term Municipal Index
4/30/88 6.89% 8.43%
4/30/89 10.99% 12.89%
4/30/90 3.35% 6.62%
4/30/91 12.51% 12.52%
4/30/92 9.55% 10.73%
4/30/93 11.65% 15.11%
4/30/94 1.89% 0.54%
4/30/95 6.14% 7.78%
4/30/96 7.09% 8.80%
4/30/97 7.10% 7.99%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 36 for a definition of the index.
Semiannual Report Long-Term Tax-Exempt 19
LONG-TERM TAX-EXEMPT
What techniques did you use to add value to the fund?
Careful selection of attractively priced securities was the main vehicle we used
to enhance the fund's returns. However, nationally improving credit conditions
made this task difficult. That's because the yield spread--or interest rate
difference--between comparable-maturity municipal securities with different
credit ratings continued to decrease as investors reached for higher yields.
Thanks in part to our strong credit research team, we were able to find many
securities that were undervalued and subsequently appreciated in price.
Can you cite an example?
Several times during the period, we purchased New York municipal issues rated
BBB that became available at attractive prices. While a trend toward narrowing
yield spreads has made it difficult to locate lower-rated municipals that pass
our close scrutiny, the New York municipal market still offers some
opportunities. New York still has some welfare issues to contend with, but the
state's generally improving economy helped make these municipals particularly
attractive choices. We sold many of them at a substantial profit. These
undervalued, lower-rated bonds had the added attraction of buoying the fund's
yield.
What impact did the federal budget agreement have on the municipal market?
Not much. While a strong budget deal could have sparked a bond rally, the
version that passed failed to have that effect. Although steps toward a balanced
budget are generally positive for the bond market, the recent accord fails to
deal with two very controversial issues, Medicare and Social Security. As a
result, the positive impact of Congress reaching an agreement was muted by the
realization that critical steps are still needed if our economy is to gain any
long-term benefits from a budget plan.
The most interesting part of the agreement will likely be the type of tax cuts
that are finally ratified. If a strong capital gains cut is set into place, it
could have a negative impact on bonds, as a lower capital gains tax rate would
increase the after-tax returns of stocks.
In July, fund shareholders will be voting on a proposal to merge the fund with
the Benham Long-Term Tax-Free fund. If this merger is approved, how will it
affect the fund's management?
Shareholders will see no change to the fund's management. The new combined fund
will retain all of this fund's investment objectives and policies, so
TOP FIVE STATES (% of fund investments)
As of As of
4/30/97 10/31/96
California 18% California 20%
New York 15% New York 12%
Illinois 12% Illinois 9%
Texas 11% Texas 8%
Massachusetts 6% Massachusetts 7%
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Revenue Bonds 60%
GO 18%
COPs/Leases 13%
Land-Secured 5%
Prerefunded/ETM 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Revenue Bonds 61%
GO 16%
COPs/Leases 12%
Prerefunded/ETM 7%
Land-Secured 4%
20 Long-Term Tax-Exempt American Century Investments
LONG-TERM TAX-EXEMPT
we'll continue to manage the new fund in the same way we've managed this one.
The only significant difference is that the new fund will have lower management
fees and expenses.
What is your outlook for the municipal market over the next six months?
Bond yields rose during the first four months of 1997, largely because the U.S.
economy showed faster-than-normal growth and wages rose. While these factors led
the Federal Reserve (the Fed) to raise short-term interest rates in March, the
recent moderating trend of economic growth allowed the Fed to hold interest
rates steady after its May meeting. Whether the Fed will continue to stand pat
or decide to raise rates again soon is uncertain. Current economic conditions
suggest that inflation can remain tame even as the economy flourishes.
As such, we believe that the Fed should not need to raise rates dramatically to
keep inflation within reasonable levels. If U.S. economic growth slows of its
own accord, municipal securities could rally; but with wage pressures increasing
the threat of a Fed rate hike, any signs of an overheating economy will likely
push municipal bond prices lower.
Another development we will monitor closely is the relative performance between
municipal and Treasury securities (see page 3). Lately, municipals have
significantly outperformed Treasurys, a situation caused in part by relatively
low municipal issuance. Although municipal issuance should remain fairly light
in the near future, the likelihood that municipal bonds will continue this
outperformance is diminishing--their prices have reached levels where they are
considered historically expensive compared with like-maturity Treasurys. If
municipals continue this trend, investor demand could eventually shift back to
Treasurys, removing a key supporting factor for municipal bond prices.
With this outlook in mind, what are your plans for the fund going forward?
Currently, the market seems to expect that economic growth will continue to
slow, allowing the Fed to hold short-term rates steady; however, we are inclined
to somewhat disagree with that notion. As such, we are keeping the fund
conservatively positioned, with its duration slightly shorter than the durations
of its peers as an added precaution in case rates continue to rise. If the
economic outlook changes dramatically, we believe that this position will allow
the fund to respond appropriately. We will also continue to utilize our credit
research team to look for securities that we believe will add value to the
fund's returns.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 54%
AA 24%
A 9%
BBB 13%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 54%
AA 24%
A 12%
BBB 10%
Semiannual Report Long-Term Tax-Exempt 21
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
Alaska--0.1%
$ 40 Alaska State Housing Finance
Corp Rev., Series B, 8.75%,
12/1/16 (LOC: Swiss Bank) $ 41
-------
California--18.4%
2,000 California State Public Works Lease
Rev., (Department of Corrections
Prisons A), 5.00%, 12/1/19
(AMBAC) 1,834
1,000 California State Public Works
Lease Rev., (University Project A),
6.20%, 10/1/08 1,061
1,225 Long Beach Water Rev., 6.125%,
5/1/19 1,260
1,500 Los Angeles Community
Redevelopment Agency Rev.,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 1,618
1,500 Metropolitan Water District Rev.,
Series A, (Southern California),
5.75%, 7/1/21 1,532
1,850 Northern California Power Agency
Rev., Series A, (Hydroelectric
Project #1), 6.25%, 7/1/12
(MBIA) 1,941
1,000 San Jose Redevelopment Agency
Tax Allocation, Series D, 5.75%,
8/1/24 992
-------
10,238
-------
Colorado--0.6%
300 Colorado Housing Finance Auth.
Rev., Series C, (Single Family
Residential), 8.70%, 9/1/07 311
-------
Connecticut--5.5%
1,000 Connecticut GO, Series E, 6.00%,
3/15/12 1,060
1,880 Connecticut State Development
Auth. Rev., Series A, 6.375%,
10/15/24 2,005
-------
3,065
-------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Florida--2.5%
$ 1,350 Tampa Sports Auth. Sales Tax Rev.,
(Tampa Bay Arena Project),
5.75%, 10/1/25 (MBIA) $1,380
-------
Illinois--11.7%
1,000 City of Chicago Rev., (Peoples Gas,
Light and Coke Co.), 7.50%,
3/1/15 1,080
1,000 Cook County GO, 7.00%,
11/1/10, Prerefunded 11/1/00
at 102% of Par (MBIA)(1) 1,093
500 Illinois Dedicated Tax Rev., (Civic
Center), 6.25%, 12/15/20
(AMBAC) 535
1,000 Illinois Development Finance Auth.
Waste Disposal Rev., (Armstrong
World Industries Project), 5.95%,
12/1/24 982
1,500 Illinois GO, 6.25%, 10/1/06 1,595
1,000 Illinois Regional Transportation
Auth. Rev., Series A, 7.20%,
11/1/20 (AMBAC) 1,192
-------
6,477
-------
Kansas--1.9%
1,000 Kansas City Utility System Rev.,
6.375%, 9/1/23 (FGIC) 1,061
-------
Kentucky--2.5%
1,000 Carroll County Pollution Control
Rev., Series A, (Kentucky Utilities
Company Project), 7.45%,
9/15/16 1,117
255 Kentucky Housing Corp. Rev.,
Series C, 7.90%, 1/1/21 (FHA) 267
-------
1,384
-------
Massachusetts--6.2%
1,000 Boston GO, Series B, 5.875%,
8/1/12 (AMBAC) 1,024
1,000 Boston GO, Series B, 5.875%,
8/1/13 (AMBAC) 1,020
1,500 Massachusetts Bay Transit Auth.
Rev., Series A, 5.50%, 3/1/22
(MBIA) 1,431
-------
3,475
-------
See Notes to Financial Statements
22 Long-Term Tax-Exempt American Century Investments
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Michigan--2.5%
$ 1,500 Detroit Sewer Disposal Rev., Series
B, 5.25%, 7/1/21 (MBIA) $1,396
-------
New York--15.3%
1,000 Municipal Assistance Corp. Rev.,
Series 67, 7.625%, 7/1/08 1,082
2,500 New York City GO, Series I, 6.25%,
4/15/27 2,498
1,000 New York Local Government
Assistance Corp. Rev., Series D,
6.75%, 4/1/07 1,100
1,000 New York State Environmental
Facilities Corp. Pollution Control
Rev., Series E, 6.30%, 6/15/02 1,063
1,000 New York State Urban
Development Corp. Rev., Series
4, (Correctional Facilities),
5.375%, 1/1/23 900
2,000 New York State Urban
Development Corp. Rev., Series
6, (Correctional Facilities),
5.375%, 1/1/15 1,860
-------
8,503
-------
North Carolina--3.0%
520 North Carolina Eastern Municipal
Power Agency System Rev.,
Series A, 7.50%, 1/1/10,
Prerefunded 1/1/09 at 100%
of Par(1) 618
1,000 North Carolina Municipal Power
Agency #1 Rev., (Catawba
Electric), 6.00%, 1/1/10 (MBIA) 1,063
-------
1,681
-------
Ohio--2.4%
750 Ohio Higher Educational Facility
Commission Rev., (Case Western
Reserve University), 6.50%,
10/1/20 821
500 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.80%, 12/1/14
(FGIC) 505
-------
1,326
-------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Pennsylvania--3.5%
$ 1,000 Philadelphia Gas Works Rev., 15th
Series, 5.375%, 8/1/07 (FSA) $1,010
1,000 Philadelphia Water & Wastewater
Rev., 5.25%, 6/15/23 (MBIA) 921
-------
1,931
-------
Puerto Rico--0.9%
500 Puerto Rico Commonwealth GO,
6.45%, 7/1/17 529
-------
Rhode Island--4.3%
1,000 Rhode Island Depositors Economic
Protection Corp. Special
Obligation Rev., Series A, 6.25%,
8/1/16 (MBIA) 1,068
1,300 Rhode Island Depositors Economic
Protection Corp. Special
Obligation Rev., Series B, 6.00%,
8/1/17 (MBIA) 1,308
-------
2,376
-------
Texas--10.5%
1,000 Alliance Airport Auth. Special
Facilities Rev., (American Airlines
Project), 7.00%, 12/1/11 1,107
1,000 Denison Hospital Auth. Rev.
(Texoma Medical Center Income
Project), 6.125%, 8/15/12 1,000
1,000 Denton Utility System Rev., Series
A, 5.95%, 12/1/14 (MBIA) 1,024
2,500 Texas Municipal Power Agency Rev.,
Series A, 6.75%, 9/1/12
(AMBAC) 2,701
-------
5,832
-------
Virginia--2.9%
1,000 Metropolitan Area Transportation
Auth. Rev., 6.00%, 7/1/10
(FGIC) 1,063
500 Norfolk Hospital Development Auth.
Rev., (Children's Hospital), 7.00%,
6/1/11, Prerefunded 6/1/01 at
102% of Par (AMBAC)(1) 550
-------
1,613
-------
See Notes to Financial Statements
Semiannual Report Long-Term Tax-Exempt 23
SCHEDULE OF INVESTMENTS
LONG-TERM TAX-EXEMPT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
Washington--1.8%
$ 1,000 Washington State Public Power
Supply Rev., Series A, (Nuclear
Project #1), 5.75%, 7/1/12
(MBIA) $ 1,000
-------
Wisconsin--2.3%
1,180 Winneconne Community School
District GO, 6.75%, 4/1/14
(FGIC) 1,286
-------
Wyoming--0.4%
205 Wyoming Community Development
Auth. Rev., Series B, (Single
Family Mortgage), 8.125%,
6/1/21 (FHA) 211
-------
TOTAL MUNICIPAL SECURITIES--99.2% 55,116
(Cost $52,988) -------
SHORT-TERM MUNICIPAL SECURITIES--0.7%
400 Chicago O'Hare International
Airport Rev., VRDN, 3.85%,
5/1/97 (LOC: Credit Suisse) 400
-------
(Cost $400)
TEMPORARY CASH INVESTMENTS--0.1%
45,000 Units of Participation in
Chase Vista Tax Free Fund
(Institutional Shares) 45
-------
(Cost $45)
TOTAL INVESTMENT SECURITIES--100.0% $55,561
(Cost $53,433) =======
Notes to Schedules of Investments
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FHA = Federal Housing Authority
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
4/30/97.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
24 Long-Term Tax-Exempt American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
($ and Shares in Thousands Except Per-Share Amounts)
ASSETS
<S> <C> <C> <C>
Investment securities, at value (identified cost of
$46,419, $70,586 and $53,433, respectively) (Note 3) ....... $46,372 $71,729 $55,561
Cash ......................................................... -- -- 20
Receivable for investments sold .............................. -- 382 --
Interest receivable .......................................... 604 1,147 851
------ ------ ------
46,976 73,258 56,432
------ ------ ------
LIABILITIES
Disbursements in excess of demand deposit cash ............... 185 488 96
Payable for investments purchased ............................ 997 525 --
Payable for capital shares redeemed .......................... 150 -- 3
Dividends payable ............................................ 26 47 40
Accrued management fees (Note 2) ............................. 23 36 27
------ ------ ------
1,381 1,096 166
------ ------ ------
Net Assets Applicable to Outstanding Shares .................. $45,595 $72,162 $56,266
======= ======= =======
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ................................................... 200,000 200,000 200,000
======= ======= =======
Outstanding .................................................. 4,552 7,049 5,368
===== ===== =====
Net Asset Value Per Share .................................... $10.02 $10.24 $10.48
====== ====== ======
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ...................... $45,465 $70,780 $53,856
Accumulated undistributed net realized gain
from investment transactions ............................... 177 239 282
Net unrealized appreciation (depreciation)
on investments (Note 3) .................................... (47) 1,143 2,128
------ ------ ------
$45,595 $72,162 $56,266
======= ======= =======
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Assets and Liabilities 25
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended april 30, 1997 (Unaudited)
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
($ and Shares in Thousands Except Per-Share Amounts)
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ......................................................... $1,126 $2,028 $1,691
------ ------ ------
Expenses:
Management fees (Note 2) ......................................... 145 230 175
------ ------ ------
Net investment income ............................................ 981 1,798 1,516
------ ------ ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain on investments ................................. 177 242 282
Change in net unrealized appreciation on investments ............. (440) (840) (842)
------ ------ ------
Net realized and unrealized
loss on investments .............................................. (263) (598) (560)
------ ------ ------
Net Increase in Net Assets
Resulting from Operations ........................................ $ 718 $1,200 $ 956
====== ====== ======
</TABLE>
See Notes to Financial Statements
26 Statements of Operations American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended APRIL 30, 1997 (Unaudited) AND YEAR ENDED OCTOBER 31, 1996
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
Increase (Decrease) in Net Assets 1997 1996 1997 1996 1997 1996
OPERATIONS ($ and Shares in Thousands)
<S> <C> <C> <C> <C>
Net investment income ............... $ 981 $ 2,306 $ 1,798 $ 3,787$ 1,516$ 3,007
Net realized gain on investments .... 177 23 242 185 282 27
Change in net unrealized
appreciation (depreciation)
on investments .................... (440) (100) (840) (538) (842) 134
------- ------- ------- ------- ------- -------
Net increase in net assets
resulting from operations ......... 718 2,229 1,200 3,434 956 3,168
------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .......... (981) (2,306) (1,798) (3,787) (1,516) (3,007)
From net realized gains
from investment transactions ...... (16) -- (187) (549) -- --
------- ------- ------- ------- ------- -------
Decrease in net assets
from distributions ................ (997) (2,306) (1,985) (4,336) (1,516) (3,007)
------- ------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 16,283 20,823 9,215 17,649 10,946 20,252
Proceeds from reinvestment
of distributions .................. 901 2,061 1,697 3,711 1,309 2,575
Payments for shares redeemed ........ (21,176) (31,778) (18,533) (20,138) (16,201) (20,213)
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets from
capital share transactions ........ (3,992) (8,894) (7,621) 1,222 (3,946) 2,614
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets ..................... (4,271) (8,971) (8,406) 320 (4,506) 2,775
NET ASSETS
Beginning of period ................. 49,866 58,837 80,568 80,248 60,772 57,997
------- ------- ------- ------- ------- -------
End of period ....................... $45,595 $49,866 $72,162 $80,568 $56,266 $60,772
======= ======= ======= ======= ======= =======
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ................................ 1,617 2,064 890 1,701 1,033 1,920
Issued in reinvestment
of distributions .................. 90 204 164 359 123 245
Redeemed ............................ (2,104) (3,148) (1,793) (1,949) (1,532) (1,925)
------- ------- ------- ------- ------- -------
Net increase (decrease) ............. (397) (880) (739) 111 (376) 240
======= ======= ======= ======= ======= =======
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Changes in Net Assets 27
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Benham Limited-Term Tax-Exempt
Fund (Limited-Term), American Century - Benham Intermediate-Term Tax-Exempt Fund
(Intermediate-Term), and American Century - Benham Long-Term Tax-Exempt Fund
(Long-Term) (the Funds) are three of the seventeen series of funds issued by the
Corporation. The investment objective of Limited-Term is to seek income
generally exempt from federal income taxes. The Fund intends to pursue this by
investing in tax-exempt bonds and maintaining a weighted average maturity of
five years or less. The investment objective of Intermediate-Term is to seek a
competitive level of income generally exempt from federal income taxes. The Fund
intends to pursue this by investing in tax-exempt bonds and maintaining a
weighted average maturity of three to ten years. The investment objective of
Long-Term is to seek a high level of income generally exempt from federal income
taxes. The Fund intends to pursue this by investing in tax-exempt bonds and
maintaining a weighted average maturity of ten years or greater. The following
significant accounting policies, related to all Funds, are in accordance with
accounting policies generally accepted in the investment company industry.
Security Valuations--Securities are valued through valuations obtained through a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Directors.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--The Funds may enter into repurchase agreements with
institutions that the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Funds require that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Funds to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
Funds under each repurchase agreement.
Joint Trading Account--Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the Funds, along with other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 Funds' policy to distribute all taxable income and
net capital 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 federal income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized gains
are declared and paid annually.
The 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 are primarily due to differences
in the recognition of income and expense items for financial statement and tax
purposes.
Supplementary Information--Certain officers and directors of the Corporation are
also officers and/or directors, and as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc. and the Corporation's transfer agent, American Century Services
Corporation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
28 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with ACIM that provides
each Fund with investment advisory and management services in exchange for a
single, unified fee. The Agreement provides that all expenses of the Funds,
except brokerage commissions, taxes, interest, expenses of those directors who
are not considered "interested persons" as defined in the Investment Company Act
of 1940 (including counsel fees), and extraordinary expenses, will by paid by
ACIM. The fee is computed daily and paid monthly based on each Fund's average
closing net assets during the previous month. The annual management fee for
Limited-Term, Intermediate-Term, and Long-Term is 0.60%.
- --------------------------------------------------------------------------------
3. Investment Transactions
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1997, were as follows:
<TABLE>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
($ in Thousands)
PURCHASES
<S> <C> <C> <C>
Municipal Debt Obligations .................................... $20,695 $ 7,669 $ 9,086
PROCEEDS FROM SALES
Municipal Debt Obligations .................................... $26,444 $15,202 $13,095
On April 30, 1997, the composition of unrealized appreciation (depreciation) of
investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
($ in Thousands)
Appreciation .................................................. $ 114 $ 1,337 $ 2,196
(Depreciation) ................................................ (161) (194) (68)
Net ........................................................... (47) 1,143 2,128
</TABLE>
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
4. Corporate Events
The following name changes became effective January 1, 1997:
<TABLE>
NEW NAMES FORMER NAMES
<S> <C> <C>
Funds' Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Funds: American Century - Benham Limited-Term Tax-Exempt Fund Tax-Exempt Short-Term
American Century - Benham Intermediate-Term Tax-Exempt Fund Tax-Exempt Intermediate-Term
American Century - Benham Long-Term Tax-Exempt Fund Tax-Exempt Long-Term
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Semiannual Report Notes to Financial Statements 30
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LIMITED-TERM TAX-EXEMPT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993(2)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............................ $10.08 $10.09 $9.95 $10.04 $10.00
Income From Investment Operations
Net Investment Income ........................ 0.20 0.43 0.44 0.36 0.21
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ............ (0.06) (0.01) 0.14 (0.09) 0.04
------ ------ ------ ------ ------
Total From
Investment Operations ........................ 0.14 0.42 0.58 0.27 0.25
------ ------ ------ ------ ------
Distributions
From Net Investment Income ................... (0.20) (0.43) (0.44) (0.36) (0.21)
------ ------ ------ ------ ------
Net Asset Value, End of Period ................. $10.02 $10.08 $10.09 $9.95 $10.04
====== ====== ====== ===== ======
Total Return(3) .............................. 1.45% 4.26% 5.95% 2.75% 2.55%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..........................0.60%(4) 0.38%(5) --(5) --(5) --(5)
Ratio of Net Investment Income
to Average Net Assets ..........................4.05%(4) 4.28% 4.38% 3.62% 3.09%(4)
Portfolio Turnover Rate ........................ 42% 68% 78% 42% 3%
Net Assets, End
of Period (in thousands) ....................... $45,595 $49,866 $58,837 $60,857 $52,265
(1) Six months ended April 30, 1997 (unaudited).
(2) March 1, 1993 (inception) through October 31, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) The manager had voluntarily waived its management fee through February 29,
1996. In absence of the waiver, the ratio of operating expenses to average
net assets would have been 0.60%.
</TABLE>
See Notes to Financial Statements
30 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM TAX-EXEMPT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993(2) 1992(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................. $10.35 $10.45 $10.01 $10.75 $10.27 $10.06
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............. 0.24 0.48 0.49 0.48 0.48 0.48
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ........ (0.09) (0.03) 0.52 (0.61) 0.55 0.21
------ ------ ------ ------ ------ ------
Total From
Investment Operations ............. 0.15 0.45 1.01 (0.13) 1.03 0.69
------ ------ ------ ------ ------ ------
Distributions
From Net Investment Income ........ (0.24) (0.48) (0.49) (0.48) (0.48) (0.48)
From Net Realized Gains
on Investment Transactions ........ (0.02) (0.07) (0.08) (0.13) (0.07) --
------ ------ ------ ------ ------ ------
Total Distributions ............... (0.26) (0.55) (0.57) (0.61) (0.55) (0.48)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period ...... $10.24 $10.35 $10.45 $10.01 $10.75 $10.27
====== ====== ====== ====== ====== ======
Total Return(3) ................... 1.50% 4.47% 10.41% (1.25%) 10.25% 7.00%
Ratios/Supplemental Data
Ratio of Operating Expenses
to Average Net Assets ...............0.60%(4) 0.60% 0.60% 0.60% 0.72% 0.98%(5)
Ratio of Net Investment Income
to Average Net Assets ...............4.70%(4) 4.66% 4.77% 4.59% 4.51% 4.68%
Portfolio Turnover Rate. ............ 10% 39% 32% 74% 38% 36%
Net Assets, End
of Period (in thousands) ............ $72,162 $80,568 $80,248 $81,400 $98,740 $76,745
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 31
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LONG-TERM TAX-EXEMPT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993(2) 1992(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................ $10.58 $10.54 $9.75 $11.10 $10.36 $10.23
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............ 0.27 0.53 0.53 0.52 0.53 0.53
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ....... (0.10) 0.04 0.83 (1.01) 0.90 0.22
------ ------ ------ ------ ------ ------
Total From
Investment Operations ............ 0.17 0.57 1.36 (0.49) 1.43 0.75
------ ------ ------ ------ ------ ------
Distributions
From Net Investment Income ....... (0.27) (0.53) (0.53) (0.52) (0.53) (0.53)
From Net Realized Gains
on Investment Transactions ....... -- -- (0.04) (0.34) (0.16) (0.09)
Total Distributions .............. (0.27) (0.53) (0.57) (0.86) (0.69) (0.62)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period ..... $10.48 $10.58 $10.54 $9.75 $11.10 $10.36
====== ====== ====== ===== ====== ======
Total Return(3) .................. 1.63% 5.60% 14.45% (4.70%) 14.32% 7.43%
Ratios/Supplemental Data
Ratio of Operating Expenses
to Average Net Assets .............. 0.60%(4) 0.59% 0.59% 0.60% 0.73% 0.98%(5)
Ratio of Net Investment Income
to Average Net Assets .............. 5.17%(4) 5.06% 5.24% 5.00% 4.90% 5.07%
Portfolio Turnover Rate ............ 16% 60% 61% 66% 81% 88%
Net Assets, End
of Period (in thousands) ........... $56,266 $60,772 $57,997 $50,964 $70,757 $61,825
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
See Notes to Financial Statements
32 Financial Highlights American Century Investments
NOTES
Semiannual Report Notes 33
NOTES
34 Notes American Century Investments
NOTES
Semiannual Report Notes 35
BACKGROUND INFORMATION
Investment Philosophy & Policies
The Benham Group offers 42 fixed-income funds, ranging from money market funds
to long-term bond funds and including both taxable and tax-exempt funds.
Limited-Term Tax-Exempt is a variable-price bond fund that seeks to provide
interest income exempt from federal income taxes by investing in municipal
securities. The fund must maintain a weighted average maturity of 5 years or
less.
Intermediate-Term Tax-Exempt is a variable-price bond fund that seeks to provide
interest income exempt from federal income taxes by investing in municipal
securities. The fund must maintain a weighted average maturity of 3-10 years.
Long-Term Tax-Exempt is a variable-price bond fund that seeks to provide
interest income exempt from federal income taxes by investing in municipal
securities. The fund must maintain a weighted average maturity of greater than
10 years.
An investment in the funds is neither insured nor guaranteed by the U.S.
government. There is no assurance that the funds will achieve their respective
investment objectives.
Comparative Indices
The indices listed below are used in the report to serve as a comparison for the
performance of a fund. They are not investment products available for purchase.
The Merrill Lynch 0- to 3-Year Municipal Index is composed of 23 municipal
securities with an average maturity of approximately two years. The bonds in the
index have an average rating of AA1.
The Lehman Brothers, Inc. Five-Year Municipal General Obligation Index is a
municipal bond index composed of more than 11,000 bonds with maturities of four
to six years. The bonds are rated BBB or higher by Standard & Poor's, with an
average rating of AA. The average maturity of the index is five years.
The Lehman Brothers, Inc. Long-Term Municipal Bond Index is composed of 8,000
municipal bonds. The bonds are all investment-grade, fixed-rate, long-term
maturities (greater than two years) and are selected from issues larger than $50
million dated since January 1994.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service
that groups funds according to their investment objectives. Rankings are based
on average annual returns for each fund in a given category for the periods
indicated. Rankings are not included for periods less than one year.
The Lipper categories for the Tax-Exempt funds are:
Short Municipal Debt Funds (Limited-Term Tax-Exempt)--funds that invest in
municipal debt issues with dollar-weighted average maturities of less than 3
years.
Intermediate Municipal Debt Funds (Intermediate-Term Tax-Exempt)--funds that
invest in municipal debt issues with dollar-weighted average maturities of 5 to
10 years.
General Municipal Debt Funds (Long-Term Tax-Exempt)--funds that invest at least
65% of their assets in municipal debt issues in the top four credit ratings
(AAA, AA, A and BBB).
PORTFOLIO MANAGEMENT TEAM
Senior Municipal Portfolio Manager Dave MacEwen
Municipal Portfolio Manager Joel Silva
Municipal Credit Research Manager Steven Permut
Credit Analysts Scott Lord, Bill McClintock,
David Moore, Tim Benham
36 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 30-32.
Yields
o 30-Day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annualized percentage rate based on the fund's
share price at the end of the 30-day period. The SEC yield should be regarded as
an estimate of the fund's investment income, and it may not equal the fund's
actual income distribution rate, the income paid to a shareholder's account, or
the income reported in the fund's financial statements.
o Tax-Equivalent Yields show the taxable yields that investors in a federal
income tax bracket would have to earn before taxes to equal the fund's tax-free
yield.
Bond Portfolio Structures
o Barbell Structure--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to perform best when the yield curve is moving from steep to
flat. (Short-term rates are rising faster than long-term rates, or long-term
rates are falling faster than short-term rates.)
o Bullet Structure--a structure that clusters a portfolio's bond maturities
around a single maturity (usually an intermediate-term maturity). This structure
tends to perform best when the yield curve is moving from flat to steep
(long-term rates are rising faster than short-term rates, or short-term rates
are falling faster than long-term rates).
o Ladder Structure--a balanced structure that staggers bond maturities so they
occur at regular intervals. This structure tends to perform best when interest
rates are relatively stable, and it provides a regular schedule of maturing
securities.
Investment Terms
o Basis Point--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%).
o Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Statistical Terminology
o Number of Securities--the number of different securities issuances held by a
fund on a given date.
o Weighted Average Maturity--measures the average amount of time until the
securities in a bond portfolio mature, weighted by dollar amount.
o Average Duration--measures the interest rate sensitivity of a bond portfolio.
Measured in years, average duration represents the approximate percentage change
in the value of a bond portfolio if interest rates move up or down by one
percentage point.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder's account.
Types of Municipal Securities
o COPs/Leases--securities issued to finance public property improvements (such
as city halls and police stations) and equipment purchases. Certificates of
participation represent long-term debt obligations, while leases have a higher
risk profile than GOs because they require annual appropriation.
o GO Bonds--general obligation securities backed by the taxing power of the
issuer.
o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915-Act bonds
that are issued to finance real estate development projects.
o Prerefunded Bonds/ETM Bonds--securities refinanced or escrowed to maturity by
the issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
o Revenue Bonds--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
Semiannual Report Glossary 37
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT
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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8699 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
April 30, 1997
BENHAM
GROUP
Short-Term Government
Intermediate-Term Government
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Short-Term Government
Performance & Portfolio Information......................... 4
Management Q & A............................................ 5
Schedule of Investments..................................... 8
Financial Highlights........................................19
Intermediate-Term Government
Performance & Portfolio Information......................... 9
Management Q & A............................................10
Schedule of Investments.....................................13
Financial Highlights........................................20
Statements of Assets and Liabilities........................14
Statements of Operations....................................15
Statements of Changes in Net Assets.........................16
Notes to Financial Statements...............................17
Retirement Account Information..............................21
Background Information
Investment Philosophy & Policies............................24
Comparative Indices.........................................24
Lipper Rankings.............................................24
Portfolio Management Team...................................24
Glossary....................................................25
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Short-Term Government
Intermediate-Term
Government
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American Century
Services Corporation and Benham Management Corporation, respectively. American
Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o U.S. economic growth accelerated during the six months ended April 30,
1997, while inflation remained relatively subdued.
o The Federal Reserve raised short-term interest rates in March to head off
potential inflation and slow the rapid pace of economic growth.
o U.S. government securities produced modest returns during the six-month
period.
o Overall, bond prices fell as yields rose, but interest income enabled most
government bonds to produce positive returns.
o Mortgage-backed securities were the best-performing government securities,
followed by government agency and Treasury securities.
Short-Term Government
o The fund's performance kept pace with the average short-term U.S.
government fund during the six months ended April 30, 1997.
o The fund was positioned defensively for most of the period to mitigate the
negative effects of rising interest rates.
o The fund increased its holdings of mortgage-backed securities because of
their attractive return potential.
o The fund also added more callable government agency securities, which have
performance characteristics that are similar to mortgage-backed securities.
o Going forward, we plan to remain defensive because of our expectations for
higher short-term interest rates in the coming months.
Intermediate-Term Government
o The fund's performance kept pace with the average intermediate-term U.S.
government fund during the six months ended April 30, 1997.
o The fund was positioned defensively for most of the period to mitigate the
negative effects of rising interest rates.
o The fund maintained an asset mix of approximately 75% Treasurys and 25%
mortgage-backed securities throughout the period.
o Because of liquidity problems related to the fund's small size, we
continued to avoid government agency securities.
o Going forward, we plan to remain defensive because of our expectations for
higher short-term interest rates in the coming months.
Short-Term
Total Returns: AS OF 4/30/97
6 Months 1.98%*
1 Year 5.49%
Net Assets: $326.7 million
(AS of 4/30/97)
Inception Date: 12/15/82
Ticker Symbol: TWUSX
Intermediate-Term
Total Returns: AS OF 4/30/97
6 Months 1.35%*
1 Year 5.80%
Net Assets: $24.9 million
(AS of 4/30/97)
Inception Date: 3/1/94
Ticker Symbol: TWGIX
* Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 25.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
April 30, 1997, marked the end of an eventful period for our company and U.S.
bond markets. U.S. government securities posted modest returns as accelerating
first-quarter economic growth sent bond yields higher. In the following pages,
our investment management team provides further details about the market and how
your fund was managed during the period.
In January, nearly two years of integration between Twentieth Century and The
Benham Group culminated when we began serving you as American Century
Investments. Under this new name we have combined our offerings of nearly 70
funds.
The new name also introduces three new groupings for the funds--the Benham Group
(money market and bond funds), the American Century Group (asset allocation,
balanced, conservative equity and specialty funds) and the Twentieth Century
Group (aggressive growth and international equity funds). The Short- and
Intermediate-Term Government funds have joined the Benham Group because their
investment goals match key attributes of that group.
By now, you should have received a proxy statement and ballot that proposes
several changes to your fund. In order to streamline and simplify our list of
fund offerings, we are proposing to merge several funds with similar
characteristics and investment objectives. The proxy statement includes
proposals to merge the Short-Term Government fund into the existing Adjustable
Rate Government Securities fund and the Intermediate-Term Government fund into
the existing Intermediate-Term Treasury fund. The proxy statement contains more
details about the proposed changes; we strongly encourage you to read it
carefully and take part in the proxy vote if you have not already done so.
In reviewing this report, you may notice some changes. Based on investors'
feedback, our shareholder reports have been redesigned with added features,
including a report summary, a glossary, more charts and graphs, and expanded
management Q & A and background information sections.
These are examples of how we continue working to provide information and
services that are useful and convenient to investors in our funds. We look
forward to sharing other helpful changes with you.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
U.S. economic growth accelerated during the six months ended April 30, 1997.
After moderating throughout the summer of 1996, economic growth rebounded in the
fourth quarter as strong employment growth, increased consumer spending and a
robust housing market fueled an annualized growth rate of 3.8%. The U.S. economy
continued to pick up speed in the first quarter of 1997, surging ahead at a 5.8%
annual rate.
Although such a strong level of economic growth has historically been
accompanied by rising prices, inflation remained under control--the consumer
price index rose at an annual rate of 3.2% during the six-month period. But
recent evidence of increasing wage pressures--which are often passed on to
consumers in the form of higher prices--led the Federal Reserve to make a
pre-emptive strike against inflation by raising short-term interest rates in
March. The Fed raised its federal funds rate target (the overnight lending rate
targeted by the Fed for large loans between commercial banks) from 5.25% to
5.50%.
U.S. Government Bonds
U.S. government securities produced modest returns during the six months ended
April 30. Rising yields (see the graph above) caused bond prices to fall, but
the interest income paid out to bondholders offset nearly all of the price
declines. Short-term securities, which usually suffer less price depreciation
than longer-term securities when interest rates rise, were the best performers
during the period. For example, the two-year Treasury note posted a 2.38% return
for the six-month period, while the 30-year Treasury bond returned -0.47%.
Bond yields fell (and bond prices rose) at the beginning of the six-month period
in response to evidence of moderating U.S. economic growth and low inflation.
But by the beginning of 1997, stronger economic growth and rising wage pressures
rekindled concerns about inflation. As a result, bond yields soared throughout
the first quarter of 1997. The 30-year Treasury bond yield, which fell as low as
6.35% in December, climbed to 7.10% by the end of March. The bond market settled
down a little in April, rallying slightly as inflation remained subdued.
Mortgage-backed securities were the top performers among government bonds during
the six-month period, followed by government agency and Treasury securities.
With bond prices declining slightly overall, yield was the most significant
contributor to bond returns. Mortgage-backed securities tend to have the highest
yields among government securities, while Treasury securities tend to have the
lowest yields. Over the past two years, mortgage-backed and government agency
securities have outperformed Treasurys; as a result, the gap--or spread--between
the yields of mortgage-backed, agency and Treasury securities has narrowed
significantly.
[line graph - data below]
TREASURY YIELD CURVES
Years to Maturity 4/30/97 10/31/96
1 5.88 5.404
2 6.27 5.732
3 6.39 5.86
4 6.47 5.89
5 6.56 6.07
6 6.6 6.105
7 6.64 6.14
8 6.66 6.207
9 6.68 6.274
10 6.7 6.341
11 6.733 6.3758
12 6.766 6.4106
13 6.799 6.4454
14 6.832 6.4802
15 6.865 6.515
16 6.898 6.55
17 6.931 6.585
18 6.964 6.62
19 6.997 6.655
20 7.03 6.69
21 7.022 6.685
22 7.014 6.68
23 7.006 6.675
24 6.998 6.67
25 6.99 6.665
26 6.982 6.6602
27 6.974 6.6554
28 6.966 6.6506
29 6.958 6.6458
30 6.95 6.641
Source: Bloomberg Financial Markets
Semiannual Report Period Overview 3
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C> <C>
Short-Term Government 1.98% 5.49% 5.56% 4.73% 6.24%
Merrill Lynch 1- to 3-Year Government Index 2.26% 6.09% 6.25% 5.68% 7.28%
Average Short U.S. Government Fund(1) 2.06% 5.57% 5.40% 4.93% 6.39%
Fund's Ranking Among
Short U.S. Government Funds(1) -- 36 out of 58 21 out of 46 11 out of 17 6 out of 8
(1) According to Lipper Analytical Services.
</TABLE>
See pages 24-25 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 4/30/97
Short-Term Government $18,311
Merrill Lynch 1- to 3-Year Govt. Index $20,202
Short-Term Government Merrill Lynch 1- to 3-Year Govt. Index
Apr-87 $10,000 $10,000
Jun-87 $10,092 $10,133
Sep-87 $10,022 $10,151
Dec-87 $10,410 $10,504
Mar-88 $10,686 $10,781
Jun-88 $10,784 $10,893
Sep-88 $10,934 $11,052
Dec-88 $10,997 $11,158
Mar-89 $11,106 $11,297
Jun-89 $11,675 $11,859
Sep-89 $11,785 $12,031
Dec-89 $12,096 $12,371
Mar-90 $12,057 $12,481
Jun-90 $12,350 $12,831
Sep-90 $12,581 $13,137
Dec-90 $13,008 $13,574
Mar-91 $13,222 $13,873
Jun-91 $13,449 $14,146
Sep-91 $13,953 $14,621
Dec-91 $14,522 $15,160
Mar-92 $14,400 $15,183
Jun-92 $14,793 $15,620
Sep-92 $15,222 $16,085
Dec-92 $15,160 $16,115
Mar-93 $15,448 $16,471
Jun-93 $15,579 $16,648
Sep-93 $15,743 $16,887
Dec-93 $15,793 $16,987
Mar-94 $15,631 $16,902
Jun-94 $15,591 $16,916
Sep-94 $15,722 $17,083
Dec-94 $15,715 $17,083
Mar-95 $16,214 $17,657
Jun-95 $16,707 $18,223
Sep-95 $16,938 $18,496
Dec-95 $17,366 $18,962
Mar-96 $17,358 $19,025
Jun-96 $17,519 $19,217
Sep-96 $17,763 $19,535
Dec-96 $18,081 $19,906
Mar-97 $18,171 $20,038
Apr-97 $18,311 $20,202
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 26 27
Weighted Average Maturity 1.8 years 2.0 years
Average Duration 1.6 years 1.7 years
Expense Ratio 0.70%* 0.70%
* Annualized.
YIELD AS OF APRIL 30, 1997
30-DAY
SEC
Yield
Short-Term Government 5.71%
Yield is defined in the Glossary on page 25.
4 Short-Term Government American Century Investments
SHORT-TERM GOVERNMENT
Management Q & A
An interview with Bob Gahagan, a senior portfolio manager on the Benham
Government funds management team.
How did the fund perform?
The fund kept pace with its peer group average. For the six months ended April
30, 1997, the fund posted a total return of 1.98%, compared with the 2.06%
average return of the 62 "Short U.S. Government Funds" tracked by Lipper
Analytical Services. (See the Total Returns table on the previous page for other
fund performance comparisons.)
How was the fund positioned during the period?
For the most part, the fund was positioned defensively over the past six months.
Stronger economic growth in late 1996 and early 1997 prompted concern about the
possibility of a Federal Reserve interest rate increase. To reduce the negative
impact of higher rates on the fund's share price, we maintained a cautious
average maturity and duration.
We also continued to cut the fund's Treasury holdings while expanding its stake
in government agency and mortgage-backed securities. This strategy was designed
to maintain the fund's yield despite a shorter average maturity and duration.
[bar graph - data below]
SHORT-TERM GOVERNMENT'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods ended
April 30)
Short-Term Government Merrill Lynch 1- to 3-Year Govt. Index
4/30/88 6.81% 7.69%
4/30/89 5.46% 6.23%
4/30/90 6.87% 9.03%
4/30/91 10.80% 11.98%
4/30/92 8.93% 9.41%
4/30/93 6.98% 8.16%
4/30/94 0.15% 1.63%
4/30/95 4.97% 5.77%
4/30/96 6.22% 6.89%
4/30/97 5.49% 6.09%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 24 for a definition of the index.
Semiannual Report Short-Term Government 5
SHORT-TERM GOVERNMENT
Mortgage-backed securities now make up 40% of the fund's portfolio, compared to
30% six months ago. Why the significant increase?
We felt that mortgage-backed securities offered the highest expected total
return based on the prevailing market conditions. Mortgage-backed securities
tend to produce better returns than other government securities when interest
rates are relatively stable because they are the highest-yielding government
securities. Even a period of moderate interest rate volatility can be favorable
for mortgage-backed securities, as long as there are no sharp or extended
interest rate shifts.
As it turned out, mortgage-backed securities outperformed other government
securities by a wide margin during the six-month period. Interest rates shifted
gradually throughout the period and only rose slightly overall. Another factor
favoring mortgage-backed securities was demand from "crossover"
buyers--investors who typically purchase other types of fixed-income securities
but who were drawn by the attractive total return potential of mortgage-backed
securities.
What about the fund's government agency securities?
We held about the same percentage of agency securities in the fund's portfolio
throughout the period, but we adjusted the composition a little. We sold nearly
all of the fund's non-callable agency securities, replacing them with callable
agency securities. This emphasis on callable securities made the fund's agency
holdings behave more like mortgage-backed securities.
How so?
Callable agency securities have a "call" option, which gives the issuer the
opportunity to pay off the securities at a prearranged date before maturity. In
the same way that homeowners refinance their mortgages when interest rates fall,
government agencies will usually exercise a call option when rates decline
because they can issue new, lower-yielding securities to replace the existing
callable securities. As a result, callable agency securities tend to perform
better when interest rates are relatively stable or slightly rising. This is
similar to the ideal environment for mortgage-backed securities.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Mortgage-Backed
Securities 40%
U.S. Treasury Securities 31%
U.S. Government Agency
Securities 23%
Cash 6%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
U.S. Treasury Securities 44%
Mortgage-Backed
Securities 30%
U.S. Government Agency
Securities 26%
6 Short-Term Government American Century Investments
SHORT-TERM GOVERNMENT
Do you plan to maintain this concentration in callable agency securities going
forward?
Yes, although we'll be very selective. Based on our interest rate outlook, we
think certain callable agency securities offer higher expected total returns
than either Treasury or non-callable agency securities. In general, government
agency securities tend to provide higher yields than Treasurys, but callable
agency securities typically yield more than non-callable agency securities to
compensate for the risk that the issuer will pay off the callable security
early.
The yield differential--or spread--between short-term Treasurys and non-callable
agency securities is extremely narrow, which limits the potential for
non-callables to outperform Treasurys. On the other hand, the yield spread
between Treasurys and selected callable agency securities is still wide enough
for callables to outperform, given our interest rate outlook.
And what is your interest rate outlook for the next six months?
Continued strength in the economy will likely lead to higher short-term interest
rates. The U.S. economy picked up steam in the first quarter of 1997, growing at
a 5.8% annual rate. Although that level of growth is probably unsustainable, we
feel that the pieces are in place for continued healthy economic growth. A
28-year high in consumer confidence, the lowest unemployment rate since 1973,
and solid income growth suggest the possibility of increased consumer spending
in the months ahead.
We expect these economic conditions to put further pressure on the Federal
Reserve to continue raising short-term interest rates in order to slow growth
and restrict inflationary pressures. One key factor that we will be watching is
the labor market. With unemployment at its lowest level in more than 23 years,
we believe the risks are clearly on the upside for higher wages. Rising labor
costs, which often translate into higher prices for consumers, would likely
trigger additional Fed rate hikes.
With this outlook in mind, what are your plans for the fund over the next six
months?
Since we expect short-term rates to rise, we plan to maintain the fund's
defensive positioning in the coming months. This approach should help limit any
price depreciation resulting from rising yields. However, we will closely
monitor economic and inflationary conditions, and we'll make adjustments if the
environment changes.
We also plan to maintain the fund's current asset allocation, with about
two-thirds of the fund's assets devoted to mortgage-backed and government agency
securities. At some point in the coming months, we may look to reduce the fund's
agency holdings if yield spreads between short-term Treasury and agency
securities continue to narrow.
In July, fund shareholders will vote on a proposal to merge the fund with the
Benham Adjustable Rate Government Securities fund. If this merger is approved,
how will it affect the fund's management?
Shareholders will see virtually no change to the fund's management. The new
combined fund will retain nearly all of this fund's investment objectives and
policies. The only significant difference is that the new fund will have lower
management fees and expenses.
(PLEASE REVIEW THE PROXY STATEMENT FOR INFORMATION ABOUT THE MERGER, AND PLEASE
REMEMBER TO VOTE YOUR PROXY.)
Semiannual Report Short-Term Government 7
SCHEDULE OF INVESTMENTS
SHORT-TERM GOVERNMENT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
$ 17,580 U.S. Treasury Notes, 7.25%,
2/15/98 $ 17,761
15,600 U.S. Treasury Notes, 6.125%,
3/31/98 15,634
19,490 U.S. Treasury Notes, 5.875%,
4/30/98 19,472
19,000 U.S. Treasury Notes, 5.875%,
8/15/98 18,947
12,000 U.S. Treasury Notes, 5.875%,
10/31/98 11,947
1,600 U.S. Treasury Notes, 5.00%,
2/15/99 1,567
15,000 U.S. Treasury Notes, 5.875%,
3/31/99 14,902
--------
TOTAL U.S. TREASURY SECURITIES--30.8% $100,230
(Cost $100,159) --------
U.S. GOVERNMENT AGENCY SECURITIES
12,367 FHLB, 6.21%, 3/29/99 12,324
14,000 FHLB, 6.685%, 11/5/99 14,003
18,000 FHLB, 6.605%, 11/12/99 17,989
20,000 FNMA, 7.00%, 8/11/99 20,063
10,000 FNMA, 6.76%, 11/14/01 9,905
--------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES--22.9% 74,284
(Cost $89,051) --------
MORTGAGE-BACKED SECURITIES(1)
12,562 FHLMC REMIC, Series 1344,
Class B TAC, 6.00%, 10/15/05 12,477
13,714 FHLMC REMIC, Series 1861,
Class E SEQ, 6.50%, 8/15/20 13,490
10,973 FHLMC REMIC, Series 1558,
Class A TAC, 6.00%, 5/15/22 10,778
14,992 FNMA REMIC, Series 1996-53,
Class A SEQ, 6.50%, 12/25/03 14,982
8,298 FNMA REMIC, Series 1993-93,
Class C PAC, 5.50%, 2/25/06 8,187
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 13,210 FNMA REMIC, Series 1997-31,
Class B SEQ, 6.00%, 4/18/07 $ 12,815
2,148 FNMA REMIC, Series 1993-185,
Class PB PAC, 4.90%, 4/25/09 2,142
21,700 FNMA REMIC, Series 1993-187,
Class D PAC, 5.50%, 12/25/12 21,503
8,285 FNMA REMIC, Series 1996-10,
Class A SEQ, 6.50%, 11/25/17 8,205
9,265 FNMA REMIC, Series 1996-12,
Class A SEQ, 6.50%, 12/25/17 9,163
6,649 FNMA REMIC, Series G93-29,
Class A SEQ, 6.65%, 10/25/18 6,585
11,169 FNMA REMIC, Series 1995-22,
Class A, 7.00%, 8/25/23 11,108
--------
TOTAL MORTGAGE-BACKED
SECURITIES--40.4% 131,435
(Cost $131,159) --------
TEMPORARY CASH INVESTMENTS
$15,000 par value FHLB Discount Note,
5.36%, 5/6/97(2) 14,989
--------
Repurchase Agreement, J.P. Morgan Securities,
Inc., (U.S. Treasury obligations), in a
joint trading account at 5.375%,
dated 4/30/97, due 5/1/97
(Delivery value $4,196) 4,195
--------
TOTAL TEMPORARY CASH INVESTMENTS--5.9% 19,184
(Cost $4,195) --------
TOTAL INVESTMENT SECURITIES--100.0% $325,133
(Cost $324,564) ========
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Rate disclosed represents effective yield to maturity as of April 30, 1997.
See Notes to Financial Statements
8 Short-Term Government American Century Investments
<TABLE>
<CAPTION>
INTERMEDIATE-TERM GOVERNMENT
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C>
Intermediate-Term Government 1.35% 5.80% 5.77% 4.96%
Lehman Intermediate Government Bond Index 1.77% 6.24% 6.64% 5.57%
Average Intermediate U.S. Government Fund(1) 1.34% 5.85% 6.05% 5.57%(2)
Fund's Ranking Among
Intermediate U.S. Government Funds(1) -- 62 out of 122 56 out of 83 47 out of 81(2)
</TABLE>
(1) According to Lipper Analytical Services.
(2) Since 3/31/94, the date nearest the fund's inception for which data are
available. Inception date was March 1, 1994.
See pages 24-25 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 4/30/97
Intermediate-Term Government $11,655
Lehman Intermediate U.S. Govt. Index $11,874
Intermediate-Term Government Lehman Intermediate U.S. Govt. Index
Mar-94 $10,000 $10,000
Mar-94 $9,895 $9,854
Apr-94 $9,851 $9,790
May-94 $9,854 $9,797
Jun-94 $9,846 $9,799
Jul-94 $9,962 $9,927
Aug-94 $9,979 $9,956
Sep-94 $9,892 $9,873
Oct-94 $9,899 $9,875
Nov-94 $9,854 $9,831
Dec-94 $9,893 $9,863
Jan-95 $10,030 $10,024
Feb-95 $10,216 $10,217
Mar-95 $10,271 $10,274
Apr-95 $10,377 $10,393
May-95 $10,687 $10,686
Jun-95 $10,749 $10,754
Jul-95 $10,726 $10,760
Aug-95 $10,822 $10,849
Sep-95 $10,905 $10,922
Oct-95 $11,046 $11,042
Nov-95 $11,196 $11,177
Dec-95 $11,323 $11,287
Jan-96 $11,408 $11,382
Feb-96 $11,198 $11,261
Mar-96 $11,103 $11,210
Apr-96 $11,017 $11,177
May-96 $10,977 $11,171
Jun-96 $11,106 $11,285
Jul-96 $11,136 $11,320
Aug-96 $11,130 $11,333
Sep-96 $11,297 $11,479
Oct-96 $11,501 $11,667
Nov-96 $11,667 $11,808
Dec-96 $11,569 $11,745
Jan-97 $11,622 $11,789
Feb-97 $11,624 $11,808
Mar-97 $11,529 $11,741
Apr-97 $11,655 $11,874
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 28 28
Weighted Average Maturity 4.9 years 5.6 years
Average Duration 3.5 years 3.6 years
Expense Ratio 0.75%* 0.74%
* Annualized.
YIELD AS OF APRIL 30, 1997
30-DAY
SEC
Yield
Intermediate-Term Government 6.03%
Yield is defined in the Glossary on page 25.
Semiannual Report Intermediate-Term Government 9
INTERMEDIATE-TERM GOVERNMENT
Management Q & A
An interview with Casey Colton, a senior portfolio manager on the Benham
Government funds management team.
How did the fund perform?
The fund matched its peer group average. For the six months ended April 30,
1997, the fund had a total return of 1.35%, compared with the 1.34% average
return of the 129 "Intermediate U.S. Government Funds" tracked by Lipper
Analytical Services. (See the Total Returns table on the previous page for other
fund performance comparisons.)
How was the fund positioned over the past six months?
We made very few changes to the fund's portfolio during the six-month period. We
shortened its average maturity and duration a little, shifting the fund into a
slightly defensive position. Stronger economic growth in late 1996 and early
1997 prompted concern about the possibility of a Federal Reserve interest rate
increase. The fund's shorter average maturity and duration helped reduce the
negative impact of rising rates on its share price.
We also maintained the fund's concentration in intermediate-term Treasury
securities, which made up nearly 75% of the fund's portfolio. The remainder of
the portfolio was invested in mortgage-backed securities.
[bar graph - data below]
INTERMEDIATE-TERM GOVERNMENT'S
ONE-YEAR RETURNS SINCE INCEPTION (Periods ended April 30)
Intermediate-Term Government Lehman Intermediate Govt. Bond Index
4/30/94 -1.49% -2.10%
4/30/95 5.34% 6.17%
4/30/96 6.17% 7.54%
4/30/97 5.80% 6.24%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 24 for a definition of the index.
* Return from 3/1/94 to 4/30/94.
10 Intermediate-Term Government American Century Investments
INTERMEDIATE-TERM GOVERNMENT
What's the attraction of mortgage-backed securities?
Yield is the main attraction--mortgage-backed securities are the
highest-yielding government securities available. We believe that the current
interest rate environment is favorable for mortgage-backed securities.
Mortgage-backed securities tend to produce better returns than other government
securities when yield is the most important component of total return--that is,
when interest rates are relatively stable. Even a period of interest rate
volatility can be favorable for mortgage-backed securities, as long as there are
no sharp or extended interest rate shifts.
Let's take the past six months as an example. Interest rates shifted gradually
throughout the period and only rose slightly overall. As a result, the higher
yields of mortgage-backed securities enabled them to outperform Treasury and
government agency securities by a wide margin.
Why does the fund continue to avoid government agency securities?
The fund's small size makes it hard to divide its assets among many different
security types. Such fragmentation can reduce the fund's liquidity, which makes
it hard to respond quickly to changing market conditions. In addition, we would
be buying such a small amount of government agency securities that it would be
difficult to find attractive values. Instead, we try to keep it simple, focusing
the fund's holdings on Treasurys and mortgage-backed securities.
What is your interest rate outlook for the next six months?
Continued strength in the economy will likely lead to higher short-term interest
rates. The U.S. economy picked up steam in the first quarter of 1997, growing at
a 5.8% annual rate. Although that level of growth is probably unsustainable, we
feel that the pieces are in place for continued healthy economic growth. A
28-year high in consumer confidence, the lowest unemployment rate since 1973,
and solid income growth suggest the possibility of increased consumer spending
in the months ahead.
Based on these economic conditions, we expect the Federal Reserve to maintain a
bias toward raising short-term interest rates to slow growth and restrict
inflationary pressures. One key factor to watch is the labor market. With
unemployment at its lowest level in more than 23 years, we believe the risks are
clearly on the upside for higher wages. Rising labor costs, which often
translate into higher prices for consumers, would likely trigger additional Fed
rate hikes.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
U.S. Treasury Securities 72%
Mortgage-Backed
Securities 23%
Cash 5%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
U.S. Treasury Securities 71%
Mortgage-Backed
Securities 26%
Cash 3%
Semiannual Report Intermediate-Term Government 11
INTERMEDIATE-TERM GOVERNMENT
With this outlook in mind, what are your plans for the fund over the next six
months?
We plan to maintain the fund's slightly shorter-than-neutral position. We'll
also maintain the fund's current weightings in Treasury and mortgage-backed
securities. In particular, mortgage-backed securities should continue to perform
well in a gradually rising interest rate environment.
In July, fund shareholders will vote on a proposal to merge the fund into the
Benham Intermediate-Term Treasury Fund. If this merger is approved, how will it
affect the fund's management?
The Intermediate-Term Treasury fund's investment objectives and policies are
very similar to those of the Intermediate-Term Government fund--an intermediate
maturity, an emphasis on Treasury securities, the same fund management team.
However, there are some differences, most notably that the Intermediate-Term
Treasury fund focuses almost exclusively on Treasurys.
Shareholders will also see a couple of other differences--the management fees
and expenses of the new fund will be lower than those of the Intermediate-Term
Government fund, and the size of the new combined fund will be substantially
larger.
(PLEASE REVIEW THE PROXY STATEMENT FOR INFORMATION ABOUT THE MERGER, AND PLEASE
REMEMBER TO VOTE YOUR PROXY.)
12 Intermediate-Term Government American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM GOVERNMENT
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U. S. TREASURY SECURITIES
$ 1,160 U.S. Treasury Notes, 8.25%,
7/15/98 $ 1,189
2,500 U.S. Treasury Notes, 6.00%,
8/15/99 2,481
1,270 U.S. Treasury Notes, 8.00%,
8/15/99 1,314
1,625 U.S. Treasury Notes, 6.875%,
8/31/99 1,643
485 U.S. Treasury Notes, 7.125%,
9/30/99 493
500 U.S. Treasury Notes, 6.125%,
7/31/00 495
975 U.S. Treasury Notes, 6.25%,
8/31/00 969
1,000 U.S. Treasury Notes, 6.125%,
9/30/00 989
725 U.S. Treasury Notes, 5.75%,
10/31/00 709
1,395 U.S. Treasury Notes, 7.50%,
11/15/01 1,445
600 U.S. Treasury Notes, 7.50%,
5/15/02 624
960 U.S. Treasury Notes, 6.375%,
8/15/02 952
1,000 U.S. Treasury Notes, 6.50%,
8/15/05 985
2,000 U.S. Treasury Notes, 6.50%,
10/15/06 1,966
405 U.S. Treasury Bonds, 9.125%,
5/15/09 456
830 U.S. Treasury Bonds, 9.25%,
2/15/16 1,019
--------
TOTAL U.S. TREASURY SECURITIES--71.7% 17,729
--------
(Cost $18,110)
MORTGAGE-BACKED SECURITIES(1)
300 FHLMC REMIC, Series 1576,
Class PD PAC, 5.50%, 9/15/02 298
183 FHLMC Pool #E00279, 6.50%,
2/1/09 179
536 FHLMC Gold Pool #G10418,
6.50%, 11/1/10 522
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 501 FHLMC Gold Pool #G10461,
5.50%, 2/1/11 $ 467
1,028 FHLMC Gold Pool #E63092,
6.00%, 3/1/11 982
300 FHLMC REMIC, Series 1684,
Class D PAC, 5.35%, 11/15/14 296
241 FHLMC REMIC, Series 1702-B,
Class TA PAC, 5.85%, 11/15/17 239
1,000 FHLMC REMIC, Series 1684,
Class F PAC, 5.75%, 8/15/20 951
1,485 FNMA REMIC, Series 1993-5,
Class G PAC 7.15%, 9/25/06 1,488
194 GNMA Pool #009314,
9.75%, 4/20/25 208
172 GNMA Pool #002124,
9.00%, 11/20/25 179
--------
TOTAL MORTGAGE-BACKED
SECURITIES--23.5% 5,809
--------
(Cost $5,914)
TEMPORARY CASH INVESTMENTS--4.8%
Repurchase Agreement, J.P. Morgan Securities,
Inc., (U.S. Treasury obligations), in a
joint trading account at 5.375%,
dated 4/30/97, due 5/1/97
(Delivery value $1,174) 1,174
--------
(Cost $1,174)
TOTAL INVESTMENT SECURITIES--100.0% $24,712
(Cost $25,198) ========
Notes to Schedule of Investments
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements
Semiannual Report Intermediate-Term Government 13
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
SHORT-TERM INTERMEDIATE-TERM
GOVERNMENT GOVERNMENT
($ and Shares in Thousands Except Per-Share Amounts)
ASSETS
<S> <C> <C>
Investment securities, at value (identified cost of
$324,564 and $25,198, respectively) (Note 3) ................................. $325,133 $24,712
Receivable for capital shares sold ............................................. 3 --
Interest receivable ............................................................ 3,065 291
-------- -------
328,201 25,003
-------- -------
LIABILITIES
Disbursements in excess of demand deposit cash ................................. 930 37
Payable for capital shares redeemed ............................................ 170 15
Dividends payable .............................................................. 252 19
Accrued management fees (Note 2) ............................................... 188 15
Other accrued expenses ......................................................... 1 --
-------- -------
1,541 86
-------- -------
Net Assets Applicable to Outstanding Shares .................................... $326,660 $24,917
======== =======
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ..................................................................... 100,000 100,000
======= =======
Outstanding .................................................................... 34,749 2,600
====== =====
Net Asset Value Per Share ...................................................... $9.40 $9.58
===== =====
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ........................................ $346,639 $25,387
Accumulated undistributed net realized gain (loss)
from investment transactions ................................................. (20,548) 16
Net unrealized appreciation (depreciation)
on investments (Note 3) ...................................................... 569 (486)
-------- -------
$326,660 $24,917
======== =======
</TABLE>
See Notes to Financial Statements
14 Statements of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
SHORT-TERM INTERMEDIATE-TERM
GOVERNMENT GOVERNMENT
($ in Thousands)
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME
Income:
<S> <C> <C>
Interest ....................................................................... $10,352 $720
-------- -------
Expenses:
Management fees (Note 2) ....................................................... 1,175 90
Directors' fees and expenses ................................................... 2 --
-------- -------
1,177 90
-------- -------
Net investment income .......................................................... 9,175 630
-------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on investments ........................................ (590) 17
Change in net unrealized appreciation (depreciation)
on investments ............................................................... (1,844) (320)
-------- -------
Net realized and unrealized
loss on investments ............................................................ (2,434) (303)
-------- -------
Net Increase in Net Assets
Resulting from Operations ...................................................... $ 6,741 $327
======== =======
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Operations 15
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SHORT-TERM INTERMEDIATE-TERM
GOVERNMENT GOVERNMENT
($ and Shares in Thousands)
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
AND YEAR ENDED OCTOBER 31, 1996
Increase (Decrease) in Net Assets 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............................. $ 9,175 $ 19,940 $ 630 $ 1,331
Net realized gain (loss) on investments ........... (590) (339) 17 338
Change in net unrealized appreciation
(depreciation) on investments ................... (1,844) (1,269) (320) (720)
-------- -------- ------- -------
Net increase in net assets resulting
from operations ................................. 6,741 18,332 327 949
-------- -------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........................ (9,175) (19,940) (630) (1,331)
From net realized gains from
investment transactions ......................... -- -- (338) (131)
-------- -------- ------- -------
Decrease in net assets from distributions ......... (9,175) (19,940) (968) (1,462)
-------- -------- ------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......................... 46,773 78,893 9,283 19,986
Proceeds from reinvestment of distributions ....... 8,689 18,705 937 1,405
Payments for shares redeemed ...................... (76,140) (137,549) (9,084) (18,437)
-------- -------- ------- -------
Net increase (decrease) in net assets
from capital share transactions ................. (20,678) (39,951) 1,136 2,954
-------- -------- ------- -------
Net increase (decrease) in net assets ............. (23,112) (41,559) 495 2,441
NET ASSETS
Beginning of period ............................... 349,772 391,331 24,422 21,981
-------- -------- ------- -------
End of period ..................................... $326,660 $349,772 $24,917 $24,422
======== ======== ======= =======
TRANSACTIONS IN SHARES OF THE FUNDS
Sold .............................................. 4,953 8,327 960 2,025
Issued in reinvestment of distributions ........... 921 1,977 97 143
Redeemed .......................................... (8,066) (14,531) (938) (1,877)
-------- -------- ------- -------
Net increase (decrease) ........................... (2,192) (4,227) 119 291
======== ======== ======= =======
</TABLE>
See Notes to Financial Statements
16 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Benham Short-Term Government
Fund (Short-Term) and American Century - Benham Intermediate-Term Government
Fund (Intermediate-Term) (the Funds) are two of the seventeen series of funds
issued by the Corporation. The investment objective of the Funds is to seek a
competitive level of income. The Funds intend to pursue this by investing in
securities of the U.S. government and its agencies. Short-Term intends to
maintain a weighted average maturity of three years or less and
Intermediate-Term intends to maintain a weighted average maturity of three to
ten years. On September 3, 1996, the Funds implemented a multiple class
structure whereby the Funds are authorized to issue two classes of shares: the
Investor Class and the Advisor Class. The shares outstanding prior to September
3, 1996, were designated as Investor Class shares. The two classes of shares
differ principally in their respective shareholder servicing and distribution
expenses and arrangements. All shares of each Fund represent an equal pro rata
interest in the 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. Sale of the Advisor Class had not
commenced as of the report date. The following significant accounting policies,
related to all classes of the Funds, are in accordance with accounting policies
generally accepted in the investment company industry.
Security Valuations--Securities are valued through valuations obtained through a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Directors.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--The Funds may enter into repurchase agreements with
institutions the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Funds require that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Funds to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to each
Fund under each repurchase agreement.
Joint Trading Account--Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the Funds, along with other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 Funds' policy to distribute all taxable income and
capital 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 federal income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized gains in
excess of available capital loss carryovers are declared and paid annually. At
October 31, 1996, Short-Term had an accumulated net realized capital loss
carryover of $19,957,873 (expiring 1997 through 2002), which may be used to
offset future taxable gains.
The 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 are primarily due to differences
in the recognition of income and expense items for financial statement and tax
purposes.
Supplementary Information--Certain officers and directors of the Corporation are
also officers and/or directors, and as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc. and the Corporation's transfer agent, American Century Services
Corporation.
Semiannual Report Notes to Financial Statements 17
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
Use of Estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with ACIM that provide
each Fund with investment advisory and management services in exchange for a
single, unified management fee per class. Additional fees apply to the Advisor
Class shares as described in the prospectus. The Agreements provide that all
expenses of the Funds, except brokerage commissions, taxes, interest, expenses
of those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's average closing net assets during the previous month. The annual
management fee for the Investor Class of Short-Term is 0.70%. The annual
management fee for the Investor Class of Intermediate-Term is 0.75%.
- --------------------------------------------------------------------------------
3. Investment Transactions
The aggregate cost of U.S. Treasury and Agency obligations (excluding short-term
investments) purchased for the six months ended April 30, 1997, for Short-Term
and Intermediate-Term, totaled $502,684,404 and $6,965,313, respectively.
Proceeds from U.S. Treasury and Agency obligations (excluding short-term
investments) sold, for Short-Term and Intermediate-Term, totaled $542,087,900
and $6,607,878, respectively.
As of April 30, 1997, accumulated net unrealized appreciation (depreciation) for
Short-Term and Intermediate-Term was $569,321 and $(486,056), respectively,
based on the aggregate cost of investments for federal income tax purposes of
$324,563,795 and $25,197,742, respectively. Accumulated net unrealized
appreciation for Short-Term, consisted of unrealized appreciation of $746,940
and unrealized depreciation of $177,619. Accumulated net unrealized depreciation
for Intermediate-Term, consisted of unrealized appreciation of $25,342 and
unrealized depreciation of $511,398.
- --------------------------------------------------------------------------------
4. Corporate Events
<TABLE>
The following name changes became effective January 1, 1997:
NEW NAMES FORMER NAMES
<S> <C> <C>
Funds' Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Funds: American Century - Benham Short-Term Government Fund U.S. Governments Short-Term
American Century - Benham Intermediate-Term Government Fund U.S. Governments Intermediate-Term
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
18 Notes to Financial Statements American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
SHORT-TERM GOVERNMENT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993(2) 1992(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................ $9.47 $9.51 $9.27 $9.67 $9.61 $9.41
----- ----- ----- ----- ----- -----
Income From Investment Operations
Net Investment Income ............ 0.26 0.51 0.52 0.40 0.36 0.44
Net Realized and Unrealized Gain
(Loss) on Investment Transactions (0.07) (0.04) 0.24 (0.40) 0.06 0.20
----- ----- ----- ----- ----- -----
Total From
Investment Operations ............ 0.19 0.47 0.76 -- 0.42 0.64
----- ----- ----- ----- ----- -----
Distributions
From Net Investment Income ....... (0.26) (0.51) (0.52) (0.40) (0.36) (0.44)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period ..... $9.40 $9.47 $9.51 $9.27 $9.67 $9.61
===== ===== ===== ===== ===== =====
Total Return(3) .................. 1.98% 5.09% 8.42% 0.07% 4.45% 6.85%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.70%(4) 0.70% 0.70% 0.81% 1.00% 0.99%(5)
Ratio of Net Investment Income
to Average Net Assets .............. 5.46%(4) 5.39% 5.53% 4.17% 3.73% 4.62%
Portfolio Turnover Rate ............ 153% 246% 128% 470% 413% 391%
Net Assets, End
of Period (in thousands) ...........$326,660 $349,772 $391,331 $396,753 $511,981 $569,430
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 19
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM GOVERNMENT
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ....................................... $9.84 $10.04 $9.55 $10.00
----- ----- ----- -----
Income From Investment Operations
Net Investment Income ................................... 0.25 0.54 0.58 0.34
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .............................. (0.12) (0.14) 0.49 (0.45)
----- ----- ----- -----
Total From Investment Operations .......................... 0.13 0.40 1.07 (0.11)
----- ----- ----- -----
Distributions
From Net Investment Income .............................. (0.25) (0.54) (0.58) (0.34)
From Net Realized Gains on Investment Transactions ...... (0.14) (0.06) -- --
----- ----- ----- -----
Total Distributions ..................................... (0.39) (0.60) (0.58) (0.34)
----- ----- ----- -----
Net Asset Value, End of Period ............................ $9.58 $9.84 $10.04 $9.55
===== ===== ====== =====
Total Return(3) ......................................... 1.35% 4.12% 11.58% (1.01%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ..................................... 0.75%(4) 0.74% 0.74% 0.75%(4)
Ratio of Net Investment Income
to Average Net Assets ..................................... 5.27%(4) 5.50% 5.99% 5.43%(4)
Portfolio Turnover Rate ................................... 30% 112% 137% 205%
Net Assets, End
of Period (in thousands) .................................. $24,917 $24,422 $21,981 $6,280
(1) Six months ended April 30, 1997 (unaudited).
(2) March 1, 1994 (inception) through October 31, 1994.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
20 Financial Highlights American Century Investments
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/ Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
Semiannual Report Retirement Account Information 21
NOTES
22 Notes American Century Investments
NOTES
Semiannual Report Notes 23
BACKGROUND INFORMATION
Investment Philosophy & Policies
The Benham Group offers 42 fixed-income funds, ranging from money market funds
to long-term bond funds and including both taxable and tax-exempt funds.
Short-Term Government is a variable-price bond fund that seeks to provide
interest income by investing in U.S. government and agency securities. The fund
must maintain a weighted average maturity of 3 years or less.
Intermediate-Term Government is a variable-price bond fund that seeks to provide
interest income by investing in U.S. government and agency securities. The fund
must maintain a weighted average maturity of 3-10 years.
Comparative Indices
The indices listed below are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The Merrill Lynch 1- to 3-Year Government Index is based on the price
fluctuations of U.S. Treasury notes with maturities of 1-3 years.
The Lehman Intermediate Government Bond Index is made up of more than 855 issues
with an average maturity of 3.8 years. Approximately 87% of the index is U.S.
Treasury issues--the other 13% is U.S. government agency issues.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service
that groups funds according to their investment objectives. Rankings are based
on average annual returns for each fund in a given category for the periods
indicated. Rankings are not included for periods less than one year.
The Lipper categories for the Benham Government funds are:
Short U.S. Government Funds (Short-Term Government)--funds that invest at least
65% of assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities with dollar-weighted average maturities of less
than 3 years.
Intermediate U.S. Government Funds (Intermediate-Term Government)--funds that
invest at least 65% of assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities with dollar-weighted average
maturities of 5-10 years.
PORTFOLIO MANAGEMENT TEAM
Senior Portfolio Managers Bob Gahagan
Casey Colton
24 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 19-20.
Yields
o 30-day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
Portfolio Statistics
o Number of Securities--the number of different securities held by a fund on a
given date.
o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
o Average Duration--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
o Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
Investment Terms
o Basis Point--one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%). Basis points are used to clearly
describe interest rate changes. For example, if a news report indicates that
interest rates rose by 1%, does that mean 1% of the previous rate or one
percentage point? It is more accurate to state that interest rates rose by 100
basis points.
o Coupon--the stated interest rate of a security.
o Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Most "normal" yield curves start in the lower left corner of the graph and rise
to the upper right corner, indicating that yields rise as maturities lengthen.
This upward sloping yield curve illustrates a normal risk/return
relationship-more return (yield) for more risk (a longer maturity). Conversely,
a "flat" yield curve provides little or no extra return for taking on more risk.
Security Types
o Mortgage-Backed Securities--debt securities that represent ownership in pools
of mortgage loans. Most mortgage-backed securities are structured as
"pass-throughs"-the monthly payments of principal and interest on the mortgages
in the pool are collected by the bank that is servicing the mortgages and are
"passed through" to investors. While the payments of principal and interest are
considered secure (many are backed by government agency guarantees), the cash
flow is less certain than in other fixed-income investments. Mortgages that are
paid off early reduce future interest payments from the pool.
o U.S. Government Agency Securities--debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Some agency securities are backed by the full faith and credit of the U.S.
government, while others are guaranteed only by the issuing agency. Government
agency securities include discount notes (maturing in one year or less) and
medium-term notes, debentures and bonds (maturing in three months to 50 years).
o U.S. Treasury Securities--debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years) and bonds (maturing in more than 10 years).
Semiannual Report Glossary 25
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT
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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8697 Recycled
<PAGE>
SEMIANNUAL REPORT
[american century logo]
American
Century(sm)
April 30, 1997
BENHAM
GROUP
Limited-Term Bond
Intermediate-Term Bond
Benham Bond
[front cover]
TABLE OF CONTENTS
Report Highlights........................................... 1
Our Message to You.......................................... 2
Period Overview............................................. 3
Corporate Credit Review..................................... 4
Limited-Term Bond
Performance & Portfolio Information.................... 5
Management Q & A....................................... 6
Schedule of Investments................................ 9
Financial Highlights...................................30
Intermediate-Term Bond
Performance & Portfolio Information....................11
Management Q & A.......................................12
Schedule of Investments................................15
Financial Highlights...................................31
Benham Bond
Performance & Portfolio Information....................18
Management Q & A.......................................19
Schedule of Investments................................22
Financial Highlights...................................32
Statements of Assets and Liabilities........................24
Statements of Operations....................................25
Statements of Changes in Net Assets.........................26
Notes to Financial Statements...............................27
Retirement Account Information..............................33
Background Information
Investment Philosophy & Policies.......................36
Comparative Indices....................................36
Lipper Rankings........................................36
Portfolio Management Team..............................36
Credit Research Team...................................36
Glossary....................................................37
American Century Investments offers you nearly 70 fund choices covering stocks,
bonds, money markets, specialty investments and blended portfolios. To help you
find the funds that may meet your needs, we have divided American Century funds
into three groups based on investment style and objectives. These groups, which
appear below, are designed to help simplify your fund decisions.
American Century Investments--Family of Funds
BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP
MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Limited-Term Bond
Intermediate-Term Bond
Benham Bond
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and the Benham Group are registered marks of American
Century Services Corporation and Benham Management Corporation, respectively.
American Century is a service mark of American Century Services Corporation.
American Century Investments
REPORT HIGHLIGHTS
Period Overview
o U.S. economic growth accelerated during the six months ended April 30,
1997. Despite strong economic growth, inflation remained relatively tame.
o The Federal Reserve raised short-term interest rates in late March in an
attempt to pre-empt inflation going forward.
o The combination of strong economic growth and rising wage pressures caused
bond yields to rise during the period.
o The relatively high yields offered by mortgage-backed and corporate
securities helped them outperform both Treasury and government agency
securities.
Corporate Credit Review
o A strong U.S. economy led to improved corporate credit quality. Specific
sectors that benefited from upgrades were energy, airlines and basic
industrials.
o We continue to monitor several trends with important implications for
corporate credit quality, including share repurchases and mergers and
acquisitions.
o Deregulation also presents new concerns for corporate credit, particularly
in the electric utility and telecommunications industries.
Limited-Term Bond
o The fund performed in line with its Lipper peer-group average during the
six months ended April 30, 1997.
o We positioned the fund defensively, shortening its duration and weighted
average maturity. This positioning benefited the fund as interest rates
rose overall during the period.
o Going forward, we expect strong economic growth and tight labor markets may
push interest rates higher in the coming months.
Intermediate-Term Bond
o The fund outperformed its Lipper peer-group average during the six months
ended April 30, 1997.
o We invested the majority of the fund's assets in high-yielding securities
such as corporate, mortgage- and asset-backed bonds.
o Going forward, we'll likely maintain the fund's defensive position while we
concentrate on adding high-yielding securities at attractive values.
Benham Bond
o The fund performed well relative to its Lipper peer group during the six
months ended April 30, 1997.
o We made few changes to the fund's duration and average maturity during the
period.
o Going forward, we'll likely continue to manage the fund's duration and
average maturity conservatively.
Limited-Term Bond
Total Returns: AS OF 4/30/97
6 Months 2.20%*
1 Year 5.78%
Net Assets: $9.3 million
(AS of 4/30/97)
Inception Date: 3/1/94
Ticker Symbol: N/A
Intermediate-Term Bond
Total Returns: AS OF 4/30/97
6 Months 1.57%*
1 Year 6.30%
Net Assets: $17.2 million
(AS of 4/30/97)
Inception Date: 3/1/94
Ticker Symbol: TWITX
Benham Bond
Total Returns: AS OF 4/30/97
6 Months 1.45%*
1 Year 6.65%
Net Assets: $128.2 million
(AS of 4/30/97)
Inception Date: 3/2/87
Ticker Symbol: TWLBX
* Not annualized.
Many of the investment terms in this report are
defined in the Glossary on page 37.
Semiannual Report Report Highlights 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
April 30, 1997, marked the end of an eventful period for our company and U.S.
bond markets. Bonds posted modest returns as accelerating first-quarter economic
growth sent bond yields higher. Overall, mortgage-backed securities outperformed
corporate, government agency and Treasury bonds. In the following pages, our
investment management team provides further details about these markets and how
your fund was managed during the period.
In January, nearly two years of integration between Twentieth Century and The
Benham Group culminated when we began serving you as American Century
Investments. Under this new name we have combined our offerings of nearly 70
funds.
The new name also introduces three new groupings for the funds--the Benham Group
(money market and bond funds), the American Century Group (asset allocation,
balanced, conservative equity and specialty funds) and the Twentieth Century
Group (aggressive growth and international equity funds). The Diversified Bond
funds have joined the Benham Group because their investment goals match key
attributes of that group.
By now, you should have received a proxy statement and ballot; we strongly
encourage you to read it carefully and take part in the proxy vote if you have
not already done so.
In reviewing this report, you may notice some changes. Based on investors'
feedback, our shareholder reports have been redesigned with added features,
including a report summary, a glossary, more charts and graphs, and expanded
management Q & A and background information sections.
These are examples of how we continue working to provide information and
services that are useful and convenient to investors in our funds. We look
forward to sharing other helpful changes with you.
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
President and Chief Executive Officer Vice Chairman
American Century Companies American Century Companies
2 Our Message to You American Century Investments
PERIOD OVERVIEW
U.S. Economy
U.S. economic growth accelerated during the six months ended April 30, 1997.
After moderating throughout the summer of 1996, economic growth rebounded in the
fourth quarter as strong employment growth, increased consumer spending and a
robust housing market fueled an annualized growth rate of 3.8%. The U.S. economy
continued to pick up speed in the first quarter of 1997, surging ahead at a 5.8%
annual rate.
Although such a strong level of economic growth has historically been
accompanied by rising prices, inflation remained relatively tame--the consumer
price index rose at an annual rate of 3.2% during the six-month period. But
recent evidence of increasing wage pressures--which are often passed on to
consumers in the form of higher prices--led the Federal Reserve to make a
pre-emptive strike against inflation by raising short-term interest rates in
March. The Fed raised its federal funds rate target (the overnight lending rate
targeted by the Fed for large loans between commercial banks) from 5.25% to
5.50%.
U.S. Bond Market
U.S. fixed-income securities produced modest returns during the six months ended
April 30. Rising interest rates (see the graph above) caused bond prices to
fall, but the interest income paid out to bondholders generally offset the price
declines. Short-term securities, which usually suffer less price depreciation
than longer-term securities when interest rates rise, were the best performers
during the period. For example, the two-year Treasury note posted a 2.38% return
for the six-month period, while the 30-year Treasury bond returned -0.47%.
Early in the six-month period, bond yields fell (and bond prices rose) in
response to low inflation and market perceptions of slow economic growth going
forward. But by the beginning of 1997, stronger economic growth and rising wage
pressures rekindled concerns about inflation. As a result, bond yields soared
throughout the first quarter. The 30-year Treasury bond yield, which fell to as
low as 6.35% in December, climbed to 7.10% by the end of March. The bond market
vacillated in April, rallying toward the end of the month on encouraging
inflation news.
Mortgage-backed securities were the top-performing fixed-income sector during
the six-month period, followed by corporate, government agency and Treasury
securities. With bond prices declining slightly overall, yield was the most
significant contributor to bond returns. Corporate and mortgage-backed issues
tend to have relatively high yields, while government agency and Treasury
securities tend to have lower yields.
[line graph - data below]
TREASURY YIELD CURVES
Years to Maturity 4/30/97 10/31/96
1 5.88 5.404
2 6.27 5.732
3 6.39 5.86
4 6.47 5.89
5 6.56 6.07
6 6.6 6.105
7 6.64 6.14
8 6.66 6.207
9 6.68 6.274
10 6.7 6.341
11 6.733 6.3758
12 6.766 6.4106
13 6.799 6.4454
14 6.832 6.4802
15 6.865 6.515
16 6.898 6.55
17 6.931 6.585
18 6.964 6.62
19 6.997 6.655
20 7.03 6.69
21 7.022 6.685
22 7.014 6.68
23 7.006 6.675
24 6.998 6.67
25 6.99 6.665
26 6.982 6.6602
27 6.974 6.6554
28 6.966 6.6506
29 6.958 6.6458
30 6.95 6.641
Source: Bloomberg Financial Markets
Semiannual Report Period Overview 3
CORPORATE CREDIT REVIEW
Corporate credit continued to improve during the six months ended April 30,
1997. A seventh consecutive year of economic growth led to healthier balance
sheets for many U.S. corporations. Steady corporate earnings growth contributed
to a record number of corporate credit rating upgrades.
Specific sectors that benefited from the upgrade trend were energy, airlines and
basic industrials. In the financial sector, banks remained stable and strong
after several years of credit upgrades. Credit improved in these industries
because of increased efficiencies, lower debt levels and the sale of
underperforming assets.
We continue to monitor a trend toward share repurchases that has important
implications for corporate credit quality. Share repurchases utilize cash flow
that could have been used to retire debt, and they reduce a company's equity
base, resulting in increased leverage. (Leverage is a measure of a company's
debt relative to its equity. The higher a company's debt-to-equity ratio, the
greater its leverage.) Rather than reduce their debt burden, many companies are
opting to increase shareholder value by repurchasing stock.
We also continue to weigh the possible effect of mergers and acquisitions on
corporate credit quality. Mergers pose specific credit considerations because
the acquisitions themselves may result in more highly leveraged companies. On
the other hand, mergers and acquisitions can be positive from a debtholder's
perspective because aggregation can add diversity to the business, improve cash
flows and generate greater long-term efficiencies.
Banking is a good example of an industry that has benefited from consolidation.
Increased efficiencies and merger-related expense savings have played a big part
in the recent trend toward credit upgrades in this sector.
Deregulation remains a key consideration in the electric utility and
telecommunications industries. Utilities will need to become more efficient in a
newly competitive environment. Telecommunications companies are also going
through a new wave of competition after passage of the Telecommunications Reform
Act in 1996.
We use a team-oriented approach to stay abreast of these developing corporate
credit trends. We emphasize team analysis by professionals with experience in
industries to which we have exposure. Our analytical team members focus on
specific industries to greater utilize their industry expertise and add value to
our funds.
[line graph - data below]
IMPROVING CORPORATE CREDIT QUALITY
Downgrades Upgrades
'87 189 102
'88 237 138
'89 339 138
'90 433 98
'91 350 119
'92 227 136
'93 154 163
'94 160 183
'95 221 205
'96 184 283
Source: Moody's Investors Service
4 Corporate Credit Review American Century Investments
<TABLE>
<CAPTION>
LIMITED-TERM BOND
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C>
Limited-Term Bond ...................................... 2.20% 5.78% 5.86% 5.17%
Merrill Lynch 1- to 5-Year Govt./Corp. Index ........... 2.08% 6.23% 6.59% 5.73%
Average Short Investment-Grade Debt Fund(1) ............ 2.19% 5.80% 5.78% 5.53%(2)
Fund's Ranking Among
Short Investment-Grade Debt Funds(1) ................... -- 46 out of 96 28 out of 71 32 out of 67(2)
(1) According to Lipper Analytical Services.
(2) Data since 3/31/94, the date nearest the fund's inception for which data
are available. Inception date was March 1, 1994.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 4/30/97
Limited Bond $11,730
Merrill Lynch 1- to 5-Year Govt./Corp. Index $11,930
Limited Bond Merrill Lynch 1- to 5-Year Govt./Corp. Index
Mar-94 $10,000 $10,000
Mar-94 $9,933 $9,909
Apr-94 $9,888 $9,851
May-94 $9,887 $9,865
Jun-94 $9,907 $9,885
Jul-94 $9,999 $9,990
Aug-94 $10,030 $10,026
Sep-94 $9,990 $9,974
Oct-94 $9,992 $9,988
Nov-94 $9,953 $9,935
Dec-94 $9,980 $9,961
Jan-95 $10,102 $10,113
Feb-95 $10,230 $10,285
Mar-95 $10,291 $10,347
Apr-95 $10,393 $10,454
May-95 $10,582 $10,699
Jun-95 $10,621 $10,763
Jul-95 $10,650 $10,791
Aug-95 $10,722 $10,865
Sep-95 $10,795 $10,927
Oct-95 $10,881 $11,035
Nov-95 $10,986 $11,152
Dec-95 $11,072 $11,252
Jan-96 $11,169 $11,353
Feb-96 $11,108 $11,274
Mar-96 $11,095 $11,242
Apr-96 $11,089 $11,231
May-96 $11,119 $11,238
Jun-96 $11,194 $11,335
Jul-96 $11,236 $11,376
Aug-96 $11,256 $11,403
Sep-96 $11,365 $11,528
Oct-96 $11,477 $11,688
Nov-96 $11,577 $11,802
Dec-96 $11,562 $11,772
Jan-97 $11,616 $11,824
Feb-97 $11,644 $11,845
Mar-97 $11,640 $11,817
Apr-97 $11,730 $11,930
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 34 29
Weighted Average Maturity 1.8 years 2.1 years
Average Duration 1.6 years 1.7 years
Expense Ratio 0.69%* 0.68%
* Annualized.
YIELD AS OF APRIL 30, 1997
30-DAY
SEC
Yield
Limited-Term Bond 5.82%
Yield is defined in the Glossary on page 37.
Semiannual Report Limited-Term Bond 5
LIMITED-TERM BOND
Management Q & A
An interview with Jeff Houston, a portfolio manager on the Diversified Bond
funds management team.
How did the fund perform?
The fund performed in line with its peers. For the six months ended April 30,
1997, the fund returned 2.20%, compared with the 2.19% average return of the 105
"Short Investment-Grade Debt Funds" tracked by Lipper Analytical Services. (See
the Total Returns table on the previous page for other fund performance
comparisons.) The fund's relatively low expenses and our disciplined,
team-oriented management approach contributed to the fund's performance.
How was the fund positioned?
We maintained a defensive posture, shortening the fund's duration slightly from
1.7 years at the beginning of the period to 1.6 years by the end of April. A
shorter duration benefited the fund as bond prices declined overall during the
period. (Duration is a measure of portfolio sensitivity to changes in interest
rates. The shorter a fund's duration, the less dramatic movements in its net
asset value tend to be when rates change.)
We concentrated on adding value to the fund by keeping the majority of its
assets in higher-yielding securities, such as corporate debt and mortgage- and
asset-backed securities. Mortgage-backed securities were the top-performing
fixed-income sector for the period, thanks in large part to their high yields.
[bar graph - data below]
LIMITED-TERM BOND'S ONE-YEAR RETURNS SINCE INCEPTION (Periods ended April 30)
Limited-Term Bond Merrill Lynch 1- to 5-Year Govt./Corp. Index
4/30/94* -1.12% -1.49%
4/30/95 5.11% 6.12%
4/30/96 6.69% 7.43%
4/30/97 5.78% 6.23%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 36 for a definition of the index. * Return
from the fund's 3/1/94 inception date to 4/30/94.
6 Limited-Term Bond American Century Investments
LIMITED-TERM BOND
Corporate securities also performed well as the difference in yield, or
"spread," between Treasurys and corporate debt continued to narrow.
Why are spreads between corporate and Treasury securities declining?
Corporate bonds typically offer higher yields than Treasury debt as compensation
for their greater credit risk. However, the strong economy and disciplined
fiscal management have helped improve corporate balance sheets. That's
translated into credit upgrades and higher prices for corporate debt. The rapid
pace of stock-financed corporate mergers and acquisitions also improved
corporate credit by encouraging economies of scale and eliminating
inefficiencies. Heavy demand from mutual fund managers and foreign buyers also
helped increase prices and lower yields on corporate bonds.
You mentioned that you've been buying asset-backed securities. What are
asset-backed securities and why are they so attractive?
Asset-backed securities are debt securities that represent ownership in a pool
of assets. Auto loans and credit cards are good examples of types of debt that
are commonly packaged as asset-backed securities. Asset-backed securities
generally have very high credit quality because they usually carry credit
enhancements, such as bond insurance. The securities are also often
overcollateralized--they contain more assets than are required to pay off the
debt. Another attraction of asset-backed securities is that they typically have
high yields relative to their credit quality. Consistent with our approach to
managing credit risk, we've added specialists in asset-backed securities to our
corporate credit research staff.
You increased the fund's holdings of corporate bonds rated BBB during the
period. Why?
Selectively adding corporate securities rated BBB proved to be a good way to
enhance the fund's yield and boost returns. We worked very closely with our
corporate credit research team to identify securities we felt were undervalued
by virtue of their credit rating or market valuation. The trend toward improving
corporate credit resulted in rating upgrades and tighter spreads between
corporate bonds rated AAA and BBB. Rating upgrades benefit the fund because
upgraded securities typically rise in value.
What's your outlook for interest rates over the next six months?
We expect the U.S. Federal Reserve's interest rate policy decisions in the
coming months to hinge on two factors: economic growth and labor costs. While
the current economic expansion--now in its seventh year--is remarkable for its
lack of inflation, we don't think the Fed will sit idly by if the economy
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
U.S. Treasury Securities 33%
Corporate Bonds 33%
Asset-Backed Securities 13%
Cash 13%
Mortgage-Backed Securities 6%
U.S. Government Agency
Securities 2%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
U.S. Treasury Securities 40%
Corporate Bonds 36%
Asset-Backed Securities 10%
Mortgage-Backed Securities 7%
Sovereign Governments &
Agencies 4%
Cash 3%
Semiannual Report Limited-Term Bond 7
LIMITED-TERM BOND
continues to grow above trend. We think the economy will slow to a more moderate
pace in the coming months. But if that doesn't happen, the Fed will likely feel
compelled to raise rates.
The Fed is concerned that rising labor costs will push inflation higher. Labor
costs are an important consideration for future inflation because they account
for about two-thirds of total business costs. Improvements in worker
productivity and savings on health care and benefits have so far kept labor
costs in check, but they may have run their course.
In addition, the unemployment rate fell to a 23-year low of 4.9% in April. Labor
market capacity is generally defined as being tight at these levels. To the
extent that capacity is stretched, prices for labor will be pressured to rise.
Higher wages can be expected to boost consumer spending, which drives economic
growth. As a result, we expect the Fed to continue to hike short-term interest
rates unless the economy slows. But because interest rates are already at a
level that should inhibit growth, we don't think rates are headed dramatically
higher.
With that outlook in mind, how will you manage the fund going forward?
We'll likely maintain the fund's defensive posture in the near term, taking a
conservative approach to managing its duration and average maturity. We will
also continue to try to boost returns by purchasing high-yielding securities at
what we feel are attractive values.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 67%
A 13%
BBB 20%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 60%
AA 4%
A 19%
BBB 17%
8 Limited-Term Bond American Century Investments
SCHEDULE OF INVESTMENTS
LIMITED-TERM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
$ 1,100 U.S. Treasury Notes, 6.125%,
3/31/98 $1,102
800 U.S. Treasury Notes, 6.00%,
9/30/98 799
300 U.S. Treasury Notes, 5.625%,
11/30/98 298
500 U.S. Treasury Notes, 5.875%,
1/31/99 497
100 U.S. Treasury Notes, 5.00%,
2/15/99 98
300 U.S. Treasury Notes, 6.25%,
3/31/99 300
------
TOTAL U.S. TREASURY SECURITIES--33.4% 3,094
------
(Cost $3,096)
U.S. GOVERNMENT AGENCY SECURITIES--2.1%
193 FHLB, 6.21%, 3/29/99 193
------
(Cost $192)
MORTGAGE-BACKED SECURITIES(1)
297 General Electric Capital Mortgage
Services, Inc. REMIC, Series
1997-3, Class A14, 7.50%,
4/25/27 300
60 FHLMC REMIC, Series 1239,
Class E PAC, 6.80%, 1/15/16 60
193 FNMA REMIC, Series 1991-21,
Class G PAC, 6.00%, 12/25/19 192
------
TOTAL MORTGAGE-BACKED
SECURITIES--6.0% 552
------
(Cost $551)
ASSET-BACKED SECURITIES(1)
200 First Merchants Auto Receivables
Corp., Series 1996-B, Class A2,
6.80%, 5/15/01 202
250 FNMA Whole Loan, Series
1995-W1, Class A6, 8.10%,
4/25/25 257
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 200 NationsBank Auto Owner Trust,
Series 1996-A, Class B1, 6.75%,
6/15/01 $ 201
200 The Money Store Home Equity
Trust, Series 1996-D, Class A3,
6.295%, 11/15/11 199
200 UCFC Home Equity Loan, Series
1996-B1, Class A2, 7.075%,
4/15/10 202
150 UCFC Home Equity Loan, Series
1996-D1, Class A4, 6.776%,
2/15/16 148
------
TOTAL ASSET-BACKED SECURITIES--13.0% 1,209
------
(Cost $1,206)
CORPORATE BONDS
BANKING--6.5%
200 Chase Manhattan Corp., 8.80%,
2/1/00 200
200 Golden West Financial Corp.,
9.15%, 5/23/98 206
200 MBNA Corp., 6.875%, 10/1/99 201
------
607
------
FINANCIAL SERVICES--17.3%
200 Comdisco, Inc., 6.375%, 11/30/01 195
100 Commercial Credit Co.,
5.75%, 7/15/00 97
200 Ford Motor Credit Co., 7.75%,
10/1/99 205
200 Franchise Finance Corp., 7.00%,
11/30/00 198
250 General Motors Acceptance Corp.,
MTN, 7.30%, 2/2/98 252
250 Lehman Brothers Holdings, Inc.,
6.625%, 11/15/00 247
200 Paine Webber Group Inc., MTN,
7.96%, 4/28/00 206
200 Salomon Brothers Inc., MTN, 7.59%,
1/28/00 203
------
1,603
------
See Notes to Financial Statements
Semiannual Report Limited-Term Bond 9
SCHEDULE OF INVESTMENTS
LIMITED-TERM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--2.2%
$ 200 Boise Cascade Co., 7.375%,
8/1/97 $ 200
------
REAL ESTATE--3.2%
300 Price REIT, Inc. (The), 7.25%,
11/1/00 300
------
RETAIL (GENERAL MERCHANDISE)--1.2%
100 Dayton Hudson Co., 9.25%,
3/1/01 107
------
UTILITIES--2.1%
200 Cincinnati Gas & Electric Co.,
5.80%, 2/15/99 198
------
TOTAL CORPORATE BONDS--32.5% 3,015
------
(Cost $3,017)
TEMPORARY CASH INVESTMENTS
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.29%, dated 4/30/97,
due 5/1/97 (Delivery value $274) 274
Repurchase Agreement, J.P. Morgan Securities,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.375%, dated 4/30/97,
due 5/1/97 (Delivery value $467) 467
467,000 Units of Participation in Chase Vista
Prime Money Market Fund (Institutional
Shares), 5.47%, 5/1/97 467
------
TOTAL TEMPORARY CASH
INVESTMENTS--13.0% 1,208
------
(Cost $1,208)
TOTAL INVESTMENT SECURITIES--100.0% $9,271
======
(Cost $9,270)
Notes to Schedule of Investments
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
MTN = Medium Term Note
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements
10 Limited-Term Bond American Century Investments
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND
TOTAL RETURNS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C>
Intermediate-Term Bond .................................. 1.57% 6.30% 6.62% 5.53%
Lehman Intermediate Govt./Corp. Index ................... 1.74% 6.41% 6.92% 5.76%
Average Intermediate Investment-Grade Debt Fund(1) ...... 1.49% 6.46% 6.79% 6.26%(2)
Fund's Ranking Among Intermediate
Investment-Grade Debt Funds(1) .......................... -- 83 out of 181 60 out of 116 56 out of 114(2)
(1) According to Lipper Analytical Services.
(2) Data since 3/31/94, the date nearest the fund's inception for which data are
available. Inception date was March 1, 1994.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER THE LIFE OF THE FUND
Value on 04/30/97
Intermediate-Term Bond $11,857
Lehman Intermediate Govt./Corp. Index $11,939
..................
Intermediate-Term Bond Lehman Intermediate Govt./Corp. Index
Mar-94 $10,000 $10,000
Mar-94 $9,856 $9,835
Apr-94 $9,784 $9,768
May-94 $9,798 $9,775
Jun-94 $9,800 $9,776
Jul-94 $9,926 $9,917
Aug-94 $9,950 $9,947
Sep-94 $9,881 $9,856
Oct-94 $9,876 $9,855
Nov-94 $9,840 $9,811
Dec-94 $9,879 $9,845
Jan-95 $10,014 $10,011
Feb-95 $10,200 $10,219
Mar-95 $10,264 $10,277
Apr-95 $10,369 $10,403
May-95 $10,701 $10,717
Jun-95 $10,753 $10,789
Jul-95 $10,743 $10,790
Aug-95 $10,863 $10,888
Sep-95 $10,949 $10,967
Oct-95 $11,080 $11,089
Nov-95 $11,232 $11,234
Dec-95 $11,372 $11,352
Jan-96 $11,472 $11,449
Feb-96 $11,286 $11,315
Mar-96 $11,215 $11,258
Apr-96 $11,154 $11,218
May-96 $11,129 $11,209
Jun-96 $11,253 $11,328
Jul-96 $11,277 $11,362
Aug-96 $11,264 $11,371
Sep-96 $11,448 $11,529
Oct-96 $11,674 $11,733
Nov-96 $11,861 $11,888
Dec-96 $11,743 $11,812
Jan-97 $11,802 $11,858
Feb-97 $11,833 $11,881
Mar-97 $11,713 $11,799
Apr-97 $11,857 $11,939
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 60 49
Weighted Average Maturity 6.0 years 6.4 years
Average Duration 4.0 years 4.0 years
Expense Ratio 0.75%* 0.74%
* Annualized.
YIELD AS OF APRIL 30, 1997
30-DAY
SEC
Yield
Intermediate-Term Bond 6.41%
Yield is defined in the Glossary on page 37.
Semiannual Report Intermediate-Term Bond 11
INTERMEDIATE-TERM BOND
Management Q & A
An interview with Jeff Houston, a portfolio manager on the Diversified Bond
funds management team.
How did the fund perform?
The fund performed well relative to its peers. For the six months ended April
30, 1997, the fund returned 1.57%, compared with the 1.49% average return of the
190 "Intermediate Investment-Grade Debt Funds" tracked by Lipper Analytical
Services. (See the Total Returns table on the previous page for other fund
performance comparisons.) The fund's relatively low expenses and our
disciplined, team-oriented management approach helped the fund's performance.
How was the fund positioned during the period?
We took a steady, conservative approach to managing the fund that paid off with
solid returns. We made few changes to the fund's relatively short duration,
which was a benefit as bond prices declined overall during the period. (Duration
is a measure of portfolio sensitivity to changes in interest rates. The shorter
a fund's duration, the less dramatic movements in its net asset value ought to
be when rates change.)
We tried to add value to the fund by investing the majority of its assets in
higher-yielding securities, such as corporate debt and mortgage- and
asset-backed securities. The fund's large contingent of corporate bonds
performed relatively well during the period and helped boost returns.
[bar graph - data below]
INTERMEDIATE-TERM BOND'S ONE-YEAR RETURNS SINCE INCEPTION
(Periods ended April 30)
Intermediate-Term Bond Lehman Intermediate Govt./Corp. Index
4/30/94* -2.16% -2.32%
4/30/95 5.98% 6.51%
4/30/96 7.57% 7.84%
4/30/97 6.30% 6.41%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 36 for a definition of the index. * Return
from the fund's 3/1/94 inception date to 4/30/94.
12 Intermediate-Term Bond American Century Investments
INTERMEDIATE-TERM BOND
You also maintained a sizable portion of the fund's assets in corporate bonds
rated BBB. Was that also to enhance the fund's yield?
Yes. Corporate securities rated BBB tend to offer higher yields to compensate
for their greater credit risk. Adding BBB-rated corporate securities proved to
be a good way to enhance the fund's yield and boost returns. Nevertheless, we're
committed to maintaining the safety of investors' principal, so we worked very
closely with our corporate credit research team to only selectively add
BBB-rated paper to the fund's portfolio.
The credit research team plays an integral part in our security selection
process. As a result, we're often able to purchase securities that we feel are
undervalued but are likely to appreciate in value because of credit rating
upgrades. The trend toward improving corporate credit resulted in rating
upgrades and tighter spreads between corporate bonds rated AAA and BBB. Rating
upgrades benefit the fund because upgraded securities typically rise in value.
How has the strong growth of the U.S. economy affected the corporate bond
market?
The big story in the corporate bond market over the last several years has been
the compression of yield spreads between corporate and Treasury securities.
Corporate bonds typically offer higher yields than Treasury debt as compensation
for increased credit risk. The difference in yields is known as the "spread."
Spreads between like-maturity corporates and Treasurys have recently fallen to
ten-year lows, or about one-third of their historical averages. Disciplined
fiscal management and a vibrant U.S. economy helped to improve corporate balance
sheets, which translated into credit upgrades and higher prices for corporate
debt. The rapid pace of stock-financed corporate mergers and acquisitions also
improved corporate credit by encouraging economies of scale and eliminating
inefficiencies. Heavy demand from mutual fund managers and foreign buyers also
helped increase prices and lower yields on corporate bonds.
Many analysts seem to think interest rates are headed higher. How would higher
rates affect the longer-maturity corporate securities the fund typically invests
in?
In general, the longer a fixed-income security's maturity, the more its price
will fluctuate in response to a change in interest rates. That explains why
short- and intermediate-term securities outperformed longer-maturity bonds
during the period. Dramatically higher rates would pose a greater risk to
corporate bonds, however. If the Fed were to increase interest rates sharply in
an effort to pre-empt inflation, higher rates would likely slow the economy.
Slower economic activity would hurt corporations' balance sheets and reduce the
attractiveness of corporate debt.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Corporate Bonds 55%
U.S. Treasury Securities 20%
Mortgage-Backed Securities 9%
Asset-Backed Securities 7%
Cash 6%
Sovereign Governments &
Agencies 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Corporate Bonds 52%
U.S. Treasury Securities 25%
Mortgage-Backed Securities 10%
Asset-Backed Securities 8%
Sovereign Governments &
Agencies 4%
Cash 1%
Semiannual Report Intermediate-Term Bond 13
INTERMEDIATE-TERM BOND
What's your outlook for interest rates over the next six months?
We expect the U.S. Federal Reserve's interest rate policy decisions in the
coming months to hinge on two factors: economic growth and labor costs. While
the current economic expansion--now in its seventh year--is remarkable for its
lack of inflation, we don't think the Fed will sit idly by if the economy
continues to grow above trend. We think the economy will slow to a more moderate
pace in the coming months. But if that doesn't happen, the Fed will likely feel
compelled to raise rates.
The Fed is concerned that rising labor costs will push inflation higher. Labor
costs are an important consideration for future inflation because they account
for about two-thirds of total business costs. Improvements in worker
productivity and savings on health care and benefits have so far kept labor
costs in check, but they may have run their course.
In addition, the unemployment rate fell to a 23-year low of 4.9% in April. Labor
market capacity is generally defined as being tight at these levels. To the
extent that capacity is stretched, prices for labor will be pressured to rise.
Higher wages can be expected to boost consumer spending, which drives economic
growth. As a result, we expect the Fed to continue to hike short-term interest
rates unless the economy slows. But because interest rates are already at a
level that should inhibit growth, we don't think rates are headed dramatically
higher.
With that outlook in mind, how will you manage the fund going forward?
We'll likely maintain the fund's defensive posture in the near term, taking a
conservative approach to managing its duration and average maturity. We will
also continue to try to boost returns by purchasing high-yielding securities at
what we feel are attractive values.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 42%
AA 6%
A 32%
BBB 20%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 44%
AA 5%
A 32%
BBB 19%
14 Intermediate-Term Bond American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U. S. TREASURY SECURITIES
$ 300 U. S. Treasury Notes, 6.125%,
3/31/98 $ 301
1,050 U. S. Treasury Notes, 6.00%,
9/30/98 1,048
100 U. S. Treasury Notes, 7.75%,
2/15/01 104
200 U. S. Treasury Notes, 6.625%,
3/31/02 201
200 U. S. Treasury Notes, 5.75%,
8/15/03 191
200 U. S. Treasury Notes, 5.875%,
2/15/04 191
250 U. S. Treasury Notes, 7.25%,
5/15/04 258
250 U. S. Treasury Notes, 6.50%,
8/15/05 246
300 U. S. Treasury Notes, 5.875%,
11/15/05 283
100 U. S. Treasury Notes, 7.00%,
7/15/06 102
200 U. S. Treasury Notes, 6.25%,
2/15/07 193
225 U. S. Treasury Bonds, 7.625%,
2/15/25 241
------
TOTAL U.S. TREASURY SECURITIES--19.5% 3,359
------
(Cost $3,395)
MORTGAGE-BACKED SECURITIES(1)
730 FHLMC Pool #E00279, 6.50%,
2/1/09 715
291 FNMA Pool #250627, 8.00%,
7/1/26 296
486 GNMA Pool #002202,
7.00%, 4/20/26 469
------
TOTAL MORTGAGE-BACKED
SECURITIES--8.6% 1,480
------
(Cost $1,490)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(1)
$ 300 First Merchants Auto Receivables
Corp., Series 1996-B, Class A2,
6.80%, 5/15/01 $ 302
300 NationsBank Auto Owner Trust,
Series 1996-A, Class B1, 6.75%,
6/15/01 302
300 UCFC Home Equity Loan, Series
1996-B1, Class A2, 7.075%,
4/15/10 302
250 UCFC Home Equity Loan, Series
1996-D1, Class A4, 6.776%,
2/15/16 247
------
TOTAL ASSET-BACKED SECURITIES--6.7% 1,153
------
(Cost $1,151)
CORPORATE BONDS
AUTOMOBILES & AUTO PARTS--1.9%
300 General Motors Corp. Global Notes,
9.625%, 12/1/00 326
------
BANKING--15.6%
500 BankAmerica Corp., 7.75%,
7/15/02 516
300 Capital One Bank, 5.95%,
2/15/01 287
200 Chase Manhattan Corp., 8.80%,
2/1/00 200
250 Corestates Capital Corp., 5.875%,
10/15/03 233
300 Deutsche Bank Financial, 6.70%,
12/13/06 288
300 MBNA Corp., 6.875%, 6/1/05 290
300 National Bank of Canada, Series B,
8.125%, 8/15/04 315
350 Santander Financial Issuances, Ltd.,
7.00%, 4/1/06 343
200 Wells Fargo & Co., 8.375%,
5/15/02 212
------
2,684
------
See Notes to Financial Statements
Semiannual Report Intermediate-Term Bond 15
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
COMMUNICATIONS SERVICES--2.6%
$ 100 Tele-Communications, Inc., 8.25%,
1/15/03 $ 102
350 Worldcom Inc., 7.75%, 4/1/07 350
------
452
------
DIVERSIFIED COMPANIES--1.7%
300 Hanson Overseas BV, 6.75%,
9/15/05 290
------
ENERGY--1.2%
200 Texaco Capital Inc., 9.45%, 3/1/00 214
------
FINANCIAL SERVICES--11.8%
300 Comdisco, Inc., 6.375%, 11/30/01 292
100 Commercial Credit Co., 5.75%,
7/1/00 97
200 Ford Motor Credit Co., 7.75%,
10/1/99 205
250 Ford Motor Credit Co., 6.75%,
5/15/05 242
300 Franchise Finance Corp., 7.00%,
11/30/00 297
250 Norwest Financial Inc., 6.25%,
11/1/02 244
300 Paine Webber Group Inc., MTN,
7.96%, 4/28/00 309
350 Wharf International Finance Ltd.,
7.625%, 3/13/07 (Acquired
3/6/97, Cost $347)(2) 344
------
2,030
------
INSURANCE--4.0%
300 Aetna Services Inc., 6.75%,
8/15/01 298
150 Delphi Financial Group, Inc., 9.31%,
3/25/27 151
250 Nationwide Mutual Insurance Co.,
6.50%, 2/15/04 (Acquired
2/9/96, Cost $252)(2) 239
------
688
------
MEDIA & BROADCASTING--1.5%
250 Time Warner Inc., 8.11%, 8/15/06 255
------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
REAL ESTATE--3.8%
$ 350 Price REIT, Inc. (The), 7.25%,
11/1/00 $ 350
300 Spieker Properties Inc., 6.80%,
12/15/01 296
------
646
------
RETAIL (GENERAL MERCHANDISE)--3.9%
300 Dayton Hudson Co., 9.25%,
3/1/01 320
200 Sears, Roebuck & Co., Inc., MTN,
8.29%, 6/10/02 211
125 Sears, Roebuck & Co., Inc., MTN,
8.23%, 10/21/04 133
------
664
------
TOBACCO--3.5%
250 Philip Morris Companies Inc.,
6.80%, 12/1/03 243
250 Philip Morris Companies Inc.,
6.95%, 6/1/01 250
100 RJR Nabisco, Inc., 8.75%,
4/15/04 102
------
595
------
UTILITIES--3.2%
250 Idaho Power Co., 8.65%, 1/1/00 262
300 Pacific Gas & Electric Co., Series
93C, 6.25%, 8/1/03 288
------
550
------
TOTAL CORPORATE BONDS--54.7% 9,394
------
(Cost $9,497)
OTHER CORPORATE DEBT--1.4%
250 Nationsbank Capital Trust III, VRN,
6.366%, 7/15/97, resets
quarterly off the 3-month LIBOR
plus 0.55%, final maturity
1/15/27 243
------
(Cost $245)
See Notes to Financial Statements
16 Intermediate-Term Bond American Century Investments
SCHEDULE OF INVESTMENTS
INTERMEDIATE-TERM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
SOVEREIGN GOVERNMENTS & AGENCIES
$ 400 China Light & Power, 7.50%,
4/15/06 $ 401
200 Hydro-Quebec, 7.375%, 2/1/03 202
------
TOTAL SOVEREIGN GOVERNMENTS
& AGENCIES--3.5% 603
------
(Cost $603)
TEMPORARY CASH INVESTMENTS
Repurchase Agreement, Goldman
Sachs & Co., Inc. (U.S. Treasury
obligations) in a joint trading
account at 5.29%, dated
4/30/97, due 5/1/97
(Delivery value $100) 100
Repurchase Agreement, J.P. Morgan
Securities, Inc., (U.S. Treasury
obligations) in a joint trading
account at 5.375%, dated
4/30/97, due 5/1/97
(Delivery value $863) 863
------
TOTAL TEMPORARY CASH
INVESTMENTS--5.6% 963
------
(Cost $963)
TOTAL INVESTMENT SECURITIES--100.0% $17,195
=======
(Cost $17,344)
Notes to Schedule of Investments
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
April 30, 1997.
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at April 30, 1997, was $583,062, which represented
3.4% of the net assets of Intermediate-Term Bond.
See Notes to Financial Statements
Semiannual Report Intermediate-Term Bond 17
<TABLE>
<CAPTION>
BENHAM BOND
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TOTAL RETURNS AS OF APRIL 30, 1997
<S> <C> <C> <C> <C> <C>
Benham Bond ............................... 1.45% 6.65% 7.39% 6.98% 8.04%
Lehman Aggregate Bond Index ............... 1.70% 7.08% 7.68% 7.36% 8.69%
Average A-Rated Corporate Debt Fund(1) .... 1.31% 6.46% 6.88% 7.12% 8.27%
Fund's Ranking Among
A-Rated Corporate Debt Funds(1) ........... -- 50 out of 122 26 out of 88 29 out of 51 18 out of 27
(1) According to Lipper Analytical Services.
</TABLE>
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER TEN YEARS
Value on 4/30/97
Benham Bond $21,674
Lehman Aggregate Bond Index $23,018
Benham Bond Lehman Aggregate Bond Index
Apr-87 $10,000 $10,000
Jun-87 $10,043 $10,098
Sep-87 $9,510 $9,822
Dec-87 $10,220 $10,393
Mar-88 $10,655 $10,784
Jun-88 $10,710 $10,911
Sep-88 $10,914 $11,128
Dec-88 $11,073 $11,213
Mar-89 $11,110 $11,341
Jun-89 $12,122 $12,244
Sep-89 $12,164 $12,383
Dec-89 $12,621 $12,843
Mar-90 $12,169 $12,741
Jun-90 $12,617 $13,206
Sep-90 $12,565 $13,319
Dec-90 $13,383 $13,993
Mar-91 $13,662 $14,384
Jun-91 $13,815 $14,620
Sep-91 $14,744 $15,450
Dec-91 $15,725 $16,233
Mar-92 $15,387 $16,025
Jun-92 $16,024 $16,673
Sep-92 $16,732 $17,390
Dec-92 $16,605 $17,437
Mar-93 $17,326 $18,157
Jun-93 $17,773 $18,638
Sep-93 $18,318 $19,124
Dec-93 $18,289 $19,136
Mar-94 $17,694 $18,587
Jun-94 $17,404 $18,395
Sep-94 $17,441 $18,508
Dec-94 $17,469 $18,578
Mar-95 $18,396 $19,514
Jun-95 $19,699 $20,703
Sep-95 $20,099 $21,108
Dec-95 $21,013 $22,008
Mar-96 $20,500 $21,618
Jun-96 $20,537 $21,741
Sep-96 $20,882 $22,143
Dec-96 $21,523 $22,808
Mar-97 $21,379 $22,680
Apr-97 $21,674 $23,018
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
return line of the index does not.
PORTFOLIO AT A GLANCE
4/30/97 10/31/96
Number of Securities 45 46
Weighted Average Maturity 10.8 years 11.0 years
Average Duration 5.1 years 5.0 years
Expense Ratio 0.80%* 0.79%
* Annualized.
YIELD AS OF APRIL 30, 1997
30-DAY
SEC
Yield
Benham Bond 6.68%
Yield is defined in the Glossary on page 37.
18 Benham Bond American Century Investments
BENHAM BOND
Management Q & A
An interview with Bud Hoops, a senior portfolio manager on the Diversified Bond
funds management team.
How did the fund perform?
The fund outperformed its peer group average during the six months ended April
30, 1997. For the period, the fund returned 1.45%, compared with the 1.31%
average return of the 122 "A-Rated Corporate Debt Funds" tracked by Lipper
Analytical Services. (See the Total Returns table on the previous page for other
fund performance comparisons.)
How was the fund positioned during the period?
We kept the fund's duration close to neutral, which was a benefit as bond prices
declined overall during the period. (Duration is a measure of portfolio
sensitivity to changes in interest rates. The shorter the duration, the less
dramatic movements in a fund's net asset value tend to be when rates change.)
Rather than try to guess the direction of interest rates, we took a steady,
conservative approach to managing the fund that paid off with above-average
returns.
We also enhanced the fund's returns by purchasing securities with relatively
high yields, such as corporate debt and mortgage- and asset-backed
[bar graph - data below]
BENHAM BOND'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods ended April 30)
Benham Bond Lehman Aggregate Bond Index
4/30/88 5.98% 7.26%
4/30/89 6.96% 7.94%
4/30/90 5.38% 9.03%
4/30/91 15.59% 15.19%
4/30/92 12.04% 11.00%
4/30/93 12.84% 13.26%
4/30/94 0.26% 0.85%
4/30/95 6.62% 7.31%
4/30/96 8.92% 8.64%
4/30/97 6.65% 7.08%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 36 for a definition of the index.
Semiannual Report Benham Bond 19
BENHAM BOND
securities. We maintained the fund's holdings of mortgage-backed securities,
which were the top-performing fixed-income sector over the past year. We also
increased the fund's holdings of corporate securities, which performed well.
You maintained about 20% of the fund's assets in corporate bonds rated BBB. Why?
Selectively adding corporate securities rated BBB proved to be a good way to
enhance the fund's yield and boost returns. We worked very closely with our
corporate credit research team to identify securities we felt were undervalued
by virtue of their credit rating or market valuation. The trend toward improving
corporate credit resulted in rating upgrades and tighter spreads between
corporate bonds rated AAA and BBB. (The "spread" is the difference in yield
between different types or grades of securities.) Rating upgrades benefit the
fund because upgraded securities typically rise in value.
What's behind the trend toward corporate credit upgrades?
Disciplined fiscal management and a vibrant U.S. economy helped to improve
corporate balance sheets, which translated into credit upgrades and higher
prices for corporate debt. The rapid pace of stock-financed corporate mergers
and acquisitions also improved corporate credit by encouraging economies of
scale and eliminating inefficiencies. Heavy demand from mutual fund managers and
foreign buyers also helped increase prices and lower yields on corporate bonds.
What's the attraction of holding foreign government and agency securities?
We consistently maintained about 5% of the fund in foreign government and agency
securities as a defensive play. Because their issuers are international, holding
foreign securities is a good way to enhance the fund's diversification. For
example, if the U.S. Federal Reserve were to raise interest rates further, it
would likely have an adverse effect on U.S. fixed-income securities. Corporate
debt in particular would be vulnerable to higher rates because the economy would
likely slow. Slower economic activity would hurt corporations' balance sheets
and reduce the attractiveness of their debt securities. Foreign government and
agency securities aren't as closely tied to the U.S. economy, so they should
hold up relatively well if the Fed continues to raise rates.
You added a new type of corporate security called capital notes to the fund.
What are capital notes?
Capital notes, also known as trust-preferred securities, are hybrid debt-equity
securities. Banks have been the biggest issuers of capital notes. These
securities are created
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 4/30/97)
Corporate Bonds 61%
Mortgage-Backed Securities 14%
U.S. Treasury Securities 11%
Asset-Backed Securities 6%
Sovereign Governments &
Agencies 5%
Other 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 10/31/96)
Corporate Bonds 56%
U.S. Treasury Securities 24%
Mortgage-Backed Securities 14%
Sovereign Governments &
Agencies 5%
U.S. Government Agency
Securities 1%
20 Benham Bond American Century Investments
BENHAM BOND
when a company issues debt to a trust, which then issues preferred securities.
Corporations like to issue this type of debt because it's a cheap source of
capital with tax-deductible interest payments. Investors like capital notes
because they typically offer attractive yields with relatively high credit
quality. However, the government is soon expected to close the tax loophole that
allows companies to issue this type of security.
You've talked a lot about corporate credit considerations. How does the credit
research team fit into the overall management of the fund?
The credit research team plays an integral part in our security selection
process, reviewing every security considered for purchase by our corporate money
market and bond funds. As a result, we're often able to purchase securities that
we feel are undervalued but are likely to appreciate in value because of credit
rating upgrades.
What's your outlook for interest rates over the next six months?
We expect the U.S. Federal Reserve's interest rate policy decisions in the
coming months to hinge on two factors: economic growth and labor costs. While
the current economic expansion--now in its seventh year--is remarkable for its
lack of inflation, we don't think the Fed will sit idly by if the economy
continues to grow above trend. We think the economy will slow to a more moderate
pace in the coming months. But if that doesn't happen, the Fed will likely feel
compelled to raise rates.
The Fed is concerned that rising labor costs will push inflation higher. Labor
costs are an important consideration for future inflation because they account
for about two-thirds of total business costs. Improvements in worker
productivity and savings on health care and benefits have so far kept labor
costs in check, but they may have run their course.
In addition, the unemployment rate fell to a 23-year low of 4.9% in April. Labor
market capacity is generally defined as being tight at these levels. To the
extent that capacity is stretched, prices for labor will be pressured to rise.
Higher wages can be expected to boost consumer spending, which drives economic
growth. As a result, we expect the Fed to continue to hike short-term interest
rates unless the economy slows. But because interest rates are already at a
level that should inhibit growth, we don't think rates are headed dramatically
higher.
With that outlook in mind, how will you manage the fund going forward?
We'll likely maintain the fund's defensive posture in the near term, taking a
conservative approach to managing its duration and average maturity. We will
also continue to try to boost returns by purchasing high-yielding securities at
what we feel are attractive values.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 4/30/97)
AAA 36%
AA 5%
A 37%
BBB 22%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 10/31/96)
AAA 43%
AA 7%
A 29%
BBB 21%
Semiannual Report Benham Bond 21
SCHEDULE OF INVESTMENTS
BENHAM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
$ 4,000 U.S. Treasury Notes, 5.75%,
9/30/97 $ 4,003
2,000 U.S. Treasury Notes, 5.625%,
10/31/97 1,999
1,500 U.S. Treasury Notes, 5.875%,
1/31/99 1,492
6,000 U.S. Treasury Notes, 5.50%,
12/31/00 5,803
------
TOTAL U.S. TREASURY SECURITIES--10.5% 13,297
------
(Cost $13,521)
U.S. GOVERNMENT AGENCY SECURITIES--1.4%
2,000 Tennesse Valley Authority, 6.875%,
12/15/43 1,793
------
(Cost $1,854)
MORTGAGE-BACKED SECURITIES(1)
825 FHLMC REMIC, Series 19, Class
E PAC, 8.00%, 8/15/19 835
997 FHLMC REMIC, Series 116, Class
F PAC, 8.50%, 2/15/20 1,024
1,068 FNMA REMIC, Series 1989-35,
Class G, 9.50%, 7/25/19 1,140
716 FNMA REMIC, Series 1990-88,
Class H PAC, 7.75%, 9/25/19 720
932 FNMA REMIC, Series 1991-21,
Class G PAC, 6.00%, 12/25/19 927
4,744 FNMA Pool #250452, 6.50%,
1/1/26 4,491
5,277 GNMA Pool #313107, 7.00%,
11/15/22 5,147
3,929 GNMA Pool #423865, 8.00%,
6/15/26 3,993
------
TOTAL MORTGAGE-BACKED
SECURITIES--14.5% 18,277
------
(Cost $18,089)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(1)
$ 3,000 The Money Store Home Equity
Trust, Series 1996-D, Class A3,
6.295%, 11/15/11 $ 2,989
5,000 UCFC Home Equity Loan, Series
1995-D1, Class A2, 6.20%,
3/10/14 4,983
------
TOTAL ASSET-BACKED SECURITIES--6.3% 7,972
------
(Cost $7,966)
CORPORATE BONDS
AEROSPACE & DEFENSE--3.2%
2,000 Boeing Co., 7.875%, 4/15/43 2,072
2,000 Lockheed Martin Corp., 7.25%,
5/15/06 2,005
------
4,077
------
AIRLINES--4.4%
3,355 Delta Air Lines Inc., Equipment
Trust Certificates, 7.541%,
10/11/11 3,288
2,000 United Air Lines, 10.67%, 5/1/04 2,323
------
5,611
------
BANKING--16.5%
5,000 Citicorp Euro, 7.00%, 1/2/04 4,962
2,000 Corestates Capital Corp., 5.875%,
10/15/03 1,865
3,000 First Union Corp., 8.77%,
11/15/04, 3,131
5,000 National Bank of Canada, 8.125%,
8/15/04 5,244
2,000 Nationsbank Capital Trust II, 7.83%,
12/15/26 1,930
2,000 Santander Financial Issuances Ltd.,
6.375%, 2/15/11 1,800
2,000 Wells Fargo Capital, 7.96%,
12/15/26 1,947
------
20,879
------
CHEMICALS & RESINS--4.9%
5,000 ARCO Chemical Co., 10.25%,
11/1/10 6,244
------
See Notes to Financial Statements
22 Benham Bond American Century Investments
SCHEDULE OF INVESTMENTS
BENHAM BOND
APRIL 30, 1997 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
COMMUNICATIONS SERVICES--1.6%
$ 2,000 Worldcom Inc., 7.75%, 4/1/07 $ 1,997
------
COMPUTER SYSTEMS--1.1%
1,500 International Business Machines
Corp., 7.125%, 12/1/96 1,387
------
ENERGY--2.3%
3,000 Columbia Gas Systems, 7.42%,
11/28/15 2,876
------
FINANCIAL SERVICES--6.8%
4,000 Lehman Brothers Holdings Inc.,
6.625%, 11/15/00 3,960
3,000 Paine Webber Group Inc., MTN,
7.96%, 4/28/00 3,086
1,500 Wharf International Finance Ltd.,
7.625%, 3/13/07 (Acquired
3/6/97, Cost $1,488)(2) 1,476
------
8,522
------
INSURANCE--3.4%
1,000 Delphi Financial Group, Inc., 9.31%,
3/25/27 1,009
3,000 Lincoln National Corp., 9.125%,
10/1/24 3,319
------
4,328
------
MEDIA & BROADCAST--3.8%
3,000 News America Holdings, 7.60%,
10/11/15 2,831
2,000 Time Warner Inc., 6.85%, 1/15/26 1,965
------
4,796
------
REAL ESTATE--3.5%
1,350 Price REIT, Inc. (The), 7.25%,
11/1/00 1,348
3,000 Spieker Properties Inc., MTN,
7.58%, 12/17/01 3,053
------
4,401
------
TOBACCO--2.3%
3,000 Philip Morris Companies Inc.,
6.80%, 12/1/03 2,918
------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
UTILITIES--7.1%
$ 5,000 Pacific Gas & Electric Co., 5.50%,
6/1/99 $ 4,888
4,000 Union Electric Co., 7.65%,
7/15/03 4,135
------
9,023
------
TOTAL CORPORATE BONDS--60.9% 77,059
------
(Cost $77,029)
SOVEREIGN GOVERNMENTS & AGENCIES
3,000 Korea Electric Power, 6.375%,
12/1/03 2,888
4,000 Province of Quebec Bonds,
7.125%, 2/9/24 3,695
------
TOTAL SOVEREIGN GOVERNMENTS
& AGENCIES--5.2% 6,583
------
(Cost $6,687)
TEMPORARY CASH INVESTMENTS--1.2%
Repurchase Agreement, J.P. Morgan Securities,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.375%, dated 4/30/97,
due 5/1/97 (Delivery value $1,480) 1,480
------
(Cost $1,480)
TOTAL INVESTMENT SECURITIES--100.0% $126,461
========
(Cost $126,626)
Notes to Schedule of Investments
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at April 30, 1997, was $1,476,000 which represented
1.2% of the net assets of the Benham Bond Fund.
See Notes to Financial Statements
Semiannual Report Benham Bond 23
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
LIMITED-TERM INTERMEDIATE-TERM BENHAM
BOND BOND BOND
($ and Shares in Thousands Except Per Share Amounts)
APRIL 30, 1997 (UNAUDITED)
ASSETS
<S> <C> <C> <C>
Investment securities, at value (identified cost of $9,270,
$17,344 and $126,626, respectively) (Note 3) .................... $9,271 $17,195 $126,461
Cash .............................................................. -- -- 79
Receivable for capital shares sold ................................ -- 3 11
Receivable for investments sold ................................... 3 -- 40
Interest receivable ............................................... 99 249 2,244
----- ------ -------
9,373 17,447 128,835
----- ------ -------
LIABILITIES
Disbursements in excess of demand deposit cash .................... 58 142 248
Payable for capital shares redeemed ............................... 1 4 218
Dividends payable ................................................. 7 14 112
Accrued management fees (Note 2) .................................. 5 11 84
----- ------ -------
71 171 662
----- ------ -------
Net Assets Applicable to Outstanding Shares ....................... $9,302 $17,276 $128,173
====== ======= ========
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ........................................................ 100,000 100,000 100,000
======= ======= =======
Outstanding ....................................................... 942 1,768 13,661
======= ======= =======
Net Asset Value Per Share ......................................... $9.87 $9.77 $9.38
======= ======= =======
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ........................... $9,296 $17,439 $128,467
Accumulated undistributed net realized gain (loss)
from investment transactions .................................... 5 (14) (129)
Net unrealized appreciation (depreciation)
on investments (Note 3) ......................................... 1 (149) (165)
------ ------- --------
$9,302 $17,276 $128,173
======= ======= =======
</TABLE>
See Notes to Financial Statements
24 Statements of Assets and Liabilities American Century Investments
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
LIMITED-TERM INTERMEDIATE-TERM BENHAM
BOND BOND BOND
($ in Thousands)
For the Six Months Ended APRIL 30, 1997 (Unaudited)
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ...................................................... $256 $553 $4,739
----- ----- ------
Expenses:
Management fees (Note 2) ...................................... 28 61 536
Directors' fees and expenses .................................. -- -- 1
----- ----- ------
.............................................................. 28 61 537
----- ----- ------
Net investment income ......................................... 228 492 4,202
----- ----- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on investments ....................... 3 (9) (123)
Change in net unrealized appreciation
(depreciation) on investments ............................... (51) (225) (2,162)
----- ----- ------
Net realized and unrealized
loss on investments ........................................... (48) (234) (2,285)
----- ----- ------
Net Increase in Net Assets
Resulting from Operations ..................................... $180 $258 $1,917
==== ==== ======
</TABLE>
See Notes to Financial Statements
Semiannual Report Statements of Operations 25
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended APRIL 30, 1997
(Unaudited) AND YEAR ENDED
OCTOBER 31, 1996
LIMITED-TERM INTERMEDIATE-TERM BENHAM
BOND BOND BOND
Increase (Decrease) in Net Assets 1997 1996 1997 1996 1997 1996
OPERATIONS ($ and Shares in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................. $ 228 $ 432 $ 492 $ 874 $ 4,202 $ 9,024
Net realized gain (loss)
on investments ...................... 3 13 (9) (4) (123) 1,341
Change in net unrealized appreciation
(depreciation) on investments ....... (51) (31) (225) (131) (2,162) (3,546)
----- --- ----- ----- ------- ------
Net increase in net assets
resulting from operations ........... 180 414 258 739 1,917 6,819
----- --- ----- ----- ------- ------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............ (228) (432) (492) (874) (4,202) (9,024)
From net realized gains
from investment transactions ........ -- -- -- (132) (1,310) (228)
----- --- ----- ----- ------- ------
Decrease in net assets
from distributions .................. (228) (432) (492) (1,006) (5,512) (9,252)
----- --- ----- ----- ------- ------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............. 6,115 2,982 9,678 9,981 27,399 63,329
Proceeds from reinvestment
of distributions .................... 215 413 432 895 5,145 8,559
Payments for shares redeemed .......... (5,072) (2,478) (8,226) (7,810) (43,343) (76,111)
----- ----- ----- ----- ------- ------
Net increase (decrease) in net assets
from capital share transactions ..... 1,258 917 1,884 3,066 (10,799) (4,223)
----- --- ----- ----- ------- ------
Net increase (decrease)
in net assets ....................... 1,210 899 1,650 2,799 (14,394) (6,656)
NET ASSETS
Beginning of period ................... 8,092 7,193 15,626 12,827 142,567 149,223
----- ----- ----- ----- ------- ------
End of period ......................... $9,302 $8,092 $17,276 $15,626 $128,173 $142,567
====== ====== ======= ======= ======== ========
TRANSACTIONS IN SHARES OF THE FUNDS
Sold .................................. 618 300 982 1,005 2,880 6,596
Issued in reinvestment of
distributions ....................... 21 42 44 90 542 891
Redeemed .............................. (512) (249) (835) (792) (4,562) (7,937)
----- --- ----- ----- ------- ------
Net increase (decrease) ............... 127 93 191 303 (1,140) (450)
====== ====== ======= ======= ======== ========
</TABLE>
See Notes to Financial Statements
26 Statements of Changes in Net Assets American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization--American Century Mutual Funds, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. American Century - Benham Limited-Term Bond Fund
(Limited-Term), American Century - Benham Intermediate-Term Bond Fund
(Intermediate-Term), and American Century - Benham Bond Fund (Benham Bond) (the
Funds) are three of the seventeen funds issued by the Corporation. The
investment objective of Limited-Term is to seek income. The Fund intends to
pursue this by investing in bonds and other debt obligations and maintaining a
weighted average maturity of five years or less. The investment objective of
Intermediate-Term is to seek a competitive level of income. The Fund intends to
pursue this by investing in bonds and other debt obligations and maintaining a
weighted average maturity of three to ten years. The investment objective of
Benham Bond is to seek a high level of income. The Fund intends to pursue this
by investing in bonds and other debt obligations and maintaining a weighted
average maturity of ten years or greater. On September 3, 1996, the Funds
implemented a multiple class structure whereby the Funds are authorized to issue
two classes of shares: the Investor Class and the Advisor Class.
The shares outstanding prior to September 3, 1996, were designated as Investor
Class shares. The two classes of shares differ principally in their respective
shareholder servicing and distribution expenses and arrangements. All shares of
each Fund represent an equal pro rata interest in the 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. Sale of the Advisor class had not commenced as of the report date. The
following significant accounting policies, related to all classes of the Funds,
are in accordance with accounting policies generally accepted in the investment
company industry.
Security Valuations-- Securities are valued through valuations obtained through
a commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Directors.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums.
Repurchase Agreements--The Funds may enter into repurchase agreements with
institutions that the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Funds require that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Funds to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
Funds under each repurchase agreement.
Joint Trading Account--Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission, the Funds, along with other registered investment
companies having management agreements with ACIM and Benham Management
Corporation, 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 Funds' policy to distribute all taxable income and
capital 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 federal income taxes.
Distributions to Shareholders--Distributions from net investment income are
declared daily and distributed monthly. Distributions from net realized gains
are declared and paid annually.
The 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 are primarily due to differences
in the recognition of income and expense items for financial statement and tax
purposes.
Supplementary Information--Certain officers and directors of the Corporation are
also officers and/or directors, and as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc. and the Corporation's transfer agent, American Century Services
Corporation.
Semiannual Report Notes to Financial Statements 27
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. Transactions with Related Parties
The Corporation has entered into Management Agreements with ACIM that provides
each Fund with investment advisory and management services in exchange for a
single, unified management fee per class. The Agreements provide that all
expenses of the Funds, except brokerage commissions, taxes, interest, expenses
of those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will by paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's average closing net assets during the previous month. The annual
management fee for the Investor Class of Limited-Term, Intermediate-Term, and
Benham Bond is 0.70%, 0.75% and 0.80%, respectively.
- --------------------------------------------------------------------------------
3. Investment Transactions
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1997, were as follows:
<TABLE>
BENHAM
LIMITED-TERM INTERMEDIATE-TERM BOND
PURCHASES ($ in Thousands)
<S> <C> <C> <C>
U. S. Treasury & Agency Obligations .......................... $2,291 $3,611 $11,491
Other Debt Obligations ....................................... 1,810 3,514 23,732
PROCEEDS FROM SALES
U. S. Treasury & Agency Obligations .......................... $2,181 $4,125 $31,782
Other Debt Obligations ....................................... 997 2,090 14,155
On April 30, 1997, the composition of unrealized appreciation (depreciation) of
investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
BENHAM
LIMITED-TERM INTERMEDIATE-TERM BOND
($ in Thousands)
Appreciation ................................................. $ 17 $ 49 $ 1,392
(Depreciation) ............................................... (16) (198) (1,557)
Net .......................................................... 1 (149) (165)
</TABLE>
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
28 Notes to Financial Statements American Century Investments
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
4. Corporate Events
<TABLE>
The following name changes became effective January 1, 1997:
NEW NAMES FORMER NAMES
<S> <C> <C>
Funds' Issuer: American Century Mutual Funds, Inc. Twentieth Century Investors, Inc.
Funds: American Century - Benham Limited-Term Bond Fund Limited-Term Bond
American Century - Benham Intermediate-Term Bond Fund Intermediate-Term Bond
American Century - Benham Bond Fund Long-Term Bond
Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc.
Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc.
Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
</TABLE>
Semiannual Report Notes to Financial Statements 29
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LIMITED-TERM BOND
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period .......................................... $9.93 $9.96 $9.68 $10.00
----- ----- ----- ------
Income From Investment Operations
Net Investment Income ...................................... 0.28 0.56 0.56 0.31
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ................................. (0.06) (0.03) 0.28 (0.32)
----- ----- ----- ------
Total From Investment Operations ........................... 0.22 0.53 0.84 (0.01)
----- ----- ----- ------
Distributions
From Net Investment Income ................................. (0.28) (0.56) (0.56) (0.31)
----- ----- ----- ------
Net Asset Value, End of Period ............................... $9.87 $9.93 $9.96 $9.68
===== ===== ===== =====
Total Return(3) ........................................... 2.20% 5.48% 8.89% (0.08%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........................................ 0.69%(4) 0.68% 0.69% 0.70%(4)
Ratio of Net Investment Income
to Average Net Assets ........................................ 5.63%(4) 5.63% 5.70% 4.79%(4)
Portfolio Turnover Rate ...................................... 44% 121% 116% 48%
Net Assets, End
of Period (in thousands) ..................................... $9,302 $8,092 $7,193 $4,375
(1) Six months ended April 30, 1997 (unaudited).
(2) March 1, 1994 (inception) through October 31, 1994.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
30 Financial Highlights American Century Investments
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM BOND
1997(1) 1996 1995 1994(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ........................................ $9.91 $10.07 $9.53 $10.00
----- ----- ----- ------
Income From Investment Operations
Net Investment Income .................................... 0.29 0.58 0.59 0.34
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............................... (0.14) (0.06) 0.54 (0.47)
----- ----- ----- ------
Total From Investment Operations ......................... 0.15 0.52 1.13 (0.13)
----- ----- ----- ------
Distributions
From Net Investment Income ............................... (0.29) (0.58) (0.59) (0.34)
From Net Realized Gains on
Investment Transactions .................................. -- (0.10) -- --
----- ----- ----- ------
Total Distributions ...................................... (0.29) (0.68) (0.59) (0.34)
----- ----- ----- ------
Net Asset Value, End of Period ............................. $9.77 $9.91 $10.07 $9.53
===== ===== ====== =====
Total Return(3) .......................................... 1.57% 5.36% 12.19% (1.24%)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ...................................... 0.75%(4) 0.74% 0.74% 0.75%(4)
Ratio of Net Investment Income
to Average Net Assets ...................................... 6.02%(4) 5.90% 6.05% 5.23%(4)
Portfolio Turnover Rate .................................... 39% 87% 133% 48%
Net Assets, End of
Period (in thousands) ...................................... $17,276 $15,626 $12,827 $4,262
(1) Six months ended April 30, 1997 (unaudited).
(2) March 1, 1994 (inception) through October 31, 1994.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are
not annualized.
(4) Annualized.
</TABLE>
See Notes to Financial Statements
Semiannual Report Financial Highlights 31
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
BENHAM BOND
For a Share Outstanding Throughout the Years Ended October 31 (except as noted)
1997(1) 1996 1995 1994 1993(2) 1992(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................. $9.63 $9.78 $8.91 $10.21 $9.92 $9.56
----- ----- ----- ------ ----- -----
Income From Investment Operations
Net Investment Income ............. 0.30 0.60 0.61 0.58 0.66 0.63
Net Realized and Unrealized Gain
(Loss) on Investment Transactions . (0.16) (0.14) 0.87 (1.12) 1.88 0.35
----- ----- ----- ------ ----- -----
Total From
Investment Operations ............. 0.14 0.46 1.48 (0.54) 2.54 0.98
----- ----- ----- ------ ----- -----
Distributions
From Net Investment Income ........ (0.30) (0.60) (0.61) (0.58) (0.66) (0.62)
From Net Realized Gains on
Investment Transactions ........... (0.09) (0.01) -- (0.18) (1.59) --
----- ----- ----- ------ ----- -----
Total Distributions ............... (0.39) (0.61) (0.61) (0.76) (2.25) (0.62)
----- ----- ----- ------ ----- -----
Net Asset Value, End of Period ...... $9.38 $9.63 $9.78 $8.91 $10.21 $9.92
===== ===== ===== ===== ====== =====
Total Return(3) ................... 1.45% 4.91% 17.16% (5.47%) 11.81% 10.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ...............0.80%(4) 0.79% 0.78% 0.88% 1.00% 0.98%(5)
Ratio of Net Investment Income
to Average Net Assets ...............6.27%(4) 6.18% 6.53% 6.07% 6.54% 6.30%
Portfolio Turnover Rate ............. 27% 100% 105% 78% 113% 186%
Net Assets, End
of Period (in thousands) ...........$128,173 $142,567 $149,223 $121,012 $172,120 $154,031
(1) Six months ended April 30, 1997 (unaudited).
(2) The data presented has been restated to give effect to a 10 for 1 stock
split in the form of a stock dividend that occurred on November 13, 1993.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Expenses are shown net of management fees waived by the manager for
low-balance account fees collected during the period.
</TABLE>
See Notes to Financial Statements
32 Financial Highlights American Century Investments
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain 403(b)
distributions [not eligible for rollover to an IRA or to another 403(b)] are
subject to federal income tax withholding at the rate of 10% of the total amount
withdrawn, unless you elect not to have withholding apply. If you don't want us
to withhold on this amount, you may send us a written notice not to have the
federal income tax withheld. Your written notice is valid for six months from
the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/ Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
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.
Semiannual Report Retirement Account Information 33
NOTES
34 Notes American Century Investments
NOTES
Semiannual Report Notes 35
BACKGROUND INFORMATION
Investment Philosophy & Policies
The Benham Group offers 42 fixed-income funds, ranging from money market funds
to long-term bond funds and including both taxable and tax-exempt funds.
Limited-Term Bond is a variable-price bond fund that seeks to provide interest
income by investing in a diversified portfolio of fixed-income securities. The
fund must maintain a weighted average maturity of 5 years or less.
Intermediate-Term Bond is a variable-price bond fund that seeks to provide
interest income by investing in a diversified portfolio of fixed-income
securities. The fund must maintain a weighted average maturity of 3-10 years.
Benham Bond is a variable-price bond fund that seeks to provide interest income
by investing in a diversified portfolio of fixed-income securities. The fund has
no weighted average maturity requirement, but it is expected that the fund will
invest primarily in intermediate- and long-term bonds.
Comparative Indices
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The Merrill Lynch 1- to 5 -Year Government/ Corporate Index is a
market-value-weighted index composed of corporate and Treasury debt with an
overall maturity of approximately 3 years. The index consists of approximately
24% corporate debt and 76% government debt. The corporate debt issues are rated
BBB or better by Standard & Poor's.
The Lehman Intermediate Government/ Corporate Index includes the Lehman
Government Index and the Lehman Intermediate Corporate Bond Index, which reflect
the price fluctuations of U.S. Treasury and government agency securities,
corporate bonds and Yankee bonds with maturities of 1-10 years.
The Lehman Aggregate Bond Index is composed of the Lehman Government/Corporate
Index and the Lehman Mortgage-Backed Securities Index. It reflects the price
fluctuations of Treasury securities, U.S. government agency securities,
corporate bond issues and mortgage-backed securities.
Lipper Rankings
Lipper Analytical Services, Inc. is an independent mutual fund ranking service
that groups funds according to their investment objectives. Rankings are based
on average annual returns for each fund in a given category for the periods
indicated. Rankings are not included for periods less than one year.
The Lipper category for the Diversified Bond funds are:
Short Investment-Grade Debt Funds (Limited-Term Bond)--funds with
dollar-weighted average maturities of 5 years or less that invest at least 65%
of their assets in investment-grade debt.
Intermediate Investment-Grade Debt Funds (Intermediate-Term Bond)-- funds with
dollar-weighted average maturities of 5-10 years that invest at least 65% of
their assets in investment-grade debt.
Corporate Debt Funds Rated A (Benham Bond)--funds that invest at least 65% of
their assets in government issues or corporate debt issues rated A or better.
PORTFOLIO MANAGEMENT TEAM
Senior Portfolio Manager Bud Hoops
Portfolio Manager Jeff Houston
CREDIT RESEARCH TEAM
Credit Analysts Edward Grant, Tanya Fleischer,
Michael Difley, Tom Vaiana,
John Walsh
Associate
Credit Analysts Sudha Mani, Richard McClung
36 Background Information American Century Investments
GLOSSARY
Returns
o Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
o Average Annual Returns illustrate the annually compounded returns that
would have produced the fund's cumulative total returns if the fund's
performance had been constant over the entire period. Average annual
returns smooth out variations in a fund's return; they are not the same as
fiscal year-by-year results. For fiscal year-by-year returns, please refer
to the "Financial Highlights" on pages 30-32.
Yields
o 30-day SEC Yield represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's
share price at the end of the 30-day period. The SEC yield should be
regarded as an estimate of the fund's rate of investment income, and it may
not equal the fund's actual income distribution rate, the income paid to a
shareholder's account, or the income reported in the fund's financial
statements.
Portfolio Statistics
o Number of Securities--the number of different securities held by a fund on
a given date.
o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average
time until the securities in the portfolio mature, weighted by dollar
amount. The longer the WAM, the more interest rate exposure and sensitivity
the portfolio has.
o Average Duration--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of
the interest and principal payments of the securities in a portfolio. As
the duration of a portfolio increases, so does the impact of a change in
interest rates on the value of the portfolio.
o Expense Ratio--the operating expenses of the fund, expressed as a
percentage of average net assets. Shareholders pay an annual fee to the
investment manager for investment advisory and management services. The
expenses and fees are deducted from fund income, not from each shareholder
account. (See Note 2 in the Notes to Financial Statements.)
Types of Fixed-Income Securities
o Corporate Bonds--debt securities or instruments issued by companies and
corporations. Short-term corporate securities are tyically issued to raise
cash and cover current expenses in anticipation of future revenues;
long-term corporate securities are issued to finance capital expenditures,
such as new plant construction or equipment purchases.
o Foreign Government Securities--debt securities issued or guaranteed by
foreign governments or their political subdivisions. Some of these
securities are direct obligations of the issuing government; others are
backed by some form of government sponsorship.
o Mortgage-Backed Securities--debt securities that represent ownership in
pools of mortgage loans. Most mortgage-backed securities are structured as
"pass-throughs"--the monthly payments of principal and interest on the
mortgages in the pool are collected by the bank that is servicing the
mortgages and are "passed through" to investors. While the payments of
principal and interest are considered secure (many are backed by government
agency guarantees), the cash flow is less certain than in other
fixed-income investments. Mortgages that are paid off early reduce future
interest payments from the pool.
o U.S. Government Agency Securities--debt securities issued by U.S.
government agencies (such as the Federal Home Loan Bank and the Federal
Farm Credit Bank). Government agency securities include discount notes
(maturing in one year or less) and medium-term notes, debentures and bonds
(maturing in three months to 50 years).
o U.S. Treasury Securities--debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years) and bonds (maturing in more than 10 years).
Semiannual Report Glossary 37
[american century logo]
American
Century(sm)
P.O. Box 419200
Kansas City, Missouri
64141-6200
Investor Services:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-444-3485
Fax: 816-340-7962
Internet: www.americancentury.com
AMERICAN CENTURY MUTUAL FUNDS, INC.
Investment Manager
AMERICAN CENTURY INVESTMENT MANAGEMENT
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.
American Century Investment Services, Inc.
9706 [recycled logo]
SH-BKT-8698 Recycled
