[front cover]
OCTOBER 31, 1999
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
BALANCED
[american century logo (reg.sm)]
American
Century
[inside front cover]
Y2K Testing Efforts Pay Dividends in Preparedness
--------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change
from December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and
returned to production. We have an ongoing commitment to testing our systems
with our vendors and business partners and within the industry throughout the
rest of the year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans are designed to minimize the impact on our investors and help
us maintain operations in the event of any Y2K-related incidents. We will
conduct practice drills of contingency scenarios during the rest of 1999 and
refine those plans to respond quickly and effectively so that the date change is
as seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
BALANCED
(TWBIX)
---------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
Tackling the Rollover Challenge
--------------------------------------------------------------------------------
Changing jobs or retiring? The American Century Personalized Rollover
Service(SM) provides individualized service that makes rolling over your
employer-sponsored retirement plan easy and stress free.
Our Rollover Expert Team will:
* Give personal guidance on which options best meet your retirement needs by
explaining the types of investments available through both our mutual funds and
American Century Brokerage.
* Assist you with the paperwork, helping to ensure it's completed right the
first time.
* Monitor retirement plan money as it rolls over from your employer-
sponsored plan to the American Century Rollover IRA account.
Call the Rollover Expert Team weekdays 7 a.m. to 7 p.m. (CT) at
1-888-345-2431, ext. 4232, or visit our Web site at www.americancentury.com.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The past year demonstrated why investors should focus on long-term
investment strategies and maintain diversified portfolios. The consensus
expectation going into 1999 was that U.S. bonds would do well while U.S. stocks
cooled off. Instead, stocks rallied and bonds suffered.
In this environment, American Century Balanced produced a solid return,
outperforming the average balanced fund for the year ended October 31, 1999
(according to Lipper). Fund shareholders have benefited from our commitment to
build and maintain a talented fund management group. American Century's entire
investment management team has doubled in size over the past three years.
Turning to corporate matters, American Century has long been an active
supporter of the development of technologies that lower the costs of trading
securities and generate better returns for shareholders. As a result, we have
made strategic investments in several companies that provide technology for
electronic communications networks (ECNs). Today, more than one-third of our
equity trades are executed over these "alternative" networks. Savings in this
area directly affect the performance of your funds.
We're also pleased to announce that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
This isn't American Century's first nod of approval from DALBAR. In June,
DALBAR recognized our statement's individual rate of return feature--part of the
personalized performance section--as the key reason it ranked our statement
second out of 88 mutual fund company statements in the nation.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
BALANCED
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Types of Investments ................................................... 5
Top Five Stock Industries .............................................. 5
Top Ten Stock Holdings ................................................. 6
Fixed-Income Portfolio ................................................. 6
Schedule of Investments ................................................ 7
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 13
Statement of Operations ................................................ 14
Statements of Changes
in Net Assets ....................................................... 15
Notes to Financial
Statements .......................................................... 16
Financial Highlights ................................................... 19
Independent Auditors'
Report .............................................................. 21
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 22
Background Information
Investment Philosophy
and Policies ..................................................... 23
Comparative Indices ................................................. 23
Investment Team
Leaders .......................................................... 23
Credit Rating
Guidelines ....................................................... 23
Glossary ............................................................... 24
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended October 31, 1999, was surprisingly good for U.S. stocks and
unexpectedly disappointing for U.S. bonds.
* Economic growth in the U.S. and overseas was stronger than predicted,
leading to inflation concerns.
* The Federal Reserve raised short-term interest rates three times to fight
inflation.
* U.S. stocks, led by the high-flying technology sector, produced strong
returns.
* Growth stocks generally outperformed value stocks.
* Drug and bank stocks were two key sectors that lagged the broader market.
* Rising interest rates led to low returns for bonds.
* Mortgage-backed securities generally outperformed other U.S. bond sectors,
while Treasury securities lagged.
MANAGEMENT Q&A
* Balanced rode the strength of its stock portfolio to produce a 12% gain.
* Technology stocks helped boost the fund's performance. Microsoft continued
to be the top equity holding.
* The stock portfolio lost some ground to the S&P 500 early in the period that
it never quite made up. We made some adjustments to help the portfolio
track the index better.
* The bond portfolio benefited from our decisions to keep its interest rate
sensitivity (duration) relatively low and to add mortgage-backed securities
at an opportune time.
* Balanced paid a larger-than-usual distribution in December because of
capital gains caused by the change in the equity portfolio's management
style about a year ago.
[left margin]
BALANCED(1)
(TWBIX)
TOTAL RETURNS: AS OF 10/31/99
6 Months 2.18%(2)
1 Year 12.03%
30-DAY SEC YIELD: 2.52%
INCEPTION DATE: 10/20/88
NET ASSETS: $925.3 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 24-25.
2 1-800-345-2021
Market Perspective from Mark Mallon
--------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
OVERVIEW
In general, the year ended October 31, 1999, was surprisingly good for U.S.
stocks and unexpectedly disappointing for U.S. bonds. Demonstrating how
unpredictable markets can be and how important portfolio diversification
remains, global economies exhibited surprising strength in 1999, which caused
stocks and bonds to diverge from expected performance.
Many economists and analysts had predicted that residual problems from 1998
would cause a lukewarm environment for stocks and a potentially good one for
bonds. Instead, struggling economies--led by Japan--rebounded, commodity prices
jumped, and the U.S. economy continued to expand.
Corporate profits in the U.S. surpassed expectations, and interest rates
soared as inflation fears accelerated. The Federal Reserve (the U.S. central
bank) raised short-term interest rates three times in 1999 to attack inflation.
U.S. STOCKS
Stock returns for the year ended October 31 look quite good (see the table
at right). However, those returns obscure the fact that most of the positive
performance was generated from the end of October 1998 until April 1999. For
example, the S&P 500 gained more than 22% from October 31, 1998, through April
30, 1999, but less than 3% in the last six months.
The Fed's actions (and investors' anticipation of its moves) played a big
role in this performance disparity. Three interest rate cuts in 1998, plus
surprisingly strong economic growth in the fourth quarter of 1998, revitalized
investor confidence and helped spur the stock rebound in late 1998 and early
1999. However, by May, inflation became an issue, and investors feared that the
Fed would raise interest rates.
The biggest stock story in 1999 has been the technology sector. The
technology-laden NASDAQ Composite index gained more than 67% during the year
ended October 31, 1999, and the average technology stock in the S&P 500 was up
66%.
U.S. BONDS
Rising interest rates created a difficult environment for U.S. bonds. For
the year ended October 31, 1999, the Lehman Brothers Aggregate Bond Index--a
broad measure of U.S. bond performance--returned just 0.53% as 1999 shaped up to
be the worst year for U.S. bonds since 1994.
That's not surprising given what's happened in 1999. May turned out to be a
pivotal month. First, the inflation report for April showed the biggest monthly
consumer price increase in almost nine years. Then the Fed announced its policy
shift toward higher interest rates, which led to its first rate hikes since
March 1997.
Mortgage-backed securities were the best performing U.S. bond sector.
Mortgage-backed bonds were hurt by heavy mortgage refinancing activity in 1998,
but rising interest rates helped reduce prepayments in 1999. Treasury bonds
finished behind other bond sectors.
[right margin]
"THE YEAR ENDED OCTOBER 31, 1999, WAS SURPRISINGLY GOOD FOR U.S. STOCKS AND
UNEXPECTEDLY DISAPPOINTING FOR U.S. BONDS."
INDEX RETURNS
FOR THE YEAR ENDED OCTOBER 31, 1999
BLENDED INDEX* 15.61%
S&P 500* 25.67%
S&P MIDCAP 400 19.67%
S&P SMALLCAP 600 11.15%
NASDAQ COMPOSITE 67.46%
LEHMAN BROS. AGGREGATE
BOND INDEX* 0.53%
LEHMAN BROS. GOVT.
AGENCY BOND INDEX 0.22%
LEHMAN BROS. CORPORATE
BOND INDEX 0.61%
LEHMAN BROS. MORTGAGE-
BACKED SECURITIES INDEX 2.99%
LEHMAN BROS. TREASURY
BOND INDEX -1.55%
Source: Lipper Inc., Russell/Mellon Analytical, and Bloomberg Financial Markets
* Defined on page 23.
www.americancentury.com 3
Balanced--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 1999
INVESTOR CLASS (INCEPTION 10/20/88) ADVISOR CLASS (INCEPTION 1/6/97)
BLENDED LEHMAN AGGREGATE BLENDED LEHMAN AGGREGATE
BALANCED INDEX(2) S&P 500 BOND INDEX(2) BALANCED INDEX(2) S&P 500 BOND INDEX(2)
========================================================================================================================
6 MONTHS(1) 2.18% 1.58% 2.74% -0.15% 2.05% 1.58% 2.74% -0.15%
1 YEAR 12.03% 15.61% 25.67% 0.53% 11.74% 15.61% 25.67% 0.53%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 12.95% 18.38% 26.52% 6.18% -- -- -- --
5 YEARS 13.84% 18.79% 26.02% 7.94% -- -- -- --
10 YEARS 11.73% 13.84% 17.82% 7.88% -- -- -- --
LIFE OF FUND 12.41% 14.44%(3) 18.57%(3) 8.24%(3) 12.60% 18.08%(4) 25.95%(4) 6.27%(4)
(1) Returns for periods less than one year are not annualized.
(2) In December 1998, the bond portion of the blended index was changed from
the Lehman Brothers Intermediate Government/Corporate Index to the Lehman
Brothers Aggregate Bond Index, which we believe better represents the
broader U.S. taxable bond market.
(3) Return from 10/31/88, the date nearest the class's inception for which
data are available.
(4) Return from 12/31/96, the date nearest the class's inception for which
data are available.
See pages 22-24 for information about share classes, indices, and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/99
S&P 500 $51,530
New Blended Index $36,996
Old Blended Index $36,427
Balanced $30,293
Lehman Aggregate
Bond Index $21,351
Lehman Int.
Govt./Corp. Index $20,448
Lehman Int. Old Blended Lehman Aggregate New Blended
Balanced S&P 500 Govt./Corp. Index Index Bond Index Index
DATE VALUE VALUE VALUE VALUE VALUE VALUE
10/31/1989 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
10/31/1990 $9,789 $9,252 $10,738 $9,846 $10,631 $9,804
10/31/1991 $13,991 $12,351 $12,223 $12,370 $12,312 $12,394
10/31/1992 $14,081 $13,582 $13,445 $13,603 $13,522 $13,622
10/31/1993 $16,003 $15,611 $14,782 $15,363 $15,127 $15,490
10/31/1994 $15,854 $16,215 $14,497 $15,601 $14,572 $15,622
10/31/1995 $18,448 $20,502 $16,314 $18,859 $16,852 $19,077
10/31/1996 $21,038 $25,443 $17,262 $22,023 $17,838 $22,282
10/31/1997 $24,476 $33,613 $18,555 $26,925 $19,424 $27,367
10/31/1998 $27,036 $41,004 $20,247 $31,460 $21,238 $32,000
10/31/1999 $30,293 $51,530 $20,448 $36,427 $21,351 $36,996
$10,000 investment made 10/31/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. Both the
old and new blended indices and their components are provided in the graph at
left, while the new blended index is provided in the graph below. Balanced's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the indices do
not. These graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see Total Returns table
above). 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
Balanced New Blended Index
DATE RETURN RETURN
10/31/1990 -2.11% -1.96%
10/31/1991 42.92% 26.42%
10/31/1992 0.63% 9.91%
10/31/1993 13.64% 13.71%
10/31/1994 -0.93% 0.85%
10/31/1995 16.36% 22.12%
10/31/1996 14.04% 16.8%
10/31/1997 16.34% 22.82%
10/31/1998 10.46% 16.93%
10/31/1999 12.03% 15.61%
4 1-800-345-2021
Balanced--Q&A
--------------------------------------------------------------------------------
[photo of Kurt Borgwardt and John Schniedwind]
Equity team leaders: Kurt Borgwardt, John Schniedwind
[photo of Jeff Houston]
Fixed-income team leader: Jeff Houston
Based on interviews with Kurt Borgwardt, John Schniedwind, and Jeff
Houston, portfolio managers on the Balanced fund investment team.
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED OCTOBER 31?
Balanced's portfolio of approximately 60% U.S. stocks and 40% U.S. bonds
returned 12.03%.*
Balanced's benchmark (a blended index that combines the S&P 500 and the
Lehman Brothers Aggregate Bond Index in the same 60%/40% proportion) returned
15.61%.
WHAT CAUSED THE RETURN DIFFERENTIAL BETWEEN THE FUND AND THE BLENDED INDEX?
First, the fund's operating expenses will always put Balanced at a slight
disadvantage relative to the unmanaged index, which has no such expenses to
bear.
Second, the S&P 500 outperformed Balanced's equity portfolio. Most of the
underperformance took place early in the fiscal year before we implemented some
changes in our approach. The adjustments we've made (such as bringing our
industry positions more in line with the S&P 500 and focusing more on stock
selection) helped the stock portfolio track the index better during the
remainder of the fiscal year.
WHAT OTHER FACTORS AFFECTED THE PERFORMANCE OF BALANCED'S EQUITY PORTFOLIO?
On the plus side, our exposure to the soaring technology sector certainly
helped. Two of our top 10 holdings at the end of the period, Applied Materials
and Adaptec, were technology stocks that gained more than 160% during the year
ended October 31, 1999. Even beleaguered Microsoft, our top equity holding, was
up 70% during that time frame.
On the minus side, two key sectors--pharmaceuticals and banking--
significantly underperformed the S&P 500. Drug stocks fell into disfavor when
the U.S. economy continued to exhibit strong growth (drug stocks are attractive
during periods of slow economic growth). Bank stocks were hurt by rising
interest rates.
IN LIGHT OF THE RECENT ANTITRUST LITIGATION, WILL MICROSOFT CONTINUE TO BE A
TOP HOLDING?
Despite its well-documented legal challenges, Microsoft beat the return of
every major U.S. stock index during Balanced's fiscal year.
There's compelling evidence that Bill Gates' company can continue to
perform well. Demand for its products has remained robust, and we think this
will be bolstered next year when the Windows 2000 operating system is released.
[right margin]
"THE ADJUSTMENTS WE'VE MADE HELPED THE STOCK PORTFOLIO TRACK THE INDEX BETTER
DURING THE REMAINDER OF THE FISCAL YEAR."
[pie charts - data below]
TYPES OF INVESTMENTS
IN THE PORTFOLIO
AS OF OCTOBER 31, 1999
Common Stocks 58%
Corporate Bonds 14%
Mortgage- & Asset-Backed
Securities 14%
U.S. Treasury Securities 8%
Temporary Cash Investments 4%
U.S. Govt. Agency Securities 2%
TOP FIVE STOCK INDUSTRIES
% OF EQUITY PORTFOLIO
AS OF AS OF
10/31/99 4/30/99
TELEPHONE 8.6% 9.0%
DRUGS 7.9% 7.7%
BANKING 7.5% 8.5%
COMPUTER SOFTWARE 6.7% 8.0%
ELECTRICAL EQUIPMENT 6.5% 3.7%
Security types are defined on page 24.
* All fund returns referenced in this interview are for Investor Class shares.
www.americancentury.com 5
Balanced--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT FACTORS AFFECTED THE PERFORMANCE OF BALANCED'S BOND PORTFOLIO?
Rising interest rates and our management of the portfolio's interest rate
sensitivity were two key factors. Higher interest rates caused U.S. bonds to
post low returns. Fortunately, we kept the portfolio's duration relatively
short-- less than five years. Duration is a measure of interest rate
sensitivity. A fund with a shorter duration is less sensitive to interest rate
changes.
We also added attractively valued mortgage-backed securities when the
spread, or difference in yield, between Treasury securities and mortgage-backed
securities widened during the summer. The wider the yield spread, the more
attractive mortgages became. Spreads later snapped back, which allowed mortgage
securities to outperform Treasurys.
WHY DID BALANCED PAY A LARGER-THAN-USUAL DISTRIBUTION IN DECEMBER?
It was caused by the change we made in the equity portfolio's management
style about a year ago, when we switched to a quantitative approach. We sold
some stocks that had looked attractive using the former growth acceleration
approach but didn't fit into the more value-oriented quantitative screens or
risk characteristics of our new approach.
Some of the stocks we sold had increased significantly in value and
generated sizable capital gains. And because the gains occurred after the close
of Balanced's 1998 tax year on October 31, 1998, they became taxable events in
the fund's 1999 tax year.
WHAT'S YOUR OUTLOOK FOR THE U.S. ECONOMY AND THE MARKETS?
Here's a summary of our thoughts:
* We expect strong economic growth to continue in the U.S., at least through
the first quarter of 2000. The economy could slow later in the year as higher
interest rates and rising wages increase borrowing costs and expenses.
* We think there's a high probability that the Fed will raise short-term
interest rates at least once in the first quarter of 2000.
* We believe that different sectors of the U.S. stock market will outperform
those that did so well in 1999, such as technology. That should be especially
true if economic growth slows.
* A lot of bad news is already priced into U.S. bonds. We think bonds could
rally in 2000, particularly later in the year.
Of course, no one knows for sure what will happen. Just look at how 1999
differed from expectations.
WHAT'S YOUR OUTLOOK FOR BALANCED?
We'll maintain our disciplined approach to managing Balanced, using the
blended index (which incorporates the S&P 500 and the Lehman Brothers Aggregate
Bond indices) as our benchmark.
On the stock side, we'll continue to try to outperform the S&P 500. We look
for stocks with compelling expected returns (based on both growth and value
measures), and then we build a portfolio that can potentially provide higher
returns than the index without taking on more risk than investing in the index
directly.
On the bond side, we'll continue to track the Aggregate Bond Index, aiming
to outperform the index by modestly overweighting sectors of the market that we
think are undervalued.
[left margin]
TOP TEN STOCK HOLDINGS
% OF EQUITY PORTFOLIO
AS OF AS OF
10/31/99 4/30/99
MICROSOFT CORP. 4.7% 4.8%
WAL-MART STORES, INC. 3.4% 1.9%
CHASE MANHATTAN
CORP. 3.0% 3.8%
APPLIED MATERIALS,
INC. 2.8% --
MORGAN STANLEY
DEAN WITTER & CO. 2.5% 2.2%
ADAPTEC, INC. 2.3% --
GENERAL ELECTRIC CO.
(U.S.) 2.1% 1.7%
SPRINT CORP. 2.0% --*
SBC COMMUNICATIONS
INC. 1.9% 1.5%
AMERADA HESS CORP. 1.9% --
* Percentage owned was less than 0.05%.
FIXED-INCOME PORTFOLIO
AS OF AS OF
10/31/99 4/30/99
PORTFOLIO SENSITIVITY TO INTEREST RATES
WEIGHTED AVERAGE MATURITY 7.8 YEARS 8.0 YEARS
DURATION 4.7 YEARS 4.6 YEARS
PORTFOLIO CREDIT QUALITY % OF FIXED-INCOME PORTFOLIO
AAA 65% 61%
AA 5% 3%
A 13% 18%
BBB 13% 14%
BB 4% 4%
-------- --------
100% 100%
======== ========
Investment terms are defined in the Glossary on pages 24-25. Ratings provided by
Standard & Poor's. See Credit Rating Guidelines on page 23 for more information
6 1-800-345-2021
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. The
securities are grouped by asset class (such as common stocks, corporate bonds,
temporary cash investments, as applicable), and some asset classes are further
broken down by industry or country.
OCTOBER 31, 1999
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 58.4%
AIRLINES -- 0.1%
14,800 AMR Corp.(1) $ 940
5,700 Delta Air Lines Inc. 310
--------
1,250
--------
ALCOHOL -- 0.3%
17,700 Anheuser-Busch Companies, Inc. 1,271
19,400 Coors (Adolph) Co. Cl B 1,077
--------
2,348
--------
APPAREL & TEXTILES -- 0.2%
14,900 Jones Apparel Group, Inc.(1) 471
36,400 Tommy Hilfiger Corp.(1) 1,028
--------
1,499
--------
BANKS -- 4.4%
65,900 Bank of America Corp. 4,242
185,000 Chase Manhattan Corp. 16,164
59,600 Citigroup Inc. 3,226
27,100 Fifth Third Bancorp 1,999
48,700 Fleet Boston Corp. 2,125
65,800 Old Kent Financial Corp. 2,681
9,200 Pacific Century Financial Corp. 210
123,600 UnionBanCal Corp. 5,369
20,600 Wells Fargo & Co. 986
51,400 Zions Bancorporation 3,028
--------
40,030
--------
CHEMICALS -- 1.4%
43,500 Dexter Corp. (The) 1,525
59,900 Dow Chemical Co. 7,083
53,800 du Pont (E.I.) de Nemours & Co. 3,467
7,900 Sealed Air Corp.(1) 437
--------
12,512
--------
CLOTHING STORES -- 0.3%
11,000 Abercrombie & Fitch Co. Cl A(1) 300
50,900 AnnTaylor Stores Corp.(1) 2,166
12,000 TJX Companies, Inc. (The) 326
--------
2,792
--------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 2.9%
278,600 Adaptec, Inc.(1) 12,528
3,000 Apple Computer, Inc.(1) 240
19,400 Dell Computer Corp.(1) 778
108,700 Electronics for Imaging, Inc.(1) 4,379
111,800 Hewlett-Packard Co. 8,280
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
7,400 Lexmark International Group,
Inc. Cl A(1) $ 578
--------
26,783
--------
COMPUTER SOFTWARE -- 3.9%
2,800 Adobe Systems Inc. 196
19,000 Computer Associates
International, Inc. 1,074
56,400 International Business
Machines Corp. 5,548
270,000 Microsoft Corp.(1) 24,992
21,800 Sterling Software, Inc.(1) 478
17,700 Symantec Corp.(1) 845
107,700 Unisys Corp.(1) 2,612
--------
35,745
--------
CONSTRUCTION & REAL PROPERTY -- 0.2%
41,300 Centex Corp. 1,107
24,300 Pulte Corp. 489
--------
1,596
--------
CONSUMER DURABLES -- 0.1%
7,900 Whirlpool Corp. 551
--------
DEFENSE/AEROSPACE -- 0.2%
34,900 General Dynamics Corp. 1,935
--------
DEPARTMENT STORES -- 2.1%
9,100 Kohl's Corp.(1) 681
325,600 Wal-Mart Stores, Inc. 18,457
--------
19,138
--------
DRUGS -- 4.6%
8,800 Allergan, Inc. 945
94,200 Amgen Inc.(1) 7,510
31,500 Andrx Corp.(1) 1,509
25,100 Biogen, Inc.(1) 1,860
79,200 Bristol-Myers Squibb Co. 6,084
35,500 Forest Laboratories, Inc.(1) 1,629
94,800 IVAX Corp.(1) 1,665
10,100 Jones Pharma, Inc. 314
36,800 Lilly (Eli) & Co. 2,535
15,900 MedImmune, Inc.(1) 1,779
22,300 Merck & Co., Inc. 1,774
31,600 Pfizer, Inc. 1,248
17,500 Roberts Pharmaceutical Corp.(1) 564
157,800 Schering-Plough Corp. 7,811
63,800 Warner-Lambert Co. 5,092
--------
42,319
--------
ELECTRICAL EQUIPMENT -- 3.8%
108,300 Cisco Systems Inc.(1) 8,018
40,800 Comverse Technology, Inc.(1) 4,628
114,700 Corning Inc. 9,018
See Notes to Financial Statements www.americancentury.com 7
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (continued)
139,800 Lucent Technologies Inc. $ 8,982
11,900 Millipore Corp. 379
14,400 Motorola, Inc. 1,403
44,300 Nortel Networks Corp. New York
Shares 2,744
--------
35,172
--------
ELECTRICAL UTILITIES -- 1.1%
1,600 DTE Energy Company 53
14,000 Energy East Corp. 352
6,700 FPL Group, Inc. 337
59,700 Minnesota Power & Light Co. 1,104
66,400 Public Service Enterprise
Group Inc. 2,627
32,200 Reliant Energy, Inc. 877
85,300 Southern Co. 2,266
24,100 Texas Utilities Co. 934
92,000 Utilicorp United Inc. 1,990
--------
10,540
--------
ENERGY RESERVES & PRODUCTION -- 3.1%
176,700 Amerada Hess Corp. 10,138
23,200 Anadarko Petroleum Corp. 715
107,700 Apache Corp. 4,200
34,100 Atlantic Richfield Co. 3,178
56,700 Mobil Corp. 5,472
275,800 Union Pacific Resources 3,999
10,600 Vastar Resources, Inc. 626
--------
28,328
--------
ENTERTAINMENT -- 0.3%
18,500 Carnival Corp. Cl A 823
19,800 Pixar, Inc.(1) 756
36,300 Viacom, Inc. Cl B(1) 1,624
--------
3,203
--------
FINANCIAL SERVICES -- 3.2%
134,000 Fannie Mae 9,481
69,500 Federal Home Loan Mortgage
Corporation 3,757
32,700 Gallagher (Arthur J.) & Co. 1,692
84,500 General Electric Co. (U.S.) 11,455
32,200 Providian Financial Corp. 3,510
--------
29,895
--------
FOOD & BEVERAGE -- 2.4%
19,200 ConAgra, Inc. 500
46,200 Earthgrains Company 1,054
10,400 General Mills, Inc. 907
34,800 Hormel Foods Corp. 1,501
137,200 IBP, Inc. 3,284
106,400 Keebler Foods Co.(1) 3,398
108,800 Quaker Oats Co. (The) 7,616
62,500 Suiza Foods Corp.(1) 2,254
25,307 Unilever N.V. New York Shares 1,688
--------
22,202
--------
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 0.7%
11,600 Boise Cascade Corp. $ 413
28,800 Georgia-Pacific Corp. 1,143
26,800 Kimberly-Clark Corp. 1,692
46,200 Weyerhaeuser Co. 2,758
--------
6,006
--------
GAS & WATER UTILITIES -- 0.2%
68,500 LG&E Energy Corp. 1,507
--------
GROCERY STORES -- 0.3%
121,600 Kroger Co. (The)(1) 2,531
--------
HEAVY ELECTRICAL EQUIPMENT -- 0.6%
24,700 American Power Conversion
Corp.(1) 553
65,300 CommScope, Inc.(1) 2,604
13,700 Cummins Engine Company, Inc. 694
31,100 Rockwell International Corp. 1,506
9,100 Teleflex Inc. 310
--------
5,667
--------
HOME PRODUCTS -- 1.2%
31,300 Fortune Brands, Inc. 1,109
69,000 Premark International, Inc. 3,778
48,300 Procter & Gamble Co. (The) 5,065
35,500 Tupperware Corp. 703
--------
10,655
--------
HOTELS -- 0.1%
14,300 Anchor Gaming(1) 870
--------
INDUSTRIAL PARTS -- 1.1%
66,400 Ingersoll-Rand Co. 3,469
138,400 Tyco International Ltd. 5,527
22,300 United Technologies Corp. 1,349
--------
10,345
--------
INDUSTRIAL SERVICES -- 0.2%
48,700 Hertz Corp. Cl A 2,112
--------
INFORMATION SERVICES -- 0.7%
4,400 American Management
System, Inc.(1) 114
16,500 MedQuist Inc.(1) 527
51,900 Navigant Consulting, Inc.(1) 1,482
91,800 Valassis Communications, Inc.(1) 3,947
--------
6,070
--------
INTERNET -- 0.9%
52,600 America Online Inc.(1) 6,822
43,900 USWeb Corp.(1) 1,702
--------
8,524
--------
LEISURE -- 0.2%
23,900 Eastman Kodak Co. 1,648
16,100 Station Casinos, Inc.(1) 389
--------
2,037
--------
8 1-800-345-2021 See Notes to Financial Statements
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
LIFE AND HEALTH INSURANCE -- 0.8%
156,000 Lincoln National Corp. $ 7,196
--------
MEDIA -- 1.1%
119,000 CBS Corp.(1) 5,809
41,600 Comcast Corp. Cl A 1,751
37,900 Cox Communications, Inc. Cl A(1) 1,722
16,200 EchoStar Communications Corp.
Cl A(1) 1,008
--------
10,290
--------
MEDICAL PRODUCTS & SUPPLIES -- 1.6%
54,900 Bard (C.R.), Inc. 2,961
45,200 Genzyme Corp. 1,726
11,500 IDEC Pharmaceuticals Corp.(1) 1,336
51,400 Johnson & Johnson 5,384
31,800 Mallinckrodt Inc. 1,079
37,000 VISX, Inc.(1) 2,314
--------
14,800
--------
MEDICAL PROVIDERS & SERVICES -- 0.2%
58,800 Oxford Health Plans, Inc.(1) 693
23,500 PacifiCare Health Systems, Inc.(1) 926
6,300 United HealthCare Corp. 326
--------
1,945
--------
MINING & METALS -- 0.4%
25,000 Alcan Aluminium Ltd. 823
17,600 Alcoa Inc. 1,069
30,100 Ball Corporation 1,213
22,500 Centex Construction Products Inc. 800
--------
3,905
--------
MOTOR VEHICLES & PARTS -- 0.9%
18,500 Delphi Automotive Systems Corp. 304
102,400 Ford Motor Co. 5,619
27,200 General Motors Corp. 1,911
15,000 PACCAR Inc. 706
--------
8,540
--------
OIL REFINING -- 0.1%
17,100 Texaco Inc. 1,050
--------
OIL SERVICES -- 0.1%
54,300 Ensco International Inc. 1,052
5,900 Noble Drilling Corp.(1) 131
--------
1,183
--------
PROPERTY AND CASUALTY
INSURANCE -- 0.7%
79,500 Ambac Financial Group, Inc. 4,750
8,050 American International Group, Inc. 829
13,700 Radian Group Inc. 724
--------
6,303
--------
PUBLISHING -- 0.3%
97,000 Deluxe Corp. 2,740
--------
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
RAILROADS -- 0.1%
9,700 Union Pacific Corp. $ 541
--------
RESTAURANTS -- 0.4%
41,000 Brinker International, Inc.(1) 956
19,500 Darden Restaurants, Inc. 372
72,600 Jack in the Box Inc.(1) 1,747
12,100 Tricon Global Restaurants Inc.(1) 486
--------
3,561
--------
SECURITIES & ASSET MANAGEMENT -- 1.5%
8,200 Merrill Lynch & Co., Inc. 644
121,700 Morgan Stanley Dean Witter & Co. 13,425
--------
14,069
--------
SEMICONDUCTOR -- 2.3%
167,400 Applied Materials, Inc.(1) 15,040
111,500 Integrated Device Technology,
Inc.(1) 2,289
11,200 Lam Research Corp.(1) 944
36,300 National Semiconductor Corp.(1) 1,087
28,100 PerkinElmer, Inc. 1,147
9,800 Texas Instruments Inc. 880
--------
21,387
--------
SPECIALTY STORES -- 1.4%
26,600 Best Buy Co., Inc.(1) 1,478
131,100 Home Depot, Inc. 9,898
44,700 Zale Corp.(1) 1,872
--------
13,248
--------
TELEPHONE -- 5.0%
176,600 AT&T Corp. 8,256
39,000 Bell Atlantic Corp. 2,533
202,100 BellSouth Corp. 9,095
18,200 Dycom Industries, Inc.(1) 593
46,700 GTE Corp. 3,503
1,500 MCI WorldCom, Inc.(1) 129
200,990 SBC Communications Inc. 10,238
148,100 Sprint Corp. 11,006
12,900 U S WEST, Inc. 788
--------
46,141
--------
THRIFTS -- 0.1%
25,700 GreenPoint Financial Corp. 732
--------
TOBACCO -- 0.1%
36,700 Universal Corp. 862
--------
TRUCKING, SHIPPING & AIR FREIGHT(2)
9,600 USFreightways Corp. 435
--------
WIRELESS TELECOMMUNICATIONS -- 0.5%
11,700 QUALCOMM Inc.(1) 2,606
19,300 Sprint PCS(1) 1,601
--------
4,207
--------
TOTAL COMMON STOCKS 537,297
--------
(Cost $431,515)
See Notes to Financial Statements www.americancentury.com 9
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 8.0%
$7,000 U.S. Treasury Notes, 5.125%,
8/31/00 $ 6,979
4,075 U.S. Treasury Notes, 7.75%,
2/15/01 4,177
5,000 U.S. Treasury Notes, 4.875%,
3/31/01 4,942
2,460 U.S. Treasury Notes, 6.625%,
7/31/01 2,493
7,150 U.S. Treasury Notes, 6.25%,
8/31/02 7,217
3,000 U.S. Treasury Notes, 7.50%,
2/15/05 3,188
8,000 U.S. Treasury Notes, 7.00%,
7/15/06 8,355
2,000 U.S. Treasury Notes, 6.00%,
8/15/09 1,998
2,500 U.S. Treasury Bonds, 12.00%,
8/15/08 3,427
4,000 U.S. Treasury Bonds, 9.125%,
5/15/18 5,117
8,250 U.S. Treasury Bonds, 8.875%,
2/15/19 10,375
2,000 U.S. Treasury Bonds, 7.50%,
11/15/24 2,262
4,200 U.S. Treasury Bonds, 6.50%,
11/15/26 4,248
5,000 U.S. Treasury Bonds, 6.375%,
8/16/27 4,977
4,600 U.S. Treasury Bonds, 5.25%,
11/15/28 3,954
--------
TOTAL U.S. TREASURY SECURITIES 73,709
--------
(Cost $76,704)
U.S. GOVERNMENT AGENCY SECURITIES -- 2.4%
5,000 FHLB, 5.50%, 8/13/01 4,946
3,000 FNMA, 5.25%, 1/15/09 2,704
3,000 FNMA, 6.50%, 4/29/09 2,867
3,750 FNMA MTN, 5.83%, 2/2/04 3,620
4,000 FNMA MTN, 5.54%, 2/5/04 3,803
4,000 FNMA MTN, 5.74%, 1/21/09 3,623
--------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 21,563
--------
(Cost $22,741)
MORTGAGE-BACKED SECURITIES(3) -- 9.9%
4,190 FHLMC Pool #C00578, 6.50%,
1/1/28 4,024
3,993 FHLMC Pool #C30257, 7.00%,
8/1/29 3,927
3,166 FHLMC Pool #C30060, 7.50%,
8/1/29 3,181
2,000 FHLMC REMIC, Series 77,
Class H PAC, 8.50%, 9/15/20 2,076
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$4,765 FNMA Pool #050985, 6.00%,
3/1/00 $ 4,621
472 FNMA Pool #347879, 6.50%,
5/1/11 465
3,866 FNMA Pool #377656, 7.50%,
11/1/11 3,919
3,668 FNMA Pool #313481, 7.00%,
4/1/12 3,670
91 FNMA Pool #398955, 6.50%,
10/1/12 90
332 FNMA Pool #251700, 6.50%,
5/1/13 326
144 FNMA Pool #429525, 6.50%,
5/1/13 141
401 FNMA Pool #421163, 6.50%,
6/1/13 394
543 FNMA Pool #421173, 6.50%,
6/1/13 535
506 FNMA Pool #421501, 6.50%,
6/1/13 497
336 FNMA Pool #429306, 6.50%,
6/1/13 330
184 FNMA Pool #433184, 6.50%,
6/1/13 181
3,242 FNMA Pool #433885, 6.50%,
7/1/13 3,187
4,682 FNMA Pool #412562, 6.50%,
1/1/28 4,502
3,169 FNMA Pool #413812, 6.50%,
1/1/28 3,047
5,331 FNMA Pool #411821, 7.00%,
1/1/28 5,242
3,704 FNMA Pool #440691, 6.50%,
11/1/28 3,555
3,787 FNMA Pool #450619, 6.00%,
12/1/28 3,534
1,972 FNMA Pool #453956, 6.00%,
12/1/28 1,840
3,212 FNMA Pool #454947, 6.00%,
12/1/28 2,997
2,892 FNMA Pool #252211, 6.00%,
1/1/29 2,699
2,878 FNMA Pool #252212, 6.50%,
1/1/29 2,762
4,620 FNMA Pool #485403, 6.00%,
2/1/29 4,312
3,705 FNMA Pool #485438, 6.50%,
2/1/29 3,556
4,630 FNMA Pool #506995, 7.50%,
7/1/29 4,645
4,772 GNMA Pool #002202, 7.00%,
4/20/26 4,674
3,054 GNMA Pool #780412, 7.50%,
8/15/26 3,066
2,405 GNMA Pool #467626, 7.00%,
2/15/28 2,361
2,486 GNMA Pool #458862, 7.50%,
2/15/28 2,496
10 1-800-345-2021 See Notes to Financial Statements
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$4,125 GNMA Pool #469811, 7.00%,
12/15/28 $ 4,051
--------
TOTAL MORTGAGE-BACKED SECURITIES 90,903
--------
(Cost $93,405)
ASSET-BACKED SECURITIES(3) -- 4.2%
2,800 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%,
2/15/12 2,758
2,433 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 2,439
5,559 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 5,403
2,783 FNMA Whole Loan, Series
1995 W1, Class A6, 8.10%,
4/25/25 2,821
6,500 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 6,024
3,000 Money Store (The) Home Equity
Trust, Series 1997 C, Class AF6
SEQ, 6.67%, 2/15/25 2,981
4,250 PECO Energy Transition Trust,
Series 1999 A, Class A6 SEQ,
6.05%, 3/1/09 4,025
3,000 Union Acceptance Corp., Series
1996 D, Class A3, 6.30%,
1/8/04 2,989
4,350 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4, 6.78%,
2/15/16 4,348
2,100 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5, 6.92%,
10/15/18 2,100
3,200 United Companies Financial Corp.,
Home Equity Loan, Series
1997 C, Class A7, 6.85%,
1/15/29 3,154
--------
TOTAL ASSET-BACKED SECURITIES 39,042
--------
(Cost $40,052)
CORPORATE BONDS -- 13.6%
BANKS -- 1.2%
5,000 Bank of America N.A., 6.875%,
2/15/05 4,963
3,000 Citigroup Inc., 5.80%, 3/15/04 2,870
2,000 Fleet Boston Corp., 5.75%,
1/15/09 1,791
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$2,000 U.S. Bank, NA Minnesota, 5.70%,
12/15/08 $ 1,802
--------
11,426
--------
CHEMICALS -- 0.3%
3,150 du Pont (E.I.) de Nemours & Co.,
6.875%, 10/15/09 3,131
--------
DEPARTMENT STORES -- 0.4%
4,000 Sears, Roebuck & Co. MTN,
7.12%, 6/4/04 4,009
--------
ELECTRICAL EQUIPMENT -- 0.3%
3,000 Qwest Communications
International Inc., Series B,
7.50%, 11/1/08 2,990
--------
ELECTRICAL UTILITIES -- 0.7%
2,000 Texas Utilities Electric Co.,
8.125%, 2/1/02 2,050
4,200 Yorkshire Power Finance,
Series B, 6.15%, 2/25/03 4,046
--------
6,096
--------
ENERGY EQUIPMENT & SERVICES -- 0.2%
2,500 Petroleum Geo-Services ASA,
7.125%, 3/30/28 2,246
--------
ENERGY RESERVES & PRODUCTION -- 0.4%
3,650 EOG Resources Inc., 6.70%,
11/15/06 3,543
--------
FINANCIAL SERVICES -- 2.0%
3,500 Associates Corp., N.A., 6.375%,
10/15/02 3,461
4,000 Comdisco, Inc., 6.375%,
11/30/01 3,933
3,500 Ford Motor Credit Co., 6.125%,
4/28/03 3,418
2,700 Ford Motor Credit Co., 6.75%,
5/15/05 2,654
2,000 Ford Motor Credit Co., 7.375%,
10/28/09 2,019
3,000 Money Store Inc. (The), 8.05%,
4/15/02 3,079
--------
18,564
--------
FOOD & BEVERAGE -- 0.4%
4,000 Pepsi Bottling Group Inc.,
5.625%, 2/17/09 (Acquired
2/3/99, Cost $3,983)(4) 3,616
--------
FOREST PRODUCTS & PAPER -- 0.4%
4,100 Abitibi-Consolidated Inc., 7.40%,
4/1/18 3,666
--------
GAS & WATER UTILITIES -- 0.5%
2,000 K N Energy, Inc., 6.45%,
11/30/01 1,971
2,250 Southern Union Co., 8.25%,
11/15/29 2,301
--------
4,272
--------
See Notes to Financial Statements www.americancentury.com 11
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
GOLD -- 0.4%
$3,500 Barrick Gold Corp., 7.50%,
5/1/07 $ 3,498
--------
GROCERY STORES -- 0.4%
3,700 Kroger Co. (The), 7.25%, 6/1/09 3,603
--------
HEAVY ELECTRICAL EQUIPMENT -- 0.7%
6,000 Anixter International Inc., 8.00%,
9/15/03 6,019
--------
LIFE AND HEALTH INSURANCE -- 1.6%
5,000 Aetna Services, Inc., 6.75%,
8/15/01 4,995
3,600 Conseco Inc., 6.40%, 6/15/01 3,514
1,200 Conseco Inc., 9.00%, 10/15/06 1,206
5,000 Underwriters Reinsurance Co.,
7.875%, 6/30/06 (Acquired
8/6/96, Cost $5,156)(4) 5,060
--------
14,775
--------
MEDIA -- 0.6%
3,650 British Sky Broadcasting, 6.875%,
2/23/09 3,304
2,250 CSC Holdings Inc., 7.625%,
7/15/18 2,083
--------
5,387
--------
MINING & METALS -- 0.3%
3,300 Owens-Illinois Inc., 7.15%,
5/15/05 3,076
--------
MOTOR VEHICLES & PARTS -- 0.4%
3,750 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99,
Cost $3,750)(4) 3,680
--------
OFFICE -- 0.5%
5,000 Spieker Properties, Inc., 6.80%,
12/15/01 4,969
--------
OIL REFINING -- 0.3%
3,000 USX Corp., 6.85%, 3/1/08 2,848
--------
SPECIALTY STORES -- 0.2%
2,000 Rite Aid Corp., 6.00%, 12/15/05
(Acquired 6/16/99,
Cost $1,836)(4) 1,480
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TELEPHONE -- 1.1%
$5,000 GTE North Inc., Series H, 5.65%,
11/15/08 $ 4,510
3,000 GTE South, 7.25%, 8/1/02 3,038
2,250 MCI WorldCom, Inc., 6.95%,
8/15/28 2,122
--------
9,670
--------
WIRELESS TELECOMMUNICATIONS -- 0.3%
2,540 AirTouch Communications, Inc.,
7.125%, 7/15/01 2,557
--------
TOTAL CORPORATE BONDS 125,121
--------
(Cost $128,664)
TEMPORARY CASH INVESTMENTS -- 3.5%
Repurchase Agreement, Goldman Sachs &
Co., Inc., (U.S. Treasury obligations), in a
joint trading account at 5.13%, dated
10/29/99, due 11/1/99 (Delivery value
$32,514) 32,500
--------
(Cost $32,500)
TOTAL INVESTMENT SECURITIES -- 100.0% $920,135
========
(Cost $825,581)
FUTURES CONTRACTS
($ in Thousands)
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Gain
---------------------------------------------------------------------
42 S&P 500 December
Futures 1999 $14,459 $ 898
11 S&P 500 March
Futures 2000 3,828 238
------------------------------------
$18,287 $1,136
====================================
Futures contracts are typically based on a stock index, such as the S&P 500, and
they tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the fund
can stay fully invested in stocks while having easy access to the money.
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
(1) Non-income producing.
(2) Industry is less than 0.05% of total investment securities.
(3) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(4) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 1999, was $13,836
which represented 1.5% of net assets.
12 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
OCTOBER 31, 1999
ASSETS (In Thousands Except Per Share Amounts)
Investment securities, at value
(identified cost of $825,581) (Note 3) .................. $ 920,135
Cash ...................................................... 128
Receivable for investments sold ........................... 15,977
Receivable for variation margin
on futures contracts .................................... 1,339
Dividends and interest receivable ......................... 5,227
------------
942,806
------------
LIABILITIES
Payable for investments purchased ......................... 16,215
Payable for capital shares redeemed ....................... 498
Accrued management fees (Note 2) .......................... 766
Distribution fees payable (Note 2) ........................ 2
Service fees payable (Note 2) ............................. 2
Payable for directors' fees and expenses .................. 1
Accrued expenses and other liabilities .................... 2
------------
17,486
------------
Net Assets ................................................ $ 925,320
============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ................... $ 707,211
Undistributed net investment income ....................... 2,226
Accumulated undistributed net
realized gain on investments ............................ 120,193
Net unrealized appreciation
on investments (Note 3) ................................. 95,690
------------
$ 925,320
============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................................ $914,373,233
Shares outstanding ........................................ 48,249,695
Net asset value per share ................................. $ 18.95
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................................ $ 10,946,303
Shares outstanding ........................................ 577,871
Net asset value per share ................................. $ 18.94
See Notes to Financial Statements www.americancentury.com 13
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 1999
INVESTMENT INCOME (In Thousands)
Income:
Interest .................................................. $ 25,032
Dividends ................................................. 7,725
---------
32,757
---------
Expenses (Note 2):
Management fees ........................................... 9,520
Distribution fees -- Advisor Class ........................ 23
Service fees -- Advisor Class ............................. 23
Directors' fees and expenses .............................. 8
---------
9,574
---------
Net investment income ..................................... 23,183
---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on investments .......................... 126,427
Change in net unrealized
appreciation on investments ............................. (40,562)
---------
Net realized and unrealized
gain on investments ..................................... 85,865
---------
Net Increase in Net Assets
Resulting from Operations ............................... $ 109,048
=========
14 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 1998
Increase (Decrease) in Net Assets 1999 1998
OPERATIONS (In Thousands)
Net investment income ............................ $ 23,183 $ 20,669
Net realized gain on investments ................. 126,427 101,331
Change in net unrealized
appreciation on investments .................... (40,562) (26,549)
--------- ---------
Net increase in net assets
resulting from operations ...................... 109,048 95,451
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................................. (23,448) (20,729)
Advisor Class .................................. (199) (125)
From net realized gains on
investment transactions:
Investor Class ................................. (102,260) (75,512)
Advisor Class .................................. (747) (492)
--------- ---------
Decrease in net assets from distributions ........ (126,654) (96,858)
--------- ---------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets
from capital share transactions ................ (1,938) 14,410
--------- ---------
Net increase (decrease) in net assets ............ (19,544) 13,003
NET ASSETS
Beginning of period .............................. 944,864 931,861
--------- ---------
End of period .................................... $ 925,320 $ 944,864
========= =========
Undistributed net investment income .............. $ 2,226 $ 2,690
========= =========
See Notes to Financial Statements www.americancentury.com 15
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 1999
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 management
investment company. Balanced Fund (the fund) is one of the thirteen series of
funds issued by the corporation. The fund is diversified under the 1940 Act. The
fund's investment objective is to seek capital growth and current income. The
following significant accounting policies are in accordance with generally
accepted accounting principles; these policies may require the use of estimates
by fund management.
MULTIPLE CLASS -- The fund is authorized to issue three classes of shares:
the Investor Class, the Advisor Class, and the Institutional Class. 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 Institutional
Class had not commenced as of October 31, 1999.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at 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 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index futures contracts
in order to manage the fund's exposure to changes in market conditions. One of
the risks of entering into futures contracts is the possibility that the change
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the fund. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
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 collateral, represented by securities, received in
a repurchase transaction be transferred to the custodian in a manner sufficient
to enable the fund to obtain those securities in the event of a default under
the repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
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 reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
16 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee 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 the fund's class 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 the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plan provides that the fund will pay ACIM an annual
distribution fee equal to 0.25% and annual 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 by financial intermediaries 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 respect to shares of the fund. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred by
the fund under the plan during the year ended October 31, 1999 were $45,057.
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, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the year ended October 31, 1999, totaled $1,178,518,672, of which $214,589,777
represented U.S. Treasury and Agency obligations. Sales of investment
securities, excluding short-term investments, for the year ended October 31,
1999, totaled $1,242,762,898, of which $149,569,059 represented U.S. Treasury
and Agency obligations.
On October 31, 1999, accumulated net unrealized appreciation was
$92,494,118, based on the aggregate cost of investments of $827,640,608 for
federal income tax purposes, which consisted of unrealized appreciation of
$116,233,118 and unrealized depreciation of $23,739,000.
www.americancentury.com 17
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS (In Thousands)
Shares Authorized .............................. 134,000
=========
Year ended October 31, 1999
Sold ........................................... 9,402 $ 176,617
Issued in reinvestment of distributions ........ 6,821 122,812
Redeemed ....................................... (16,358) (305,659)
--------- ---------
Net decrease ................................... (135) $ (6,230)
========= =========
Year ended October 31, 1998
Sold ........................................... 9,532 $ 184,305
Issued in reinvestment of distributions ........ 5,211 94,198
Redeemed ....................................... (13,720) (265,088)
--------- ---------
Net increase ................................... 1,023 $ 13,415
========= =========
ADVISOR CLASS
Shares Authorized .............................. 50,000
=========
Year ended October 31, 1999
Sold ........................................... 575 $ 10,802
Issued in reinvestment of distributions ........ 52 931
Redeemed ....................................... (396) (7,441)
--------- ---------
Net increase ................................... 231 $ 4,292
========= =========
Year ended October 31, 1998
Sold ........................................... 79 $ 1,523
Issued in reinvestment of distributions ........ 34 616
Redeemed ....................................... (59) (1,144)
--------- ---------
Net increase ................................... 54 $ 995
========= =========
--------------------------------------------------------------------------------
5. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through October 31,
1999.
18 1-800-345-2021
Balanced--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................ $ 19.39 $ 19.55 $ 18.55 $ 17.70 $ 15.94
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income(1) ........... 0.46 0.42 0.40 0.44 0.48
Net Realized and Unrealized Gain
on Investment Transactions ......... 1.69 1.45 2.41 1.88 2.03
------- ------- ------- ------- -------
Total From Investment Operations ... 2.15 1.87 2.81 2.32 2.51
------- ------- ------- ------- -------
Distributions
From Net Investment Income ......... (0.47) (0.43) (0.43) (0.46) (0.48)
From Net Realized Gains on
Investment Transactions ............ (2.12) (1.60) (1.38) (1.01) (0.27)
------- ------- ------- ------- -------
Total Distributions ................ (2.59) (2.03) (1.81) (1.47) (0.75)
------- ------- ------- ------- -------
Net Asset Value, End of Period ....... $ 18.95 $ 19.39 $ 19.55 $ 18.55 $ 17.70
======= ======= ======= ======= =======
Total Return(2) .................... 12.03% 10.46% 16.34% 14.04% 16.36%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 1.00% 1.00% 1.00% 0.99% 0.98%
Ratio of Net Investment Income
to Average Net Assets .............. 2.44% 2.16% 2.15% 2.50% 2.90%
Portfolio Turnover Rate .............. 128% 102% 110% 130% 85%
Net Assets, End of Period
(in millions) ...................... $ 914 $ 938 $ 926 $ 879 $ 816
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 19
Balanced--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ... $ 19.38 $ 19.55 $ 17.46
---------- ---------- ----------
Income From Investment Operations
Net Investment Income(2) ............. 0.41 0.37 0.29
Net Realized and Unrealized Gain
on Investment Transactions ........... 1.69 1.44 2.04
---------- ---------- ----------
Total From Investment Operations ..... 2.10 1.81 2.33
---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.42) (0.38) (0.24)
From Net Realized Gains
on Investment Transactions ........... (2.12) (1.60) --
---------- ---------- ----------
Total Distributions .................. (2.54) (1.98) (0.24)
---------- ---------- ----------
Net Asset Value, End of Period ......... $ 18.94 $ 19.38 $ 19.55
========== ========== ==========
Total Return(3) ...................... 11.74% 10.15% 13.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Income
to Average Net Assets ................ 2.19% 1.91% 1.90%(4)
Portfolio Turnover Rate ................ 128% 102% 110%
Net Assets, End of Period
(in thousands) ....................... $ 10,946 $ 6,723 $ 5,724
(1) January 6, 1997 (commencement of sale) through October 31, 1997.
(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.
20 1-800-345-2021 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Balanced Fund (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 1999,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Balanced Fund as of October 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
December 7, 1999
www.americancentury.com 21
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
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.
ADVISOR CLASS shares are 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.
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 from the date of
receipt at American Century. Even if you plan to rollover 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 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 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.
22 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 14 growth and income funds, including domestic
equity, balanced, asset allocation, and specialty funds.
AMERICAN CENTURY BALANCED seeks capital growth and current income. The fund
keeps about 60% of its assets in a diversified portfolio of common stocks. Under
normal market conditions, the remaining assets are held in Treasury,
mortgage-backed, and corporate bonds.
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 goal is to achieve a total return that
exceeds that of the S&P 500. The portfolio is managed using computer models as
key tools in making investment decisions. One model ranks stocks based on their
expected return, using both growth and value measures such as cash flow,
earnings growth, and price/earnings ratio. Another model creates a portfolio
that balances high-ranking stocks with an overall risk level that is comparable
to the S&P 500.
The fixed-income portfolio is also index based. The management team
attempts to add value by making modest portfolio adjustments based on its
analysis of prevailing market conditions. The team typically seeks to overweight
relatively undervalued sectors of the market.
COMPARATIVE INDICES
The indices listed below are used in the report for fund performance
comparisons. 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
approximately 60% of the fund's assets invested in stocks. The remaining 40% of
the index is represented by the Lehman Brothers Aggregate Bond Index, which
reflects the roughly 40% of the fund's assets invested in fixed-income
securities.
The LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of the Lehman Brothers
Government/Corporate Index and the Lehman Brothers Mortgage-Backed Securities
Index. It reflects the price fluctuations of Treasury securities, U.S.
government agency securities, corporate bond issues, and mortgage-backed
securities.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
dominant industries. Created by Standard & Poor's Corporation, the index is
viewed as a broad measure of U.S. stock market performance.
[right margin]
INVESTMENT TEAM LEADERS
Equity Portfolio
JOHN SCHNIEDWIND
KURT BORGWARDT
Fixed-Income Portfolio
JEFF HOUSTON
Credit Research
GREG AFIESH
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS
STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH
AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE"
SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. HERE ARE THE MOST
COMMON CREDIT RATINGS AND THEIR DEFINITIONS:
* AAA -- EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA -- VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A -- STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BBB -- GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BB -- SECURITIES THAT ARE LESS VULNERABLE TO DEFAULT THAN OTHER
LOWER-QUALITY ISSUES BUT DO NOT QUITE MEET INVESTMENT-GRADE STANDARDS.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
www.americancentury.com 23
Glossary
--------------------------------------------------------------------------------
FIXED-INCOME TERMS
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a
pool of receivables, such as credit-card debt, auto loans, and commercial
mortgages.
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* 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).
* 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.
* DURATION -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. It is a time-weighted average
of the interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, the impact of a change in interest rates on
the value of the portfolio also increases.
* WEIGHTED AVERAGE MATURITY (WAM) -- another 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 interest rate
sensitivity the portfolio has.
EQUITY TERMS
* 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.
* COMMON STOCKS -- units of ownership of public corporations. All of the
stocks described in this section are types of common stock.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and
earnings fluctuations tend to follow the ups and downs of the business cycle.
* GROWTH STOCKS -- generally considered to be the stocks of companies that
have experienced above-average earnings growth and appear likely to continue
such growth.
* VALUE STOCKS -- generally considered to be stocks that are relatively
inexpensive.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- generally considered to be
companies with a market capitalization (the total value of a company's
outstanding stock) of more than $8.2 billion. This is Lipper's
market-capitalization breakpoint as of October 31, 1999, although it may be
subject to change based on market fluctuations. The Dow Jones Industrial Average
and the S&P 500 are representative indexes of large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- generally considered to be
companies with a market capitalization (the total value of a company's
outstanding stock) between $1.9 billion and $8.2 billion. This is Lipper's
market-capitalization breakpoint as of October 31, 1999, although it may be
subject to change based on market fluctuations. The S&P 400 is representative of
mid-cap stock performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- generally considered to be
companies with a market capitalization (the total value of a company's
outstanding stock) of less than $1.9 billion. This is Lipper's
market-capitalization breakpoint as of October 31, 1999, although it may be
subject to change based on market fluctuations. The S&P 600 and the Russell 2000
are representative of small-cap stock performance.
RETURNS
* 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.
* 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 pages 19-20.
24 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
YIELDS
* 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.
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 25
Notes
--------------------------------------------------------------------------------
26 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 27
Notes
--------------------------------------------------------------------------------
28 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that a fund's category may change over time.
Therefore, it is important that you read a fund's prospectus or fund profile
carefully before investing to ensure its objectives, policies and risk potential
are consistent with your needs.For a definition of fund categories, see the
Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc.
9912 is the distributor for American Century funds
SH-ANN-18853 (c)1999 American Century Services Corporation
[front cover]
OCTOBER 31, 1999
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
LIMITED-TERM BOND
INTERMEDIATE-TERM BOND
BOND
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K Testing Efforts Pay Dividends in Preparedness
--------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change
from December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and
returned to production. We have an ongoing commitment to testing our systems
with our vendors and business partners and within the industry throughout the
rest of the year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans are designed to minimize the impact on our investors and help
us maintain operations in the event of any Y2K-related incidents. We will
conduct practice drills of contingency scenarios during the rest of 1999 and
refine those plans to respond quickly and effectively so that the date change is
as seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
LIMITED-TERM BOND
(ABLIX)
---------------------------
INTERMEDIATE-TERM BOND
(TWITX)
---------------------------
BOND
(TWLBX)
---------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
Tackling the Rollover Challenge
--------------------------------------------------------------------------------
Changing jobs or retiring? The American Century Personalized Rollover
Service(SM) provides individualized service that makes rolling over your
employer-sponsored retirement plan easy and stress free.
Our Rollover Expert Team will:
* Give personal guidance on which options best meet your retirement needs by
explaining the types of investments available through both our mutual funds and
American Century Brokerage.
* Assist you with the paperwork, helping to ensure it's completed right the
first time.
* Monitor retirement plan money as it rolls over from your employer-sponsored
plan to the American Century Rollover IRA account.
Call the Rollover Expert Team weekdays 7 a.m. to 7 p.m. (CT) at
1-888-345-2431, ext. 4232, or visit our Web site at www.americancentury.com.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Higher interest rates made for a difficult environment for U.S. bonds
during the fiscal year ended October 31, 1999. Rapid U.S. economic growth, the
recovery of overseas economies, and increased inflation anxiety influenced the
Federal Reserve (the U.S. central bank) to raise short-term interest rates to
rein in the economy and reduce pressure on prices and wages.
Nevertheless, the American Century diversified bond funds generally
provided competitive yields and returns compared with similar funds. Fund
shareholders have benefited from our commitment to build and maintain a talented
fund management group. American Century's entire investment management team has
doubled in size over the past three years.
On the corporate front, American Century has long been an active supporter
of the development of technologies that improve the efficiencies of capital
markets. Toward that end, we've made strategic investments in several other
financial services firms. For example, one priority in making these investments
has been reducing the costs of buying and selling securities for our funds.
Savings in this area directly affect the performance of your funds.
We're also pleased to report that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
Finally, in the spirit of our ongoing Year 2000 readiness disclosures,
we've provided a complete update on our preparations for Y2K on the inside front
cover of this report.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Corporate Credit Review ................................................ 4
LIMITED-TERM BOND
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Schedule of Investments ................................................ 8
INTERMEDIATE-TERM BOND
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 13
BOND
Performance Information ................................................ 16
Management Q&A ......................................................... 17
Schedule of Investments ................................................ 19
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 22
Statements of Operations ............................................... 23
Statements of Changes
in Net Assets ....................................................... 24
Notes to Financial
Statements .......................................................... 25
Financial Highlights ................................................... 28
Independent Auditors'
Report .............................................................. 34
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 35
Background Information
Investment Philosophy
and Policies ..................................................... 36
Comparative Indices ................................................. 36
Lipper Rankings ..................................................... 36
Investment Team
Leaders .......................................................... 36
Credit Rating
Guidelines ....................................................... 36
Glossary ............................................................... 37
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended October 31, 1999, was difficult for bond investors as interest
rates rose sharply.
* Better global growth, a healthy U.S. economy, and higher inflation combined
to push up interest rates.
* To try to cool the economy and preempt future inflation, the Federal Reserve
raised interest rates twice during the summer. (The Fed raised rates a third
time in November.)
* Among broad sectors of the U.S. bond market, mortgage-backed securities
performed best, followed by corporate and Treasury bonds.
CORPORATE CREDIT REVIEW
* For the 12 months, corporate credit conditions generally improved.
* Better economic growth here and abroad helped increase corporate profits,
resulting in more credit rating upgrades than downgrades.
* Asian economies--in turmoil just 12 months ago--rebounded sharply; however,
we still have not seen lasting structural reforms.
* Higher commodity prices helped energy-related businesses, while record merger
and acquisition activity benefited many other sectors of the economy.
LIMITED-TERM BOND
* Despite higher interest rates, Limited-Term Bond had a positive return for
the year.
* The fund had an above-average yield, though its return lagged its Lipper
group average.
* The portfolio's return was limited by the poor performance of a single bond,
which fell sharply because of questionable accounting practices by its
issuer.
* We upgraded the fund's credit quality and liquidity, adding higher-rated
corporate securities, as well as Treasury and mortgage-backed bonds.
INTERMEDIATE-TERM BOND
* Though higher interest rates limited performance, Intermediate-Term Bond's
yield and return were better than average.
* Our below-average expenses and relative-value approach to asset allocation
help explain why the fund outperformed its Lipper group average.
* The main changes we made to the portfolio were to improve its liquidity and
credit quality.
* We reduced our corporate bond holdings, adding some Treasury bonds and
attractively valued mortgage-backed securities.
BOND
* The portfolio's performance reflected the difficult investment climate for
bonds.
* The fund's return slightly lagged the Lipper group average, though Bond's
yield ranked in the top 20% of the peer group.
* We increased the portfolio's credit quality and liquidity by reducing its
corporate bond holdings and adding Treasury and mortgage-backed bonds.
* We have a cautious outlook for interest rates in general, but we think
corporate and mortgage-backed bonds are very attractively valued relative to
Treasurys right now.
[left margin]
LIMITED-TERM BOND(1)
(ABLIX)
TOTAL RETURNS: AS OF 10/31/99
6 Months 1.01%(2)
1 Year 2.75%
30-DAY SEC YIELD: 5.95%
INCEPTION DATE: 3/1/94
NET ASSETS: $18.3 million(3)
INTERMEDIATE-TERM BOND(1)
(TWITX)
TOTAL RETURNS: AS OF 10/31/99
6 Months -0.57%(2)
1 Year 0.29%
30-DAY SEC YIELD: 6.29%
INCEPTION DATE: 3/1/94
NET ASSETS: $34.2 million(3)
BOND(1)
(TWLBX)
TOTAL RETURNS: AS OF 10/31/99
6 Months -1.08%(2)
1 Year -1.00%
30-DAY SEC YIELD: 6.59%
INCEPTION DATE: 3/2/87
NET ASSETS: $122.8 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on pages 5, 10, and 16. Investment terms are defined in the
Glossary on pages 37-38.
2 1-800-345-2021
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
PERFORMANCE OVERVIEW
Inflation fears and rising interest rates created a difficult environment
for bonds during the year ended October 31, 1999. The Lehman Aggregate Bond
Index, a broad measure of U.S. bond market performance, returned 0.53%.
REVERSAL OF FORTUNE
What a difference a year makes. In late 1998, global economic turmoil and
volatile financial markets led investors to seek safe haven in Treasury bonds.
In addition, the Federal Reserve (the U.S. central bank) cut short-term interest
rates three times to help stabilize the markets. In this environment, Treasury
bond yields fell to all-time lows.
Fast forward to October 1999. The series of rate cuts by the Fed in late
1998 proved to be successful--overseas economies stabilized, investor confidence
returned, and the financial markets settled down. But the Fed's rate cuts also
provided fuel to a domestic economic engine that was already cruising at high
speed. As evidence of rising inflation began to appear, the Fed reversed course,
raising short-term rates twice during the summer of 1999. (The Fed raised rates
again in November.) By the end of October, Treasury bond yields were more than
100 basis points (or 1%) higher than they were a year earlier (see the chart at
right).
MORTGAGES OUTPERFORMED
Mortgage-backed securities were the best-performing sector of the U.S. bond
market over the past year (see the table at right). Mortgage-backed bonds were
hurt by heavy mortgage refinancing activity in 1998, but rising interest rates
helped reduce prepayments in 1999.
Treasury bonds performed worst among U.S. bonds. The 30-year Treasury bond
returned -8.1% for the year ended October 31--its worst performance since 1994.
RECORD CORPORATE BOND SUPPLY
Corporate bonds performed well in late 1998 and early 1999. Continued
economic strength boosted investor confidence in corporate debt, and the Fed's
rate cuts helped reduce corporate borrowing costs.
But lower rates also encouraged corporations to issue new debt, which led
to record corporate bond issuance in the second and third quarters of 1999. In
addition to taking advantage of relatively low rates, companies wanted to
complete their debt financing before the end of the year in case of possible Y2K
problems.
While corporate supply was expanding, demand for corporate bonds declined.
Investors displayed less appetite for risk, focusing on Treasury and
high-quality corporate bonds. This weakened the performance of corporate bonds
in general, hitting lower-quality bonds especially hard.
Corporate bonds suffered losses in the summer, before rebounding modestly
in September and October as new issuance began to taper off.
[right margin]
"INFLATION FEARS AND RISING INTEREST RATES CREATED A DIFFICULT ENVIRONMENT FOR
BONDS."
BOND INDEX RETURNS
FOR THE YEAR ENDED OCTOBER 31, 1999
LEHMAN AGGREGATE
BOND INDEX 0.53%
LEHMAN CORPORATE
BOND INDEX 0.61%
LEHMAN MORTGAGE-BACKED
SECURITIES INDEX 2.99%
LEHMAN TREASURY
BOND INDEX -1.55%
Source: Russell/Mellon Analytical
[line graph - data below]
TREASURY YIELD CURVE
10/31/98 4/30/99 10/31/99
YEARS TO
MATURITY
1 4.38% 4.96% 5.66%
2 4.26% 5.09% 5.88%
3 4.34% 5.18% 5.87%
4 4.38% 5.28% 5.99%
5 4.32% 5.22% 5.99%
6 4.39% 5.32% 6.07%
7 4.46% 5.42% 6.15%
8 4.49% 5.39% 6.11%
9 4.52% 5.36% 6.07%
10 4.54% 5.32% 6.03%
11 4.65% 5.41% 6.12%
12 4.76% 5.50% 6.20%
13 4.89% 5.59% 6.29%
14 4.99% 5.68% 6.37%
15 5.08% 5.77% 6.46%
16 5.12% 5.80% 6.48%
17 5.17% 5.83% 6.50%
18 5.21% 5.86% 6.51%
19 5.26% 5.89% 6.53%
20 5.30% 5.93% 6.55%
21 5.32% 5.93% 6.52%
22 5.34% 5.92% 6.53%
23 5.35% 5.92% 6.51%
24 5.37% 5.91% 6.50%
25 5.38% 5.90% 6.49%
26 5.33% 5.86% 6.45%
27 5.28% 5.82% 6.41%
28 5.23% 5.78% 6.37%
29 5.18% 5.74% 6.33%
30 5.14% 5.71% 6.29%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Corporate Credit Review
--------------------------------------------------------------------------------
FAVORABLE CREDIT CONDITIONS
For the year ended October 31, 1999, corporate credit conditions continued
to improve. Healthy economic growth in the U.S., along with rebounding growth
overseas, led to increased profits for many companies. As a result, credit
rating upgrades among corporate bonds outnumbered downgrades.
The past year was relatively calm from a credit perspective, with few broad
trends developing. Most sectors of the economy were fairly stable; any credit
problems tended to be company-specific, not endemic to entire industries.
RISK AVERSION
Although credit conditions were mostly positive, the negative situations
were unusually damaging. For some companies, minor credit problems ballooned
into major ordeals.
This occurred largely because investors in the corporate bond market showed
a reduced tolerance for risk. They were quick to dump corporate bonds at the
first hint of any trouble at the issuing company.
This risk aversion threatened the financial health of some companies as
investors unloaded their securities after a downgrade. Other companies that have
been downgraded have found it difficult to issue new bonds because of the lack
of demand in the marketplace.
ASIA GRADUALLY RECOVERS
One of the reasons for the general improvement of credit conditions was
evidence of economic recovery in Asia. Countries such as South Korea and
Malaysia experienced a solid turnaround in their economies, and even Japan began
to emerge from a decade-long recession. Thanks to this economic rebound, several
Asian countries received credit rating upgrades in 1999.
However, these improvements are mainly cyclical changes to the business
environment. The region has made little progress on the more important
structural changes necessary for the long-term health of its economies. Japan's
government has run up a substantial amount of debt while unsuccessfully trying
to cure its ailing banking system. Indonesia has been through a series of
political crises that forced economic reforms to the back burner, and China is
struggling with its own banking difficulties.
Although some progress has been made, Asia still has a long road ahead
before it fully recovers from its disastrous meltdown in 1997 and 1998.
SECTOR OVERVIEW
Industries dependent on commodities saw the most improvement in the past
year. As the global economy began to rebound, increased demand for commodities
led to firmer prices. In particular, energy companies benefited from a near
doubling in the price of oil.
Mergers and acquisitions are on pace to beat the record set in 1998. The
telecommunications industry has seen the most merger activity as companies
pursue globalization strategies. The mergers are designed to help them become
worldwide providers of bundled telecommunications services, including cellular,
cable, and Internet services.
Utilities have also tried to expand globally while dealing with state
deregulation domestically. Although deregulation has been positive for credit
quality, utilities are taking on greater risks by becoming international
players.
[left margin]
"CREDIT RATING UPGRADES AMONG CORPORATE BONDS OUTNUMBERED DOWNGRADES."
CORPORATE CREDIT
RESEARCH TEAM
Director
GREG AFIESH
Corporate Credit Analysts
DANIEL BAKER
MICHAEL DIFLEY
KRISTINE WALSH
PHIL LEVY
LYNDA LOWRY
SUDHA MANI
BETSY MOORE
TOM VAIANA
4 1-800-345-2021
Limited-Term Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 1999
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 11/12/97)
MERRILL LYNCH MERRILL LYNCH
LIMITED-TERM 1-5 YR. SHORT INVESTMENT-GRADE DEBT FUNDS(2) LIMITED-TERM 1-5 YR.
BOND GOVT./CORP. INDEX AVERAGE RETURN FUND'S RANKING BOND GOVT./CORP. INDEX
========================================================================================================================
6 MONTHS(1) 1.01% 1.25% 1.14% -- 0.88% 1.25%
1 YEAR 2.75% 2.24% 2.98% 61 OUT OF 112 2.49% 2.24%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.20% 5.84% 5.07% 42 OUT OF 93 -- --
5 YEARS 5.98% 6.77% 5.83% 23 OUT OF 68 -- --
LIFE OF FUND 5.24% 5.92% 5.38%(3) 20 OUT OF 58(3) 4.42% 5.42%(4)
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 3/31/94, the date nearest the class's inception for which data are
available.
(4) Since 11/30/97, the date nearest the class's inception for which data are
available.
See pages 35-37 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND Value on 10/31/99 Merrill Lynch 1- to
5-Year Govt./Corp. Index $13,855
Limited-Term Bond $13,361
Merrill Lynch
Limited-Term 1- to 5-Year
Bond Govt./Corp. Index
DATE VALUE VALUE
3/1/1994 $10,000 $10,000
3/31/1994 $9,933 $9,909
6/30/1994 $9,906 $9,885
9/30/1994 $9,989 $9,974
12/31/1994 $9,979 $9,961
3/31/1995 $10,291 $10,348
6/30/1995 $10,620 $10,764
9/30/1995 $10,794 $10,928
12/31/1995 $11,072 $11,253
3/31/1996 $11,094 $11,243
6/30/1996 $11,193 $11,336
9/30/1996 $11,364 $11,529
12/31/1996 $11,560 $11,772
3/31/1997 $11,638 $11,817
6/30/1997 $11,886 $12,111
9/30/1997 $12,115 $12,386
12/31/1997 $12,300 $12,614
3/31/1998 $12,463 $12,809
6/30/1998 $12,650 $13,023
9/30/1998 $13,019 $13,509
12/31/1998 $13,075 $13,583
3/31/1999 $13,180 $13,639
6/30/1999 $13,222 $13,670
9/30/1999 $13,351 $13,824
10/31/1999 $13,361 $13,855
$10,000 investment made 3/1/94
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Merrill Lynch 1- to 5-Year Government/ Corporate Index is provided for
comparison in each graph. Limited-Term Bond's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the index do not. These graphs are based on Investor
Class shares only; performance for other classes will vary due to differences in
fee structures (see Total Returns table above). 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.
[bar graph - data below
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
Merrill Lynch
Limited-Term 1- to 5-Year
Bond Govt./Corp. Index
DATE RETURN RETURN
10/31/1994* -0.08% 0.16%
10/31/1995 8.89% 10.48%
10/31/1996 5.48% 5.92%
10/31/1997 6.30% 6.93%
10/31/1998 6.58% 8.44%
10/31/1999 2.75% 2.24%
* From 3/1/94 (the fund's inception date) to 10/31/94.
www.americancentury.com 5
Limited-Term Bond--Q&A
--------------------------------------------------------------------------------
[photo of John Walsh]
An interview with John Walsh, a portfolio manager on the Limited-Term Bond
fund investment team.
HOW DID LIMITED-TERM BOND PERFORM DURING THE FISCAL YEAR ENDED OCTOBER 31, 1999
Despite rising interest rates, the fund produced a positive return, though
it trailed its peer group average. For the year ended October 31, Limited-Term
Bond returned 2.75%,* compared with the 2.98% average return of the 112 "Short
Investment-Grade Debt Funds" tracked by Lipper Inc. (See the previous page for
other fund performance comparisons.)
WHAT ABOUT THE FUND'S YIELD?
Limited-Term Bond consistently provided above-average income, especially
over the past six months. As of October 31, the fund's 30-day SEC yield of 5.95%
was higher than the 5.84% average yield of its Lipper group.
Yield is important in a short-term fund like Limited-Term Bond because
income generally makes up a significant portion of the total return.
IF THE FUND'S YIELD WAS BETTER THAN AVERAGE, WHY WASN'T THE FUND'S TOTAL RETURN
Limited-Term Bond's underperformance can be traced to a single portfolio
holding--Rite Aid, one of the leading drugstore chains in the country. Earlier
this year, we invested about 2.5% of the fund's portfolio in two-year bonds
issued by the company, which had an investment-grade credit rating.
In October, Rite Aid was forced to restate its earnings for the past three
years, cutting them in half because of some questionable accounting practices.
That gave rise to some concerns that the company may have trouble meeting some
of its obligations. This ultimately led to several credit rating downgrades and
the firing of Rite Aid's CEO.
As a result, the prices of both Rite Aid's stock and bonds fell. We sold
about half of our holdings in September, before the situation came to a head.
(The fund had no exposure to Rite Aid bonds by early November.) Even though we
worked hard to avoid the worst of the situation, the bonds still contributed a
three- to four-cent loss in the fund's share price.
IT'S UNUSUAL TO SEE SUCH PRICE VOLATILITY IN A SHORT-TERM BOND FUND. WHY HAS THE
FUND'S PRICE FLUCTUATED SO MUCH?
Sentiment in the corporate bond market has shifted, becoming much more risk
averse. For a variety of reasons--Y2K, inflation fears, the health of the
economy, and a lack of liquidity in the market--investors simply have a much
smaller appetite for risk than they've had in the past few years.
As a result, bonds that maintained strong credit quality were well
rewarded, while bonds whose credit quality weakened were severely punished.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[left margin]
PORTFOLIO AT A GLANCE
10/31/99 10/31/98
NUMBER OF SECURITIES 44 54
WEIGHTED AVERAGE
MATURITY 1.9 YRS 2.4 YRS
AVERAGE DURATION 1.7 YRS 2.1 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.70% 0.70%
YIELDS AS OF OCTOBER 31, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.95% 5.69%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/99 4/30/99
AAA 58% 48%
AA 1% 1%
A 22% 19%
BBB 14% 29%
BB 5% 3%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 36
for more information.
Investment terms are defined in the Glossary on pages 37-38.
6 1-800-345-2021
Limited-Term Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
DID YOU MAKE ANY CHANGES TO THE CREDIT QUALITY OF LIMITED-TERM BOND'S PORTFOLIO
Yes, we shifted the portfolio more toward high-quality bonds. We sold a
number of BBB-rated corporate bonds and added more AAA-rated bonds (see the
chart on page 6). We're also holding more Treasury and mortgage-backed bonds
than we were six months ago, which helped improve credit quality.
BUT YOU ACTUALLY REDUCED THE FUND'S TREASURY BOND HOLDINGS OVER THE PAST YEAR.
WHY?
A year ago, Treasury bonds were the best performers in the U.S. bond
market, so we began to take profits by selling some of our Treasury holdings and
buying more attractive corporate and mortgage-backed bonds. This paid off as
corporate and mortgage-backed bonds outperformed Treasurys in late 1998 and
early 1999.
But in the last six months, as the corporate bond market became more
volatile, we cut back a little on our corporate bond holdings and moved back
into Treasurys, as well as adding more mortgage-backed securities. This has
given the portfolio a little more liquidity and stability.
WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO?
We increased the fund's price stability by shortening its duration (a
measure of price volatility as interest rates change). Over the past year,
Limited-Term Bond's duration decreased from 2.1 years to 1.7 years. A shorter
duration means less share price volatility for the fund, which is a good thing
when rising interest rates push bond prices lower.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR THE U.S. BOND MARKET?
Interest rates have risen pretty dramatically over the past year, and we
think most of the increase is behind us. However, the U.S. economy has not shown
any signs of slowing down--the economy grew at a 5.5% annual rate in the third
quarter of 1999. That could lead the Federal Reserve to raise short-term
interest rates again in the first half of 2000.
The question is whether the economy will begin to slow down next year. And
as in 1999, this may depend on the performance of the stock market. Consumer
spending, which is the main driver of the economy, has gotten a boost from the
"wealth effect" of stock market gains. Fed officials have been watching this
closely and will likely remain on alert until they see a drop in consumer
confidence.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR LIMITED-TERM BOND GOING
FORWARD?
We expect to position the fund a little more defensively. That means
maintaining the fund's current, somewhat short duration, and increasing the
liquidity of the fund by holding bonds issued by larger, more visible companies.
We also plan to continue adding corporate and mortgage-backed bonds, which
we think currently offer the best values in the bond market.
[right margin]
"DESPITE RISING INTEREST RATES, THE FUND PRODUCED A POSITIVE RETURN, THOUGH IT
TRAILED ITS PEER GROUP AVERAGE."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 1999
Corporate Bonds 46%
U.S. Treasury 21%
Asset-Backed 12%
Mortgage-Backed 12%
Other 9%
AS OF APRIL 30, 1999
Corporate Bonds 54%
Asset-Backed 14%
U.S. Treasury 13%
Mortgage-Backed 13%
Other 6%
Investment terms are defined in the Glossary on pages 37-38.
www.americancentury.com 7
Limited-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 20.8%
$1,250 U.S. Treasury Notes, 5.50%,
3/31/00 $ 1,251
500 U.S. Treasury Notes, 6.375%,
5/15/00 503
500 U.S. Treasury Notes, 5.375%,
7/31/00 500
350 U.S. Treasury Notes, 4.625%,
11/30/00 346
500 U.S. Treasury Notes, 5.50%,
12/31/00 499
750 U.S. Treasury Notes, 5.50%,
8/31/01 746
-------
TOTAL U.S. TREASURY SECURITIES 3,845
-------
(Cost $3,858)
MORTGAGE-BACKED SECURITIES(1) -- 12.2%
294 FNMA Pool #313224, 7.00%,
12/1/11 294
427 FNMA Pool #313481, 7.00%,
4/1/12 427
236 FNMA Pool #378698, 8.00%,
5/1/12 242
392 FNMA Pool #411016, 6.50%,
3/1/13 385
430 FNMA Pool #433184, 6.50%,
6/1/13 423
491 FNMA Pool #252736, 7.50%,
7/1/14 498
-------
TOTAL MORTGAGE-BACKED SECURITIES 2,269
-------
(Cost $2,307)
ASSET-BACKED SECURITIES(1) -- 12.0%
500 Case Equipment Loan Trust,
Series 1998 B, Class A4 SEQ,
5.92%, 10/15/05 493
500 CIT RV Trust, Series 1997 A,
Class A5 SEQ, 6.25%,
11/17/08 499
319 Money Store (The) Home Equity
Trust, Series 1994 B, Class A4
SEQ, 7.60%, 7/15/21 321
377 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 362
150 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4, 6.78%,
2/15/16 150
97 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 98
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 186 FNMA Whole Loan, Series
1995 W1, Class A6, 8.10%,
4/25/25 $ 188
110 Textron Financial Corp.
Receivables Trust, Series
1997 A, Class A, 6.05%,
3/16/09 (Acquired 9/18/97,
Cost $110)(2) 110
-------
TOTAL ASSET-BACKED SECURITIES 2,221
-------
(Cost $2,247)
CORPORATE BONDS -- 45.9%
BANKS -- 1.6%
300 Bank One Corp., 6.40%, 8/1/02 297
-------
CHEMICALS -- 2.6%
500 Monsanto Co., 5.375%, 12/1/01
(Acquired 12/4/98, Cost
$499)(2) 489
-------
DEPARTMENT STORES -- 1.6%
300 Wal-Mart Stores, Inc., 6.15%,
8/10/01 299
-------
DIVERSIFIED COMPANIES -- 2.7%
500 Tyco International Group SA,
6.875%, 9/5/02 (Acquired
9/15/99, Cost $500)(2) 497
-------
ELECTRICAL UTILITIES -- 2.7%
500 CMS Energy Corp., 8.00%,
7/1/01 499
-------
ENERGY -- 2.2%
400 Oryx Energy Co., 9.50%,
11/1/99 400
-------
FINANCIAL SERVICES -- 6.1%
375 Aristar Inc., 6.75%, 8/15/01 376
250 Ford Motor Credit Co., 6.125%,
4/28/03 244
200 Franchise Finance Corp., 7.00%,
11/30/00 199
300 International Lease Finance Corp.,
6.375%, 1/18/00 301
-------
1,120
-------
GAS & WATER UTILITIES -- 2.1%
400 K N Energy, Inc., 6.45%,
11/30/01 394
-------
LIFE AND HEALTH INSURANCE -- 2.1%
400 Conseco Inc., 6.40%, 6/15/01 391
-------
MOTOR VEHICLES & PARTS -- 4.0%
300 General Motors Corp. Global
Notes, 9.625%, 12/1/00 310
8 1-800-345-2021 See Notes to Financial Statements
Limited-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MOTOR VEHICLES & PARTS (continued)
$ 250 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99, Cost
$250)(2) $ 245
200 Toyota Motor Credit Corp.,
5.625%, 11/13/03 192
-------
747
-------
NEIGHBORHOOD & COMMUNITY
SHOPPING CENTERS -- 2.3%
430 Chelsea GCA Realty Partners,
7.75%, 1/26/01 432
-------
RAILROADS -- 2.3%
415 Norfolk Southern Corp., 6.95%,
5/1/02 415
-------
REAL ESTATE -- 1.6%
300 Spieker Properties, Inc., 6.80%,
12/15/01 298
-------
SECURITIES & ASSET MANAGEMENT -- 5.6%
400 Lehman Brothers Holdings Inc.
MTN, Series E, 6.33%, 8/1/00 401
250 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 249
385 Paine Webber Group Inc. MTN,
6.65%, 10/15/02 380
-------
1,030
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
SPECIALTY STORES -- 1.1%
$ 250 Rite Aid Corp., 6.70%, 12/15/01 $ 204
-------
TELEPHONE -- 2.6%
500 U S West Capital Funding Inc.,
6.125%, 7/15/02 487
-------
WIRELESS TELECOMMUNICATIONS -- 2.7%
500 AirTouch Communications, Inc.,
7.125%, 7/15/01 503
-------
TOTAL CORPORATE BONDS 8,502
-------
(Cost $8,638)
TEMPORARY CASH INVESTMENTS -- 9.1%
926,000 Units of Participation in Chase Vista
Prime Money Market Fund (Institutional
Shares) 926
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.13%, dated 10/29/99,
due 11/1/99 (Delivery Value $763) 763
-------
TOTAL TEMPORARY CASH INVESTMENTS 1,689
-------
(Cost $1,689)
TOTAL INVESTMENT SECURITIES -- 100.0% $18,526
=======
(Cost $18,739)
NOTES TO SCHEDULE OF INVESTMENTS
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.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 1999 was $1,341 which
represented 7.3% of net assets.
See Notes to Financial Statements www.americancentury.com 9
Intermediate-Term Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 1999
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 8/14/97)
LEHMAN INTERM. LEHMAN INTERM.
INTERMEDIATE-TERM GOVT./CORP. INTERM. INVESTMENT-GRADE DEBT FUNDS(2) INTERMEDIATE-TERM GOVT./CORP.
BOND INDEX AVERAGE RETURN FUND'S RANKING BOND INDEX
========================================================================================================================
6 MONTHS(1) -0.57% 0.47% -0.78% -- -0.69% 0.47%
1 YEAR 0.29% 0.99% -0.07% 96 OUT OF 266 0.05% 0.99%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.23% 5.81% 5.21% 90 OUT OF 186 -- --
5 YEARS 6.61% 7.12% 6.94% 92 OUT OF 133 -- --
LIFE OF FUND 5.58% 5.98% 6.03%(3) 58 OUT OF 116(3) 4.40% 5.67%(4)
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 3/31/94, the date nearest the class's inception for which data are
available.
(4) Since 8/31/97, the date nearest the class's inception for which data are
available.
See pages 35-37 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 10/31/99
Lehman Govt./Corp.
Intermediate Index $13,902
Intermediate-Term Bond $13,603
Intermediate-Term Lehman Govt./Corp.
Bond Intermediate Index
DATE VALUE VALUE
3/1/1994 $10,000 $10,000
3/31/1994 $9,856 $9,835
6/30/1994 $9,801 $9,776
9/30/1994 $9,882 $9,856
12/31/1994 $9,880 $9,845
3/31/1995 $10,265 $10,278
6/30/1995 $10,754 $10,790
9/30/1995 $10,950 $10,969
12/31/1995 $11,374 $11,356
3/31/1996 $11,217 $11,261
6/30/1996 $11,255 $11,332
9/30/1996 $11,451 $11,533
12/31/1996 $11,745 $11,815
3/31/1997 $11,714 $11,802
6/30/1997 $12,089 $12,151
9/30/1997 $12,469 $12,479
12/31/1997 $12,707 $12,746
3/31/1998 $12,906 $12,945
6/30/1998 $13,135 $13,188
9/30/1998 $13,676 $13,780
12/31/1998 $13,654 $13,821
3/31/1999 $13,647 $13,795
6/30/1999 $13,482 $13,740
9/30/1999 $13,581 $13,866
10/31/1999 $13,603 $13,902
$10,000 investment made 3/1/94
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Lehman Intermediate Government/ Corporate Index is provided for comparison in
each graph. Intermediate-Term Bond's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not. These graphs are based on Investor Class
shares only; performance for other classes will vary due to differences in fee
structures (see Total Returns table above). 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
Intermediate-Term Lehman Govt./Corp.
Bond Intermediate Index
DATE RETURN RETURN
10/31/1994* -1.24% -1.45%
10/31/1995 12.19% 12.54%
10/31/1996 5.36% 5.81%
10/31/1997 7.87% 7.49%
10/31/1998 7.71% 9.12%
10/31/1999 0.29% 0.99%
* From 3/1/94 (the fund's inception date) to 10/31/94.
10 1-800-345-2021
Intermediate-Term Bond--Q&A
--------------------------------------------------------------------------------
[photo of Bud Hoops] {photo of Jeff Houston]
An interview with Bud Hoops and Jeff Houston, portfolio managers on the
Intermediate-Term Bond fund investment team.
HOW DID INTERMEDIATE-TERM BOND PERFORM DURING THE FISCAL YEAR ENDED OCTOBER 31,
1999?
The portfolio had a better-than-average yield and return, though
performance was limited by the sharp increase in interest rates (see page 3).
For the year, Intermediate-Term Bond returned 0.29%,* while the average return
of the 266 "Intermediate Investment-Grade Debt Funds" tracked by Lipper was
-0.07%. (See the previous page for additional performance comparisons.)
The fund's 30-day SEC yield at the end of October was 6.29%. That's better
than the 6.09% average yield of the Lipper group.
WHY DID INTERMEDIATE-TERM BOND OUTPERFORM THE LIPPER GROUP AVERAGE?
Some of the difference can be attributed to our below-average management
expenses. Our expense ratio on October 31, 1999, was 0.75%, while the Lipper
group average was 0.91%. Other things being equal, lower expenses should
translate into higher yields and returns for our shareholders.
Our management approach also helped returns. We try to position the fund to
capture the best relative values in the bond market by making modest adjustments
to the portfolio's asset allocation. As part of that relative-value approach, we
tend to hold more corporate and mortgage-backed securities and fewer Treasury
bonds than many of the funds in our peer group. Corporate and mortgage-backed
securities performed better than Treasurys this year (see page 3). As a result,
the portfolio held up better than the Lipper group average as interest rates
rose.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO'S COMPOSITION?
The main theme was improving the portfolio's liquidity. "Liquidity" refers
to how easy a bond is to buy and sell. When the market for a bond is very
liquid, there's little difference between the price sellers ask and what buyers
are willing to pay. But in an illiquid market, there can be big disparities
between what investors bid and ask for a given bond. A lack of liquidity can
cause bond prices to fluctuate more sharply. Those price fluctuations can be
especially pronounced for bonds perceived as risky, or bonds issued by less
well-known companies.
Liquidity has been in short supply in the corporate bond market since late
last year, when the global economic crisis was in full swing. That crisis caused
big losses at several U.S. hedge funds (private, often highly speculative
investment vehicles). As a result, they've become more conservative, reducing
their trading activity. Another effect of the crisis is that investment banks
and bond traders have been less willing to build up bond inventories. Taken
together, those two changes have reduced market liquidity.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
PORTFOLIO AT A GLANCE
10/31/99 10/31/98
NUMBER OF SECURITIES 82 75
WEIGHTED AVERAGE
MATURITY 7.7 YRS 7.6 YRS
AVERAGE DURATION 4.7 YRS 4.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.75% 0.75%
YIELDS AS OF OCTOBER 31, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.29% 5.99%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/99 4/30/99
AAA 56% 45%
AA 5% 5%
A 14% 17%
BBB 17% 23%
BB 8% 10%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 36
for more information.
Investment terms are defined in the Glossary on pages 37-38.
www.americancentury.com 11
Intermediate-Term Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
HOW DID YOU IMPROVE THE PORTFOLIO'S LIQUIDITY?
In terms of asset allocation, we reduced our exposure to corporate bonds to
a little less than half the portfolio by the end of October (see the chart at
left). In their place we added much more liquid Treasury and mortgage-backed
securities. In addition to improving liquidity, adding mortgage-backed
securities also helped performance. Mortgages were the best-performing sector of
the U.S. bond market for the last 12 months. We added mortgages in the summer,
when they were as attractive relative to Treasurys as they'd been in about two
years. Adding Treasurys and government-backed mortgage securities also helped
improve the portfolio's credit quality.
DID YOU MAKE ANY CHANGES WITHIN THE CORPORATE BOND POSITION?
Yes, we improved liquidity within our corporate holdings by emphasizing
bonds issued by large, well-known companies, such as Ford, Pepsi, and Wal-Mart.
Bond investors generally have been much more comfortable holding these larger,
more stable, and well-known names. It just hasn't paid to hold bonds issued by
less well-known companies over the last several months, even when they're
attractively valued. As a result, we positioned the portfolio a little more
defensively to try to ride out the lack of liquidity in the market.
WHAT'S YOUR OUTLOOK FOR THE MARKET AND INTEREST RATES?
We're still cautious. Though inflation remains low by historical standards,
most inflation measures are up quite a bit over the last 12 months. The economy
also continues to grow at a blistering pace, expanding at a 5.5% annual rate in
the third quarter. What's more, personal incomes and spending just keep
climbing. Consumer spending numbers are important because they account for more
than two-thirds of economic growth. When you add it all up, we think the Federal
Reserve could raise interest rates again.
Though our outlook for interest rates is guarded, we think there's reason
to be positive about the corporate and mortgage-backed markets. These sectors
are very attractively valued relative to Treasurys by historical standards. When
liquidity concerns in the market evaporate, perhaps after Y2K, we think
higher-yielding corporate and mortgage-backed bonds could perform well. In
addition, corporate bonds in particular tend to perform better when the economy
and the outlook for corporate profits are positive.
GIVEN THAT OUTLOOK, HOW DO YOU EXPECT TO MANAGE INTERMEDIATE-TERM BOND GOING
FORWARD?
In the near term, we expect to continue to emphasize liquidity. That means
holding more Treasury and mortgage-backed bonds and fewer corporate securities
than we have in the past. Within corporates, we'll continue to focus on larger,
more easily bought and sold bond issues.
But we should repeat that we think values among corporate and
mortgage-backed securities are very compelling right now. As a result, we expect
to maintain very sizable positions in these higher-yielding bonds.
[left margin]
"THE PORTFOLIO HAD A BETTER-THAN-AVERAGE YIELD AND RETURN, THOUGH PERFORMANCE
WAS LIMITED BY THE SHARP INCREASE IN INTEREST RATES."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 1999
Corporate Bonds 43%
U.S. Treasury 24%
Mortgage-Backed 16%
Asset-Backed 7%
Other 10%
AS OF APRIL 30, 1999
Corporate Bonds 57%
U.S. Treasury 19%
Mortgage-Backed 14%
Asset-Backed 8%
Other 2%
Investment terms are defined in the Glossary on pages 37-38.
12 1-800-345-2021
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 24.4%
$3,000 U.S. Treasury Notes, 4.875%,
3/31/01 $ 2,965
200 U.S. Treasury Notes, 6.625%,
7/31/01 203
300 U.S. Treasury Notes, 6.50%,
5/31/02 305
300 U.S. Treasury Notes, 7.875%,
11/15/04 323
150 U.S. Treasury Notes, 7.50%,
2/15/05 159
1,000 U.S. Treasury Notes, 7.00%,
7/15/06 1,044
150 U.S. Treasury Notes, 6.50%,
10/15/06 153
150 U.S. Treasury Notes, 5.50%,
5/15/09 144
200 U.S. Treasury Notes, 6.00%,
8/15/09 200
300 U.S. Treasury Bonds, 9.25%,
2/15/16 382
350 U.S. Treasury Bonds, 9.125%,
5/15/18 448
500 U.S. Treasury Bonds, 8.50%,
2/15/20 611
400 U.S. Treasury Bonds, 7.50%,
11/15/24 452
300 U.S. Treasury Bonds, 6.50%,
11/15/26 303
300 U.S. Treasury Bonds, 5.25%,
11/15/28 258
450 U.S. Treasury Bonds, 5.25%,
2/15/29 390
-------
TOTAL U.S. TREASURY SECURITIES 8,340
-------
(Cost $8,525)
MORTGAGE-BACKED SECURITIES(1) -- 15.6%
429 FHLMC Pool #E00279, 6.50%,
2/1/09 425
251 FHLMC Pool #C00578, 6.50%,
1/1/28 242
187 FHLMC Pool #G00907, 7.00%,
2/1/28 184
559 FHLMC Pool #C30060, 7.50%,
8/1/29 561
310 FNMA Pool #427913, 6.00%,
5/1/13 298
198 FNMA Pool #413812, 6.50%,
1/1/28 190
278 FNMA Pool #411821, 7.00%,
1/1/28 273
342 FNMA Pool #431837, 7.00%,
6/1/28 336
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 291 FNMA Pool #450619, 6.00%,
12/1/28 $ 272
292 FNMA Pool #454947, 6.00%,
12/1/28 272
289 FNMA Pool #252211, 6.00%,
1/1/29 270
349 FNMA Pool #506995, 7.50%,
7/1/29 350
318 GNMA Pool #002202, 7.00%,
4/20/26 312
241 GNMA Pool #780412, 7.50%,
8/15/26 242
241 GNMA Pool #467626, 7.00%,
2/15/28 237
155 GNMA Pool #458862, 7.50%,
2/15/28 156
390 GNMA Pool #436277, 6.50%,
3/15/28 373
332 GNMA Pool #469811, 7.00%,
12/15/28 326
-------
TOTAL MORTGAGE-BACKED SECURITIES 5,319
-------
(Cost $5,445)
ASSET-BACKED SECURITIES(1) -- 7.1%
463 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 450
600 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 556
330 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 317
250 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4, 6.78%,
2/15/16 250
400 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5, 6.92%,
10/15/18 400
300 United Companies Financial Corp.,
Home Equity Loan, Series
1997 C, Class A7, 6.85%,
1/15/29 296
146 First Merchants Auto Receivables
Corp., Series 1996 B,
Class A2, 6.80%, 5/15/01 146
-------
TOTAL ASSET-BACKED SECURITIES 2,415
-------
(Cost $2,500)
See Notes to Financial Statements www.americancentury.com 13
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 42.9%
AIRLINES -- 1.4%
$ 500 Continental Airlines, Inc., 8.00%,
12/15/05 $ 465
-------
BANKS -- 4.4%
500 BankAmerica Corp., 7.75%,
7/15/02 511
300 Capital One Bank, 5.95%,
2/15/01 296
250 Corestates Capital Corp., 5.875%,
10/15/03 239
500 Fleet Boston Corp., 5.75%,
1/15/09 448
-------
1,494
-------
CHEMICALS -- 1.0%
350 du Pont (E.I.) de Nemours & Co.,
6.875%, 10/15/09 348
-------
CONSTRUCTION & REAL PROPERTY -- 0.8%
300 Chelsea GCA Realty Partners,
7.25%, 10/21/07 278
-------
DEPARTMENT STORES -- 0.6%
200 Sears, Roebuck & Co., Inc. MTN,
8.29%, 6/10/02 207
-------
ELECTRICAL EQUIPMENT -- 1.5%
500 Qwest Communications
International Inc., Series B,
7.50%, 11/1/08 498
-------
ELECTRICAL UTILITIES -- 0.9%
300 Yorkshire Power Finance, Series B,
6.15%, 2/25/03 289
-------
ENERGY EQUIPMENT & SERVICES -- 1.0%
400 Petroleum Geo-Services ASA,
7.125%, 3/30/28 359
-------
ENERGY RESERVES & PRODUCTION -- 1.0%
350 EOG Resources Inc., 6.70%,
11/15/06 340
-------
FINANCIAL SERVICES -- 2.5%
250 Ford Motor Credit Co., 6.125%,
4/28/03 244
300 Ford Motor Credit Co., 7.375%,
10/28/09 303
300 Franchise Finance Corp., 7.00%,
11/30/00 299
-------
846
-------
FOREST PRODUCTS & PAPER -- 1.5%
300 Abitibi-Consolidated Inc., 7.40%,
4/1/18 268
250 Abitibi-Consolidated Inc., 8.50%,
8/1/29 246
-------
514
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
GAS & WATER UTILITIES -- 1.7%
$ 600 K N Energy, Inc., 6.45%,
11/30/01 $ 591
-------
GOLD -- 1.2%
400 Barrick Gold Corp., 7.50%,
5/1/07 400
-------
GROCERY STORES -- 1.4%
500 Kroger Co. (The), 7.25%, 6/1/09 487
-------
HEAVY ELECTRICAL EQUIPMENT -- 0.9%
300 Anixter International Inc., 8.00%,
9/15/03 301
-------
INDUSTRIAL PARTS -- 1.0%
350 Caterpillar Inc., 7.25%, 9/15/09 351
-------
INFORMATION SERVICES -- 1.1%
400 LCI International, Inc., 7.25%,
6/15/07 393
-------
LIFE AND HEALTH INSURANCE -- 3.2%
300 Aetna Services, Inc., 6.75%,
8/15/01 300
500 Conseco Inc., 6.40%, 6/15/01 488
300 Conseco Inc., 9.00%, 10/15/06 302
-------
1,090
-------
MEDIA -- 3.2%
350 British Sky Broadcasting, 6.875%,
2/23/09 317
250 CSC Holdings Inc., 7.625%,
7/15/18 231
500 TCI Communications, Inc., 8.75%,
8/1/15 560
-------
1,108
-------
MINING & METALS -- 1.4%
500 Owens-Illinois Inc., 7.15%,
5/15/05 466
-------
MOTOR VEHICLES & PARTS -- 3.1%
500 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99, Cost
$500)(2) 491
600 Toyota Motor Credit Corp.,
5.625%, 11/13/03 575
-------
1,066
-------
OFFICE -- 0.9%
300 Spieker Properties, Inc., 6.80%,
12/15/01 298
-------
OIL REFINING -- 2.3%
500 Enron Corp., 6.625%, 11/15/05 481
300 USX Corp., 6.85%, 3/1/08 285
-------
766
-------
SECURITIES & ASSET MANAGEMENT -- 0.7%
250 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 249
-------
14 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TELEPHONE -- 2.4%
$ 500 GTE North Inc., Series H, 5.65%,
11/15/08 $ 451
350 U S West Communications, 7.20%,
11/1/04 (Acquired 10/26/99,
Cost $349)(2) 353
-------
804
-------
WIRELESS TELECOMMUNICATIONS -- 1.8%
600 AirTouch Communications, Inc.,
7.125%, 7/15/01 604
-------
TOTAL CORPORATE BONDS 14,612
-------
(Cost $15,051)
SOVEREIGN GOVERNMENTS & AGENCIES -- 1.7%
300 Province of British Columbia,
5.375%, 10/29/08 270
300 Province of Quebec, 7.50%,
9/15/29 302
-------
TOTAL SOVEREIGN GOVERNMENTS &
AGENCIES 572
-------
(Cost $597)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 8.3%
1,139,000 Units of Participation in Chase
Vista Prime Money Market Fund
(Institutional Shares) $ 1,139
Repurchase Agreement, Goldman Sachs &
Co., Inc., (U.S. Treasury obligations),
in a joint trading account at 5.13%, dated
10/29/99, due 11/1/99 (Delivery value
$1,692) 1,691
-------
TOTAL TEMPORARY CASH INVESTMENTS 2,830
-------
(Cost $2,830)
TOTAL INVESTMENT SECURITIES -- 100.0% $34,088
=======
(Cost $34,948)
NOTES TO SCHEDULE OF INVESTMENTS
FHMLC = 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 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 1999, was $844, which
represented 2.5% of net assets.
See Notes to Financial Statements www.americancentury.com 15
Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 1999
INVESTOR CLASS (INCEPTION 3/2/87) ADVISOR CLASS (INCEPTION 8/8/97)
LEHMAN AGGREGATE A-RATED CORPORATE DEBT FUNDS(2) LEHMAN AGGREGATE
BOND BOND INDEX AVERAGE RETURN FUND'S RANKING BOND BOND INDEX
====================================================================================================================
6 MONTHS(1) -1.08% -0.15% -1.39% -- -1.21% -0.15%
1 YEAR -1.00% 0.53% -0.92% 88 OUT OF 164 -1.25% 0.53%
====================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.70% 6.18% 5.04% 99 OUT OF 135 -- --
5 YEARS 7.13% 7.94% 7.09% 45 OUT OF 100 -- --
10 YEARS 6.93% 7.88% 7.45% 37 OUT OF 42 -- --
LIFE OF FUND 6.98% 7.91% 7.54%(3) 24 OUT OF 28(3) 3.78% 5.86%(4)
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 3/31/87, the date nearest the class's inception for which data are
available.
(4) Since 8/31/97, the date nearest the class's inception for which data are
available.
See pages 35-37 for more information about share classes, returns, the
comparative index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/99
Lehman Aggregate
Bond Index $21,351
Bond $19,545
Lehman Aggregate
Bond Bond Index
DATE VALUE VALUE
10/31/1989 $10,000 $10,000
10/31/1990 $10,193 $10,631
10/31/1991 $11,870 $12,312
10/31/1992 $13,108 $13,522
10/31/1993 $14,656 $15,127
10/31/1994 $13,854 $14,572
10/31/1995 $16,231 $16,852
10/31/1996 $17,028 $17,838
10/31/1997 $18,488 $19,424
10/31/1998 $19,743 $21,238
10/31/1999 $19,545 $21,351
$10,000 investment made 10/31/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman Aggregate Bond Index is provided for comparison in each graph. Bond's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the index do
not. These graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see Total Returns table
above). 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
Lehman Aggregate
Bond Bond Index
DATE RETURN RETURN
10/31/1990 1.93% 6.31%
10/31/1991 16.45% 15.81%
10/31/1992 10.43% 9.83%
10/31/1993 11.81% 11.87%
10/31/1994 -5.47% -3.67%
10/31/1995 17.16% 15.65%
10/31/1996 4.91% 5.85%
10/31/1997 8.57% 8.89%
10/31/1998 6.79% 9.34%
10/31/1999 -1.00% 0.53%
16 1-800-345-2021
Bond--Q&A
--------------------------------------------------------------------------------
An interview with Bud Hoops and Jeff Houston (pictured on page 11),
portfolio managers on the Bond fund investment team.
HOW DID AMERICAN CENTURY BOND PERFORM IN THE FISCAL YEAR ENDED OCTOBER 31, 1999?
The fund's return reflected the difficult investment climate for bonds so
far in 1999 (see page 3). For the year, Bond's return was -1.00%.* That's about
in line with the -0.92% average return of the 164 "A-Rated Corporate Debt Funds"
tracked by Lipper Inc. (See the previous page for additional performance
comparisons.)
WHAT ABOUT THE PORTFOLIO'S YIELD? HOW DOES IT COMPARE?
On October 31, the portfolio had a 30-day SEC yield of 6.59%, while the
average corporate debt fund tracked by Lipper had a yield of 6.01%. Bond's yield
was good enough to rank in the top 20% of the Lipper group. So even though 1999
has been a difficult year for bond investors, the silver lining is that we're
able to offer shareholders very attractive yields. In fact, yields on many bonds
are as high as they've been in about two years.
HOW DID YOU POSITION THE PORTFOLIO?
We kept the fund's duration (a measure of the fund's sensitivity to
interest rate changes) around 5.3 years. Instead of making bets on the direction
of interest rates, we try to add value by finding the best buys among corporate,
mortgage, and Treasury bonds.
And as we've mentioned in previous reports, we view the portfolio primarily
as a corporate bond fund, so we continued to keep almost 60% of assets in
corporate securities. Nevertheless, our corporate bond holdings are actually
down a little in the last six months.
Mortgages were very attractively valued, so we trimmed our corporate
position and added mortgage-backed bonds--by October 31, mortgage-backed
securities made up 20% of the fund (see the chart on page 18). Adding
mortgage-backed securities also helped us increase the portfolio's credit
quality and liquidity.
WHAT IS LIQUIDITY, AND WHY HAS IT BEEN AN ISSUE LATELY?
"Liquidity" refers to how easy a bond is to buy and sell. When the market
for a bond is very liquid, there's little difference between the price sellers
ask and what buyers are willing to pay. But in an illiquid market, there can be
big disparities between what investors bid and ask for a given bond. A lack of
liquidity can cause bond prices to fluctuate more sharply. Those price
fluctuations can be especially pronounced for bonds perceived as risky, or bonds
issued by less well-known companies.
Liquidity has been in short supply in the corporate bond market since last
year, when the global economic crisis was in full swing. That crisis caused big
losses at several U.S. hedge funds (private, often highly speculative investment
vehicles). As a result, they've become more conservative, reducing their trading
activity. Another effect of the crisis is that investment banks and bond traders
have been less willing to build up bond inventories. Taken together, those two
changes have reduced market liquidity.
[right margin]
PORTFOLIO AT A GLANCE
10/31/99 10/31/98
NUMBER OF SECURITIES 61 56
WEIGHTED AVERAGE
MATURITY 9.7 YRS 10.6 YRS
AVERAGE DURATION 5.3 YRS 5.3 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.80% 0.80%
YIELDS AS OF OCTOBER 31, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.59% 6.34%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/99 4/30/99
AAA 43% 31%
AA 5% 5%
A 22% 30%
BBB 20% 21%
BB 10% 13%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 36
for more information.
Investment terms are defined in the Glossary on pages 37-38.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
www.americancentury.com 17
Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
DID YOU MAKE ANY CHANGES TO IMPROVE LIQUIDITY WITHIN THE CORPORATE BOND
POSITION?
Yes, we bought bonds issued by large, well-known companies, including Ford,
Pepsi, and Wal-Mart. Bond investors generally have been much more comfortable
holding these larger, more stable, and well-known names. It just hasn't paid to
hold bonds issued by less well-known companies over the last several months,
even when they're attractively valued. So rather than try to swim upstream, we
decided to invest in some of these larger names and position the portfolio a
little more defensively to try to ride out the current lack of liquidity.
WHAT SECTORS OF THE CORPORATE BOND MARKET DID YOU FAVOR?
We put some money to work in companies that could benefit from higher
commodity prices. Better global economic growth means prices for many
commodities have stabilized or begun to recover after last year's crisis. Oil is
an obvious example--production cuts and stronger global demand caused oil prices
to double. That should translate into better profits for oil-related businesses,
so we added some bonds issued by energy companies.
WHAT'S YOUR OUTLOOK FOR THE MARKET AND INTEREST RATES?
We're still cautious. Though inflation remains low by historical standards,
most inflation measures are up quite a bit over the last 12 months. The economy
also continues to grow at a blistering pace, expanding at a 5.5% annual rate in
the third quarter. What's more, personal incomes and spending just keep
climbing. Consumer spending numbers are important because they account for more
than two-thirds of economic growth. When you add it all up, we think the Federal
Reserve could raise interest rates again.
Though our outlook for interest rates is guarded, we think there's reason
to be positive about the corporate and mortgage-backed markets. These sectors
are very attractively valued relative to Treasurys by historical standards. When
liquidity concerns in the market evaporate, perhaps after Y2K, we think
higher-yielding corporate and mortgage-backed bonds could perform well. In
addition, corporate bonds in particular tend to perform better when the economy
and the outlook for corporate profits are positive.
GIVEN THAT OUTLOOK, HOW DO YOU EXPECT TO MANAGE THE PORTFOLIO GOING FORWARD?
In the near term, we expect to continue to emphasize liquidity. That means
holding more mortgage-backed bonds and fewer corporate securities than we have
in the past. Within corporates, we'll continue to focus on larger, more easily
bought and sold bond issues.
But we should repeat that we think values among corporate and
mortgage-backed securities are very compelling right now. As a result, we expect
to maintain sizable positions in these bonds, trying to position the portfolio
to capture those higher yields.
[left margin]
"EVEN THOUGH 1999 HAS BEEN A DIFFICULT YEAR FOR BOND INVESTORS, THE SILVER
LINING IS THAT WE'RE ABLE TO OFFER SHAREHOLDERS VERY ATTRACTIVE YIELDS."
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 1999
Corporate Bonds 58%
Mortgage-Backed 20%
U.S. Treasury 10%
Asset-Backed 8%
Other 4%
AS OF APRIL 30, 1999
Corporate Bonds 71%
Mortgage-Backed 12%
Asset-Backed 7%
U.S. Treasury 7%
Other 3%
Investment terms are defined in the Glossary on pages 37-38.
18 1-800-345-2021
Bond--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 10.4%
$1,000 U.S. Treasury Notes, 4.625%,
11/30/00 $ 989
2,500 U.S. Treasury Notes, 5.25%,
5/31/01 2,481
4,000 U.S. Treasury Notes, 5.625%,
12/31/02 3,968
4,000 U.S. Treasury Bonds, 8.50%,
2/15/20 4,889
--------
TOTAL U.S. TREASURY SECURITIES 12,327
--------
(Cost $12,419)
U.S. GOVERNMENT AGENCY SECURITIES -- 1.6%
2,000 TVA, 6.875%, 12/15/43 1,869
--------
(Cost $1,854 )
MORTGAGE-BACKED SECURITIES(1) -- 20.0%
4,184 FHLMC Pool #E68681, 6.00%,
1/1/13 4,031
2,912 FHLMC Pool #C00731, 6.50%,
3/1/29 2,796
1,198 FHLMC Pool #C30257, 7.00%,
8/1/29 1,178
1,862 FHLMC Pool #C30060, 7.50%,
8/1/29 1,871
15 FHLMC REMIC, Series 116,
Class F PAC, 8.50%, 2/15/20 15
2,861 FNMA Pool #484698, 6.00%,
2/1/14 2,755
1,479 FNMA Pool #252797, 7.50%,
9/1/14 1,498
3,050 FNMA Pool #250452, 6.50%,
1/1/26 2,945
2,892 FNMA Pool #252211, 6.00%,
1/1/29 2,699
1,510 FNMA Pool #503915, 7.00%,
7/1/29 1,484
485 FNMA Pool #504748, 7.00%,
7/1/29 477
1,494 FNMA Pool #506995, 7.50%,
7/1/29 1,498
434 FNMA REMIC, Series 1989-35,
Class G, 9.50%, 7/25/19 455
--------
TOTAL MORTGAGE-BACKED SECURITIES 23,702
--------
(Cost $24,261)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
ASSET-BACKED SECURITIES(1) -- 8.3%
$2,500 AMRESCO, INC., Series 1998-2,
Class A4 SEQ, 6.45%, 4/25/27 $ 2,417
1,500 BMW Vehicle Owner Trust, Series
1999 A, Class A3 SEQ, 6.41%,
4/25/03 1,500
2,000 Comed Transitional Funding Trust,
Series 1998-1, Class A6 SEQ,
5.63%, 6/25/09 1,881
2,400 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 2,224
1,888 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 1,810
89 United Companies Financial Corp.,
Home Equity Loan, Series
1995 D1, Class A2, 6.20%,
3/10/14 89
--------
TOTAL ASSET-BACKED SECURITIES 9,921
--------
(Cost $10,418)
CORPORATE BONDS -- 57.4%
AIRLINES -- 3.6%
1,500 Continental Airlines, Inc., 8.00%,
12/15/05 1,395
2,959 Delta Air Lines, Inc., 7.54%,
10/11/11 2,829
--------
4,224
--------
BANKS -- 6.2%
2,000 Corestates Capital Corp., 5.875%,
10/15/03 1,913
3,000 Mellon Financial Co., 6.00%,
3/1/04 2,894
2,500 National Bank of Canada, 7.75%,
11/1/09 2,516
--------
7,323
--------
CHEMICALS -- 2.5%
1,500 ARCO Chemical Co., 10.25%,
11/1/10 1,534
1,500 du Pont (E.I.) de Nemours & Co.,
6.875%, 10/15/09 1,491
--------
3,025
--------
COMPUTER HARDWARE & BUSINESS -- 1.2%
1,500 International Business Machines
Corp., 7.125%, 12/1/96 1,421
--------
See Notes to Financial Statements www.americancentury.com 19
Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
CONSTRUCTION & REAL PROPERTY -- 1.2%
$1,500 Chelsea GCA Realty Partners,
7.25%, 10/21/07 $ 1,391
--------
DEPARTMENT STORES -- 0.8%
1,000 Wal-Mart Stores, Inc., 6.875%,
8/10/09 1,004
--------
ELECTRICAL EQUIPMENT -- 1.7%
2,000 Qwest Communications
International Inc., Series B,
7.50%, 11/1/08 1,994
--------
ELECTRICAL UTILITIES -- 1.6%
2,000 Southern Investments UK, 6.80%,
12/1/06 1,902
--------
ENERGY -- 2.6%
3,000 Oryx Energy Co., 8.125%,
10/15/05 3,103
--------
ENERGY EQUIPMENT & SERVICES -- 1.1%
1,500 Petroleum Geo-Services ASA,
7.125%, 3/30/28 1,347
--------
ENERGY RESERVES & SERVICES -- 1.3%
1,600 EOG Resources Inc., 6.70%,
11/15/06 1,553
--------
FINANCIAL SERVICES -- 4.2%
2,000 Comdisco, Inc., 6.375%,
11/30/01 1,966
3,000 Ford Motor Credit Co., 6.50%,
2/28/02 2,989
--------
4,955
--------
FOOD & BEVERAGE -- 2.3%
3,000 Pepsi Bottling Group Inc.,
5.625%, 2/17/09 (Acquired
2/3/99, Cost $2,987)(2) 2,712
--------
FOREST PRODUCTS & PAPER -- 1.6%
1,350 Abitibi-Consolidated Inc., 7.40%,
4/1/18 1,207
750 Abitibi-Consolidated Inc., 8.50%,
8/1/29 738
--------
1,945
--------
GOLD -- 1.3%
1,500 Barrick Gold Corp., 7.50%,
5/1/07 1,499
--------
INDUSTRIAL PARTS -- 0.8%
1,000 Caterpillar Inc., 7.25%, 9/15/09 1,003
--------
LIFE AND HEALTH INSURANCE -- 5.5%
1,500 Conseco Inc., 6.40%, 6/15/01 1,464
1,000 Conseco Inc., 9.00%, 10/15/06 1,005
1,000 Delphi Financial Group, Inc.,
9.31%, 3/25/27 943
3,000 Lincoln National Corp., 9.125%,
10/1/04 3,176
--------
6,588
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
MEDIA -- 5.1%
$1,500 British Sky Broadcasting, 6.875%,
2/23/09 $ 1,358
2,000 CSC Holdings Inc., 7.25%,
7/15/08 1,906
2,500 TCI Communications, Inc., 8.75%,
8/1/15 2,798
--------
6,062
--------
MINING & METALS -- 1.6%
2,000 Owens-Illinois Inc., 7.15%,
5/15/05 1,864
--------
MOTOR VEHICLES & PARTS -- 1.6%
2,000 Lear Corp., 7.96%, 5/15/05
(Acquired 5/13/99, Cost
$2,000)(2) 1,963
--------
NATURAL GAS -- 2.4%
3,000 Columbia Energy Group, 7.42%,
11/28/15 2,831
--------
OFFICE -- 2.6%
3,000 Spieker Properties, Inc. MTN,
7.58%, 12/17/01 3,024
--------
OIL REFINING -- 2.0%
2,500 Enron Corp., 6.625%, 11/15/05 2,404
--------
TELEPHONE -- 2.6%
2,000 GTE North Inc., Series H, 5.65%,
11/15/08 1,804
1,250 U S West Communications,
7.20%, 11/1/04 (Acquired
10/26/99, Cost $1,248)(2) 1,261
--------
3,065
--------
TOTAL CORPORATE BONDS 68,202
--------
(Cost $70,703)
SOVEREIGN GOVERNMENTS & AGENCIES -- 1.0%
1,200 Province of Quebec, 7.50%,
9/15/29 1,207
--------
(Cost $1,195)
TEMPORARY CASH INVESTMENTS -- 1.3%
1,517,000 Units of Participation in Chase
Vista Prime Money Market Fund
(Institutional Shares) 1,517
--------
(Cost $1,517)
TOTAL INVESTMENT SECURITIES -- 100.0% $118,745
========
(Cost $122,367)
20 1-800-345-2021 See Notes to Financial Statements
Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
MTN = Medium Term Note
TVA = Tennessee Valley Authority
(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 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 1999, was $5,936 which
represented 4.8% of net assets.
See Notes to Financial Statements www.americancentury.com 21
Statements of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
INTERMEDIATE-
OCTOBER 31, 1999 LIMITED-TERM TERM BOND
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $18,739, $34,948
and $122,367, respectively) (Note 3) .... $ 18,526 $ 34,088 $ 118,745
Cash ...................................... -- 4 --
Receivable for investments sold ........... -- 296 6,090
Interest and other receivables ............ 268 491 2,025
------------- ------------- -------------
18,794 34,879 126,860
------------- ------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ..................... 462 -- 169
Payable for investments purchased ......... -- 650 3,744
Accrued management fees (Note 2) .......... 11 21 83
Distribution and service fees
payable (Note 2) ........................ 1 2 1
Dividends payable ......................... 7 16 46
------------- ------------- -------------
481 689 4,043
------------- ------------- -------------
Net Assets ................................ $ 18,313 $ 34,190 $ 122,817
============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ... $ 18,613 $ 35,328 $ 127,681
Accumulated net realized loss on
investment transactions ................. (87) (278) (1,242)
Net unrealized depreciation
on investments (Note 3) ................. (213) (860) (3,622)
------------- ------------- -------------
$ 18,313 $ 34,190 $ 122,817
============= ============= =============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................ $ 14,747,149 $ 30,150,621 $ 121,357,440
Shares outstanding ........................ 1,514,774 3,124,334 13,302,060
Net asset value per share ................. $ 9.74 $ 9.65 $ 9.12
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................ $ 3,565,794 $ 4,039,729 $ 1,459,280
Shares outstanding ........................ 366,268 418,604 159,931
Net asset value per share ................. $ 9.74 $ 9.65 $ 9.12
22 1-800-345-2021 See Notes to Financial Statements
Statements of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
INTERMEDIATE-
YEAR ENDED OCTOBER 31, 1999 LIMITED-TERM TERM BOND
INVESTMENT INCOME (In Thousands)
Income:
Interest ................................ $ 1,210 $ 2,100 $ 9,109
------- ------- -------
Expenses (Note 2):
Management fees ......................... 137 237 1,095
Distribution fees -- Advisor Class ...... 3 11 5
Service fees -- Advisor Class ........... 3 11 5
Directors' fees and expenses ............ -- 1 2
------- ------- -------
143 260 1,107
------- ------- -------
Net investment income ................... 1,067 1,840 8,002
------- ------- -------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ........ (87) (271) (1,195)
Change in net unrealized
appreciation on investments ........... (456) (1,458) (8,377)
------- ------- -------
Net realized and unrealized
loss on investments ................... (543) (1,729) (9,572)
------- ------- -------
Net Increase (Decrease) in
Net Assets Resulting
from Operations ....................... $ 524 $ 111 $(1,570)
======= ======= =======
See Notes to Financial Statements www.americancentury.com 23
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 1998
LIMITED-TERM INTERMEDIATE-TERM BOND
Increase (Decrease)
in Net Assets 1999 1998 1999 1998 1999 1998
OPERATIONS (In Thousands)
Net investment income ....... $ 1,067 $ 1,053 $ 1,840 $ 1,365 $ 8,002 $ 8,072
Net realized gain (loss)
on investments ............ (87) 92 (271) 179 (1,195) 47
Change in net unrealized
appreciation
on investments ............ (456) 115 (1,458) 206 (8,377) 699
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net assets resulting
from operations ........... 524 1,260 111 1,750 (1,570) 8,818
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Investor Class ............ (1,004) (1,026) (1,605) (1,219) (7,892) (7,993)
Advisor Class ............. (63) (27) (235) (146) (110) (79)
From net realized gains
on investment transactions:
Investor Class ............ (87) (28) (178) -- (68) (368)
Advisor Class ............. (5) -- (22) -- (1) (1)
--------- --------- --------- --------- --------- ---------
Decrease in net assets
from distributions ........ (1,159) (1,081) (2,040) (1,365) (8,071) (8,441)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions ........ (736) 4,236 6,172 9,419 (15,191) 20,229
--------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net assets ............. (1,371) 4,415 4,243 9,804 (24,832) 20,606
NET ASSETS
Beginning of period ......... 19,684 15,269 29,947 20,143 147,649 127,043
--------- --------- --------- --------- --------- ---------
End of period ............... $ 18,313 $ 19,684 $ 34,190 $ 29,947 $ 122,817 $ 147,649
========= ========= ========= ========= ========= =========
24 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 1999
--------------------------------------------------------------------------------
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 management
investment company. Limited-Term Bond Fund (Limited-Term), Intermediate-Term
Bond Fund (Intermediate-Term), and Bond Fund (Bond) (the funds) are three of the
thirteen series of funds issued by the corporation. The funds are diversified
under the 1940 Act. The funds' investment objective is to seek income by
investing in bonds and other debt obligations. The following significant
accounting policies are in accordance with generally accepted accounting
principles; these policies may require the use of estimates by fund management.
MULTIPLE CLASS -- The funds are authorized to issue two classes of shares:
the Investor Class and the Advisor Class. The two 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.
SECURITY VALUATIONS -- Portfolio securities are valued 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of 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 collateral, represented by securities, received
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
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the 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, 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 net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
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
reflect the differing character of certain income items and net realized gains
and losses for financial statement and tax purposes and may result in
reclassification among certain capital accounts.
At October 31, 1999, Limited-Term, Intermediate-Term and Bond had
accumulated net realized loss carryovers for federal income tax purposes of
approximately $87,095, $274,921 and $1,183,191 (expiring in 2007), respectively,
which may be used to offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
www.americancentury.com 25
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides each fund with investment advisory and management services
in exchange for a single, unified management fee per class. Expenses excluded
from the agreement are 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. The fee is computed daily and paid monthly based on each fund's class
average daily closing net assets during the previous month. The annual
management fee for the Investor Class of Limited-Term, Intermediate-Term, and
Bond is 0.70%, 0.75% and 0.80%, respectively. The annual management fee for the
Advisor Class of Limited-Term, Intermediate-Term and Bond is 0.45%, 0.50% and
0.55%, respectively.
The Board of Directors has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The 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 by financial intermediaries 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 respect to shares of the funds. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred
under the plan for the year ended October 31, 1999 for Limited-Term,
Intermediate-Term and Bond were $6,151, $21,932 and $9,940, respectively.
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 and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year
ended October 31, 1999, were as follows:
LIMITED-TERM INTERMEDIATE-TERM BOND
PURCHASES (In Thousands)
U.S. Treasury &
Agency Obligations .......... $5,382 $17,174 $65,022
Other Debt Obligations ........ 8,024 20,327 76,904
PROCEEDS FROM SALES (In Thousands)
U.S. Treasury &
Agency Obligations .......... $6,391 $15,857 $66,047
Other Debt Obligations ........ 8,967 17,734 92,912
On October 31, 1999, 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:
LIMITED-TERM INTERMEDIATE-TERM BOND
(In Thousands)
Appreciation .................. $9 $46 $320
Depreciation .................. (222) (907) (3,999)
-------------- -------------- ---------------
Net ........................... $(213) $(861) $(3,679)
============== ============== ===============
Federal Tax Cost .............. $18,739 $34,949 $122,424
============== ============== ===============
26 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows:
LIMITED-TERM INTERMEDIATE-TERM BOND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS (In Thousands)
Shares Authorized ............ 150,000 150,000 150,000
======== ======== ==========
Year ended
October 31, 1999
Sold ......................... 428 $4,235 1,477 $14,664 4,841 $46,081
Issued in reinvestment
of distributions ........... 102 1,004 161 1,599 785 7,384
Redeemed ..................... (890) (8,730) (1,132) (11,234) (7,217) (68,105)
-------- ---------- -------- ---------- ---------- ----------
Net increase (decrease) ...... (360) $(3,491) 506 $5,029 (1,591) $(14,640)
======== ========== ======== ========== ========== ==========
Year ended
October 31, 1998
Sold ......................... 1,763 $17,594 1,851 $18,810 8,501 $83,134
Issued in reinvestment
of distributions ........... 100 999 108 1,093 799 7,783
Redeemed ..................... (1,518) (15,196) (1,140) (11,569) (7,418) (72,377)
-------- ---------- -------- ---------- ---------- ----------
Net increase ................. 345 $3,397 819 $8,334 1,882 $18,540
======== ========== ======== ========== ========== ==========
ADVISOR CLASS (In Thousands)
Shares Authorized ............ 50,000 50,000 50,000
======== ======== ==========
Year ended
October 31, 1999
Sold ......................... 404 $3,946 699 $6,859 166 $1,552
Issued in reinvestment
of distributions ........... 6 59 22 221 11 104
Redeemed ..................... (128) (1,250) (610) (5,937) (237) (2,207)
-------- ---------- -------- ---------- ---------- ----------
Net increase (decrease) ...... 282 $2,755 111 $1,143 (60) $(551)
======== ========== ======== ========== ========== ==========
Period ended
October 31, 1998(1)
Sold ......................... 107 $1,072 284 $2,873 279 $2,721
Issued in reinvestment
of distributions ........... 3 26 14 143 8 80
Redeemed ..................... (26) (259) (190) (1,931) (114) (1,112)
-------- ---------- -------- ---------- ---------- ----------
Net increase ................. 84 $839 108 $1,085 173 $1,689
======== ========== ======== ========== ========== ==========
(1) November 1, 1997 through October 31, 1998 for Intermediate-Term and Bond
and November 12, 1997 (commencement of sale of the Advisor Class) through
October 31, 1998 for Limited-Term.
--------------------------------------------------------------------------------
5. BANK LOANS
Effective December 18, 1998, the funds, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The funds did
not borrow from the line during the period December 18, 1998 through October 31,
1999.
www.americancentury.com 27
Limted-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................ $ 10.05 $ 9.98 $ 9.93 $ 9.96 $ 9.68
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.53 0.55 0.56 0.56 0.56
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... (0.26) 0.08 0.05 (0.03) 0.28
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ... 0.27 0.63 0.61 0.53 0.84
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.53) (0.55) (0.56) (0.56) (0.56)
From Net Realized Gains
on Investment Transactions ......... (0.05) (0.01) -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions ................ (0.58) (0.56) (0.56) (0.56) (0.56)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 9.74 $ 10.05 $ 9.98 $ 9.93 $ 9.96
========== ========== ========== ========== ==========
Total Return(1) .................... 2.75% 6.58% 6.30% 5.48% 8.89%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.70% 0.70% 0.69% 0.68% 0.69%
Ratio of Net Investment Income
to Average Net Assets .............. 5.38% 5.56% 5.63% 5.63% 5.70%
Portfolio Turnover Rate .............. 72% 97% 109% 121% 116%
Net Assets, End of Period
(in thousands) ..................... $ 14,747 $ 18,838 $ 15,269 $ 8,092 $ 7,193
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
28 1-800-345-2021 See Notes to Financial Statements
Limited-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Advisor Class
1999 1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............ $ 10.05 $ 9.97
--------- ---------
Income From Investment Operations
Net Investment Income ......................... 0.50 0.51
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .................... (0.26) 0.09
--------- ---------
Total From Investment Operations .............. 0.24 0.60
--------- ---------
Distributions
From Net Investment Income .................... (0.50) (0.51)
From Net Realized Gains
on Investment Transactions .................... (0.05) (0.01)
--------- ---------
Total Distributions ........................... (0.55) (0.52)
--------- ---------
Net Asset Value, End of Period .................. $ 9.74 $ 10.05
========= =========
Total Return(2) ............................... 2.49% 6.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......................... 0.95% 0.95%(3)
Ratio of Net Investment Income
to Average Net Assets ......................... 5.13% 5.26%(3)
Portfolio Turnover Rate ......................... 72% 97%
Net Assets, End of Period
(in thousands) ................................ $ 3,566 $ 845
(1) November 12, 1997 (commencement of sale) through October 31, 1998.
(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.
See Notes to Financial Statements www.americancentury.com 29
Intermediate-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period ...............$ 10.24 $ 10.07 $ 9.91 $ 10.07 $ 9.53
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............. 0.55 0.58 0.59 0.58 0.59
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... (0.52) 0.17 0.16 (0.06) 0.54
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .. 0.03 0.75 0.75 0.52 1.13
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ........ (0.55) (0.58) (0.59) (0.58) (0.59)
From Net Realized Gains
on Investment Transactions ........ (0.07) -- -- (0.10) --
---------- ---------- ---------- ---------- ----------
Total Distributions ............... (0.62) (0.58) (0.59) (0.68) (0.59)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......$ 9.65 $ 10.24 $ 10.07 $ 9.91 $ 10.07
========== ========== ========== ========== ==========
Total Return(1) ................... 0.29% 7.71% 7.87% 5.36% 12.19%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.75% 0.75% 0.75% 0.74% 0.74%
Ratio of Net Investment Income
to Average Net Assets ............. 5.60% 5.73% 5.99% 5.90% 6.05%
Portfolio Turnover Rate ............. 106% 89% 99% 87% 133%
Net Assets, End of Period
(in thousands) ....................$ 30,150 $ 26,797 $ 18,126 $ 15,626 $ 12,827
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
30 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .... $ 10.24 $ 10.07 $ 9.96
--------- --------- ---------
Income From Investment Operations
Net Investment Income ................. 0.53 0.56 0.12
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............ (0.52) 0.17 0.11
--------- --------- ---------
Total From Investment Operations ...... 0.01 0.73 0.23
--------- --------- ---------
Distributions
From Net Investment Income ............ (0.53) (0.56) (0.12)
From Net Realized Gains
on Investment Transactions ............ (0.07) -- --
--------- --------- ---------
Total Distributions ................... (0.60) (0.56) (0.12)
--------- --------- ---------
Net Asset Value, End of Period .......... $ 9.65 $ 10.24 $ 10.07
========= ========= =========
Total Return(2) ....................... 0.05% 7.44% 2.33%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.00% 1.00% 1.00%(3)
Ratio of Net Investment Income
to Average Net Assets ................. 5.35% 5.48% 6.05%(3)
Portfolio Turnover Rate ................. 106% 89% 99%
Net Assets, End of Period
(in thousands) ........................ $ 4,040 $ 3,150 $ 2,017
(1) August 14, 1997 (commencement of sale) through October 31, 1997.
(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.
See Notes to Financial Statements www.americancentury.com 31
Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
Beginning of Period ................ $ 9.77 $ 9.73 $ 9.63 $ 9.78 $ 8.91
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income .............. 0.55 0.57 0.60 0.60 0.61
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... (0.65) 0.07 0.19 (0.14) 0.87
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ... (0.10) 0.64 0.79 0.46 1.48
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ......... (0.55) (0.57) (0.60) (0.60) (0.61)
From Net Realized Gains
on Investment Transactions ......... --(1) (0.03) (0.09) (0.01) --
----------- ----------- ----------- ----------- -----------
Total Distributions ................ (0.55) (0.60) (0.69) (0.61) (0.61)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ....... $ 9.12 $ 9.77 $ 9.73 $ 9.63 $ 9.78
=========== =========== =========== =========== ===========
Total Return(2) .................... (1.00)% 6.79% 8.57% 4.91% 17.16%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.80% 0.80% 0.80% 0.79% 0.78%
Ratio of Net Investment Income
to Average Net Assets .............. 5.82% 5.87% 6.25% 6.18% 6.53%
Portfolio Turnover Rate .............. 107% 66% 52% 100% 105%
Net Assets, End of Period
(in thousands) ..................... $ 121,358 $ 145,496 $ 126,580 $ 142,567 $ 149,223
(1) Per-share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
32 1-800-345-2021 See Notes to Financial Statements
Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .... $ 9.77 $ 9.73 $ 9.55
--------- --------- ---------
Income From Investment Operations
Net Investment Income ................. 0.52 0.55 0.13
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............ (0.65) 0.07 0.18
--------- --------- ---------
Total From Investment Operations ...... (0.13) 0.62 0.31
--------- --------- ---------
Distributions
From Net Investment Income ............ (0.52) (0.55) (0.13)
From Net Realized Gains
on Investment Transactions ............ --(2) (0.03) --
--------- --------- ---------
Total Distributions ................... (0.52) (0.58) (0.13)
--------- --------- ---------
Net Asset Value, End of Period .......... $ 9.12 $ 9.77 $ 9.73
========= ========= =========
Total Return(3) ....................... (1.25)% 6.52% 3.27%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.05% 1.05% 1.05%(4)
Ratio of Net Investment Income
to Average Net Assets ................. 5.57% 5.62% 5.92%(4)
Portfolio Turnover Rate ................. 107% 66% 52%
Net Assets, End of Period
(in thousands) ........................ $ 1,459 $ 2,153 $ 462
(1) August 8, 1997 (commencement of sale) through October 31, 1997.
(2) Per-share amount was less than $0.005.
(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 www.americancentury.com 33
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Limited-Term Bond Fund,
Intermediate-Term Bond Fund and Bond Fund, (collectively the "Funds"), three of
the funds comprising American Century Mutual Funds, Inc., as of October 31,
1999, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Limited-Term Bond Fund, Intermediate-Term Bond Fund and Bond Fund as of October
31, 1999, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
December 7, 1999
34 1-800-345-2021
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the fund: Investor Class
and Advisor Class.
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.
ADVISOR CLASS shares are 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.
Both 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 from the date of
receipt at American Century. Even if you plan to rollover 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 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 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.
www.americancentury.com 35
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
LIMITED-TERM BOND seeks to provide interest income by investing in a
diversified portfolio of fixed-income securities. The fund maintains a weighted
average maturity of five years or less.
INTERMEDIATE-TERM BOND seeks to provide interest income by investing in a
diversified portfolio of fixed-income securities. The fund maintains a weighted
average maturity of 3-10 years.
BOND seeks to provide interest income by investing in a diversified
portfolio of fixed-income securities. The fund has no weighted average maturity
limitations, but typically invests in intermediate- and long-term bonds.
COMPARATIVE INDICES
The indices listed are used in the report for fund performance comparisons.
They are not investment products available for purchase.
The MERRILL LYNCH 1- TO 5-YEAR GOVERNMENT/CORPORATE INDEX is an index
composed of corporate and Treasury debt with an overall maturity of
approximately three 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 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 funds are:
SHORT INVESTMENT-GRADE DEBT FUNDS (Limited-Term Bond)--funds with
dollar-weighted average maturities of five 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.
A-RATED CORPORATE DEBT FUNDS (Bond)--funds that invest at least 65% of
their assets in government issues or corporate debt issues rated A or better.
[left margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
BUD HOOPS
JEFF HOUSTON
JOHN WALSH
Credit Research Manager
GREG AFIESH
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS STANDARD
& POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH AND
ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE"
SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. HERE ARE THE MOST
COMMON CREDIT RATINGS AND THEIR DEFINITIONS:
* AAA -- EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA -- VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A -- STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BBB -- GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BB -- SECURITIES THAT ARE LESS VULNERABLE TO DEFAULT THAN OTHER
LOWER-QUALITY ISSUES BUT DO NOT QUITE MEET INVESTMENT-GRADE STANDARDS.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
36 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
RETURNS
* 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.
* 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 28-33.
YIELDS
* 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
* NUMBER OF SECURITIES --the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure 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.
* 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.
* 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
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a pool
of receivables, such as credit-card debt, auto loans, and commercial mortgages.
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations. Short-term corporate securities are typically 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.
* 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.
* 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).
www.americancentury.com 37
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
38 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 39
Notes
--------------------------------------------------------------------------------
40 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc.
9912 is the distributor for American Century funds
SH-ANN-18851 (c)1999 American Century Services Corporation
[front cover]
OCTOBER 31, 1999
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
[graphic of runners]
HIGH-YIELD
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K Testing Efforts Pay Dividends in Preparedness
--------------------------------------------------------------------------------
Y2K, short for the year 2000, refers more specifically to the date change
from December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years -- 99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, all of our computer systems have been modified, tested and
returned to production. We have an ongoing commitment to testing our systems
with our vendors and business partners and within the industry throughout the
rest of the year.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition to our testing schedule, our Y2K team has developed contingency
plans. These plans are designed to minimize the impact on our investors and help
us maintain operations in the event of any Y2K-related incidents. We will
conduct practice drills of contingency scenarios during the rest of 1999 and
refine those plans to respond quickly and effectively so that the date change is
as seamless as possible for investors. We expect the year 2000 to be business as
usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
HIGH-YIELD
(ABHIX)
---------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY
FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
Tackling the Rollover Challenge
--------------------------------------------------------------------------------
Changing jobs or retiring? The American Century Personalized Rollover
Service(SM) provides individualized service that makes rolling over your
employer-sponsored retirement plan easy and stress free.
Our Rollover Expert Team will:
* Give personal guidance on which options best meet your retirement needs by
explaining the types of investments available through both our mutual funds and
American Century Brokerage.
* Assist you with the paperwork, helping to ensure it's completed right the
first time.
* Monitor retirement plan money as it rolls over from your employer-
sponsored plan to the American Century Rollover IRA account.
Call the Rollover Expert Team weekdays 7 a.m. to 7 p.m. (CT) at
1-888-345-2431, ext. 4232, or visit our Web site at www.americancentury.com.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
Investor preference for blue-chip growth stocks and higher interest rates
made for a difficult environment for high-yield bonds during the fiscal year
ended October 31, 1999. Rapid U.S. economic growth, the recovery of overseas
economies, and increased inflation anxiety influenced the Federal Reserve (the
U.S. central bank) to raise short-term interest rates to rein in the economy and
reduce pressure on prices and wages.
Nevertheless, American Century High-Yield provided a competitive return
compared with similar funds. Fund shareholders have benefited from our
commitment to build and maintain a talented fund management group. American
Century's entire investment management team has doubled in size over the past
three years.
On the corporate front, American Century has long been an active supporter
of the development of technologies that improve the efficiencies of capital
markets. Toward that end, we've made strategic investments in several other
financial services firms. One priority, for example, has been reducing the costs
of buying and selling securities for our funds. Savings in this area directly
affect the performance of your funds.
We're also pleased to report that American Century's investor account
statement is the first fund company statement to win the Communications Seal
from DALBAR, Inc., an independent financial services research firm. DALBAR
commends us for meeting investors' needs with an attractive document that's easy
to read and understand.
Finally, in the spirit of our ongoing Year 2000 readiness disclosures,
we've provided a complete update on our preparations for Y2K on the inside front
cover of this report.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Credit Review .......................................................... 4
HIGH-YIELD
Performance Information ................................................ 5
Portfolio at a Glance .................................................. 5
Yields ................................................................. 5
Management Q&A ......................................................... 6
Portfolio Composition
by Credit Rating .................................................... 6
Top Five Industries .................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 11
Statement of Operations ................................................ 12
Statements of Changes
in Net Assets ....................................................... 13
Notes to Financial
Statements .......................................................... 14
Financial Highlights ................................................... 16
Independent Auditors'
Report ............................................................... 17
OTHER INFORMATION
Retirement Account
Information ......................................................... 18
Background Information
Investment Philosophy
and Policies ..................................................... 19
Comparative Indices ................................................. 19
Lipper Rankings ..................................................... 19
Credit Rating
Guidelines ....................................................... 19
Investment Team
Leaders .......................................................... 19
Glossary ............................................................... 20
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* High-yield bonds produced moderate absolute returns during the 12 months
ended October 31, 1999, but outpaced most other types of fixed-income
securities
* Rising interest rates, higher default rates, and intermittent bouts of stock
market volatility contributed to the historically lower-than-average
returns for high-yield securities, which act like a mix between stocks and
bonds.
* The Federal Reserve raised short-term interest rates twice during the summer
(and again in November).
* Stock market gyrations, particularly among smaller-company names, also
weighed on the high-yield market.
* Demand for high-yield securities was fairly strong in early 1999 but stalled
later in the year.
CREDIT REVIEW
* U.S. corporate credit quality declined during the 12 months ended October
31, 1999, when credit rating downgrades on high-yield bonds outnumbered
upgrades.
* Defaults, which had been near historic lows since the mid-1990s, climbed
beginning in the third quarter of 1998 as economic problems abroad spilled
over into U.S. industries.
* Tightened lending standards by banks also contributed to the increase in
defaults.
MANAGEMENT Q&A
* The High-Yield fund performed relatively well in spite of the challenging
investment environment, outpacing the returns of its Lipper peers and the
DLJ High Yield Index.
* A significant factor in High-Yield's success was our ability to largely
avoid securities that performed very poorly or suffered sizable credit
downgrades.
* We credit that feat to our security selection process, at the core of which
is an experienced credit research team.
* We kept a low exposure to two industries in particular: health care and
consumer non-durables, both of which have been some of the high-yield
market's poorest performers in 1999.
* Bonds of wireless telecommunications and cable companies were some of the
portfolio's better performers.
* Deregulation, new technology, and increased globalization continued to
benefit the telecommunications industry, the fund's largest industry holding.
* We are cautiously optimistic that demand for high-yield securities may pick
up again as we head into 2000.
* To take advantage of that situation, we may look to pick up some mid- to
lower-tier securities, which we currently believe stand a better chance of
appreciating if the market rallies.
[left margin]
HIGH-YIELD
(ABHIX)
TOTAL RETURNS: AS OF 10/31/99
6 Months -3.65%*
1 Year 7.03%
30-DAY SEC YIELD: 9.24%
INCEPTION DATE: 9/30/97
NET ASSETS: $33.5 million
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on pages 20-21.
2 1-800-345-2021
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
PERFORMANCE SNAPSHOT
High-yield bonds produced moderate absolute returns during the year ended
October 31, 1999, but outpaced most other types of fixed-income securities. As
measured by the DLJ High Yield Index, high-yield bonds returned 6.09%.
Rising interest rates, higher default rates, and intermittent bouts of
stock market volatility contributed to the historically lower-than-average
returns for high-yield securities, which act like a mix between stocks and
bonds.
RISING RATES
Interest rates, which had been inching higher since falling to record lows
in late 1998, jumped dramatically in April and May. Rates shot higher in part
because the Federal Reserve (the U.S. central bank) signaled its willingness to
raise interest rates to preempt future inflation. As a result, the yield on the
10-year Treasury note jumped from around 5.2% to 5.8% during the second quarter.
Following up on its signals earlier in the year, the Fed raised short-term
rates twice during the summer of 1999 (and again in November). The Fed
characterized these rate increases as a reversal of the rate cuts it made late
in 1998, when rates were lowered to help provide needed liquidity.
A VOLATILE STOCK MARKET
Stock market gyrations, particularly among smaller-company names, also
weighed on the high-yield market. The volatility was evidence of an atmosphere
in which investors, struggling to get a clear read on the economy, quickly
rewarded companies whose earnings exceeded expectations and favored the
perceived safety of blue chip stocks.
Those shifting expectations dampened demand for small-company shares,
particularly during mid-summer and early fall, leading to volatile returns for
the stocks of companies that are some of the main issuers of high-yield bonds.
DEMAND SLOWS, SPREADS WIDEN
Demand for high-yield securities was fairly strong in early 1999 as the
robust economy and stabilizing financial conditions worldwide caused investors
to reach for higher-yielding securities. As a result, the spread, or difference
in yield, between 10-year Treasurys and high-yield bonds fell, dropping from 735
basis points (a basis point equals 0.01%) in late 1998 to only 537 basis points
by the end of April. (See the graph at right.)
But demand for high-yield bonds tapered off considerably as 1999 progressed
and economic uncertainty arose. As a result, cash inflows to high-yield bond
funds, which peaked in 1997 at over $20 billion, stumbled, and yield spreads
began to widen once again.
[right margin]
"RISING INTEREST RATES, HIGHER DEFAULT RATES, AND INTERMITTENT BOUTS OF STOCK
MARKET VOLATILITY CONTRIBUTED TO THE HISTORICALLY LOWER-THAN-AVERAGE RETURNS FOR
HIGH-YIELD SECURITIES, WHICH ACT LIKE A MIX BETWEEN STOCKS AND BONDS."
[line graph - data below]
HIGH-YIELD/TREASURY YIELD SPREAD
DATE YIELD SPREAD
4/30/89 517
7/31/89 629
10/31/89 745
1/31/90 774
4/30/90 773
7/31/90 718
10/31/90 1060
1/31/91 1058
4/30/91 772
7/31/91 723
10/31/91 724
1/31/92 589
4/30/92 500
7/31/92 544
10/31/92 583
1/31/93 490
4/30/93 437
7/31/93 400
10/31/93 434
1/31/94 391
4/30/94 393
7/31/94 426
10/31/94 405
1/31/95 444
4/30/95 425
7/31/95 432
10/31/95 454
1/31/96 467
4/30/96 388
7/31/96 388
10/31/96 391
1/31/97 336
4/30/97 343
7/31/97 329
10/31/97 361
1/31/98 366
4/30/98 357
7/31/98 400
10/31/98 735
1/31/99 626
4/30/99 537
5/31/99 545
6/30/99 549
7/31/99 535
8/31/99 573
9/30/99 611
10/31/99 616
In Basis Points (a basis point equals 0.01%)
This chart shows the yield difference, or spread, between the bonds in the
DLJ High Yield Index and 10-year Treasury securities.
Source: Donaldson, Lufkin & Jenrette
www.americancentury.com 3
Credit Review
--------------------------------------------------------------------------------
CREDIT QUALITY DETERIORATES
U.S. corporate credit quality among high-yield issuers declined during the
12 months ended October 31, 1999, when credit rating downgrades on high-yield
bonds outnumbered upgrades. Defaults, which had been near historic lows since
the mid-1990s, climbed beginning in the third quarter of 1998.
FINANCIAL TURMOIL OVERSEAS
A series of financial crises that first surfaced in Asia in late 1997
precipitated the decline. By 1998, Asia's economic turmoil had spread to Russia,
which devalued its currency and defaulted on government debt, while Latin
America faced similar concerns.
The upheaval wreaked havoc on stock and bond markets around the world,
inflaming concern about the outlook for U.S. corporate profits and leading to
sharp stock market declines. Lower commodity prices followed on the heals of
currency devaluations: oil, for example, hit a low of about $10 a barrel in
December 1998.
TIGHTENED CREDIT CONDITIONS
Default rates rose in part because credit conditions tightened--commercial
banks became less willing to extend credit to companies that failed to meet
projected budgets, reversing a trend that had been in place since the late
1990s.
Thus, with higher credit standards enforced, many companies found
themselves unable to obtain additional bank financing, leading to increased
defaults among these lower-rated issuers.
STABILITY RETURNS
Economic and financial concerns in the U.S. proved relatively short-lived,
however, thanks in part to the actions of the Federal Reserve (the U.S. central
bank). The Fed's three interest rate cuts in late 1998, plus surprisingly robust
economic growth in the fourth quarter of 1998, revitalized investor confidence
by the end of the first quarter of 1999, helping to calm investors' fears and
restore order to financial markets.
BROKERS' INFLUENCE
Reluctance on the part of brokers to build up bond inventories throughout
the year didn't help matters. Brokers help provide liquidity for the market by
taking positions in securities and selling bonds out of inventory. But with
rates generally rising and economic prospects uncertain, bond inventories were
kept to a minimum, making it more difficult to buy and sell high-yield
securities.
CREDIT ANALYSIS
Careful credit analysis and security selection remain vital to our
investment approach for the High-Yield fund. We believe that our team of
seasoned credit analysts helps us to find attractive securities in complex
market areas, enhancing High-Yield's performance.
[left margin]
"U.S. CORPORATE CREDIT QUALITY AMONG HIGH-YIELD ISSUERS DECLINED DURING THE 12
MONTHS ENDED OCTOBER 31, 1999."
HIGH-YIELD CREDIT
ANALYSIS TEAM
MICHAEL DIFLEY
LYNDA LOWRY
4 1-800-345-2021
High-Yield--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 1999
DLJ HIGH YIELD HIGH CURRENT YIELD FUNDS(2)
HIGH-YIELD INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) -3.65% -3.58% -3.54% --
1 YEAR 7.03% 6.09% 6.61% 116 OUT OF 306
================================================================================
AVERAGE ANNUAL RETURNS
LIFE OF FUND 1.08% 1.50% 0.82% 112 OUT OF 222
The fund's inception date was 9/30/97.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 19-20 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
PERFORMANCE OF $10,000 OVER LIFE OF FUND
Value on 10/31/99
DLJ High Yield Index $10,315
High-Yield $10,227
High-Yield DLJ High Yield Index
DATE VALUE VALUE
9/30/1997 $10,000 $10,000
10/31/1997 $9,963 $9,987
11/30/1997 $10,044 $10,073
12/31/1997 $10,174 $10,173
1/31/1998 $10,437 $10,330
2/28/1998 $10,491 $10,412
3/31/1998 $10,667 $10,529
4/30/1998 $10,718 $10,574
5/31/1998 $10,729 $10,583
6/30/1998 $10,717 $10,595
7/31/1998 $10,781 $10,678
8/31/1998 $10,097 $9,953
9/30/1998 $9,947 $9,929
10/31/1998 $9,548 $9,723
11/30/1998 $10,144 $10,269
12/31/1998 $10,044 $10,228
1/31/1999 $10,210 $10,368
2/28/1999 $10,209 $10,313
3/31/1999 $10,409 $10,452
4/30/1999 $10,606 $10,699
5/31/1999 $10,468 $10,540
6/30/1999 $10,445 $10,549
7/31/1999 $10,514 $10,552
8/31/1999 $10,360 $10,448
9/30/1999 $10,283 $10,374
10/31/1999 $10,227 $10,315
$10,000 investment made 9/30/97
The graph at left shows the performance of a $10,000 investment over the life of
the fund. The DLJ High Yield Index is provided for comparison. High-Yield's
total return includes operating expenses (such as transaction costs and
management fees) that reduce returns, while the total return of the index does
not. 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.
PORTFOLIO AT A GLANCE
10/31/99 10/31/98
NUMBER OF SECURITIES 63 65
WEIGHTED AVERAGE
MATURITY 6.6 YRS 7.0 YRS
AVERAGE DURATION 4.9 YRS 5.5 YRS
EXPENSE RATIO 0.90% 0.90%
YIELD AS OF OCTOBER 31, 1999
30-DAY SEC YIELD 9.24%
Investment terms are defined in the Glossary on pages 20-21.
www.americancentury.com 5
High-Yield--Q&A
--------------------------------------------------------------------------------
[photo of Theresa Fennell]
An interview with Theresa Fennell, a portfolio manager on the High-Yield
fund investment team.
HOW DID THE FUND PERFORM FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999?
The High-Yield fund performed well in spite of the challenging investment
environment. The fund returned 7.03% for the 12 months ended October 31, 1999,
outpacing the 6.61% average return of the 306 "High Current Yield Funds" tracked
by Lipper Inc. The High-Yield fund also outpaced its benchmark, the DLJ High
Yield Index, which returned 6.09% for the same period. (See the previous page
for other fund performance comparisons.)
WHY DID THE FUND PERFORM WELL COMPARED WITH ITS PEERS?
A significant factor in High-Yield's success was our ability to largely
avoid securities that performed very poorly or suffered sizable credit
downgrades. We credit that feat to our security selection process, at the core
of which is an experienced research team. The credit team attempts to stay ahead
of the market by identifying under- or fairly-valued securities that have the
potential to appreciate as a result of improving credit quality.
At the same time, we try to avoid securities that we view as expensive
given their prospects, as well as bonds that appear poised to suffer from future
credit quality deterioration. That's a tricky proposition because credit quality
can vary even within the same credit rating.
For these reasons, we work closely with our seasoned research team to
conduct thorough, case-by-case analysis of securities that we're considering for
the portfolio. This has become increasingly important as default rates on
high-yield securities have risen.
WHAT ARE SOME AREAS OF THE HIGH-YIELD MARKET THAT YOU GENERALLY AVOIDED AND WHY?
We kept a low exposure to two industries in particular: health care and
consumer non-durables, both of which have been some of the high-yield market's
poorest performers in 1999.
Lower Medicare reimbursements have continued to plague health care issues,
as nursing homes throughout the U.S. have been pressured into cutting costs.
Consumer non-durables were also largely unappealing. Many of the companies
in this area that issue high-yield debt are small and have difficulty competing
with the more-visible brand names of their larger competitors.
WHAT WERE SOME OF THE AREAS THAT YOU LIKED?
Wireless telecommunication and cable company bonds were some of the
portfolio's better performers. Within the wireless industry, we liked securities
[left margin]
"A SIGNIFICANT FACTOR IN HIGH-YIELD'S SUCCESS WAS OUR ABILITY TO LARGELY AVOID
SECURITIES THAT PERFORMED VERY POORLY OR SUFFERED SIZABLE CREDIT DOWNGRADES."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/99 4/30/99
AAA 3% 5%
BBB 1% --
BB 16% 17%
B 67% 59%
CCC 7% 4%
UNRATED 6% 15%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 19
for more information.
6 1-800-345-2021
High-Yield--Q&A
--------------------------------------------------------------------------------
(Continued)
from NEXTEL Communications and Orange plc. NEXTEL Communications provides
digital phone service across the nation and is working to enhance the appeal of
its products to domestic and global wireless business customers, while Orange
plc provides wireless communications services in the U.K.
In the cable industry, we favored bonds from NTL, Charter Communications,
and RCN. NTL is the largest broadband telecommunications provider in the U.K.
and Ireland, while Charter Communications is the fourth largest operator of
cable television systems in the U.S. RCN is involved in developing advanced
fiber optic networks to provide a wide range of telecommunications services.
Overall, the cable and wireless industries have proved to be some of the
better performers in the high-yield market in 1999, thanks in part to the
ongoing technological revolution in those areas, increased cost efficiencies,
and merger and acquisition activity.
SPEAKING OF TECHNOLOGICAL REVOLUTION, TELECOMMUNICATIONS REMAINED THE FUND'S TOP
INDUSTRY HOLDING. WHAT'S BEEN THE OVERALL STORY BEHIND THAT AREA'S SUCCESS IN
RECENT YEARS?
Deregulation, new technology, and increased globalization have continued to
benefit the telecommunications industry. Deregulation has allowed new companies
to enter the marketplace to compete for services that were once available only
through the Baby Bells.
Technological advances are allowing companies to provide those services
more efficiently, while many companies in the U.S. are expanding into global
markets. Increased competition and open markets have also sparked a surge in
merger and acquisition activity.
The high-yield market is being used to finance many new entrants into the
telecommunications arena. Because these companies are in their infancy, it can
be risky to buy their debt, making careful credit research all the more
important. Their borrowing rates also tend to be high, reflecting that risk, and
competition for capital means that they must pay higher rates. But if those
companies execute their business plans and mature from startups to established
businesses, their debt will rise in value.
GOING FORWARD, WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET AND HOW DO YOU PLAN
ON POSITIONING THE PORTFOLIO?
Demand for high-yield bonds has been relatively lackluster in the face of
this year's stock market volatility. In fact, through September, high-yield
inflows in 1999 and are on track for their lowest annual showing since 1994.
However, we are cautiously optimistic that demand may pick up again as we
head into 2000. To take advantage of that situation, we may look to pick up some
mid- to lower-tier securities, which we currently believe stand a better chance
of appreciating if the market rallies.
In addition, we'll continue to try to add value through our security
selection process, picking bonds that we think have better long-term credit
fundamentals and offer the most appealing yields and risk-adjusted returns.
[right margin]
"WIRELESS TELECOMMUNICATION AND CABLE COMPANY BONDS WERE SOME OF THE PORTFOLIO'S
BETTER PERFORMERS."
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/99 4/30/99
TELEPHONE 16.1% 13.4%
MEDIA 8.7% 5.2%
FOREST PRODUCTS &
PAPER 6.7% 8.1%
INDUSTRIAL SERVICES 5.5% 3.3%
WIRELESS
TELECOMMUNICATIONS 5.3% 4.9%
www.americancentury.com 7
High-Yield--Schedule of Investments
--------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period. Some asset
classes are further broken down by industry.
OCTOBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 87.1%
AIRLINES -- 2.2%
$ 750,000 Atlas Air, Inc., 10.75%, 8/1/05 $ 750,000
-----------
APPAREL & TEXTILES -- 2.5%
500,000 Delta Mills, Inc., Series B, 9.625%,
9/1/07 340,000
500,000 Supreme International Corp.,
12.25%, 4/1/06 483,750
-----------
823,750
-----------
BANKS -- 3.5%
750,000 Bay View Capital Corp., 9.125%,
8/15/07 676,875
790,000 Ocwen Capital Trust I, 10.875%,
8/1/27 501,650
-----------
1,178,525
-----------
BASIC MATERIALS -- 1.4%
500,000 California Steel Industries, 8.50%,
4/1/09 (Acquired 3/31/99,
Cost $500,000)(1) 471,250
-----------
CHEMICALS -- 1.3%
500,000 United Industries Corp., 9.875%,
4/1/09 (Acquired 8/16/99,
Cost $440,000)(1) 447,500
-----------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 2.2%
750,000 Flextronics Intl. Ltd., Series B,
8.75%, 10/15/07 742,500
-----------
COMPUTER SOFTWARE -- 2.8%
1,000,000 Rhythms NetConnections Inc.,
12.75%, 4/15/09 (Acquired
4/16/99, Cost $1,000,000)(1) 903,750
500,000 Telehub Communications Corp.,
12.43%, 7/31/05(2) 51,250
-----------
955,000
-----------
CONSTRUCTION & REAL PROPERTY -- 4.1%
500,000 Omega Cabinets, 10.50%,
6/15/07 485,000
1,000,000 Toll Corp., 8.00%, 5/1/09 896,250
-----------
1,381,250
-----------
ELECTRICAL EQUIPMENT -- 2.5%
250,000 International Utility Structures Inc.,
10.75%, 2/1/08 224,375
750,000 Trench Electric & Trench Inc.,
10.25%, 12/15/07 607,500
-----------
831,875
-----------
Principal Amount Value
--------------------------------------------------------------------------------
ENERGY RESERVES & PRODUCTION -- 1.0%
$ 320,000 Belco Oil & Gas Corp., Series B,
10.50%, 4/1/06 $ 328,000
-----------
ENVIRONMENTAL SERVICES -- 1.3%
500,000 Allied Waste Industries, Inc.,
10.00%, 8/1/09 (Acquired
8/19/99-9/21/99, Cost
$479,063)(1) 427,500
-----------
FINANCIAL SERVICES -- 2.9%
750,000 Metris Companies Inc., 10.00%,
11/1/04 685,313
500,000 Nationwide Credit, Inc., Series A,
10.25%, 1/15/08 301,250
-----------
986,563
-----------
FOREST PRODUCTS & PAPER -- 6.7%
750,000 Ainsworth Lumber Co. Ltd., PIK,
12.50%, 7/15/07 826,875
500,000 Gaylord Container Corp., Series B,
9.75%, 6/15/07 471,250
500,000 Repap New Brunswick, 10.625%,
4/15/05 443,750
500,000 Stone Container, 10.75%,
10/1/02 515,000
-----------
2,256,875
-----------
HOTELS -- 3.4%
500,000 Hollywood Casino Corp., 11.25%,
5/1/07 504,375
750,000 Mandalay Resort Group, 7.625%,
7/15/13 635,625
-----------
1,140,000
-----------
INDUSTRIAL -- 3.5%
500,000 Key Components, Inc., 10.50%,
6/1/08 466,250
750,000 Park-Ohio Industries, Inc., 9.25%,
12/1/07 701,250
-----------
1,167,500
-----------
INDUSTRIAL SERVICES -- 5.5%
500,000 Group Maintenance America,
9.75%, 1/15/09 480,000
500,000 Intertek Finance PLC, Series B,
10.25%, 11/1/06 463,750
500,000 Unicco Service/Finance, Series B,
9.875%, 10/15/07 453,750
500,000 United Rentals, Inc., Series B,
9.25%, 1/15/09 453,750
-----------
1,851,250
-----------
8 1-800-345-2021 See Notes to Financial Statements
High-Yield--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
Principal Amount Value
--------------------------------------------------------------------------------
INTERNET -- 3.7%
$ 750,000 PSINet Inc., Series B, 10.00%,
2/15/05 $ 738,750
500,000 Verio Inc., 10.375%, 4/1/05 503,750
-----------
1,242,500
-----------
MEDIA -- 8.7%
500,000 AMFM Inc., 8.00%, 11/1/08 495,000
1,000,000 Charter Communication Holdings
LLC, 8.64%, 4/1/11(2) 597,500
750,000 Imax Corp., 7.875%, 12/1/05 693,750
750,000 Intl. Cabletel Inc., 9.11%,
2/1/06(2) 656,250
500,000 SFX Entertainment, Inc., 9.125%,
12/1/08 462,500
-----------
2,905,000
-----------
MEDICAL PROVIDERS & SERVICES -- 0.6%
250,000 Magellan Health Services, 9.00%,
2/15/08 211,250
-----------
OIL SERVICES -- 2.5%
500,000 RBF Finance Co., 11.375%,
3/15/09 530,625
500,000 Universal Compression Inc.,
9.02%, 2/15/08(2) 314,375
-----------
845,000
-----------
PACKAGING & CONTAINERS -- 1.5%
750,000 Graham Packaging Co., Series B,
9.21%, 1/15/09(2) 487,500
-----------
SPECIALTY STORES -- 2.4%
500,000 Musicland Group, 9.00%,
6/15/03 458,750
345,000 Tuesday Morning Corp., Series B,
11.00%, 12/15/07 355,350
-----------
814,100
-----------
TELEPHONE -- 15.6%
750,000 21st Century Telecom Group,
11.04%, 2/15/08(2) 330,000
1,000,000 Allegiance Telecom Inc., Series B,
10.64%, 2/15/08(2) 673,750
500,000 AT&T Canada Inc., 7.76%,
6/15/08(2) 390,000
1,000,000 GST USA, Inc., 9.80%,
12/15/05(2) 790,000
1,000,000 ICG Services Inc., 9.14%,
2/15/08(2) 528,830
250,000 Intermedia Communications Inc.,
8.97%, 7/15/02(2) 173,125
500,000 Jazztel PLC, 14.00%, 4/1/09
(Acquired 3/31/99, Cost
$500,000)(1) 507,500
500,000 McLeodUSA Inc., 9.50%,
11/1/08 502,500
Principal Amount Value
--------------------------------------------------------------------------------
$ 500,000 Qwest Communications
International Inc., Series B,
6.99%, 2/1/03(2) $ 382,500
500,000 RSL Communications, Ltd.,
12.25%, 11/15/06 496,875
500,000 Viatel, Inc., 11.25%, 4/15/08 472,500
-----------
5,247,580
-----------
WIRELESS TELECOMMUNICATIONS -- 5.3%
250,000 Metrocall, Inc., 10.375%,
10/1/07 151,562
500,000 NEXTEL Communications, Inc.,
9.75%, 8/15/04 508,750
750,000 Orange plc, 8.00%, 8/1/08 752,813
500,000 Paging Network, Inc., 10.00%,
10/15/08 156,250
500,000 Telesystem International Wireless
Inc., Series C, 9.56%,
11/1/07(2) 210,000
-----------
1,779,375
-----------
TOTAL CORPORATE BONDS 29,271,643
-----------
(Cost $32,740,134)
PREFERRED STOCKS & WARRANTS -- 1.4%
COMPUTER SOFTWARE(3)
500 Telehub Communications Corp.
Warrants(4) 313
-----------
INTERNET -- 0.9%
300 Concentric Network Corp., PIK,
13.50% 285,000
-----------
TELEPHONE -- 0.5%
1,000 Allegiance Telecom Inc.
Warrants(4) 95,125
1,875 Jazztel PLC Warrants(4) 75,938
-----------
171,063
-----------
TOTAL PREFERRED STOCKS & WARRANTS 456,376
-----------
(Cost $238,562)
TEMPORARY CASH INVESTMENTS -- 11.5%
$2,223,000 FNMA Discount Notes, 5.16%,
11/1/99(5) 2,223,000
Repurchase Agreement, Goldman Sachs & Co.,
Inc., (U.S. Treasury obligations), in a joint
trading account at 5.13%, dated 10/29/99,
due 11/1/99 (Delivery value $1,650,705) 1,650,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS 3,873,000
-----------
(Cost $3,873,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $33,601,019
===========
(Cost $36,851,696)
See Notes to Financial Statements www.americancentury.com 9
High-Yield--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = Federal National Mortgage Association
PIK = Payment in kind
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 1999 was $2,757,500
which represented 8.2% of net assets.
(2) Step-coupon security. Yield to maturity at purchase is indicated. These
securities become interest bearing at a predetermined rate and future date
and are purchased at a substantial discount from their value at maturity.
(3) Industry is less than 0.05% of total investment securities.
(4) Non-income producing.
(5) Rate disclosed is the yield to maturity at purchase.
10 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
OCTOBER 31, 1999
ASSETS
Investment securities, at
value
(identified cost of $36,851,696)
(Note 3) .............................................. $ 33,601,019
Cash .................................................... 29,539
Interest receivable ..................................... 663,041
-------------
34,293,599
-------------
LIABILITIES
Payable for investments purchased ....................... 706,258
Accrued management fees (Note 2) ........................ 25,881
Dividends payable ....................................... 24,858
-------------
756,997
-------------
Net Assets .............................................. $ 33,536,602
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized -- Investor Class ............................ 100,000,000
=============
Outstanding -- Investor Class ........................... 3,927,598
=============
Net Asset Value Per Share ............................... $ 8.54
=============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ................. $ 39,172,498
Accumulated undistributed net realized
loss on investment transactions ....................... (2,385,219)
Net unrealized depreciation
on investments (Note 3) ............................... (3,250,677)
-------------
$ 33,536,602
=============
See Notes to Financial Statements www.americancentury.com 11
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 1999
INVESTMENT INCOME
Income:
Interest ................................................ $ 3,899,959
Dividends ............................................... 26,104
-----------
3,926,063
-----------
Expenses (Note 2):
Management fees ......................................... 360,784
Directors' fees and expenses ............................ 325
-----------
361,109
-----------
Net investment income ................................... 3,564,954
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized loss on investments ........................ (2,378,561)
Change in net unrealized
depreciation on investments ........................... 1,540,173
-----------
Net realized and unrealized
loss on investments ................................... (838,388)
-----------
Net Increase in Net Assets
Resulting from Operations ............................. $ 2,726,566
===========
12 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS
Net investment income ...................... $ 3,564,954 $ 2,291,261
Net realized gain (loss) on investments .... (2,378,561) 29,979
Change in net unrealized depreciation
on investments ........................... 1,540,173 (4,679,178)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................ 2,726,566 (2,357,938)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (3,564,954) (2,291,261)
From net realized gains on
investment transactions .................. (36,637) --
------------ ------------
Decrease in net assets
from distributions ....................... (3,601,591) (2,291,261)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 54,275,762 59,205,875
Proceeds from reinvestment
of distributions ......................... 2,823,755 1,965,445
Payments for shares redeemed ............... (54,916,823) (35,365,180)
------------ ------------
Net increase in net assets
from capital share transactions .......... 2,182,694 25,806,140
------------ ------------
Net increase in net assets ................. 1,307,669 21,156,941
NET ASSETS
Beginning of period ........................ 32,228,933 11,071,992
------------ ------------
End of period .............................. $ 33,536,602 $ 32,228,933
============ ============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ....................................... 5,993,456 5,938,245
Issued in reinvestment of distributions .... 313,678 200,982
Redeemed ................................... (6,071,866) (3,564,707)
------------ ------------
Net increase ............................... 235,268 2,574,520
============ ============
See Notes to Financial Statements www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 1999
--------------------------------------------------------------------------------
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 management
investment company. High-Yield Fund (the fund) is one of the thirteen series of
funds issued by the corporation. The fund is diversified under the 1940 Act. The
fund's investment objective is to seek high current income by investing in a
diversified portfolio of high-yielding corporate bonds, debentures and notes.
The fund invests primarily in lower-rated debt securities, which are subject to
greater credit risk and consequently offer higher yield. Securities of this type
are subject to substantial risks including price volatility, liquidity risk and
default risk. The following significant accounting policies are in accordance
with generally accepted accounting principles; these policies may require the
use of estimates by fund management.
MULTIPLE CLASS -- The fund is authorized to issue two classes of shares: the
Investor Class and the Advisor Class. The two 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 had not commenced as of
October 31, 1999.
SECURITY VALUATIONS -- Portfolio securities are valued 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 as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that 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 collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
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 reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At October 31, 1999, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of approximately $2,378,561 (expiring
in 2007) which may be used to offset future taxable gains.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the corporation's
distributor. Certain officers of FDI are also officers of the corporation.
14 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 1999
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee 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 by paid by ACIM. The fee is computed daily and paid
monthly based on the fund's class average closing net assets during the previous
month. The annual management fee for the Investor Class is 0.90%.
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, and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, for the
year ended October 31, 1999, were $35,219,270 and $33,983,365, respectively.
On October 31, 1999, accumulated net unrealized depreciation was $3,256,602,
based on the aggregate cost of investments for federal income tax purposes of
$36,857,621, which consisted of unrealized appreciation of $332,656 and
unrealized depreciation of $3,589,258.
--------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through October 31,
1999.
www.americancentury.com 15
High-Yield--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ... $ 8.73 $ 9.91 $ 10.00
---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.80 0.83 0.06
Net Realized and Unrealized Loss
on Investment Transactions ........... (0.18) (1.18) (0.09)
---------- ---------- ----------
Total From Investment Operations ....... 0.62 (0.35) (0.03)
---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.80) (0.83) (0.06)
From Net Realized Gains on
Investment Transactions .............. (0.01) -- --
---------- ---------- ----------
Total Distributions .................. (0.81) (0.83) (0.06)
---------- ---------- ----------
Net Asset Value, End of Period ......... $ 8.54 $ 8.73 $ 9.91
========== ========== ==========
Total Return(2) ...................... 7.03% (4.09)% (0.27)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.90% 0.90% 0.90%(3)
Ratio of Net Investment Income
to Average Net Assets ................ 8.90% 8.41% 7.39%(3)
Portfolio Turnover Rate ................ 95% 85% --
Net Assets, End of Period
(in thousands) ....................... $ 33,537 $ 32,229 $ 11,072
(1) September 30, 1997 (inception) through October 31, 1997.
(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.
16 1-800-345-2021 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of High-Yield Fund (the "Fund"), one of
the funds comprising American Century Mutual Funds, Inc., as of October 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the two years in the period then
ended and for the period September 30, 1997 (inception) through October 31,
1997. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
High-Yield Fund as of October 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
December 7, 1999
www.americancentury.com 17
Retirement Account Information
--------------------------------------------------------------------------------
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)
account] 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 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 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 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 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies
AMERICAN CENTURY HIGH-YIELD seeks to provide a high level of interest
income by investing in a diversified portfolio of high-yielding fixed-income
securities. As a secondary objective, the fund seeks capital appreciation. The
fund invests primarily in lower-quality corporate bonds, with an emphasis on
securities rated BB or B. The fund has no average maturity limitations, but it
typically invests in intermediate- and long-term bonds.
Lower-rated bonds may be subject to greater default risk, liquidity risk,
and price volatility.
COMPARATIVE INDICES
The index listed below is used in the report for fund performance
comparisons. It is not an investment product available for purchase.
The DLJ HIGH YIELD INDEX is a broad index of corporate bonds with credit
ratings below investment grade. The index has an average maturity of 8 years and
an average credit rating of BB/B.
LIPPER RANKINGS
LIPPER 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
High-Yield is:
HIGH CURRENT YIELD FUNDS -- funds that aim at high current yield from
fixed-income securities. No quality or maturity restrictions; funds tend to
invest in lower-grade debt issues.
CREDIT RATING GUIDELINES
Credit ratings are issued by independent research companies such as
Standard & Poor's and Moody's. Ratings are based on an issuer's financial
strength and ability to pay interest and principal in a timely manner.
Securities rated AAA, AA, A, or BBB are considered "investment-grade"
securities, meaning they are relatively safe from default. The High-Yield fund
generally invests in securities that are below investment grade, including those
with the following credit ratings:
BB -- securities that are less vulnerable to default than other
lower-quality issues but do not quite meet investment-grade standards.
B -- securities that are more vulnerable to default than BB-rated
securities but whose issuers are currently able to meet their obligations.
CCC -- securities that are currently vulnerable to default and are
dependent on favorable economic or business conditions for the issuers to meet
their obligations.
It's important to note that credit ratings are subjective, reflecting the
opinions of the rating agencies; they are not absolute standards of quality.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
THERESA FENNELL
High-Yield Analysts
MICHAEL DIFLEY
LYNDA LOWRY
www.americancentury.com 19
Glossary
--------------------------------------------------------------------------------
RETURNS
* 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.
* 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 16.
YIELDS
* 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
* NUMBER OF SECURITIES -- the number of different securities held by the fund
on a given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure 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.
* 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.
* 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
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations. Short-term corporate securities are typically issued to raise cash
and cover current expenses in anticipation of future revenues; longer-term
corporate securities are issued to finance capital expenditures, such as new
plant construction or equipment purchases.
20 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive
yields, as well as a strong and stable foundation and generally lower volatility
levels than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income
provided by either dividend-paying equities or a combination of equity and
fixed-income securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that the fund's category may change over
time. Therefore, it is important that you read a fund's prospectus or fund
profile carefully before investing to ensure its objectives, policies, and risk
potential are consistent with your needs.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 21
Notes
--------------------------------------------------------------------------------
22 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Large Cap Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra(reg.tm)
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds. Please be aware that a fund's category may change over time.
Therefore, it is important that you read a fund's prospectus or fund profile
carefully before investing to ensure its objectives, policies and risk potential
are consistent with your needs.For a definition of fund categories, see the
Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
Funds Distributor, Inc.
9912 is the distributor for American Century funds
SH-ANN-18852 (c)1999 American Century Services Corporation
