[front cover]
APRIL 30, 1999
SEMIANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
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BALANCED
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
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FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
BALANCED
(TWBIX)
- ------------------------------
Our Message to You
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/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six months ended April 30, 1999, we witnessed some surprising
events in the U.S. financial markets. When we last addressed you in the annual
report for American Century Balanced, the Federal Reserve (the U.S. central
bank) had just cut short-term interest rates three times to bolster the U.S.
economy and help stabilize markets worldwide. This came after economic and
financial crises in Asia, Russia, and Latin America, and the near collapse of
several hedge funds. The global economic outlook was still quite uncertain.
But the Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. Investors, many of whom had shifted their
holdings into U.S. Treasury securities, moved out of Treasurys into stocks and
higher-yielding bonds. Interest rates rose while the U.S. stock market
soared--the Dow Jones Industrial Average broke through 10,000 by the end of the
first quarter.
The year also began on an up note for us. We continued to focus on making
American Century easier to do business with and helping investors reach their
financial goals. In March, we consolidated all our funds under the American
Century name. Though we are proud of the venerable Twentieth Century and Benham
names, we believe the change makes it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we enhanced our Web site (www.americancentury. com). There
you'll find daily fund information--including performance and price data--market
and national news, and a Forms Center with access to the most-requested investor
forms and applications. You can also sign up to receive fund prospectuses and
shareholder reports electronically.
Finally, we continued to expand the American Century investment team, which
has doubled over the last three years. Our portfolio teams have excellent depth,
with an array of experienced managers and analysts, and we remain committed to
building and maintaining a talented management group. Performance is too
hard-won, and our business too competitive, not to do so.
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 Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
BALANCED
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Types of Investments ................................................... 6
Top Ten Stock Holdings ................................................. 7
Top Five Stock Industries .............................................. 7
Fixed-Income Portfolio ................................................. 8
Schedule of Investments ................................................ 9
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 15
Statement of Operations ................................................ 16
Statements of Changes
in Net Assets ....................................................... 17
Notes to Financial
Statements .......................................................... 18
Financial Highlights ................................................... 22
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 24
Background Information
Investment Philosophy and
Policies ......................................................... 25
Comparative Indices ................................................. 25
Investment Team
Leaders .......................................................... 25
Credit Rating
Guidelines ....................................................... 25
Glossary ............................................................... 26
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* The U.S. stock and bond markets diverged during the six months ended April
30, 1999. Stocks generally rallied while bonds were mostly flat to lower.
* Three short-term interest rate cuts by the Federal Reserve in late 1998
helped bolster the U.S. economy and investor confidence, lending strength to
stocks.
* Large-capitalization growth stocks such as Microsoft still provided market
leadership, but not as convincingly as in past periods. Mid- cap stocks
nearly kept pace with large-cap issues, and even the much-beleaguered
small-cap stock indices posted respectable returns.
* Value stocks generally outperformed growth stocks for the first four months
of 1999, reversing another recent trend.
* Cyclical stocks staged a comeback as investors regained faith in the
strength and growth of the global economy. High-tech and pharmaceutical
stocks fell somewhat out of favor.
* Strong U.S. economic growth and rising interest rates caused low returns for
most bonds, especially Treasury securities.
* Corporate bonds and mortgage-backed securities benefited from demand from
yield-oriented investors who sold Treasurys as economic conditions improved.
MANAGEMENT Q&A
* Balanced's return for the six months ended April 30 reflected the strength
of the stock market and the relative weakness of bonds.
* The fund's equity portfolio returned nearly 16% for the six months, but it
wasn't enough to match the sizzling pace of the S&P 500.
* Balanced's stock portfolio had more of a smaller-company and value-oriented
bias than the S&P 500, which is one reason it trailed the index.
* The equity portfolio also lost some ground because of an underweight in
energy securities and overweighted positions in interest rate-sensitive
electric utilities, property insurance, and construction stocks.
* Balanced benefited from overweighted positions in Microsoft, America Online,
and AT&T, as well as large positions in financial services and banking
stocks such as Chase Manhattan and Morgan Stanley Dean Witter.
* We're bringing our industry positions in the stock portfolio more in line
with the S&P 500. We plan to focus more on stock selection within each
industry.
* The performance of the bond portfolio basically matched the return of its
new benchmark, the Lehman Brothers Aggregate Bond Index.
* We switched to the new index because we believe it better represents the
broader U.S. taxable bond market.
* The portfolio now holds fewer corporate bonds and more mortgage-backed
securities.
* We began to invest a small portion of the corporate bond portfolio in
securities rated BB, an area where we think we can add value and boost fund
performance.
* We'll continue to move the fixed-income portfolio closer to the new index.
[left margin]
"BALANCED BENEFITED FROM OVERWEIGHTED POSITIONS IN MICROSOFT, AMERICA ONLINE,
AND AT&T, AS WELL AS LARGE POSITIONS IN FINANCIAL SERVICES AND BANKING STOCKS
SUCH AS CHASE MANHATTAN AND MORGAN STANLEY DEAN WITTER."
BALANCED(1)
(TWBIX)
TOTAL RETURNS: AS OF 4/30/99
6 Months 9.64%(2)
1 Year 10.05%
30-DAY SEC YIELD: 2.39%
INCEPTION DATE: 10/20/88
NET ASSETS: $960.0 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor Classes.
See Total Returns on page 5.
Investment terms are defined in the Glossary on pages 26-27.
2 1-800-345-2021
Market Perspective from Mark Mallon
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/photo of Mark Mallon/
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
STOCKS AND BONDS DIVERGE
During the six months ended April 30, 1999, a resilient U.S. economy and
revitalized investor confidence spurred a U.S. stock market rebound while
simultaneously pushing up interest rates and dampening domestic bond returns.
This divergence in stock and bond performance is displayed dramatically in the
returns for the S&P 500 and the Lehman Aggregate Bond Index in the graphics at
the right. The blended index shows how a 60% S&P 500/40% Lehman Aggregate
combination would have performed.
RECALLING THE PANIC
It's fascinating how much conditions can change in just six months. In
October 1998, the U.S. financial markets were still reeling from a startling
third quarter that had seen equity markets plunge worldwide in response to
global credit and financial crises, particularly in Asia, Russia, and Latin
America, and the threatened collapse of several hedge funds. Many investors
pulled their money out of equities and foreign investments and opted instead for
the relative safety and liquidity of U.S. Treasury securities. Treasury bond
yields plummeted to record lows, and Treasury bond prices soared. But not all
bond sectors shared equally in this rally. Demand for corporate and
mortgage-backed securities dropped dramatically, and their returns fell far
below those of Treasurys.
THE TURNAROUND
But even as Treasury returns blossomed, the seeds of change were being
planted. The Federal Reserve, the U.S. central bank, cut short-term interest
rates three times to ease the credit crisis and spur economic growth.
Furthermore, the U.S. economy and its driving force, consumer spending,
demonstrated remarkable staying power. U.S. economic growth in the fourth
quarter of 1998 and the first quarter of 1999 was far stronger than expected,
and foreign economies showed signs of stabilization and recovery in early 1999.
As a result, by the end of the first quarter, the venerable Dow Jones Industrial
Average had rocketed past 10,000, signaling happier days for U.S. stock
investors.
INSIDE THE STOCK MARKET'S RETURNS
Not all stock investors were equally happy, however. Small-company stocks
continued to lag big-company stocks. The S&P SmallCap 600 Index was up 9.03% for
the six-month period, a respectable return, but well behind the blistering pace
of the S&P 500, which was up 22.31%. Mid-sized companies also lagged, but not by
nearly as much--the S&P MidCap 400 gained 18.86% during the same span. Both mid-
and small-company stocks began to be perceived as undervalued and drew investors
away from big-company stocks,
[right margin]
"A RESILIENT U.S. ECONOMY AND REVITALIZED INVESTOR CONFIDENCE SPURRED A U.S.
STOCK MARKET REBOUND WHILE SIMULTANEOUSLY PUSHING UP INTEREST RATES AND
DAMPENING DOMESTIC BOND RETURNS."
MARKET RETURNS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
S&P 500 22.31%
BLENDED INDEX 13.67%
LEHMAN BROS. AGGREGATE
BOND INDEX 0.69%
Source: Lipper Inc.
[line graph - data below]
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
Lehman Bros.
S&P 500 Blended Index Aggregate Bond Index
10/31/98 $1.00 $1.00 $1.00
11/30/98 $1.06 $1.04 $1.01
12/31/98 $1.12 $1.08 $1.01
1/31/99 $1.17 $1.11 $1.02
2/28/99 $1.13 $1.08 $1.00
3/31/99 $1.18 $1.11 $1.00
4/30/99 $1.22 $1.14 $1.01
Source: Lipper Inc.
These indices are defined on page 25.
www.americancentury.com 3
Market Perspective
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(Continued)
which were seen as becoming increasingly pricey.
Similarly, value stocks (also considered to be relatively inexpensive)
gained ground at the expense of growth stocks (issued by companies with
above-average earnings growth). Growth stocks had been in favor during the past
three years, but that changed in 1999. For the first four months of 1999, the
S&P 500/BARRA Value Index clearly outpaced the S&P 500/BARRA Growth Index,
11.24% to 6.68%. Most of the performance disparity was focused in April, when
the S&P 500/BARRA Value Index was up 8.62% compared to a -0.19% return for the
S&P 500/BARRA Growth Index.
THE RETURN TO CYCLICALS
Another big U.S. stock story was sector rotation. It became clearer by
April that the global economy in general was regaining some strength, and
cyclical stocks (whose price and earnings tend to follow the ups and downs of
the economy) made a comeback. Investors put faith in the growth of the global
economy by investing in the stocks of basic materials producers--such as paper,
metal, and mining companies--that rely heavily on global economic growth for
their profitability.
While buying these deep cyclical stocks, investors sold previous favorites
such as high-tech and pharmaceutical stocks. High-tech investors were spooked in
April when Compaq Computer announced that first-quarter profits would be half of
analysts' estimates. Pharmaceuticals were hit by a wave of selling when
investors stopped feeling they needed the stable earnings and recession
protection that drug company stocks can offer.
TREASURYS CORRECTED
A bond version of sector rotation began earlier in the year. By early 1999,
bond investors generally sensed that the gloomiest economic predictions were not
coming true, and they became more interested in higher yields than in safety and
liquidity. As a result, bondholders began selling Treasurys and buying
higher-yielding bonds such as corporate and mortgage-backed securities. As you
can see in the accompanying table and graph, corporates and mortgage-backeds
outperformed Treasurys, and Treasury yields rose significantly.
U.S. bond returns were generally quite low for the six-month period as
strong economic growth translated into fears of future inflation and higher
interest rates. During the period, bond sentiment changed dramatically. In
November, many analysts still thought that the Federal Reserve would have to cut
interest rates again in 1999 to bolster the economy. By the end of April, the
speculation had switched 180 degrees to concerns that the Fed might have to
raise interest rates by the end of 1999 to ward off inflation.
[left margin]
"U.S. BOND RETURNS WERE GENERALLY QUITE LOW FOR THE SIX-MONTH PERIOD AS STRONG
ECONOMIC GROWTH TRANSLATED INTO FEARS OF FUTURE INFLATION AND HIGHER INTEREST
RATES."
[line graph - data below]
RISING TREASURY YIELD CURVE
10/31/98 4/30/99
YEARS TO
MATURITY
1 4.38% 4.96%
2 4.26% 5.09%
3 4.34% 5.18%
4 4.38% 5.28%
5 4.32% 5.22%
6 4.39% 5.32%
7 4.46% 5.42%
8 4.49% 5.39%
9 4.52% 5.36%
10 4.54% 5.32%
11 4.65% 5.41%
12 4.76% 5.50%
13 4.89% 5.59%
14 4.99% 5.68%
15 5.08% 5.77%
16 5.12% 5.80%
17 5.17% 5.83%
18 5.21% 5.86%
19 5.26% 5.89%
20 5.30% 5.93%
21 5.32% 5.93%
22 5.34% 5.92%
23 5.35% 5.92%
24 5.37% 5.91%
25 5.38% 5.90%
26 5.33% 5.86%
27 5.28% 5.82%
28 5.23% 5.78%
29 5.18% 5.74%
30 5.14% 5.71%
Source: Bloomberg Financial Markets
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
LEHMAN BROS. AGGREGATE
BOND INDEX 0.69%
LEHMAN BROS. CORPORATE
BOND INDEX 1.75%
LEHMAN BROS. MORTGAGE-
BACKED SECURITIES INDEX 2.39%
LEHMAN BROS. TREASURY
BOND INDEX -1.21%
Source: Russell/Mellon Analytical
4 1-800-345-2021
Balanced--Performance
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<TABLE>
TOTAL RETURNS AS OF APRIL 30, 1999
INVESTOR CLASS (INCEPTION 10/20/88) ADVISOR CLASS (INCEPTION 1/6/97)
BALANCED BLENDED INDEX(2) BALANCED BLENDED INDEX
<S> <C> <C> <C> <C>
6 MONTHS(1) 9.64% 13.67% 9.50% 13.67%
1 YEAR 10.05% 15.60% 9.77% 15.60%
=======================================================================================
AVERAGE ANNUAL RETURNS
=======================================================================================
3 YEARS 15.08% 20.68% -- --
5 YEARS 13.84% 19.35% -- --
10 YEARS 12.93% 14.85% -- --
LIFE OF FUND 12.80% 15.00%(3) 14.51% 20.29%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) The bond portion of the blended index has been 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 1/31/97, the date nearest the class's inception for which data
are available.
See pages 24-26 for information about share classes, the Blended Index, and
returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 4/30/99
New Blended Index $40,260
Old Blended Index $39,321
Balanced $33,766
Balanced Old Blended Index New Blended Index
DATE VALUE VALUE VALUE
4/30/89 $10,000 $10,000 $10,000
4/30/90 $11,356 $10,987 $10,994
4/30/91 $13,734 $12,749 $12,825
4/30/92 $16,000 $14,361 $14,469
4/30/93 $16,333 $15,867 $16,038
4/30/94 $17,654 $16,439 $16,605
4/30/95 $18,856 $18,590 $18,831
4/30/96 $22,158 $22,543 $22,895
4/30/97 $24,427 $26,519 $26,996
4/30/98 $30,683 $34,003 $34,827
4/30/99 $33,766 $39,321 $40,260
$10,000 investment made 4/30/89
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 are provided for comparison in the graph at left. In
future reports, only the new blended index will be used for performance
comparisons. 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 APRIL 30)
Balanced New Blended Index
DATE RETURN RETURN
4/30/90 13.56% 9.94%
4/30/91 20.94% 16.65%
4/30/92 16.50% 12.82%
4/30/93 2.08% 10.85%
4/30/94 8.09% 3.53%
4/30/95 6.81% 13.41%
4/30/96 17.51% 21.58%
4/30/97 10.24% 17.91%
4/30/98 25.61% 29.01%
4/30/99 10.05% 15.60%
www.americancentury.com 5
Balanced--Q&A
- --------------------------------------------------------------------------------
/photo of John Schniedwind, Jeff Tyler/
Equity team: John Schniedwind, Jeff Tyler
/photo of Bud Hoops, Jeff Houston/
Fixed-income team: Bud Hoops, Jeff Houston
Based on interviews with John Schniedwind and Jeff Houston, portfolio
managers on the Balanced fund investment teams (pictured above).
HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDED APRIL 30?
Balanced's portfolio of approximately 60% U.S. stocks and 40% U.S. bonds
returned 9.64%.* Balanced's stock holdings returned 15.79%, while the bonds
returned 0.74%. 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 as
the asset mix of the portfolio) returned 13.67%. This reflected the combined
22.31% return of the S&P 500 and the 0.69% return of the Aggregate Bond index.
WHAT CAUSED THE RETURN DIFFERENTIAL BETWEEN THE FUND AND THE BLENDED INDEX?
The S&P 500 outperformed Balanced's equity portfolio. The stock index's
performance continued to be dominated by a small group of large-capitalization
(large-company) growth stocks, such as IBM, Sun Microsystems, MCI Worldcom, and
Cisco Systems. Balanced owned these stocks and they were among the fund's best
performing holdings, but they were underweighted in the portfolio relative to
their weighting in the index.
That's because Balanced, which has been managed according to a quantitative
style since November 1, 1998, had more of a smaller-company and value-oriented
bias than the S&P 500. The fund's stock valuation model ranked mid-sized and
small-company issues as more attractive than bigger, higher-priced growth
companies. Unfortunately, many of the stocks highlighted by the model
underperformed large-cap growth stocks until late in the period.
WERE THERE OTHER FACTORS THAT CAUSED FUND PERFORMANCE TO DIVERGE FROM THE
INDEX?
Rising interest rates was another key factor that adversely affected fund
performance. We were overweighted in three areas that are sensitive to interest
rates. For example, Balanced had a sizable position in electric utilities
stocks, such as Southern Co. and Sempra Energy, which generally performed poorly
during the first quarter of 1999 as rates rose.
Higher interest rates also hurt the stocks of property insurance companies
(including LandAmerica Financial and
* All fund returns referenced in this interview are for Investor Class shares.
[left margin]
"THE PORTFOLIO NOW HOLDS FEWER CORPORATE BONDS AND MORE MORTGAGE-BACKED
SECURITIES."
[pie charts - data below]
TYPES OF INVESTMENTS
IN THE PORTFOLIO
AS OF APRIL 30, 1999
Common Stocks 58%
Corporate Bonds 16%
Mortgage- & Asset-Backed
Securities 13%
U.S. Treasury Securities 8%
Other 5%
AS OF OCTOBER 31, 1998
Common Stocks 53%
Corporate Bonds 21%
U.S. Treasury Securities 10%
Mortgage- & Asset-Backed
Securities 9%
Other 7%
Security types are defined on pages 26-27.
6 1-800-345-2021
Balanced--Q&A
- --------------------------------------------------------------------------------
(Continued)
First American Financial) and construction firms (such as Centex and D.R.
Horton). Concerns that higher rates would discourage home building and
refinancing activity weighed down these stocks.
Higher oil prices also hurt us. We were underweight in the energy sector
because falling oil prices in 1998 led to repeatedly disappointing earnings.
Unfortunately, that caused us to miss the upturn in 1999 when a sudden rebound
in oil prices led to a sharp increase in energy stock prices in March and April.
BALANCED'S EQUITY PORTFOLIO DIDN'T KEEP PACE WITH THE SKYROCKETING S&P 500, BUT
IT DID PRODUCE A RESPECTABLE RETURN. WHAT THINGS WENT RIGHT?
Balanced's overweighting in computer software stocks provided the biggest
performance boost. Mega-sized software companies such as Microsoft benefited
from both product sales growth and strong investor demand for large-cap growth
stocks. Microsoft was Balanced's largest stock holding and one of its top
performers.
Financial services and banking stocks--two of the fund's largest industry
positions--performed well amid improving earnings, which are tied closely to the
economy's strength. Chase Manhattan and Morgan Stanley Dean Witter were among
Balanced's best performers for the period.
WHAT FACTORS AFFECTED THE PERFORMANCE OF THE FIXED-INCOME PORTFOLIO?
Besides the economic strength and rising interest rates that caused low
bond returns, the management team continued to gradually bring the fixed-income
portfolio more in line with the Lehman Brothers Aggregate Bond Index, which
became the portfolio's benchmark in the fourth quarter of 1998. As we discussed
in Balanced's last annual report, we switched to the Aggregate Bond index
because we believe it better represents the broader U.S. taxable bond market
than the former benchmark (the Lehman Intermediate Government/Corporate Index).
One primary difference between the two indices is that the Aggregate
includes mortgage-backed securities, while the Intermediate Government/
Corporate does not. This is important because Balanced has owned mortgage-backed
securities in recent years. Also, the Aggregate has a smaller percentage of
corporate bonds than we've typically held in Balanced.
The portfolio now holds fewer corporate bonds--though still more than in
the benchmark--and more mortgage-backed securities.
Also, since September, we have been investing a small portion of the
portfolio in corporate bonds rated BB. This is an area where we think we can add
value and boost fund performance.
CAN YOU ELABORATE ON THIS CHANGE?
Bonds that are rated AAA, AA, A, or BBB are considered "investment-grade"
securities, meaning they are relatively safe from default. Many funds and
institutions concentrate exclusively on investment-grade bonds.
In contrast, bonds rated B and below are more vulnerable to sudden swings
in credit quality. As a result, they offer high yields to compensate for the
additional risk. "High-yield" investors focus on these bonds, as well as those
that are unrated.
[right margin]
TOP TEN STOCK HOLDINGS
% OF EQUITY PORTFOLIO
AS OF AS OF
4/30/99 10/31/98
MICROSOFT CORP. 4.8% 4.4%
CHASE MANHATTAN
CORP. 3.8% --
INTEL CORP. 3.2% --
FORD MOTOR CO. 2.7% --
BELLSOUTH CORP. 2.6% --
LINCOLN NATIONAL CORP. 2.5% --
UNITED TECHNOLOGIES
CORP. 2.4% --
MORGAN STANLEY
DEAN WITTER,
DISCOVER & CO. 2.2% --
FANNIE MAE 1.9% 4.2%
FIRST UNION CORP. 1.9% --
TOP FIVE STOCK INDUSTRIES
% OF EQUITY PORTFOLIO
AS OF AS OF
4/30/99 10/31/98
TELEPHONE
COMMUNICATIONS 9.0% 5.4%*
COMPUTER SOFTWARE
& SERVICES 8.7% 8.6%
BANKING 8.5% 0.6%
PHARMACEUTICALS 7.0% 20.5%
INSURANCE 6.5% 10.1%
* Percentage has been adjusted to reflect security industry reclassification.
www.americancentury.com 7
Balanced--Q&A
- --------------------------------------------------------------------------------
(Continued)
That leaves BB-rated bonds, which are lower quality than investment-grade
bonds but don't offer enough yield for high-yield investors. This area of the
market is largely overlooked and often inefficiently priced.
WON'T THESE BB SECURITIES MAKE THE FUND'S BOND PORTFOLIO MORE RISKY?
We believe we can manage the additional risk in this sector successfully.
First, we have an experienced credit research team that is very familiar with
this part of the corporate bond market.
Second, we're taking a fairly conservative approach. The BB bonds we're
buying are issued by large, established companies with stable cash flows.
They're basically "upgrade candidates"--bonds that are currently rated BB but
that we think are worthy of a higher rating.
When a BB security is upgraded to a higher rating, it often experiences a
significant price increase because its newfound investment-grade status attracts
greater demand from investors.
WHAT'S YOUR OUTLOOK FOR THE U.S. ECONOMY AND THE MARKETS?
We expect to see continued strong economic growth, modest but higher
inflation, and less interest-rate volatility than we saw over the past year. The
strong growth/modest inflation formula is a familiar one that has pushed the
U.S. stock market higher for the past four years, and this could continue
through 1999. We don't think the economic news will be as beneficial to bonds as
it's been to stocks, but we believe bonds, especially corporate and
mortgage-backed securities, should perform quite well if interest rate
volatility remains relatively low.
WHAT'S YOUR OUTLOOK FOR BALANCED?
Balanced's investment portfolio changed significantly in the last six
months as we switched equity management styles and adjusted to a new bond
benchmark. The next six months should be less eventful.
On the equity side, we've found that our quantitative process is more
effective at picking individual stocks than industries. So rather than
significantly overweighting and underweighting entire sectors compared with the
S&P 500, we are bringing our industry positions more in line with the index. We
plan to focus more on stock selection, over- and underweighting companies within
each sector.
CAN YOU GIVE AN EXAMPLE?
We have recently overweighted financial services stocks compared with the
S&P 500. Going forward, the percentage of financial services companies in the
fund will likely more closely track the percentage in the index.
On the bond side, we're likely to continue to add more mortgage-backed
securities and sell corporate bonds. One of the benefits of more mortgage-backed
holdings is that the credit quality of the portfolio has improved. That's
because most mortgage-backed securities are backed by U.S. government agencies
with AAA ratings.
[left margin]
"THE BB BONDS WE'RE BUYING ARE BASICALLY 'UPGRADE CANDIDATES'--BONDS THAT ARE
CURRENTLY RATED BB BUT THAT WE THINK ARE WORTHY OF A HIGHER RATING."
BALANCED'S FIXED-INCOME PORTFOLIO
AS OF AS OF
4/30/99 10/31/98
PORTFOLIO SENSITIVITY TO INTEREST RATES
WEIGHTED AVERAGE MATURITY 8.0 YEARS 7.1 YEARS
DURATION 4.6 YEARS 4.5 YEARS
PORTFOLIO CREDIT QUALITY % OF FIXED-INCOME PORTFOLIO
AAA 61% 46%
AA 3% 5%
A 18% 31%
BBB 14% 13%
BB 4% 5%
------- ------
100% 100%
======= ======
Investment terms are defined in the Glossary on pages 26-27. Ratings provided by
Standard & Poor's. See Credit Rating Guidelines on page 25 for more information.
8 1-800-345-2021
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
COMMON STOCKS--58.2%
AEROSPACE & DEFENSE--2.9%
90,400 Cordant Technologies Inc. $ 4,170
38,000 EG&G, Inc. 1,188
42,600 General Dynamics Corp. 2,993
140,200 Goodrich (B.F.) Company (The) 5,573
9,900 Gulfstream Aerospace Corp.(1) 483
92,600 United Technologies Corp. 13,415
------------
27,822
------------
AIRLINES--0.1%
8,700 AMR Corp.(1) 607
4,400 Delta Air Lines Inc. 279
2,400 US Airways Group Inc.(1) 131
------------
1,017
------------
AUTOMOBILES & AUTO PARTS--2.2%
38,830 DaimlerChrysler AG(1) 3,813
30,900 Fleetwood Enterprises, Inc. 763
233,200 Ford Motor Co. 14,910
21,700 General Motors Corp. 1,930
------------
21,416
------------
BANKING--5.0%
148,100 Banc One Corp. 8,738
78,300 BankAmerica Corp. 5,638
258,000 Chase Manhattan Corp. 21,350
191,600 First Union Corp. 10,610
5,900 GreenPoint Financial Corp. 207
25,500 Wells Fargo & Co. 1,101
------------
47,644
------------
BIOTECHNOLOGY--0.8%
121,200 Amgen Inc.(1) 7,442
------------
BROADCASTING & MEDIA--0.3%
69,000 CBS Corporation(1) 3,144
------------
BUILDING & HOME IMPROVEMENTS--0.4%
26,500 Centex Construction Products Inc. 937
75,100 Lafarge Corp. 2,539
9,100 Lone Star Industries, Inc. 325
------------
3,801
------------
BUSINESS SERVICES & SUPPLIES(2)
22,000 Mastech Corp.(1) 324
------------
CHEMICALS & RESINS--1.1%
43,600 Dow Chemical Co. 5,720
62,100 du Pont (E.I.) de Nemours & Co. 4,386
------------
10,106
------------
COMMUNICATIONS EQUIPMENT--1.5%
44,550 Comverse Technology, Inc.(1) 2,873
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
145,200 Lucent Technologies Inc. $ 8,730
44,200 Northern Telecom Ltd. 3,014
------------
14,617
------------
COMPUTER PERIPHERALS--0.8%
54,000 Cisco Systems Inc.(1) 6,161
2,600 EMC Corp. (Mass.)(1) 283
10,200 Lexmark International Group, Inc.
Cl A(1) 1,260
------------
7,704
------------
COMPUTER SOFTWARE & SERVICES--5.1%
63,000 America Online Inc. 8,993
74,200 Compuware Corp.(1) 1,806
5,300 Concord EFS, Inc.(1) 176
40,600 Keane, Inc.(1) 1,007
327,100 Microsoft Corp.(1) 26,587
57,600 NCR Corp.(1) 2,362
30,100 Oracle Corp.(1) 815
92,500 Sterling Software, Inc.(1) 1,914
158,200 Unisys Corp.(1) 4,973
------------
48,633
------------
COMPUTER SYSTEMS--3.3%
222,800 Apple Computer, Inc.(1) 10,242
114,700 Dell Computer Corp.(1) 4,721
20,500 Gateway 2000, Inc.(1) 1,357
117,100 Hewlett-Packard Co. 9,236
28,200 International Business Machines
Corp. 5,899
------------
31,455
------------
CONSTRUCTION & PROPERTY
DEVELOPMENT--0.8%
39,900 Centex Corp. 1,459
85,300 D.R. Horton, Inc. 1,647
33,400 Kaufman & Broad Home Corp. 812
48,500 Owens Corning 1,728
52,800 Pulte Corp. 1,195
16,100 Southdown, Inc. 1,031
------------
7,872
------------
CONSUMER PRODUCTS--0.3%
7,300 Procter & Gamble Co. (The) 685
27,700 Whirlpool Corp. 1,839
------------
2,524
------------
DIVERSIFIED COMPANIES--1.5%
88,200 General Electric Co. (U.S.) 9,305
35,500 Tyco International Ltd. 2,884
36,700 Unilever N.V. New York Shares 2,383
------------
14,572
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--1.9%
288,000 Intel Corp. 17,613
See Notes to Financial Statements
www.americancentury.com 9
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
13,900 Rockwell International Corp. $ 718
------------
18,331
------------
ENERGY (PRODUCTION & MARKETING)--1.8%
3,100 Anadarko Petroleum Corp. 118
41,400 Apache Corp. 1,270
14,800 Burlington Resources Inc. 682
52,000 Exxon Corp. 4,319
77,300 Mobil Corp. 8,097
2,100 Occidental Petroleum Corp. 42
27,600 Sunoco, Inc. 987
19,000 Texaco Inc. 1,192
68,300 Union Pacific Resources 956
------------
17,663
------------
ENERGY (SERVICES)--0.4%
71,000 Reliant Energy, Inc. 2,010
59,100 Tidewater Inc. 1,566
------------
3,576
------------
FINANCIAL SERVICES--3.8%
33,800 Equitable Companies Inc. 2,275
151,300 Fannie Mae 10,733
75,200 Federal Home Loan Mortgage
Corporation 4,719
38,400 Lehman Brothers Holdings Inc. 2,134
44,600 Merrill Lynch & Co., Inc. 3,744
122,400 Morgan Stanley Dean Witter,
Discover & Co. 12,141
4,300 Paine Webber Group, Inc. 202
------------
35,948
------------
FOOD & BEVERAGE--1.3%
55,100 ConAgra, Inc. 1,371
9,200 Coors (Adolph) Co. Cl B 492
45,600 Earthgrains Company 966
4,700 General Mills, Inc. 344
17,200 Hormel Foods Corp. 632
26,800 IBP, Inc. 543
101,300 Quaker Oats Co. (The) 6,540
35,800 Suiza Foods Corp.(1) 1,345
------------
12,233
------------
FURNITURE & FURNISHINGS(2)
24,100 Miller (Herman), Inc. 481
------------
HEALTHCARE--0.3%
33,900 PacifiCare Health Systems, Inc.
Cl B(1) 2,705
------------
INDUSTRIAL EQUIPMENT & MACHINERY--0.6%
88,200 Ingersoll-Rand Co. 6,102
4,200 McDermott International, Inc. 122
------------
6,224
------------
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
INSURANCE--3.8%
202,000 Allstate Corp. $ 7,348
59,600 Conseco Inc. 1,881
131,400 Fidelity National Financial, Inc. 2,398
126,000 First American Financial
Corp. (The) 2,252
49,600 Gallagher (Arthur J.) & Co. 2,356
61,200 LandAmerica Financial Group, Inc. 1,714
147,200 Lincoln National Corp. 14,140
55,000 Loews Corp. 4,025
------------
36,114
------------
LEISURE--1.4%
20,400 Anchor Gaming(1) 969
7,600 Department 56, Inc.(1) 206
100,300 Eastman Kodak Co. 7,485
18,300 International Game Technology 325
104,400 Viacom, Inc. Cl B(1) 4,267
------------
13,252
------------
MACHINERY & EQUIPMENT--0.4%
114,100 Premark International, Inc. 4,200
------------
MEDICAL EQUIPMENT & SUPPLIES--0.8%
11,500 Andrx Corp.(1) 907
64,900 Hillenbrand Industries, Inc. 3,046
18,500 Teleflex Inc. 806
24,400 VISX, Inc.(1) 3,142
------------
7,901
------------
METALS & MINING--0.1%
13,200 Aluminum Co. of America 822
------------
PAPER & FOREST PRODUCTS(2)
200 Fort James Corp. 8
------------
PHARMACEUTICALS--4.1%
77,400 Bristol-Myers Squibb Co. 4,920
94,800 Genentech, Inc.(1) 8,022
33,500 Herbalife International, Inc. Cl A 343
38,700 Johnson & Johnson 3,773
40,900 Lilly (Eli) & Co. 3,011
14,400 McKesson Corp. 504
30,300 Medicis Pharmaceutical Corp.
Cl A(1) 737
19,500 Merck & Co., Inc. 1,370
26,700 Nature's Sunshine Products, Inc. 286
13,800 Pfizer, Inc. 1,588
11,900 Roberts Pharmaceutical Corp.(1) 202
183,600 Schering-Plough Corp. 8,870
76,900 Warner-Lambert Co. 5,224
------------
38,850
------------
PRINTING & PUBLISHING--0.7%
198,000 Deluxe Corp. 6,856
------------
See Notes to Financial Statements
10 1-800-345-2021
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Shares ($ in Thousands) Value
- --------------------------------------------------------------------------------
RETAIL (FOOD & DRUG)--0.2%
60,800 Universal Corp. $ 1,547
------------
RETAIL (GENERAL MERCHANDISE)--1.2%
27,700 Neiman-Marcus Group, Inc.(1) 667
230,000 Wal-Mart Stores, Inc. 10,580
------------
11,247
------------
RETAIL (INTERNET)--0.1%
7,400 Amazon.com, Inc.(1) 1,273
------------
RETAIL (SPECIALTY)--0.4%
34,400 Home Depot, Inc. 2,062
45,300 Zale Corp.(1) 1,713
------------
3,775
------------
RUBBER & PLASTICS(2)
9,600 Tupperware Corp. 227
------------
STEEL(2)
2,100 Nucor Corp. 123
------------
TELEPHONE COMMUNICATIONS--5.2%
80,600 Ameritech Corp. 5,516
201,600 AT&T Corp. 10,181
32,700 Bell Atlantic Corp. 1,884
325,600 BellSouth Corp.(3) 14,571
75,800 GTE Corp. 5,074
147,100 SBC Communications Inc. 8,238
1,600 Sprint Corp. 164
83,200 U S WEST Communications
Group 4,352
------------
49,980
------------
TEXTILES & APPAREL--0.6%
53,000 Dexter Corp. (The) 2,176
19,800 Tommy Hilfiger Corp.(1) 1,384
35,900 VF Corp. 1,849
------------
5,409
------------
TOBACCO--0.4%
16,300 Fortune Brands, Inc. 644
79,900 Philip Morris Companies Inc. 2,801
------------
3,445
------------
TRANSPORTATION--0.3%
46,700 Hertz Corp. Cl A 2,787
------------
UTILITIES--2.1%
9,800 BEC Energy 417
30,500 Central & South West Corp. 757
22,700 Energy East Corp. 600
58,300 FPL Group, Inc. 3,287
59,300 KN Energy, Inc. 1,223
88,100 LG&E Energy Corp. 1,922
106,400 Minnesota Power & Light Co. 2,241
Shares/Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
31,700 Northeast Utilities(1) $ 507
118,800 Sempra Energy 2,465
168,200 Southern Co. 4,548
22,500 Texas Utilities Co. 894
69,000 Utilicorp United Inc. 1,686
------------
20,547
------------
WIRELESS COMMUNICATIONS--0.2%
12,000 AirTouch Communications, Inc.(1) 1,121
17,600 Sprint PCS(1) 746
------------
1,867
------------
TOTAL COMMON STOCKS 557,484
------------
(Cost $469,745)
U.S. TREASURY SECURITIES--7.4%
$ 5,000 U.S. Treasury Notes, 5.50%,
3/31/00 5,029
15,000 U.S. Treasury Notes, 5.125%,
8/31/00 15,021
4,075 U.S. Treasury Notes, 7.75%,
2/15/01 4,259
2,460 U.S. Treasury Notes, 6.625%,
7/31/01 2,538
7,150 U.S. Treasury Notes, 6.25%,
8/31/02 7,365
4,000 U.S. Treasury Notes, 4.75%,
2/15/04 3,921
2,500 U.S. Treasury Bonds, 12.00%,
8/15/08 3,632
4,000 U.S. Treasury Bonds, 9.125%,
5/15/18 5,452
8,250 U.S. Treasury Bonds, 8.875%,
2/15/19 11,057
2,000 U.S. Treasury Bonds, 7.50%,
11/15/24 2,416
4,200 U.S. Treasury Bonds, 6.50%,
11/15/26 4,541
5,000 U.S. Treasury Bonds, 6.375%,
8/16/27 5,339
------------
TOTAL U.S. TREASURY SECURITIES 70,570
------------
(Cost $71,094)
U.S. GOVERNMENT AGENCY SECURITIES--2.3%
5,000 FHLB, 5.50%, 8/13/01 5,015
3,750 FNMA MTN, 5.83%, 2/2/04 3,707
4,000 FNMA MTN, 5.54%, 2/5/04 3,921
4,000 FNMA MTN, 5.74%, 1/21/09 3,805
3,000 FNMA, 5.25%, 1/15/09 2,862
3,000 FNMA, 6.50%, 4/29/09 2,998
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 22,308
------------
(Cost $22,748)
See Notes to Financial Statements
www.americancentury.com 11
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES(4)--8.3%
$ 4,429 FHLMC Pool #C00578, 6.50%,
1/1/28 $ 4,414
2,000 FHLMC Series 77-HPAC REMIC,
8.50%, 9/15/20 2,107
6 FHLMC Series 106-EPAC
REMIC, 6.95%, 12/15/20 6
5,246 FNMA Pool #050985, 6.00%,
3/1/00 5,233
537 FNMA Pool #347879, 6.50%,
5/1/11 542
4,164 FNMA Pool #313481, 7.00%,
4/1/12 4,264
95 FNMA Pool #398955, 6.50%,
10/1/12 96
359 FNMA Pool #251700, 6.50%,
5/1/13 363
156 FNMA Pool #429525, 6.50%,
5/1/13 158
416 FNMA Pool #421163, 6.50%,
6/1/13 420
593 FNMA Pool #421173, 6.50%,
6/1/13 599
530 FNMA Pool #421501, 6.50%,
6/1/13 536
361 FNMA Pool #429306, 6.50%,
6/1/13 365
194 FNMA Pool #433184, 6.50%,
6/1/13 196
5,000 FNMA Pool #412562, 6.50%,
1/1/28 4,979
3,417 FNMA Pool #413812, 6.50%,
1/1/28 3,403
5,673 FNMA Pool #411821, 7.00%,
1/1/28 5,764
3,944 FNMA Pool #440691, 6.50%,
11/1/28 3,927
3,916 FNMA Pool #450619, 6.00%,
12/1/28 3,804
1,990 FNMA Pool #453956, 6.00%,
12/1/28 1,933
3,323 FNMA Pool #454947, 6.00%,
12/1/28 3,228
2,976 FNMA Pool #252211, 6.00%,
1/1/29 2,891
2,993 FNMA Pool #252212, 6.50%,
1/1/29 2,980
4,727 FNMA Pool #485403, 6.00%,
2/1/29 4,591
3,819 FNMA Pool #485438, 6.50%,
2/1/29 3,802
5,298 GNMA Pool #002202, 7.00%,
` 4/20/26 5,364
3,432 GNMA Pool #780412, 7.50%,
8/15/26 3,545
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 2,594 GNMA Pool #467626, 7.00%,
2/15/28 $ 2,638
2,628 GNMA Pool #458862, 7.50%,
2/15/28 2,714
4,346 GNMA Pool #469811, 7.00%,
12/15/28 4,420
------------
TOTAL MORTGAGE-BACKED SECURITIES 79,282
------------
(Cost $79,163)
ASSET-BACKED SECURITIES(4)--4.6%
2,800 CIT RV Trust, Series 1998 A, Class A4 SEQ, 6.09%,
2/15/12 2,821
4,184 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 4,223
5,719 First Union-Lehman Brothers
Commercial Mortgage,
Series 1998 C2, Class A1 SEQ,
6.28%, 6/18/07 5,742
3,750 FNMA Whole Loan,
Series 1995 W1, Class A6,
8.10%, 4/25/25 3,840
6,500 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 6,376
3,000 Money Store (The) Home Equity
Trust, Series 1997 C,
Class AF6 SEQ, 6.67%,
2/15/25 3,036
1,458 Morgan Stanley Capital I,
Series 1998 HF2,
Class A1 SEQ, 6.01%,
11/15/30 1,448
4,250 PECO Energy Transition Trust,
Series 1999 A, Class A6 SEQ,
6.05%, 3/1/09 4,229
3,000 Union Acceptance Corp.,
Series 1996 D, Class A3,
6.30%, 1/8/04 3,036
4,350 United Companies Financial Corp.,
Home Equity Loan,
Series 1996 D1, Class A4,
6.78%, 2/15/16 4,394
2,100 United Companies Financial Corp.,
Home Equity Loan,
Series 1996 D1, Class A5,
6.92%, 10/15/18 2,138
3,200 United Companies Financial Corp.,
Home Equity Loan,
Series 1997 C, Class A7,
6.85%, 1/15/29 3,257
------------
TOTAL ASSET-BACKED SECURITIES 44,540
------------
(Cost $44,453)
See Notes to Financial Statements
12 1-800-345-2021
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
CORPORATE BONDS--15.9%
BANKING--0.9%
$ 2,000 Fleet National Bank, 5.75%,
1/15/09 $ 1,900
5,000 NationsBank Corporation, 6.875%,
2/15/05 5,188
2,000 U.S. Bank NA, 5.70%, 12/15/08 1,900
------------
8,988
------------
BROADCASTING & MEDIA--0.6%
3,750 British Sky Broadcasting, 6.875%,
2/23/09 3,743
2,250 CSC Holdings Inc., 7.625%,
7/15/18 2,264
------------
6,007
------------
CHEMICALS & RESINS--0.3%
3,000 Monsanto Co., 6.60%, 12/1/28
(Acquired 12/4/98,
Cost $2,989)(5) 2,862
------------
DIVERSIFIED COMPANIES--0.2%
2,000 Hutchison Whampoa Financial,
7.50%, 8/1/27 (Acquired
4/7/99, Cost $1,737)(5) 1,800
------------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.7%
6,000 Anixter International Inc., 8.00%,
9/15/03 6,176
------------
ENERGY (PRODUCTION & MARKETING)--0.5%
2,000 K N Energy, Inc., 6.45%,
11/30/01 2,025
3,000 USX Corp., 6.85%, 3/1/08 2,992
------------
5,017
------------
ENERGY (SERVICES)--0.2%
2,000 Petroleum Geo-Services ASA,
7.125%, 3/30/28 1,905
------------
FINANCIAL SERVICES--2.3%
3,500 Associates Corp., N.A., 6.375%,
10/15/02 3,554
3,000 Citigroup Inc., 5.80%, 3/15/04 2,980
4,000 Comdisco, Inc., 6.375%,
11/30/01 4,027
3,500 Ford Motor Credit Co., 6.125%,
4/28/03 3,510
2,700 Ford Motor Credit Co., 6.75%,
5/15/05 2,774
3,000 Money Store Inc. (The), 8.05%,
4/15/02 3,158
2,000 Toyota Motor Credit Corp.,
5.625%, 11/13/03 1,979
------------
21,982
------------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
FOOD & BEVERAGE--0.4%
$ 4,000 Pepsico, Inc., 5.625%, 2/17/09
(Acquired 2/3/99, Cost
$3,983)(5) $ 3,819
------------
HEALTHCARE--0.5%
5,000 Aetna Services, Inc., 6.75%,
8/15/01 5,077
------------
INSURANCE--1.7%
3,400 Conseco Financing Trust II, 8.70%,
11/15/26 3,189
3,600 Conseco Inc., 6.40%, 6/15/01 3,556
3,750 Nationwide Mutual Insurance Co.,
6.50%, 2/15/04 (Acquired
2/9/96, Cost $3,782)(5) 3,779
5,000 Underwriters Reinsurance Co.,
7.875%, 6/30/06 (Acquired
8/6/96, Cost $5,156)(5) 5,285
------------
15,809
------------
METALS & MINING--0.4%
3,500 Barrick Gold Corp., 7.50%,
5/1/07 3,686
------------
PACKAGING & CONTAINERS--0.3%
3,300 Owens-Illinois Inc., 7.15%,
5/15/05 3,267
------------
PAPER & FOREST PRODUCTS--0.4%
4,100 Abitibi-Consolidated Inc., 7.40%,
4/1/18 3,966
------------
REAL ESTATE--1.9%
2,400 Chelsea GCA Realty Partners,
7.25%, 10/21/07 2,242
6,800 Price REIT, Inc. (The), 7.25%,
11/1/00 6,908
3,800 Price REIT, Inc. (The), 7.125%,
6/15/04 3,887
5,000 Spieker Properties, Inc., 6.80%,
12/15/01 5,053
------------
18,090
------------
RETAIL (APPAREL)--0.2%
2,000 Saks Inc., 8.25%, 11/15/08 2,166
------------
RETAIL (FOOD & DRUG)--0.2%
2,000 Rite Aid Corp., 6.125%,
12/15/08 (Acquired 1/6/99,
Cost $2,013)(5) 1,886
------------
RETAIL (GENERAL MERCHANDISE)--0.4%
4,000 Sears, Roebuck & Co. MTN,
7.12%, 6/4/04 4,154
------------
STEEL--0.3%
2,500 Pohang Iron & Steel Co., Ltd.,
6.625%, 7/1/03 2,405
------------
See Notes to Financial Statements
www.americancentury.com 13
Balanced--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
TELEPHONE COMMUNICATIONS--1.9%
$ 6,600 Cable & Wireless Communications
plc, 6.625%, 3/6/05 $ 6,655
1,000 GTE North Inc., Series H, 5.65%,
11/15/08 956
3,000 GTE South, 7.25%, 8/1/02 3,117
2,250 MCI WorldCom, Inc., 6.95%,
8/15/28 2,227
1,750 Qwest Communications
International Inc., 7.50%,
11/1/08 (Acquired 10/28/98,
Cost $1,738)(5) 1,838
3,000 Sprint Capital Corp., 6.875%,
11/15/28 2,910
------------
17,703
------------
UTILITIES--0.9%
2,600 Empresa Nacional de Electricidad
S.A. (Chile), 8.50%, 4/1/09
(Acquired 4/21/99, Cost
$2,803)(5) 2,798
2,000 Texas Utilities Electric Co.,
8.125%, 2/1/02 2,110
4,200 Yorkshire Power Finance, Series B,
6.15%, 2/25/03 (Acquired
2/19/98, Cost $4,200)(5) 4,185
------------
9,093
------------
WIRELESS COMMUNICATIONS--0.7%
6,040 AirTouch Communications, Inc.,
7.125%, 7/15/01 6,199
------------
TOTAL CORPORATE BONDS 152,057
------------
(Cost $151,095)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
FORWARD COMMITMENTS--0.4%
$ 3,500 FNMA, 6.50%, settlement
5/20/99 $ 3,534
------------
(Cost $3,538)
TEMPORARY CASH INVESTMENTS--2.9%
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations), in a
joint trading account at 4.84%, dated
4/30/99, due 5/3/99 (Delivery value
$27,511) 27,500
------------
(Cost $27,500)
TOTAL INVESTMENT SECURITIES--100.0% $957,275
============
(Cost $869,336)
FUTURES CONTRACTS
($ in Thousands)
Underlying
Expiration Face Amount Unrealized
Purchased Date at Value Gain
- -------------------------------------------------------------------------------
47 S&P 500 June
Futures 1999 $15,704 $801
=======================================
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) Security, or a portion thereof, has been segregated at the custodian bank
for Forward Commitments.
(4) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(5) 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 April 30, 1999 was $28,252,
which represented 2.9% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the share amount (stocks) or principal amount (bonds) of each investment
* the market value of each investment
* the percentage of investments in each industry, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
14 1-800-345-2021
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
ASSETS (In Thousands Except Per Share Amounts)
Investment securities, at value
(identified cost of $869,336) (Note 3) .................. $ 957,275
Receivable for investments sold ........................... 988
Receivable for variation margin
on futures contracts .................................... 646
Dividends and interest receivable ......................... 5,593
------------
964,502
------------
LIABILITIES
Disbursements in excess
of demand deposit cash .................................. 89
Payable for investments purchased ......................... 3,617
Accrued management fees (Note 2) .......................... 787
Distribution fees payable (Note 2) ........................ 2
Service fees payable (Note 2) ............................. 2
Payable for directors' fees and expenses .................. 1
------------
4,498
------------
Net Assets ................................................ $ 960,004
============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ................... $ 750,310
Undistributed net investment income ....................... 2,319
Accumulated undistributed net
realized gain on investments ............................ 118,634
Net unrealized appreciation on
investments (Note 3) .................................... 88,741
------------
$ 960,004
============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................................ $951,121,028
Shares outstanding ........................................ 50,650,756
Net asset value per share ................................. $ 18.78
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ................................................ $ 8,882,582
Shares outstanding ........................................ 473,177
Net asset value per share ................................. $ 18.77
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 15
Statement of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
INVESTMENT INCOME (In Thousands)
Income:
Interest .................................................. $ 12,520
Dividends ................................................. 3,982
---------
16,502
---------
Expenses (Note 2):
Management fees ........................................... 4,787
Distribution fees -- Advisor Class ........................ 10
Service fees -- Advisor Class ............................. 10
Directors' fees and expenses .............................. 5
---------
4,812
---------
Net investment income ..................................... 11,690
---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments .......................... 124,868
Change in net unrealized
appreciation on investments ............................. (47,511)
---------
Net realized and unrealized
gain on investments ..................................... 77,357
---------
Net Increase in Net Assets
Resulting from Operations ............................... $ 89,047
=========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments (dividend and interest)
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
16 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED) AND YEAR ENDED OCTOBER 31, 1998
Increase in Net Assets 1999 1998
OPERATIONS (In Thousands)
Net investment income ............................ $ 11,690 $ 20,669
Net realized gain on investments ................. 124,868 101,331
Change in net unrealized
appreciation on investments .................... (47,511) (26,549)
--------- ---------
Net increase in net assets
resulting from operations ..................... 89,047 95,451
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................................. (11,974) (20,729)
Advisor Class .................................. (87) (125)
From net realized gains from
investment transactions:
Investor Class ................................. (102,260) (75,512)
Advisor Class .................................. (747) (492)
--------- ---------
Decrease in net assets from distributions ........ (115,068) (96,858)
--------- ---------
CAPITAL SHARE TRANSACTIONS
(NOTE 4)
Net increase in net assets from
capital share transactions ..................... 41,161 14,410
--------- ---------
Net increase in net assets ....................... 15,140 13,003
NET ASSETS
Beginning of period .............................. 944,864 931,861
--------- ---------
End of period .................................... $ 960,004 $ 944,864
========= =========
Undistributed net investment income .............. $ 2,319 $ 2,690
========= =========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show 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--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 17
Notes to Financial Statements
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Balanced Fund (the fund) is one of the thirteen
series of funds issued by the corporation. The fund's investment objective is to
seek capital growth and current income. 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. The following significant accounting policies are in accordance with
generally accepted accounting principles; these principles may require the use
of estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or the mean of
the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through 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 includes 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.
18 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
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.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the fund with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on 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 six months
ended April 30, 1999 were $19,429.
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 six months ended April 30, 1999 totaled $800,576,711, of which $150,319,414
represented U.S. Treasury and Agency obligations. Sales of investment
securities, excluding short-term investments, totaled $817,155,238, of which
$102,528,024 represented U.S. Treasury and Agency obligations.
As of April 30, 1999, accumulated net unrealized appreciation was
$85,143,942, based on the aggregate cost of investments of $872,131,400 for
federal income tax purposes, which consisted of unrealized appreciation of
$108,675,490 and unrealized depreciation of $23,531,548.
www.americancentury.com 19
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS (In Thousands)
Shares authorized ........................... 134,000
===========
Six months ended April 30, 1999
Sold ........................................ 5,905 $111,104
Issued in reinvestment of distributions ..... 6,208 111,552
Redeemed .................................... (9,847) (183,812)
----------- -----------
Net increase ................................ 2,266 $38,844
=========== ===========
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
===========
Six months ended April 30, 1999
Sold ........................................ 125 $2,330
Issued in reinvestment of distributions ..... 46 820
Redeemed .................................... (45) (833)
----------- -----------
Net increase ................................ 126 $2,317
=========== ===========
Year ended October 31, 1998
Sold ........................................ 79 $1,523
Issued in reinvestment of distributions ..... 34 616
Redeemed .................................... (59) (1,144)
----------- -----------
Net increase ................................ 54 $995
=========== ===========
20 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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 April 30,
1999.
- --------------------------------------------------------------------------------
6. FUND EVENTS
The following name change became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: Balanced Fund American Century Balanced Fund
www.americancentury.com 21
Balanced--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 19.39 $ 19.55 $ 18.55 $ 17.70 $ 15.94 $ 16.52
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ................ 0.23(2) 0.42(2) 0.40(2) 0.44(2) 0.48(2) 0.42
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... 1.52 1.45 2.41 1.88 2.03 (0.58)
------- ------- ------- ------- ------- -------
Total From Investment Operations ..... 1.75 1.87 2.81 2.32 2.51 (0.16)
------- ------- ------- ------- ------- -------
Distributions
From Net Investment Income ........... (0.24) (0.43) (0.43) (0.46) (0.48) (0.42)
From Net Realized Gains on
Investment Transactions .............. (2.12) (1.60) (1.38) (1.01) (0.27) --
------- ------- ------- ------- ------- -------
Total Distributions .................. (2.36) (2.03) (1.81) (1.47) (0.75) (0.42)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ......... $ 18.78 $ 19.39 $ 19.55 $ 18.55 $ 17.70 $ 15.94
======= ======= ======= ======= ======= =======
Total Return(3) ...................... 9.64% 10.46% 16.34% 14.04% 16.36% (0.93)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 1.00%(4) 1.00% 1.00% 0.99% 0.98% 1.00%
Ratio of Net Investment Income
to Average Net Assets .................. 2.48%(4) 2.16% 2.15% 2.50% 2.90% 2.70%
Portfolio Turnover Rate ................ 87% 102% 110% 130% 85% 94%
Net Assets, End of Period
(in millions) .......................... $ 951 $ 938 $ 926 $ 879 $ 816 $ 704
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for less than one year are not
annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
22 1-800-345-2021
Balanced--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..$ 19.38 $ 19.55 $ 17.46
--------- --------- ---------
Income From Investment Operations
Net Investment Income(3) ............ 0.20 0.37 0.29
Net Realized and Unrealized
Gain on Investment Transactions ..... 1.53 1.44 2.04
--------- --------- ---------
Total From Investment Operations .... 1.73 1.81 2.33
--------- --------- ---------
Distributions
From Net Investment Income .......... (0.22) (0.38) (0.24)
From Net Realized Gains on
Investment Transactions ............. (2.12) (1.60) --
--------- --------- ---------
Total Distributions ................. (2.34) (1.98) (0.24)
--------- --------- ---------
Net Asset Value, End of Period ........$ 18.77 $ 19.38 $ 19.55
========= ========= =========
Total Return(4) ..................... 9.50% 10.15% 13.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.25%(5) 1.25% 1.25%(5)
Ratio of Net Investment Income
to Average Net Assets ................ 2.23%(5) 1.91% 1.90%(5)
Portfolio Turnover Rate ............... 87% 102% 110%
Net Assets, End of Period
(in thousands) ........................$ 8,883 $ 6,723 $ 5,724
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) January 6, 1997 (commencement of sale) through October 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements
www.americancentury.com 23
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.
24 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 slightly
overweight relatively undervalued, higher-yielding 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 equity securities. 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
JEFF TYLER
FIXED-INCOME PORTFOLIO
BUD HOOPS
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 25
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.
* DURATION is 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.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* 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.
* WEIGHTED AVERAGE MATURITY (WAM) is 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.
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 22-23.
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.
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.
* 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 -- these tend to be the stocks that
make up the Dow Jones Industrial Average and the S&P 500.
26 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- these tend to be the stocks that
make up the S&P MidCap 400.
* SMALL-CAPITALIZATION (SMALL-CAP) STOCKS -- these tend to be the stocks that
make up the S&P SmallCap 600.
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.
* 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 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 -- Equity Income
Conservative
===============================================================================
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
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 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]
[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
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
9906 Funds Distributor, Inc.
SH-BKT-16757 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
APRIL 30, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- -----------------------
LIMITED-TERM BOND
INTERMEDIATE-TERM BOND
BOND
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
- --------------------------------------------------------------------------------
FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
LIMITED-TERM BOND
(ABLIX)
- ------------------------------
INTERMEDIATE-TERM BOND
(TWITX)
- ------------------------------
BOND
(TWLBX)
- ------------------------------
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six months ended April 30, 1999, we witnessed a remarkable
reversal in the U.S. bond market. When we last addressed you in the annual
report for the American Century diversified bond funds--Limited-Term Bond,
Intermediate-Term Bond, and Bond--yields had just plunged as investors rushed to
the relative safety and liquidity of U.S. Treasury securities. Investors were
spooked by global economic and financial turmoil, which motivated the Federal
Reserve (the U.S. central bank) to cut short-term interest rates to bolster the
U.S. economy and help stabilize markets worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was showing strong growth, and
investor confidence had rebounded. Investors moved out of Treasurys into stocks
and higher-yielding bonds. Interest rates rose, limiting bond fund performance
in 1999. In this challenging environment, our investment team worked hard to
find higher-yielding, relatively undervalued sectors of the market that could
help produce positive returns.
We also continued to focus on making American Century easier to do business
with and helping investors reach their financial goals. In March, we
consolidated all our funds under the American Century name. Though we are proud
of the venerable Twentieth Century and Benham names, we believe the change makes
it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we've enhanced our Web site (at www.americancentury.com).
Among the new features are daily fund information--including return and price
data--market and national news, and a Forms Center with access to the
most-requested investor forms and applications. You can also sign up to receive
fund prospectuses and shareholder reports electronically.
Finally, to help you better understand your fund, we sent you a new
simplified prospectus in March. It provides information you need in clear,
straightforward language.
We want your experience with American Century to be rewarding, and we
appreciate your continued confidence in us.
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 Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
LIMITED-TERM BOND
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 8
INTERMEDIATE-TERM BOND
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 14
BOND
Performance Information ................................................ 17
Management Q&A ......................................................... 18
Schedule of Investments ................................................ 21
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 24
Statements of Operations ............................................... 25
Statements of Changes
in Net Assets ....................................................... 26
Notes to Financial
Statements .......................................................... 27
Financial Highlights ................................................... 31
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 37
Background Information
Investment Philosophy
and Policies ..................................................... 38
Comparative Indices ................................................. 38
Lipper Rankings ..................................................... 38
Investment Team
Leaders .......................................................... 38
Credit Rating
Guidelines ....................................................... 38
Glossary ............................................................... 39
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Interest rates rose during the six months ended April 30, 1999, limiting
bond returns. For the period, the Lehman Brothers Aggregate Bond Index
returned just 0.69%.
* Treasury bond yields hit record lows in late 1998 as investors sought a safe
haven from financial crises in Asia, Russia, and Latin America.
* Interest rates rose in early 1999 because the global economic and financial
situation stabilized, while the U.S. economy grew vigorously.
* Corporate and mortgage-backed securities outperformed Treasurys in early
1999 when investors began to sell Treasury bonds and buy higher-yielding
securities.
LIMITED-TERM BOND
* Limited-Term Bond had positive returns for the six months despite the
increase in interest rates.
* The portfolio essentially matched the average return of the 110 "Short
Investment-Grade Debt Funds" tracked by Lipper Inc. for the six months.
Limited-Term Bond's longer-term returns rank in the top third of the Lipper
group.
* We used a value-oriented approach to asset allocation, reducing our Treasury
position and adding more higher-yielding corporate and mortgage-backed
securities in late 1998.
* Those adjustments paid off in the first quarter of 1999, when Treasurys were
the worst-performing domestic bond sector, while higher-yielding securities
performed relatively well.
INTERMEDIATE-TERM BOND
* Intermediate-Term Bond performed well relative to the average "Intermediate
Investment-Grade Debt Fund" tracked by Lipper Inc.
* The portfolio's yield rose significantly, in part because of our decision to
add more corporate and mortgage-backed securities in late 1998.
* Those changes helped performance in 1999, when higher-yielding securities
outperformed Treasurys.
* We recently began adding BB securities in an attempt to better utilize our
experienced corporate credit research team while giving the portfolio more
yield and return potential.
BOND
* The portfolio's return reflected the difficult investment environment for
longer-term bonds over the last six months.
* Though Bond lagged its Lipper group, the portfolio had a significantly
better-than-average yield as of April 30.
* This increase in yield is a result of our value-oriented approach to
managing the fund--we reduced our Treasury position and added more
higher-yielding corporate securities.
* We recently began adding BB securities in an attempt to better utilize our
experienced corporate credit research team while giving the portfolio more
yield and return potential.
* We think our relatively large position in attractively valued corporate
bonds should boost performance going forward.
[left margin]
LIMITED-TERM BOND(1)
(ABLIX)
TOTAL RETURNS: AS OF 4/30/99
6 Months 1.72%(2)
1 Year 5.62%
30-DAY SEC YIELD: 5.17%
INCEPTION DATE: 3/1/94
NET ASSETS: $20.3 million(3)
INTERMEDIATE-TERM BOND(1)
(TWITX)
TOTAL RETURNS: AS OF 4/30/99
6 Months 0.87%(2)
1 Year 5.61%
30-DAY SEC YIELD: 5.58%
INCEPTION DATE: 3/1/94
NET ASSETS: $33.6 million(3)
BOND(1)
(TWLBX)
TOTAL RETURNS: AS OF 4/30/99
6 Months 0.08%(2)
1 Year 3.87%
30-DAY SEC YIELD: 5.84%
INCEPTION DATE: 3/2/87
NET ASSETS: $140.6 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor Classes.
See Total Returns on pages 4, 10, and 17. Investment terms are defined in the
Glossary on pages 39-40.
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
RISING RATES EAT INTO PERFORMANCE
Interest rates rose and bond prices fell in the six months ended April 30,
1999, after a period of abnormal interest rate volatility. For the six-month
period, the Lehman Brothers Aggregate Bond Index--a broad measure of bond
performance--returned just 0.69%.
INTEREST RATE VOLATILITY
In 1998, global capital markets were rocked by financial crises in Asia,
Russia, and Latin America. These developments, and the near-collapse of several
highly leveraged hedge funds, sent investors scrambling for the safety and
liquidity of the U.S. Treasury market. In addition, the Federal Reserve (the
U.S. central bank) lowered interest rates three times in late 1998 to prop up
the economy and restore investor confidence. These factors combined to send
Treasury bond yields to record lows in October 1998.
REBOUND SPARKS HIGHER INTEREST RATES
The Fed's rate cuts and positive economic news helped calm investor fears.
Hedge funds stabilized, and Asian economies showed signs that they had reached a
bottom and were starting to improve. Latin American economies didn't fall into
the desperate straits that many had feared, while the U.S. economy grew
vigorously--the economy expanded at a 6% annual rate in the fourth quarter of
1998 and a 4.1% annual rate in the first quarter of 1999.
Further, energy prices increased, causing an uptick in inflation. Inflation
fears and greater global economic and financial stability caused a reversal in
the bond market, with bond yields rising significantly (see the yield curve
graph at right). Bond yields and prices move in opposite directions, so rising
yields meant that bonds generally suffered price declines for the six months,
with longer-term bonds hardest hit.
CORPORATE AND MORTGAGE-BACKED SECURITIES OUTPERFORM TREASURYS
As yields rose, Treasury securities gave back some of their gains,
producing flat to negative returns. On the other hand, continued economic
strength helped re-invigorate the corporate bond market. The Fed's rate cuts
eased credit and lowered corporate borrowing costs, which helped corporate bonds
outperform Treasurys for the six months.
The mortgage-backed securities market was hit hard by lower interest rates
in the third quarter of 1998, when mortgage refinancings reached a record high.
Refinancings shorten the life of mortgage-backed securities and leave investors
excess cash to reinvest in lower-yielding securities. But prepayments slowed as
rates rose after October, while the attractive yields offered by mortgages
relative to Treasury bonds drew some buyers. Those factors have helped mortgages
outperform Treasurys so far in 1999.
[right margin]
"INFLATION FEARS AND GREATER GLOBAL ECONOMIC AND FINANCIAL STABILITY CAUSED A
REVERSAL IN THE BOND MARKET, WITH BOND YIELDS RISING SIGNIFICANTLY SINCE
OCTOBER."
BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
LEHMAN CORPORATE
BOND INDEX 1.75%
LEHMAN MORTGAGE-BACKED
SECURITIES INDEX 2.39%
LEHMAN TREASURY
BOND INDEX -1.21%
Source: Russell/Mellon Analytical
[mountain graph - data below]
TREASURY YIELD CURVE
10/31/98 4/30/99
YEARS TO
MATURITY
1 4.38% 4.96%
2 4.26% 5.09%
3 4.34% 5.18%
4 4.38% 5.28%
5 4.32% 5.22%
6 4.39% 5.32%
7 4.46% 5.42%
8 4.49% 5.39%
9 4.52% 5.36%
10 4.54% 5.32%
11 4.65% 5.41%
12 4.76% 5.50%
13 4.89% 5.59%
14 4.99% 5.68%
15 5.08% 5.77%
16 5.12% 5.80%
17 5.17% 5.83%
18 5.21% 5.86%
19 5.26% 5.89%
20 5.30% 5.93%
21 5.32% 5.93%
22 5.34% 5.92%
23 5.35% 5.92%
24 5.37% 5.91%
25 5.38% 5.90%
26 5.33% 5.86%
27 5.28% 5.82%
28 5.23% 5.78%
29 5.18% 5.74%
30 5.14% 5.71%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Limited-Term Bond--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF APRIL 30, 1999
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 11/12/97)
LIMITED-TERM MERRILL LYNCH 1-5 YR. SHORT INVESTMENT-GRADE DEBT FUNDS(2) LIMITED-TERM MERRILL LYNCH 1-5 YR.
BOND GOVT./CORP. INDEX AVERAGE RETURN FUND'S RANKING BOND GOVT./CORP. INDEX
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 1.72% 0.98% 1.76% -- 1.60% 0.98%
1 YEAR 5.62% 6.33% 5.05% 27 OUT OF 110 5.36% 6.33%
===============================================================================================================================
AVERAGE ANNUAL RETURNS
===============================================================================================================================
3 YEARS 6.05% 6.81% 5.87% 31 OUT OF 85 -- --
5 YEARS 5.99% 6.80% 5.85% 19 OUT OF 60 -- --
LIFE OF FUND 5.57% 6.26% 5.67%(3) 19 OUT OF 60(3) 5.35% 6.47%(4)
</TABLE>
(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 37-39 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 4/30/99
Merrill Lynch 1- to 5-Year
Govt./Corp. Index $14,011
Limited-Term Bond $13,227
Limited-Term Merrill Lynch 1- to 5-Year
Bond Govt./Corp. Index
DATE VALUE VALUE
3/1/94 $10,000 $10,000
3/31/94 $9,933 $9,909
6/30/94 $9,906 $9,885
9/30/94 $9,989 $9,974
12/31/94 $9,979 $9,961
3/31/95 $10,291 $10,348
6/30/95 $10,620 $10,764
9/30/95 $10,794 $10,928
12/31/95 $11,072 $11,253
3/31/96 $11,094 $11,243
6/30/96 $11,193 $11,336
9/30/96 $11,364 $11,529
12/31/96 $11,560 $11,772
3/31/97 $11,638 $11,817
6/30/97 $11,886 $12,111
9/30/97 $12,115 $12,386
12/31/97 $12,300 $12,614
3/31/98 $12,463 $12,809
6/30/98 $12,650 $13,023
9/30/98 $13,019 $13,509
12/31/98 $13,075 $13,583
3/31/99 $13,180 $13,639
4/30/99 $13,227 $14,011
$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 APRIL 30)
Limited-Term Merrill Lynch 1- to 5-Year
Bond Govt./Corp. Index
DATE RETURN RETURN
4/30/94* -1.12% -1.49%
4/30/95 5.11% 6.12%
4/30/96 6.69% 7.43%
4/30/97 5.78% 6.23%
4/30/98 6.76% 7.88%
4/30/99 5.62% 6.33%
* From the fund's 3/1/94 inception date to 4/30/94.
4 1-800-345-2021
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. John became lead manager on Limited-Term Bond in January
1999, replacing Jeff Houston, who assumed greater management responsibility for
three other bond funds. John has been a credit analyst or portfolio manager on
the American Century diversified bond funds team since 1996.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED APRIL 30, 1999?
Limited-Term Bond's returns were positive, despite the increase in interest
rates in recent months (see page 3 for a more complete discussion of interest
rates and the investment climate over the last six months). For the six months,
the fund returned 1.72%.* That's about in line with the 1.76% average return of
the 110 "Short Investment-Grade Debt Funds" tracked by Lipper Inc. The
portfolio's longer-term performance remains quite good--for life-of-fund
performance, Limited-Term Bond ranks in the top third of its Lipper group. (See
the previous page for additional performance comparisons.)
WHAT ARE SOME OF THE BIGGEST FACTORS BEHIND THE PORTFOLIO'S PERFORMANCE IN
RECENT MONTHS?
Duration and asset allocation go a long way toward explaining Limited-Term
Bond's performance. Duration measures a portfolio's sensitivity to interest rate
changes. The longer the duration, the more a fund's share price will rise or
fall when rates change. We manage duration conservatively, typically keeping it
in a relatively narrow band around two years or so. But we believe that's a
little longer than the duration of many of the funds in the Lipper group. That
slightly longer duration gave a modest boost to performance in 1998, when rates
declined. But when rates rose over the last six months, our position was a
little bit of a drag on returns relative to the Lipper group.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO'S ASSET ALLOCATION?
The biggest change was to reduce our Treasury position and add
higher-yielding bonds. (See the charts on page 6.) It made sense to hold a
significant stake in Treasurys in 1998, when global economic and financial
turmoil sent rates tumbling and investors looking for the safety and liquidity
of the Treasury market. But big gains by Treasurys meant other sectors of the
bond market, such as corporate and mortgage-backed securities, offered higher
yields and better relative values by late 1998. As a result, we reduced the
fund's exposure to Treasury securities from about a third of investments at the
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"FOR LIFE-OF-FUND PERFORMANCE, LIMITED-TERM BOND RANKS IN THE TOP THIRD OF ITS
LIPPER GROUP."
PORTFOLIO AT A GLANCE
4/30/99 10/31/98
NUMBER OF SECURITIES 49 54
WEIGHTED AVERAGE
MATURITY 2.3 YRS 2.4 YRS
AVERAGE DURATION 1.9 YRS 2.1 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.70%* 0.70%
* Annualized.
YIELD AS OF APRIL 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.17% 4.92%
Investment terms are defined in the Glossary on pages 39-40.
www.americancentury.com 5
Limited-Term Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
end of October to less than 15% by the end of April, while increasing the amount
of corporate and mortgage-backed bonds.
HOW DID THE TRADE OUT OF TREASURYS AND INTO HIGHER-YIELDING SECURITIES WORK OUT
We think that change paid off in early 1999, when Treasurys were the
worst-performing sector of the U.S. bond market. Corporates and mortgage-backed
securities, on the other hand, performed relatively well. The Fed's rate cuts in
late 1998 brightened the picture for corporations because lower rates reduced
borrowing costs. In addition, U.S. economic growth surged despite turmoil
overseas. Those factors gave investors renewed confidence that corporate
earnings would stay strong.
CAN YOU TALK A LITTLE BIT ABOUT THE PORTFOLIO'S MORTGAGE-BACKED SECURITIES?
Sure. Like corporate bonds, mortgage-backed securities looked very
attractive relative to Treasurys in late 1998. Last year was rough for investors
in mortgage-backed securities because falling interest rates sent home-loan
refinancings to a record high in October. Mortgage refinancings are undesirable
for investors because they return all your money to you during a market rally,
leaving you to reinvest that cash at lower yields.
But higher rates since October have slowed refinancing activity.
Unfortunately, higher rates also cause the duration of mortgages to extend,
which hurts performance when rates rise sharply. Mortgages tend to perform best
when rates are relatively stable. Because we think rates will remain in a
relatively narrow range or rise only slightly, it makes sense to own some
mortgage-backed securities.
ANY CHANGES TO THE PORTFOLIO'S CREDIT QUALITY?
Limited-Term Bond's average credit quality remains relatively high, about
midway between AA and A, despite the fact that we hold fewer AAA and more BBB
bonds than we did six months ago. (See the chart on page 7 for more detailed
credit rating information.)
We're holding more BBB securities as a result of our efforts to find the
best relative values in the market. When fears of recession and an extreme
aversion to risk crippled financial markets in the third quarter of 1998,
lower-rated bonds fell sharply. We think those price declines were overdone, and
we were able to buy BBB bonds with very attractive yields and prices. Indeed,
healthier financial markets and strong economic growth meant BBB bonds performed
relatively well in the first quarter.
AS OF SEPTEMBER 1, 1998, LIMITED-TERM BOND IS ALLOWED TO INVEST IN SECURITIES
RATED BB. HAVE YOU BEEN VERY ACTIVE IN THAT AREA?
Not yet--BB bonds accounted for less than 5% of investments at the end of
April. This reflects a relative lack of BB paper at the short end of the
corporate bond market. Much of the issuance in short-term corporate bonds is by
finance companies, which tend to have "investment-grade" credit ratings.
Investment-grade paper is rated AAA, AA, A, or BBB and is considered relatively
safe from default.
[left margin]
"CORPORATE AND MORTGAGE-BACKED SECURITIES OFFERED HIGHER YIELDS AND BETTER
RELATIVE VALUES THAN TREASURYS BY LATE 1998."
[pie charts - data below]
PORTFOLIO COMPOSITION BY
SECURITY TYPE
AS OF APRIL 30, 1999
Corporate Bonds 54%
Asset-Backed 14%
U.S. Treasury 13%
Mortgage-Backed 13%
Other 6%
AS OF OCTOBER 31, 1998
Corporate Bonds 46%
U.S. Treasury 29%
Asset-Backed 16%
Mortgage-Backed 9%
Security types are defined on pages 39-40.
6 1-800-345-2021
Limited-Term Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
The change in investment policy is likely to have a greater effect on the
intermediate- and longer-term American Century diversified bond funds simply
because there's more BB paper in their segment of the market. But we would
consider adding more BB securities if we thought they would help boost yields
and returns.
DOES INVESTING IN THESE BB SECURITIES MAKE THE PORTFOLIO MORE RISKY?
We think the slight potential increase in risk associated with investing in
these bonds is effectively mitigated, for two reasons. First, we have a very
experienced credit research team that is intimately familiar with this part of
the corporate bond market. We're relying on our credit team to help us find
attractive, quality securities among BB credits.
Second, we're taking a fairly conservative approach. The BB bonds we're
buying tend to be issued by large, established companies with stable cash flows.
They're basically "upgrade candidates"--bonds that are currently rated BB but
that we think are worthy of a higher rating.
When a BB security is upgraded to a higher rating, it often experiences a
significant price increase because its newfound investment-grade status attracts
greater demand from investors. We hope to benefit from upgrades in the BB bonds
we own.
WHAT'S YOUR INTEREST RATE OUTLOOK?
We expect to see less interest rate volatility than we did over the past
year. We think the dramatic drop in interest rates in 1998 was an exaggerated
move caused by abnormal occurrences, such as the rapid liquidation of positions
by highly leveraged hedge funds. We don't anticipate that kind of steep decline
in interest rates happening anytime soon. Economic growth in the U.S. remains
very strong, and we are starting to see signs of recovery around the globe. This
underlying economic strength has been accompanied by modest inflation. As a
result, we could see rates increase slightly or trade in a relatively narrow
range.
HOW WILL THIS OUTLOOK INFLUENCE LIMITED-TERM BOND'S POSITIONING?
With the continued strength of the economy and interest rates relatively
stable to modestly higher, we expect the non-Treasury segments of the bond
market to perform best in the coming months. As a result, we'll likely continue
to maintain a sizable position in higher-yielding corporate bonds and
mortgage-backed securities.
[right margin]
"WE'RE HOLDING MORE BBB SECURITIES AS A RESULT OF OUR EFFORTS TO FIND THE BEST
RELATIVE VALUES IN THE MARKET."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
4/30/99 10/31/98
AAA 48% 52%
AA 1% 2%
A 19% 18%
BBB 29% 22%
BB 3% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 38
for more information.
www.americancentury.com 7
Limited-Term Bond--Schedule of Investments
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--13.1%
$1,250 U.S. Treasury Notes, 5.50%,
3/31/00 $ 1,256
500 U.S. Treasury Notes, 6.375%,
5/15/00 507
500 U.S. Treasury Notes, 5.375%,
7/31/00 502
350 U.S. Treasury Notes, 4.625%,
11/30/00 348
-----------
TOTAL U.S. TREASURY SECURITIES 2,613
-----------
(Cost $2,613)
MORTGAGE-BACKED SECURITIES(1)--12.4%
335 FNMA Pool #313224, 7.00%,
12/1/11 343
484 FNMA Pool #313481, 7.00%,
4/1/12 496
265 FNMA Pool #378698, 8.00%,
5/1/12 275
425 FNMA Pool #411016, 6.50%,
3/1/13 429
488 FNMA Pool #426145, 6.00%,
5/1/13 485
453 FNMA Pool #433184, 6.50%,
6/1/13 458
-----------
TOTAL MORTGAGE-BACKED SECURITIES 2,486
-----------
(Cost $2,477)
ASSET-BACKED SECURITIES(1)--14.3%
500 Case Equipment Loan Trust,
Series 1998 B, Class A4 SEQ,
5.92%, 10/15/05 499
500 CIT RV Trust, Series 1997 A,
Class A5 SEQ, 6.25%,
11/17/08 503
167 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 169
250 FNMA Whole Loan,
Series 1995 W1, Class A6,
8.10%, 4/25/25 256
91 Green Tree Financial Corp.,
Series 1995-7, Class A3,
6.35%, 11/15/26 91
376 Money Store (The) Home Equity
Trust, Series 1994 B,
Class A4 SEQ, 7.60%, 7/15/21 386
390 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 386
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 188 Textron Financial Corp.
Receivables Trust,
Series 1997 A, Class A, 6.05%,
3/16/09 (Acquired 9/18/97,
Cost $188)(2) $ 188
150 United Companies Financial Corp.,
Home Equity Loan,
Series 1996 D1, Class A4,
6.78%, 2/15/16 152
234 World Omni Automobile Lease
Securitization, Series 1996 B,
Class A2, 6.20%, 11/15/02 235
-----------
TOTAL ASSET-BACKED SECURITIES 2,865
-----------
(Cost $2,855)
CORPORATE BONDS--53.9%
AUTOMOBILES & AUTO PARTS--1.6%
300 General Motors Corp. Global
Notes, 9.625%, 12/1/00 317
-----------
BANKING--1.0%
200 Capital One Bank, 6.74%,
5/31/99 200
-----------
CHEMICALS & RESINS--4.5%
400 IMC Global Inc., 7.40%, 11/1/02 410
500 Monsanto Co., 5.375%, 12/1/01
(Acquired 12/4/98,
Cost $499)(2) 495
-----------
905
-----------
ENERGY (PRODUCTION & MARKETING)--6.1%
400 Conoco Inc., 5.90%, 4/15/04 398
400 KN Energy, Inc., 6.45%,
11/30/01 405
400 Oryx Energy Co., 9.50%,
11/1/99 406
-----------
1,209
-----------
FINANCIAL SERVICES--16.7%
500 Caterpillar Financial Services
MTN, 6.49%, 10/15/99 503
300 CIT Group, Inc. MTN, 6.625%,
9/13/99 302
350 Comdisco Inc., 7.75%, 9/1/99 352
250 Ford Motor Credit Co., 6.125%,
4/28/03 251
200 Franchise Finance Corp., 7.00%,
11/30/00 198
300 International Lease Finance Corp.,
6.375%, 1/18/00 302
400 Lehman Brothers Holdings Inc.
MTN, Series E, 6.33%, 8/1/00 401
250 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 254
See Notes to Financial Statements
8 1-800-345-2021
Limited-Term Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 385 Paine Webber Group Inc. MTN,
6.65%, 10/15/02 $ 387
400 Toyota Motor Credit Corp.,
5.625%, 11/13/03 396
-----------
3,346
-----------
INSURANCE--4.5%
400 Conseco Inc., 6.40%, 6/15/01 395
500 Fremont General Corp., 7.70%,
3/17/04 (Acquired 3/19/99,
Cost $504)(2) 505
-----------
900
-----------
RAILROAD--2.1%
415 Norfolk Southern Corp., 6.95%,
5/1/02 424
-----------
REAL ESTATE--3.1%
300 Price REIT, Inc. (The), 7.25%,
11/1/00 305
300 Spieker Properties, Inc., 6.80%,
12/15/01 303
-----------
608
-----------
RETAIL (APPAREL)--1.5%
300 Saks Inc., 7.25%, 12/1/04 307
-----------
RETAIL (FOOD & DRUG)--2.5%
500 Rite Aid Corp., 6.70%, 12/15/01 506
-----------
STEEL--1.2%
250 Pohang Iron & Steel Co., Ltd.,
6.625%, 7/1/03 240
-----------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
TELEPHONE COMMUNICATIONS--5.2%
$ 500 MCI WorldCom, Inc., 8.875%,
1/15/01 $ 538
500 U S West Capital Funding Inc.,
6.125%, 7/15/02 504
-----------
1,042
-----------
UTILITIES--1.3%
250 CalEnergy Co. Inc., 7.23%,
9/15/05 259
-----------
WIRELESS COMMUNICATIONS--2.6%
500 AirTouch Communications, Inc.,
7.125%, 7/15/01 513
-----------
TOTAL CORPORATE BONDS 10,776
-----------
(Cost $10,734)
TEMPORARY CASH INVESTMENTS--6.3%
247,000 Units of Participation in Chase
Vista Prime Money Market Fund
(Institutional Shares) 247
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 4.80%, dated 4/30/99,
due 5/3/99 (Delivery value $1,010) 1,010
-----------
TOTAL TEMPORARY CASH INVESTMENTS 1,257
-----------
(Cost $1,257)
TOTAL INVESTMENT SECURITIES--100.0% $19,997
===========
(Cost $19,936)
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 April 30, 1999, was $1,188,
which represented 5.9% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each industry, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 9
Intermediate-Term Bond--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF APRIL 30, 1999
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 8/14/97)
INTERMEDIATE- LEHMAN INTERM. INTERM. INVESTMENT-GRADE DEBT FUNDS(2) INTERMEDIATE- LEHMAN INTERM.
TERM BOND GOVT./CORP. INDEX AVERAGE RETURN FUND'S RANKING TERM BOND GOVT./CORP. INDEX
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 0.87% 0.51% 0.61% -- 0.74% 0.51%
1 YEAR 5.61% 6.37% 5.12% 98 OUT OF 252 5.34% 6.37%
===========================================================================================================================
AVERAGE ANNUAL RETURNS
===========================================================================================================================
3 YEARS 7.04% 7.23% 7.19% 96 OUT OF 176 -- --
5 YEARS 6.94% 7.21% 7.15% 66 OUT OF 118 -- --
LIFE OF FUND 6.26% 6.48% 6.84%(3) 60 OUT OF 116(3) 6.16% 7.14%(4)
</TABLE>
(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 37-39 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 4/30/99
Lehman Intermediate
Govt./Corp. Index $13,838
Intermediate-Term Bond $13,681
Intermediate-Term Lehman Intermediate
Bond Govt./Corp. Index
DATE VALUE VALUE
3/1/94 $10,000 $10,000
3/31/94 $9,856 $9,835
6/30/94 $9,801 $9,776
9/30/94 $9,882 $9,856
12/31/94 $9,880 $9,845
3/31/95 $10,265 $10,278
6/30/95 $10,754 $10,790
9/30/95 $10,950 $10,969
12/31/95 $11,374 $11,356
3/31/96 $11,217 $11,261
6/30/96 $11,255 $11,332
9/30/96 $11,451 $11,533
12/31/96 $11,745 $11,815
3/31/97 $11,714 $11,802
6/30/97 $12,089 $12,151
9/30/97 $12,469 $12,479
12/31/97 $12,707 $12,746
3/31/98 $12,906 $12,945
6/30/98 $13,135 $13,188
9/30/98 $13,676 $13,780
12/31/98 $13,654 $13,821
3/31/99 $13,647 $13,795
4/30/99 $13,681 $13,838
$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 APRIL 30)
Intermediate-Term Lehman Intermediate
Bond Govt./Corp. Index
DATE RETURN RETURN
4/30/94* -2.16% -2.32%
4/30/95 5.98% 6.51%
4/30/96 7.57% 7.84%
4/30/97 6.30% 6.41%
4/30/98 9.26% 8.94%
4/30/99 5.61% 6.37%
* From the fund's 3/1/94 inception date to 4/30/94.
10 1-800-345-2021
Intermediate-Term Bond--Q&A
- --------------------------------------------------------------------------------
/photo of Bud Hoops and Jeff Houston/
An interview with Bud Hoops and Jeff Houston, portfolio managers on the
Intermediate-Term Bond fund investment team.
HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDED APRIL 30, 1999?
Intermediate-Term Bond produced positive returns despite the increase in
interest rates (see page 3). For the six months, the portfolio returned 0.87%.*
That compares favorably with the 0.61% average return of the 268 "Intermediate
Investment-Grade Debt Funds" tracked by Lipper Inc. Intermediate-Term Bond also
outperformed the Lehman Intermediate Government/Corporate Bond Index, which rose
0.51%. (See the previous page for additional performance comparisons.)
HOW DID INTERMEDIATE-TERM BOND'S YIELD COMPARE?
It was above average. The portfolio's 30-day SEC yield on April 30 was
5.58%, while the average yield for the Lipper group was 5.38%. One reason for
the portfolio's better-than-average yields and returns is our relatively low
expenses. Other things being equal, below-average management fees should
translate into higher yields and returns for our shareholders.
THE FUND'S YIELD ROSE QUITE A BIT OVER THE LAST SIX MONTHS (FROM 4.95% TO
5.58%). WHY THE INCREASE?
The higher yield is due in part to the overall rise in interest rates for
the last six months. But that increase also reflects a conscious effort on our
part to trade out of Treasury bonds and into higher-yielding corporate
securities. That's part and parcel of our relative-value approach to managing
the fund--rather than make big bets on duration, we try to enhance performance
by buying undervalued securities.
In particular, we monitor the spread, or difference in yield, between
Treasurys and corporate bonds to determine when corporates may be undervalued.
Generally speaking, the wider the spread, the better the value corporate bonds
represent. In October, the spread between corporates and Treasurys was the
widest we've seen since the recession of 1990. As a result, we increased our
corporate bond holdings from 46% of investments six months ago to 57% by the end
of April. At the same time, we reduced the fund's exposure to Treasury
securities from 33% of investments to 19%. (See the charts on page 12.)
DID THAT ASSET ALLOCATION SHIFT HELP PERFORMANCE?
Yes, it did. The change in positioning paid off in the first quarter of
1999, when Treasurys were the worst-performing sector of the U.S. bond market,
while corporates and other higher-yielding bonds performed relatively
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"INTERMEDIATE-TERM BOND PRODUCED POSITIVE RETURNS DESPITE THE INCREASE IN
INTEREST RATES."
PORTFOLIO AT A GLANCE
4/30/99 10/31/98
NUMBER OF SECURITIES 84 76
WEIGHTED AVERAGE
MATURITY 7.6 YRS 7.6 YRS
AVERAGE DURATION 4.8 YRS 4.9 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.75%* 0.75%
* Annualized.
YIELD AS OF APRIL 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.58% 5.32%
Investment terms are defined in the Glossary on pages 39-40.
www.americancentury.com 11
Intermediate-Term Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
well. The Fed's rate cuts in late 1998 brightened the picture for corporations
because lower rates reduced borrowing costs. In addition, U.S. economic growth
surged despite turmoil overseas. Those factors gave investors renewed confidence
that corporate earnings would stay strong.
YOU ALSO MENTIONED DURATION. CAN YOU DEFINE DURATION IN GENERAL AND EXPLAIN HOW
YOU MANAGED IT?
Sure. Duration measures a bond's or bond portfolio's sensitivity to changes
in interest rates. The longer the duration, the more you gain in price when
rates fall, and the more you lose when rates rise. A shorter duration means a
bond portfolio's share price fluctuates less when rates change. So ideally, you
want to lengthen duration when interest rates are falling and shorten duration
when rates are rising.
But it can be very difficult to accurately predict the direction of
interest rates over the short run. As a result, we don't make big bets on
interest rates. Instead, we make only modest adjustments to duration over time,
typically keeping it in a relatively narrow band between four and five years. A
good example is the last six months, when duration was little changed at around
4.8 years.
AS OF SEPTEMBER 1, 1998, INTERMEDIATE-TERM BOND IS ALLOWED TO INVEST UP TO 15%
OF ASSETS IN SECURITIES RATED BB. CAN YOU ELABORATE ON THIS CHANGE?
Sure. Bonds that are rated AAA, AA, A, or BBB are considered
"investment-grade" securities, meaning they are relatively safe from default.
Many funds and institutions concentrate exclusively on investment-grade bonds.
In contrast, bonds rated B and below are more vulnerable to sudden swings
in credit quality. As a result, they typically offer high yields to compensate
for the additional risk. High-yield, or "junk bond," investors focus on these
securities, as well as those that are unrated.
That leaves BB-rated bonds, which are below the radar screen for
investment-grade investors but don't offer enough yield for high-yield
investors. This area of the market can be overlooked and is often inefficiently
priced. We think we can find some great investment opportunities in this portion
of the market.
WON'T THESE BB SECURITIES MAKE THE FUND'S PORTFOLIO MORE RISKY?
We believe the potential increase in risk is effectively mitigated for two
reasons. First, we have a very experienced credit research team that is familiar
with this part of the corporate bond market. We're relying on our credit team to
help us find attractive, quality securities among BB credits.
Second, we're taking a fairly conservative approach. Most of the BB bonds
we're buying have been issued by large, established companies with stable cash
flows. We particularly seek out "upgrade candidates"--bonds that are currently
rated BB but that we think are worthy of a higher rating.
When a BB security is upgraded to a higher rating, it often experiences a
significant price increase because its newfound investment-grade status attracts
greater demand from investors. We look to benefit from upgrades in the BB bonds
we own.
[left margin]
"IN OCTOBER, THE SPREAD, OR DIFFERENCE IN YIELD, BETWEEN CORPORATES AND
TREASURYS WAS THE WIDEST WE'VE SEEN SINCE THE RECESSION OF 1990."
[pie charts - data below]
PORTFOLIO COMPOSITION BY
SECURITY TYPE
AS OF APRIL 30, 1999
Corporate Bonds 57%
U.S. Treasury 19%
Mortgage-Backed 14%
Asset-Backed 8%
Other 2%
AS OF OCTOBER 31, 1998
Corporate Bonds 46%
U.S. Treasury 33%
Mortgage-Backed 12%
Asset-Backed 7%
Other 2%
Security types are defined on pages 39-40.
12 1-800-345-2021
Intermediate-Term Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
HAVE YOU BEEN VERY ACTIVE IN THAT AREA?
We've increased our holdings of BB securities. At the end of April, BB
bonds accounted for a little more than 10% of assets. A good example of a BB
security in the portfolio is a bond issued by Qwest Communications, which is a
growing telecommunications company that builds and operates fiber-optic
networks. The telecommunications industry in general tends to be relatively
insulated from changes in the business cycle. On top of that, Qwest has a
significant cost advantage over its competitors through its internally
developed, state-of-the-art systems. We expect Qwest eventually to be upgraded,
and the bonds should see a nice price gain if that happens.
WHAT'S YOUR INTEREST RATE OUTLOOK?
We expect to see less interest rate volatility than we did over the past
year. We think the dramatic drop in interest rates in 1998 was an exaggerated
move caused by abnormal occurrences, such as the rapid liquidation of positions
by highly leveraged hedge funds. Economic growth in the U.S. remains very
strong, and we are starting to see signs of recovery around the globe. This
underlying economic strength has been accompanied by modest inflation. As a
result, we could see rates increase modestly.
While strong growth would be positive for corporate bonds, there are some
risks to this outlook. Increasing inflation could cause the Federal Reserve to
raise rates. Other potential hazards for corporate bonds include a decline in
the stock market, a significant slowdown in the U.S. economy, or a worsening of
the situation in Asia and Latin America, as well as possible unforeseen
disruptions around the year 2000.
HOW WILL THIS OUTLOOK INFLUENCE INTERMEDIATE-TERM BOND'S POSITIONING?
We expect the non-Treasury segments of the bond market to perform best in
the coming months. As a result, we'll likely underweight Treasurys while
maintaining a larger stake in corporate bonds. If we're right and yield spreads
continue to narrow, the portfolio should perform reasonably well.
[right margin]
"IF WE'RE RIGHT AND YIELD SPREADS CONTINUE TO NARROW, THE PORTFOLIO SHOULD
PERFORM REASONABLY WELL."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
4/30/99 10/31/98
AAA 45% 52%
AA 5% 4%
A 17% 18%
BBB 23% 18%
BB 10% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 38
for more information.
www.americancentury.com 13
Intermediate-Term Bond--Schedule of Investments
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--19.2%
$ 750 U.S. Treasury Notes, 5.50%,
3/31/00 $ 754
350 U.S. Treasury Notes, 5.50%,
12/31/00 352
300 U.S. Treasury Notes, 5.375%,
2/15/01 302
100 U.S. Treasury Notes, 7.75%,
2/15/01 105
1,000 U.S. Treasury Notes, 4.875%,
3/31/01 996
200 U.S. Treasury Notes, 6.625%,
7/31/01 206
300 U.S. Treasury Notes, 6.50%,
5/31/02 311
600 U.S. Treasury Notes, 7.25%,
5/15/04 652
1,000 U.S. Treasury Notes, 4.75%,
11/15/08 956
300 U.S. Treasury Bonds, 9.25%,
2/15/16 406
350 U.S. Treasury Bonds, 9.125%,
5/15/18 477
400 U.S. Treasury Bonds, 7.50%,
11/15/24 483
300 U.S. Treasury Bonds, 6.50%,
11/15/26 324
-----------
TOTAL U.S. TREASURY SECURITIES 6,324
-----------
(Cost $6,388)
MORTGAGE-BACKED SECURITIES(1)--13.7%
483 FHLMC Pool #E00279, 6.50%,
2/1/09 491
266 FHLMC Pool #C00578, 6.50%,
1/1/28 265
203 FHLMC Pool #G00907, 7.00%,
2/1/28 206
339 FNMA Pool #427913, 6.00%,
5/1/13 337
214 FNMA Pool #413812, 6.50%,
1/1/28 213
296 FNMA Pool #411821, 7.00%,
1/1/28 301
301 FNMA Pool #450619, 6.00%,
12/1/28 293
302 FNMA Pool #454947, 6.00%,
12/1/28 293
298 FNMA Pool #252211, 6.00%,
1/1/29 289
353 GNMA Pool #002202, 7.00%,
4/20/26 358
271 GNMA Pool #780412, 7.50%,
8/15/26 280
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 260 GNMA Pool #467626, 7.00%,
2/15/28 $ 265
164 GNMA Pool #458862, 7.50%,
2/15/28 170
399 GNMA Pool #436277, 6.50%,
3/15/28 398
350 GNMA Pool #469811, 7.00%,
12/15/28 356
-----------
TOTAL MORTGAGE-BACKED SECURITIES 4,515
-----------
(Cost $4,493)
ASSET-BACKED SECURITIES(1)--7.9%
251 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 253
477 First Union-Lehman Brothers
Commercial Mortgage,
Series 1998 C2, Class A1 SEQ,
6.28%, 6/18/07 479
600 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 589
341 Nationslink Funding Corp.,
Series 1998-2, Class A1 SEQ,
6.00%, 11/20/07 338
250 United Companies Financial Corp.,
Home Equity Loan,
Series 1996 D1, Class A4,
6.78%, 2/15/16 253
400 United Companies Financial Corp.,
Home Equity Loan,
Series 1996 D1, Class A5,
6.92%, 10/15/18 407
300 United Companies Financial Corp.,
Home Equity Loan,
Series 1997 C, Class A7,
6.85%, 1/15/29 305
-----------
TOTAL ASSET-BACKED SECURITIES 2,624
-----------
(Cost $2,630)
CORPORATE BONDS--56.8%
AIRLINES--1.5%
500 Continental Airlines, Inc., 8.00%,
12/15/05 500
-----------
BANKING--4.7%
500 BankAmerica Corp., 7.75%,
7/15/02 526
300 Capital One Bank, 5.95%,
2/15/01 298
250 Corestates Capital Corp., 5.875%,
10/15/03 248
See Notes to Financial Statements
14 1-800-345-2021
Intermediate-Term Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 500 Fleet National Bank, 5.75%,
1/15/09 $ 475
-----------
1,547
-----------
BROADCASTING & MEDIA--2.3%
500 British Sky Broadcasting, 6.875%,
2/23/09 499
250 CSC Holdings Inc., 7.625%,
7/15/18 252
-----------
751
-----------
BUSINESS SERVICES & SUPPLIES--1.2%
400 LCI International, Inc., 7.25%,
6/15/07 412
-----------
CHEMICALS & RESINS--2.9%
600 IMC Global Inc., 7.40%, 11/1/02 615
350 Monsanto Co., 6.60%, 12/1/28
(Acquired 12/4/98,
Cost $349)(2) 334
-----------
949
-----------
DIVERSIFIED COMPANIES--0.8%
300 Hutchison Whampoa Financial,
7.50%, 8/1/27 (Acquired
4/7/99, Cost $261)(2) 270
-----------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.9%
300 Anixter International Inc., 8.00%,
9/15/03 309
-----------
ENERGY (PRODUCTION & MARKETING)--4.3%
500 Enron Corp., 6.625%, 11/15/05 498
600 KN Energy, Inc., 6.45%,
11/30/01 608
300 USX Corp., 6.85%, 3/1/08 299
-----------
1,405
-----------
ENERGY (SERVICES)--1.0%
350 Petroleum Geo-Services ASA,
7.125%, 3/30/28 333
-----------
FINANCIAL SERVICES--7.3%
500 Associates Corp., N.A., 6.25%,
11/1/08 496
250 Ford Motor Credit Co., 6.125%,
4/28/03 251
300 Franchise Finance Corp., 7.00%,
11/30/00 296
500 Lehman Brothers Holdings Inc.
MTN, Series E, 6.33%, 8/1/00 501
250 Merrill Lynch & Co., Inc., 6.50%,
4/1/01 254
600 Toyota Motor Credit Corp.,
5.625%, 11/13/03 594
-----------
2,392
-----------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
HEALTHCARE--0.9%
$ 300 Aetna Services, Inc., 6.75%,
8/15/01 $ 305
-----------
INSURANCE--3.4%
400 Conseco Financing Trust II, 8.70%,
11/15/26 375
500 Conseco Inc., 6.40%, 6/15/01 494
250 Nationwide Mutual Insurance Co.,
6.50%, 2/15/04 (Acquired
2/9/96, Cost $252)(2) 252
-----------
1,121
-----------
METALS & MINING--1.3%
400 Barrick Gold Corp., 7.50%,
5/1/07 421
-----------
PACKAGING & CONTAINERS--1.5%
500 Owens-Illinois Inc., 7.15%,
5/15/05 495
-----------
PAPER & FOREST PRODUCTS--0.9%
300 Abitibi-Consolidated Inc., 7.40%,
4/1/18 290
-----------
REAL ESTATE--4.2%
550 Chelsea GCA Realty Partners,
7.25%, 10/21/07 514
350 Price REIT, Inc. (The), 7.25%,
11/1/00 356
200 Price REIT, Inc. (The), 7.125%,
6/15/04 205
300 Spieker Properties, Inc., 6.80%,
12/15/01 303
-----------
1,378
-----------
RETAIL (APPAREL)--1.9%
300 Saks Inc., 7.25%, 12/1/04 307
300 Saks Inc., 8.25%, 11/15/08 325
-----------
632
-----------
RETAIL (GENERAL MERCHANDISE)--0.6%
200 Sears, Roebuck & Co., Inc. MTN,
8.29%, 6/10/02 212
-----------
STEEL--1.2%
400 Pohang Iron & Steel Co., Ltd.,
7.375%, 5/15/05 393
-----------
TELEPHONE COMMUNICATIONS--6.2%
500 Cable & Wireless Communications
plc, 6.625%, 3/6/05 504
500 MCI WorldCom, Inc., 8.875%,
1/15/01 538
400 MCI WorldCom, Inc., 6.40%,
8/15/05 403
See Notes to Financial Statements
www.americancentury.com 15
Intermediate-Term Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 250 Qwest Communications
International Inc., 7.50%,
11/1/08 (Acquired 10/28/98,
Cost $248)(2) $ 263
350 Sprint Capital Corp., 6.875%,
11/15/28 339
-----------
2,047
-----------
UTILITIES--4.1%
150 CalEnergy Co. Inc., 7.23%,
9/15/05 155
400 Empresa Nacional de Electricidad
S.A. (Chile), 8.50%, 4/1/09
(Acquired 4/21/99,
Cost $431)(2) 430
500 Georgia Power Co., 5.50%,
12/1/05 484
300 Yorkshire Power Finance, Series B,
6.15%, 2/25/03 (Acquired
2/19/98, Cost $300)(2) 299
-----------
1,368
-----------
WIRELESS COMMUNICATIONS--3.7%
600 AirTouch Communications, Inc.,
7.125%, 7/15/01 616
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 500 TCI Communications, Inc., 8.75%,
8/1/15 $ 601
-----------
1,217
-----------
TOTAL CORPORATE BONDS 18,747
-----------
(Cost $18,728)
SOVEREIGN GOVERNMENTS & AGENCIES--0.9%
300 Province of British Columbia,
5.375%, 10/29/08 285
-----------
(Cost $298)
TEMPORARY CASH INVESTMENTS--1.5%
Repurchase Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 4.80%, dated 4/30/99,
due 5/3/99 (Delivery value $492) 492
-----------
(Cost $492)
TOTAL INVESTMENT SECURITIES--100.0% $32,987
===========
(Cost $33,029)
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
MTN = Medium Term Note
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 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 April 30, 1999, was $1,848,
which represented 5.5% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each industry, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
16 1-800-345-2021
Bond--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF APRIL 30, 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
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 0.08% 0.69% 0.38% -- -0.05% 0.69%
1 YEAR 3.87% 6.27% 4.78% 125 OUT OF 156 3.61% 6.27%
====================================================================================================================
AVERAGE ANNUAL RETURNS
====================================================================================================================
3 YEARS 6.85% 8.07% 7.33% 93 OUT OF 128 -- --
5 YEARS 7.21% 8.03% 7.31% 45 OUT OF 85 -- --
10 YEARS 8.14% 8.89% 8.44% 27 OUT OF 42 -- --
LIFE OF FUND 7.37% 8.26% 7.99%(3) 24 OUT OF 28(3) 5.66% 7.80%(4)
</TABLE>
(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 37-39 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 4/30/99
Lehman Aggregate
Bond Index $23,429
Bond $21,870
Lehman Aggregate
Bond Bond Index
DATE VALUE VALUE
4/30/89 $10,000 $10,000
4/30/90 $10,538 $10,903
4/30/91 $12,181 $12,559
4/30/92 $13,647 $13,941
4/30/93 $15,400 $15,789
4/30/94 $15,440 $15,923
4/30/95 $16,462 $17,087
4/30/96 $17,930 $18,564
4/30/97 $19,123 $19,878
4/30/98 $21,058 $22,047
4/30/99 $21,870 $23,429
$10,000 investment made 4/30/89
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 APRIL 30)
Lehman Aggregate
Bond Bond Index
DATE RETURN RETURN
4/30/90 5.38% 9.03%
4/30/91 15.59% 15.19%
4/30/92 12.04% 11.00%
4/30/93 12.84% 13.26%
4/30/94 0.26% 0.85%
4/30/95 6.62% 7.31%
4/30/96 8.92% 8.64%
4/30/97 6.65% 7.08%
4/30/98 10.12% 10.91%
4/30/99 3.87% 6.27%
www.americancentury.com 17
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 THE FUND PERFORM DURING THE SIX MONTHS ENDED APRIL 30, 1999?
Bond's returns were affected by a difficult investment climate. While the
capital markets generally recovered from the economic and financial turmoil we
saw in the third quarter of 1998, bond returns were limited by rising interest
rates (see page 3). For the six months, Bond returned 0.08%.* According to
Lipper Inc., the "A-Rated Corporate Debt Fund" category averaged a 0.38% return
for the same period. (See the previous page for additional performance
comparisons.)
CAN YOU EXPLAIN A LITTLE BIT MORE ABOUT BOND'S PERFORMANCE RELATIVE TO ITS
LIPPER GROUP?
We manage the portfolio primarily as a corporate bond fund, so we hold more
corporate securities and fewer Treasurys than many of the funds in the Lipper
group. That was a difficult position to be in during 1998. One way to measure
the relative performance of Treasurys and corporate bonds is to look at the
spread, or difference in yield, between them. A widening spread means Treasurys
outperform, while a narrower spread means corporates do better. In October, the
spread between corporates and Treasurys was the widest we've seen since the
recession of 1990.
Though the yield spread narrowed in 1999, spreads are still nowhere near
the levels we witnessed before the global financial turmoil hit. So our heavy
weighting in corporate securities meant we performed better relative to the
Lipper group in early 1999 than we did in 1998, and we could do even better on a
relative basis if and when spreads return to more normal levels.
YOU MENTIONED THAT RISING RATES LIMITED RETURNS. HOW DID YOU MANAGE THE
PORTFOLIO'S INTEREST RATE SENSITIVITY?
We make only modest adjustments to duration (a measure of a bond
portfolio's sensitivity to rate changes) over time, typically keeping it in a
relatively narrow band around five years. The last six months are a good
example, when we kept duration little changed at around 5.3 years. Rather than
make big bets on interest rates, we try to enhance performance by concentrating
assets in undervalued securities or sectors of the market.
WHERE DID YOU THINK SOME OF THE BEST RELATIVE VALUES IN THE BOND MARKET WERE
OVER THE LAST SIX MONTHS?
With yield spreads so wide, we believed corporate and other higher-yielding
bonds offered very attractive buying opportunities. So over the last several
months, we cut the fund's Treasury holdings and added attractively priced
corporate, mortgage-, and asset-backed securities. We reduced the portfolio's
exposure to Treasury securities from 18% of investments at the end of October to
only 7% by April 30. Our biggest increase was in corporate bonds, which went
from 64% of investments six months ago to more than 70% by the end of April.
(See the charts on the following page.) Again, those changes
* All fund returns referenced in this interview are for Investor Class shares.
[left margin]
"BOND'S RETURNS WERE AFFECTED BY A DIFFICULT INVESTMENT CLIMATE."
PORTFOLIO AT A GLANCE
4/30/99 10/31/98
NUMBER OF SECURITIES 62 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%
* Annualized.
YIELD AS OF APRIL 30, 1999
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 5.84% 5.59%
Investment terms are defined in the Glossary on pages 39-40.
18 1-800-345-2021
Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
helped performance in the first quarter of 1999, when Treasurys underperformed
corporate and mortgage-backed securities.
HAS BUYING MORE CORPORATE SECURITIES TRANSLATED INTO A HIGHER YIELD FOR THE
FUND?
Yes, that factor was a sort of silver lining for the fund over the past six
months. In part because we purchased more higher-yielding securities, Bond's
30-day SEC yield rose more than half a percentage point over the last six
months, from 5.24% to 5.84%. That yield compares very favorably with the 5.35%
average yield of the Lipper group.
ANOTHER ASPECT OF INVESTING IN THE CORPORATE MARKET IS CREDIT QUALITY. HOW DO
YOU TRY TO MANAGE CREDIT RISK?
We use a credit-intensive approach to security selection, trying to provide
the best combination of yields and returns while minimizing risks for our
shareholders. To do that, we rely on our team of experienced corporate credit
analysts, who work closely with us in selecting securities. We think this
hands-on approach can help us find undervalued securities and boost performance
To take better advantage of our credit team's ability and expertise, we
also began to invest a small portion of the fund (up to a maximum of 15%) in
corporate bonds rated BB. This is an area where we think the credit team can
really add value to the fund's performance.
CAN YOU ELABORATE ON THIS CHANGE?
Sure. Bonds that are rated AAA, AA, A, or BBB are considered
"investment-grade" securities, meaning they are relatively safe from default.
Many funds and institutions concentrate exclusively on investment-grade bonds.
In contrast, bonds rated B and below are more vulnerable to sudden swings
in credit quality. As a result, they typically offer high yields to compensate
for the additional risk. High-yield, or "junk bond," investors focus on these
securities, as well as those that are unrated.
That leaves BB rated bonds, which are below the radar screen for
investment-grade investors but don't offer enough yield for high-yield
investors. This area of the market can be overlooked and is often inefficiently
priced. We think we can find some great investment opportunities in this portion
of the market.
WON'T THESE BB SECURITIES MAKE THE FUND'S PORTFOLIO MORE RISKY?
We believe the potential increase in risk is effectively mitigated for two
reasons. First, we think our experienced credit research team, which is
intimately familiar with this part of the corporate bond market, can help us
find attractive, quality securities among BB credits.
Second, we're taking a fairly conservative approach. Most of the BB bonds
we're buying have been issued by large, established companies with stable cash
flows. We particularly seek out "upgrade candidates"--bonds that are currently
rated BB but that we think are worthy of a higher rating.
[right margin]
"RATHER THAN MAKE BIG BETS ON INTEREST RATES, WE TRY TO ENHANCE PERFORMANCE BY
CONCENTRATING ASSETS IN UNDERVALUED SECURITIES OR SECTORS OF THE MARKET."
[pie charts - data below]
PORTFOLIO COMPOSITION BY
SECURITY TYPE
AS OF APRIL 30, 1999
Corporate Bonds 71%
Mortgage-Backed 12%
Asset-Backed 7%
U.S. Treasury 7%
Other 3%
AS OF OCTOBER 31, 1998
Corporate Bonds 64%
U.S. Treasury 18%
Mortgage-Backed 9%
Asset-Backed 5%
Other 4%
Security types are defined on pages 39-40.
www.americancentury.com 19
Bond--Q&A
- --------------------------------------------------------------------------------
(Continued)
When a BB security is upgraded to a higher rating, it often experiences a
significant price increase because its newfound investment-grade status attracts
greater demand from investors. We look to benefit from such upgrades in the BB
bonds we own.
CAN YOU GIVE AN EXAMPLE OF ONE OF YOUR BB BONDS?
We bought some bonds issued by Qwest Communications, which is a growing
telecommunications company that builds and operates fiber-optic networks. The
telecommunications industry in general tends to be relatively insulated from
changes in the business cycle. On top of that, Qwest has a significant cost
advantage over its competitors through its internally developed,
state-of-the-art systems. We expect Qwest eventually to be upgraded, and the
bonds should see a nice price gain if that happens.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
We expect to see less interest rate volatility than we did over the past
year. We think the dramatic drop in interest rates in 1998 was an exaggerated
move caused by abnormal occurrences, such as the rapid liquidation of positions
by highly leveraged hedge funds. Economic growth in the U.S. remains very
strong, and we are starting to see signs of recovery around the globe. This
underlying economic strength has been accompanied by modest inflation. As a
result, we could see rates increase modestly.
While strong growth would be positive for corporate bonds, there are some
risks to this outlook. Increasing inflation could cause the Federal Reserve to
raise rates. Other potential hazards for corporate bonds include a decline in
the stock market, a significant slowdown in the U.S. economy, or a worsening of
the situation in Asia and Latin America, as well as possible unforeseen
disruptions around the year 2000.
HOW WILL THIS OUTLOOK INFLUENCE BOND'S POSITIONING?
We expect the non-Treasury segments of the bond market to perform best in
the coming months. As a result, we'll likely underweight Treasurys while
maintaining a larger stake in corporate bonds. If we're right and yield spreads
continue to narrow, the portfolio should perform reasonably well going forward.
[left margin]
"IF WE'RE RIGHT AND YIELD SPREADS CONTINUE TO NARROW, THE PORTFOLIO SHOULD
PERFORM REASONABLY WELL."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
4/30/99 10/31/98
AAA 31% 35%
AA 5% 3%
A 30% 27%
BBB 21% 27%
BB 13% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 38
for more information.
20 1-800-345-2021
Bond--Schedule of Investments
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES--6.8%
$1,000 U.S. Treasury Notes, 4.625%,
11/30/00 $ 994
4,000 U.S. Treasury Notes, 5.625%,
12/31/02 4,052
2,000 U.S. Treasury Notes, 7.25%,
5/15/04 2,172
2,000 U.S. Treasury Notes, 7.875%,
11/15/04 2,242
------------
TOTAL U.S. TREASURY SECURITIES 9,460
------------
(Cost $9,514)
U.S. GOVERNMENT AGENCY SECURITIES--1.4%
2,000 TVA, 6.875%, 12/15/43 1,932
------------
(Cost $1,854)
MORTGAGE-BACKED SECURITIES(1)--12.5%
4,360 FHLMC Pool #E68681, 6.00%,
1/1/13 4,335
2,996 FHLMC Pool #C00731, 6.50%,
3/1/29 2,986
171 FHLMC REMIC, Series 116,
Class F PAC, 8.50%, 2/15/20 172
2,992 FNMA Pool #484698, 6.00%,
2/1/14 2,972
3,372 FNMA Pool #250452, 6.50%,
1/1/26 3,366
2,976 FNMA Pool #252211, 6.00%,
1/1/29 2,891
540 FNMA REMIC, Series 1989-35,
Class G, 9.50%, 7/25/19 569
------------
TOTAL MORTGAGE-BACKED SECURITIES 17,291
------------
(Cost $13,796)
ASSET-BACKED SECURITIES(1)--6.8%
2,500 AMRESCO, INC., Series 1998-2,
Class A4 SEQ, 6.45%,
4/25/27 2,480
2,000 Comed Transitional Funding Trust,
Series 1998-1, Class A6 SEQ,
5.63%, 6/25/09 1,948
2,400 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 2,354
1,949 Nationslink Funding Corp.,
Series 1998-2, Class A1 SEQ,
6.00%, 11/20/07 1,932
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 730 United Companies Financial Corp.,
Home Equity Loan,
Series 1995 D1, Class A2,
6.20%, 3/10/14 $ 731
------------
TOTAL ASSET-BACKED SECURITIES 9,445
------------
(Cost $9,620)
CORPORATE BONDS--70.6%
AIRLINES--3.4%
1,500 Continental Airlines, Inc., 8.00%,
12/15/05 1,500
3,101 Delta Air Lines, Inc., 7.54%,
10/11/11 3,184
------------
4,684
------------
BANKING--9.5%
3,000 Citigroup Inc. Euro, 7.00%,
1/2/04 3,099
2,000 Corestates Capital Corp., 5.875%,
10/15/03 1,985
2,000 Fleet National Bank, 5.75%,
1/15/09 1,900
3,000 Mellon Financial Co., 6.00%,
3/1/04 2,995
3,000 National Bank of Canada, 8.125%,
8/15/04 3,246
------------
13,225
------------
BROADCASTING & MEDIA--2.9%
2,000 British Sky Broadcasting, 6.875%,
2/23/09 1,996
2,000 CSC Holdings Inc., 7.25%,
7/15/08 2,029
------------
4,025
------------
CHEMICALS & RESINS--3.7%
3,000 ARCO Chemical Co., 10.25%,
11/1/10 3,155
2,000 Monsanto Co., 6.60%, 12/1/28
(Acquired 12/4/98, Cost
$1,993)(2) 1,908
------------
5,063
------------
COMPUTER SYSTEMS--1.1%
1,500 International Business Machines
Corp., 7.125%, 12/1/96 1,544
------------
DIVERSIFIED COMPANIES--1.0%
1,500 Hutchison Whampoa Financial,
7.50%, 8/1/27 (Acquired
4/7/99, Cost $1,303)(2) 1,350
------------
ENERGY (PRODUCTION & MARKETING)--6.3%
3,000 Columbia Energy Group, 7.42%,
11/28/15 2,988
2,500 Enron Corp., 6.625%, 11/15/05 2,492
See Notes to Financial Statements
www.americancentury.com 21
Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
$ 3,000 Oryx Energy Co., 8.125%,
10/15/05 $ 3,216
------------
8,696
------------
ENERGY (SERVICES)--1.0%
1,500 Petroleum Geo-Services ASA,
7.125%, 3/30/28 1,429
------------
FINANCIAL SERVICES--8.0%
2,000 Associates Corp., N.A., 6.25%,
11/1/08 1,983
2,000 Comdisco, Inc., 6.375%,
11/30/01 2,014
3,000 Ford Motor Credit Co., 6.50%,
2/28/02 3,055
2,000 Lehman Brothers Holdings Inc.
MTN, Series E, 6.33%, 8/1/00 2,003
2,000 Toyota Motor Credit Corp., 5.625%,
11/13/03 1,979
------------
11,034
------------
FOOD & BEVERAGE--2.1%
3,000 Pepsico, Inc., 5.625%, 2/17/09
(Acquired 2/3/99,
Cost $2,987)(2) 2,864
------------
INSURANCE--6.0%
2,500 Conseco Financing Trust II, 8.70%,
11/15/26 2,345
1,500 Conseco Inc., 6.40%, 6/15/01 1,482
1,000 Delphi Financial Group, Inc.,
9.31%, 3/25/27 1,082
3,000 Lincoln National Corp., 9.125%,
10/1/04 3,389
------------
8,298
------------
METALS & MINING--1.1%
1,500 Barrick Gold Corp., 7.50%,
5/1/07 1,580
------------
PACKAGING & CONTAINERS--1.4%
2,000 Owens-Illinois Inc., 7.15%,
5/15/05 1,980
------------
PAPER & FOREST PRODUCTS--0.9%
1,350 Abitibi-Consolidated Inc., 7.40%,
4/1/18 1,306
------------
REAL ESTATE--4.7%
1,500 Chelsea GCA Realty Partners,
7.25%, 10/21/07 1,401
2,000 Price REIT, Inc. (The), 7.125%,
6/15/04 2,046
3,000 Spieker Properties Inc. MTN,
7.58%, 12/17/01 3,085
------------
6,532
------------
Principal Amount ($ in Thousands) Value
- --------------------------------------------------------------------------------
RETAIL (APPAREL)--1.5%
$2,000 Saks Inc., 7.25%, 12/1/04 $ 2,049
------------
STEEL--1.1%
1,600 Pohang Iron & Steel Co., Ltd.,
7.375%, 5/15/05 1,573
------------
TELEPHONE COMMUNICATIONS--7.2%
2,000 Cable & Wireless Communications
plc, 6.375%, 3/6/03 2,010
1,350 Cable & Wireless Communications
plc, 6.625%, 3/6/05 1,361
2,000 GTE North Inc., Series H, 5.65%,
11/15/08 1,912
2,000 MCI WorldCom, Inc., 6.40%,
8/15/05 2,014
2,500 Qwest Communications
International Inc., 7.50%,
11/1/08 (Acquired
10/28/98-11/4/98,
Cost $2,499)(2) 2,626
------------
9,923
------------
UTILITIES--5.5%
2,000 CINergy Corp., 6.53%, 12/16/08
(Acquired 12/10/98,
Cost $2,015)(2) 1,997
1,500 Empresa Nacional de Electricidad
S.A. (Chile), 8.50%, 4/1/09
(Acquired 4/21/99,
Cost $1,617)(2) 1,614
2,000 Georgia Power Co., 5.50%,
12/1/05 1,937
2,000 Southern Investments UK, 6.80%,
12/1/06 2,017
------------
7,565
------------
WIRELESS COMMUNICATIONS--2.2%
2,500 TCI Communications, Inc., 8.75%,
8/1/15 3,022
------------
TOTAL CORPORATE BONDS 97,742
------------
(Cost $101,098)
TEMPORARY CASH INVESTMENTS--1.9%
Repurchase Agreement, BA Security Services,
Inc. (U.S. Treasury obligations), in a joint
trading account at 4.80%, dated 4/30/99,
due 5/3/99 (Delivery value $2,623) 2,622
------------
(Cost $2,622)
TOTAL INVESTMENT SECURITIES--100% $138,492
============
(Cost $138,504)
See Notes to Financial Statements
22 1-800-345-2021
Bond--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
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 April 30, 1999, was $12,359,
which represented 8.8% of net assets.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
* the percentage of investments in each industry, as applicable
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
www.americancentury.com 23
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
APRIL 30, 1999 (UNAUDITED) INTERMEDIATE
LIMITED-TERM -TERM BOND
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of
$19,936, $33,029 and $138,504,
<S> <C> <C> <C>
respectively) (Note 3) .......... $ 19,997 $ 32,987 $ 138,492
Cash .............................. -- 44 2
Receivable for investments sold ... -- -- 19
Interest receivable ............... 287 566 2,502
------------- ------------- -------------
20,284 33,597 141,015
------------- ------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ............. -- -- 231
Payable for capital shares redeemed -- -- 127
Accrued management fees (Note 2) .. 11 20 93
Distribution and service fees
payable (Note 2) ................ -- 2 1
Dividends payable ................. 2 3 7
------------- ------------- -------------
13 25 459
------------- ------------- -------------
Net Assets ........................ $ 20,271 $ 33,572 $ 140,556
============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid
in surplus) ..................... $ 20,203 $ 33,540 $ 139,877
Accumulated undistributed
net realized gain
on investment transactions ...... 7 74 691
Net unrealized appreciation
(depreciation)
on investments (Note 3) ......... 61 (42) (12)
------------- ------------- -------------
$ 20,271 $ 33,572 $ 140,556
============= ============= =============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets ........................ $ 19,178,861 $ 28,975,251 $ 138,270,159
Shares outstanding ................ 1,934,778 2,899,738 14,552,443
Net asset value per share ......... $ 9.91 $ 9.99 $ 9.50
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ........................ $ 1,092,356 $ 4,597,038 $ 2,286,296
Shares outstanding ................ 110,197 460,055 240,616
Net asset value per share ......... $ 9.91 $ 9.99 $ 9.50
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
24 1-800-345-2021
Statements of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
INTERMEDIATE
LIMITED-TERM -TERM BOND
INVESTMENT INCOME (In Thousands)
Income:
Interest ................................ $ 583 $ 978 $ 4,646
------- ------- -------
Expenses (Note 2):
Management fees ......................... 67 114 568
Distribution fees -- Advisor Class ...... 1 5 3
Service fees -- Advisor Class ........... 1 5 3
Directors' fees and expenses ............ -- -- 1
------- ------- -------
69 124 575
------- ------- -------
Net investment income ................... 514 854 4,071
------- ------- -------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments ........ 7 80 738
Change in net unrealized
appreciation on investments ........... (182) (640) (4,767)
------- ------- -------
Net realized and unrealized
loss on investments ................... (175) (560) (4,029)
------- ------- -------
Net Increase in Net Assets
Resulting from Operations ............. $ 339 $ 294 $ 42
======= ======= =======
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks down how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses.It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 25
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED) AND YEAR ENDED OCTOBER 31, 1998
Increase (Decrease) in Net Assets LIMITED-TERM INTERMEDIATE-TERM BOND
1999 1998 1999 1998 1999 1998
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........... $ 514 $ 1,053 $ 854 $ 1,365 $ 4,071 $ 8,072
Net realized gain on
investments ................... 7 92 80 179 738 47
Change in net unrealized
appreciation on investments ... (182) 115 (640) 206 (4,767) 699
--------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations ..... 339 1,260 294 1,750 42 8,818
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Investor Class ................ (488) (1,026) (755) (1,219) (4,009) (7,993)
Advisor Class ................. (26) (27) (99) (146) (62) (79)
From net realized gains
on investment transactions:
Investor Class ................ (87) (28) (177) -- (68) (368)
Advisor Class ................. (5) -- (22) -- (1) (1)
--------- --------- --------- --------- --------- ---------
Decrease in net assets
from distributions ............ (606) (1,081) (1,053) (1,365) (4,140) (8,441)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions ............ 854 4,236 4,384 9,419 (2,995) 20,229
--------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net assets ................ 587 4,415 3,625 9,804 (7,093) 20,606
NET ASSETS
Beginning of period ............. 19,684 15,269 29,947 20,143 147,649 127,043
--------- --------- --------- --------- --------- ---------
End of period ................... $ 20,271 $ 19,684 $ 33,572 $ 29,947 $ 140,556 $ 147,649
========= ========= ========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each 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--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
26 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. 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' investment objective is to seek income by investing in bonds and other
debt obligations. 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. The following significant accounting policies are in
accordance with generally accepted accounting principles; these principles may
require the use of estimates by fund management.
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 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.
www.americancentury.com 27
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the funds with investment advisory and management services in exchange
for a single, unified management fee per class. 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 six months ended April 30, 1999 for Limited-Term,
Intermediate-Term and Bond were $2,567, $9,508 and $5,700, 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 six
months ended April 30, 1999, were as follows:
<TABLE>
LIMITED-TERM INTERMEDIATE-TERM BOND
PURCHASES (In Thousands)
<S> <C> <C> <C>
U.S. Treasury & Agency Obligations .... $3,113 $ 7,204 $24,902
Other Debt Obligations ................ 4,979 14,394 58,572
PROCEEDS FROM SALES (In Thousands)
U.S. Treasury & Agency Obligations .... $5,227 $9,066 $32,626
Other Debt Obligations ................ 3,704 9,060 56,304
On April 30, 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 .......................... $101 $276 $1,831
Depreciation .......................... (40) (324) (1,889)
--------------- ----------------- --------------
Net ................................... $61 $(48) $(58)
=============== ================= ==============
Federal Tax Cost ...................... $19,936 $33,035 $138,550
=============== ================= ==============
</TABLE>
28 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
<TABLE>
Transactions in shares of the funds were as follows:
LIMITED-TERM INTERMEDIATE-TERM BOND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Shares authorized ............. 150,000 150,000 150,000
========= ========= =========
Six months ended
April 30, 1999
Sold .......................... 246 $2,446 820 $8,271 3,102 $30,028
Issued in reinvestment
of distributions ............ 51 511 83 841 396 3,817
Redeemed ...................... (237) (2,364) (621) (6,267) (3,839) (37,040)
--------- --------- --------- ---------- --------- ----------
Net increase (decrease) ....... 60 $593 282 $2,845 (341) $(3,195)
========= ========= ========= ========== ========= ==========
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
========= ========= =========
Six months ended
April 30, 1999
Sold .......................... 35 $349 215 $2,170 80 $774
Issued in reinvestment
of distributions ............ 3 28 11 114 7 62
Redeemed ...................... (12) (116) (74) (745) (66) (636)
--------- --------- --------- ---------- --------- ----------
Net increase .................. 26 $261 152 $1,539 21 $200
========= ========= ========= ========== ========= ==========
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
========= ========= ========= ========== ========= ==========
</TABLE>
(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.
www.americancentury.com 29
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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 April 30,
1999.
- --------------------------------------------------------------------------------
6. FUND EVENTS
The following name changes became effective March 1, 1999:
==================================================================
NEW NAME FORMER NAME
==================================================================
FUND: Limited-Term Bond Fund American Century - Benham Limited-Term
Bond Fund
FUND: Intermediate-Term American Century - Benham
Bond Fund Intermediate-Term Bond Fund
FUND: Bond Fund American Century - Benham Bond Fund
30 1-800-345-2021
Limited-Term Bond--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1998 1997 1996 1995 1994(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................. $10.05 $9.98 $9.93 $9.96 $9.68 $10.00
---------- -------- -------- -------- -------- ----------
Income From Investment Operations
Net Investment Income .............. 0.26 0.55 0.56 0.56 0.56 0.31
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.09) 0.08 0.05 (0.03) 0.28 (0.32)
---------- -------- -------- -------- -------- ----------
Total From Investment Operations ... 0.17 0.63 0.61 0.53 0.84 (0.01)
---------- -------- -------- -------- -------- ----------
Distributions
From Net Investment Income ......... (0.26) (0.55) (0.56) (0.56) (0.56) (0.31)
From Net Realized Gains on
Investment Transactions ............ (0.05) (0.01) -- -- -- --
---------- -------- -------- -------- -------- ----------
Total Distributions ................ (0.31) (0.56) (0.56) (0.56) (0.56) (0.31)
---------- -------- -------- -------- -------- ----------
Net Asset Value, End of Period ....... $9.91 $10.05 $9.98 $9.93 $9.96 $9.68
========== ======== ======== ======== ======== ==========
Total Return(3) .................... 1.72% 6.58% 6.30% 5.48% 8.89% (0.08)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.70%(4) 0.70% 0.69% 0.68% 0.69% 0.70%(4)
Ratio of Net Investment Income
to Average Net Assets ................ 5.32%(4) 5.56% 5.63% 5.63% 5.70% 4.79%(4)
Portfolio Turnover Rate .............. 44% 97% 109% 121% 116% 48%
Net Assets, End of Period
(in thousands) ....................... $19,179 $18,838 $15,269 $8,092 $7,193 $4,375
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) March 1, 1994 (inception) through October 31, 1994.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 31
Limited-Term Bond--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
Advisor Class
1999(1) 1998(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period .......... $10.05 $9.97
---------- ----------
Income From Investment Operations
Net Investment Income ....................... 0.25 0.51
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .......... (0.09) 0.09
---------- ----------
Total From Investment Operations ............ 0.16 0.60
---------- ----------
Distributions
From Net Investment Income .................. (0.25) (0.51)
From Net Realized Gains on
Investment Transactions ..................... (0.05) (0.01)
---------- ----------
Total Distributions ......................... (0.30) (0.52)
---------- ----------
Net Asset Value, End of Period ................ $9.91 $10.05
========== ==========
Total Return(3) ............................. 1.60% 6.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......................... 0.95%(4) 0.95%(4)
Ratio of Net Investment Income
to Average Net Assets ......................... 5.07%(4) 5.26%(4)
Portfolio Turnover Rate ....................... 44% 97%
Net Assets, End of Period
(in thousands) ................................ $1,092 $845
(1) Six months ended April 30, 1999 (unaudited).
(2) November 12, 1997 (commencement of sale) through October 31, 1998.
(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
32 1-800-345-2021
Intermediate-Term Bond--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1998 1997 1996 1995 1994(2)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................. $10.24 $10.07 $9.91 $10.07 $9.53 $10.00
--------- -------- -------- -------- -------- ---------
Income From Investment Operations
Net Investment Income .............. 0.27 0.58 0.59 0.58 0.59 0.34
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.18) 0.17 0.16 (0.06) 0.54 (0.47)
--------- -------- -------- -------- -------- ---------
Total From Investment Operations ... 0.09 0.75 0.75 0.52 1.13 (0.13)
--------- -------- -------- -------- -------- ---------
Distributions
From Net Investment Income ......... (0.27) (0.58) (0.59) (0.58) (0.59) (0.34)
From Net Realized Gains on
Investment Transactions ............ (0.07) -- -- (0.10) -- --
--------- -------- -------- -------- -------- ---------
Total Distributions ................ (0.34) (0.58) (0.59) (0.68) (0.59) (0.34)
--------- -------- -------- -------- -------- ---------
Net Asset Value, End of Period ....... $9.99 $10.24 $10.07 $9.91 $10.07 $9.53
========= ======== ======== ======== ======== =========
Total Return(3) .................... 0.87% 7.71% 7.87% 5.36% 12.19% (1.24)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................0.75%(4) 0.75% 0.75% 0.74% 0.74% 0.75%(4)
Ratio of Net Investment Income
to Average Net Assets ................5.43%(4) 5.73% 5.99% 5.90% 6.05% 5.23%(4)
Portfolio Turnover Rate .............. 60% 89% 99% 87% 133% 48%
Net Assets, End of Period
(in thousands) .......................$28,975 $26,797 $18,126 $15,626 $12,827 $4,262
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) March 1, 1994 (inception) through October 31, 1994.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 33
Intermediate-Term Bond--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $10.24 $10.07 $9.96
----------- ---------- -----------
Income From Investment Operations
Net Investment Income ...................... 0.26 0.56 0.12
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .......... (0.18) 0.17 0.11
----------- ---------- -----------
Total From Investment Operations ........... 0.08 0.73 0.23
----------- ---------- -----------
Distributions
From Net Investment Income ................. (0.26) (0.56) (0.12)
From Net Realized Gains on
Investment Transactions .................... (0.07) -- --
----------- ---------- -----------
Total Distributions ........................ (0.33) (0.56) (0.12)
----------- ---------- -----------
Net Asset Value, End of Period ............... $9.99 $10.24 $10.07
=========== ========== ===========
Total Return(3) ............................ 0.74% 7.44% 2.33%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........................ 1.00%(4) 1.00% 1.00%(4)
Ratio of Net Investment Income
to Average Net Assets ........................ 5.18%(4) 5.48% 6.05%(4)
Portfolio Turnover Rate ...................... 60% 89% 99%
Net Assets, End of Period
(in thousands) ............................... $4,597 $3,150 $2,017
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) August 14, 1997 (commencement of sale) through October 31, 1997.
(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
34 1-800-345-2021
Bond--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Investor Class
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................. $9.77 $9.73 $9.63 $9.78 $8.91 $10.21
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.27 0.57 0.60 0.60 0.61 0.58
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.27) 0.07 0.19 (0.14) 0.87 (1.12)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ... -- 0.64 0.79 0.46 1.48 (0.54)
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ......... (0.27) (0.57) (0.60) (0.60) (0.61) (0.58)
From Net Realized Gains on
Investment Transactions ............ --(2) (0.03) (0.09) (0.01) -- (0.18)
--------- --------- --------- --------- --------- ---------
Total Distributions ................ (0.27) (0.60) (0.69) (0.61) (0.61) (0.76)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ....... $9.50 $9.77 $9.73 $9.63 $9.78 $8.91
========= ========= ========= ========= ========= =========
Total Return(3) .................... 0.08% 6.79% 8.57% 4.91% 17.16% (5.47)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................0.80%(4) 0.80% 0.80% 0.79% 0.78% 0.88%
Ratio of Net Investment Income
to Average Net Assets ................5.71%(4) 5.87% 6.25% 6.18% 6.53% 6.07%
Portfolio Turnover Rate .............. 60% 66% 52% 100% 105% 78%
Net Assets, End of Period
(in thousands) .......................$138,270 $145,496 $126,580 $142,567 $149,223 $121,012
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 35
Bond--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
1999(1) 1998 1997(2)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $9.77 $9.73 $9.55
----------- ---------- ----------
Income From Investment Operations
Net Investment Income ....................... 0.26 0.55 0.13
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ........... (0.27) 0.07 0.18
----------- ---------- ----------
Total From Investment Operations ............ (0.01) 0.62 0.31
----------- ---------- ----------
Distributions
From Net Investment Income .................. (0.26) (0.55) (0.13)
From Net Realized Gains on
Investment Transactions ..................... --(3) (0.03) --
----------- ---------- ----------
Total Distributions ......................... (0.26) (0.58) (0.13)
----------- ---------- ----------
Net Asset Value, End of Period ................ $9.50 $9.77 $9.73
=========== ========== ==========
Total Return(4) ............................. (0.05)% 6.52% 3.27%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......................... 1.05%(5) 1.05% 1.05%(5)
Ratio of Net Investment Income
to Average Net Assets ......................... 5.46%(5) 5.62% 5.92%(5)
Portfolio Turnover Rate ....................... 60% 66% 52%
Net Assets, End of Period
(in thousands) ................................ $2,286 $2,141 $462
</TABLE>
(1) Six months ended April 30, 1999 (unaudited).
(2) August 8, 1997 (commencement of sale) through October 31, 1997.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(5) Annualized.
See Notes to Financial Statements
36 1-800-345-2021
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
Two classes of shares are authorized for sale by the funds: 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 roll over the amount you
withdraw to another tax-deferred account, the withholding rate still applies to
the withdrawn amount unless we have received a written notice not to withhold
federal income tax 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 37
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 fund 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 fund's 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.
38 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 31-36.
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
www.americancentury.com 39
Glossary
- --------------------------------------------------------------------------------
(Continued)
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).
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.
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 -- Equity Income
Conservative
===============================================================================
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
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 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]
[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
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
9906 Funds Distributor, Inc.
SH-BKT-16755 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
APRIL 30, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
- -----------------------
HIGH-YIELD
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
- --------------------------------------------------------------------------------
FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
HIGH-YIELD
(ABHIX)
- ------------------------------
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six months ended April 30, 1999, we witnessed a remarkable
reversal in the U.S. bond market. When we last addressed you in the annual
report for American Century High-Yield, investors were rushing out of the
high-yield bond market and into the relative safety and liquidity of U.S.
Treasury securities. Investors were spooked by global economic and financial
turmoil, which motivated the Federal Reserve (the U.S. central bank) to cut
short-term interest rates to bolster the U.S. economy and help stabilize markets
worldwide.
The Fed's actions helped turn things around. By January 1999, overseas
economies were stabilizing, the U.S. economy was posting strong growth, and
investor confidence had rebounded. As a result, investors moved out of Treasurys
and into stocks and higher-yielding bonds. While rising interest rates hurt most
U.S. bond returns in the first four months of 1999, high-yield corporate bonds
performed well. High-yield bonds benefited from good corporate health and strong
investor demand for high-yielding investments.
The year also started well for us. We continued to focus on making American
Century easier to do business with and helping investors reach their financial
goals. In March, we consolidated all our funds under the American Century name.
Though we are proud of the venerable Twentieth Century and Benham names, we
believe the change makes it simpler for you to identify your funds.
We also reclassified all 71 of our funds based on investment goals and risk
levels, so you can more easily choose the funds that are right for you. A
complete list of American Century funds, arranged by their new classifications,
is on the inside back cover of this report.
In addition, we've enhanced our Web site (at www.americancentury.com).
Among the new features are daily fund information--including return and price
data--market and national news, and a Forms Center with access to the
most-requested investor forms and applications. You can also sign up to receive
fund prospectuses and shareholder reports electronically.
Finally, to help you better understand your fund, we sent you a new
simplified prospectus in March. It provides information you need in clear,
straightforward language.
We want your experience with American Century to be rewarding, and we
appreciate your continued confidence in us.
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 Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Credit Review .......................................................... 4
HIGH-YIELD
Performance Information ................................................ 5
Management Q&A ......................................................... 6
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
OTHER INFORMATION
Retirement Account
Information ......................................................... 17
Background Information
Investment Philosophy
and Policies ..................................................... 18
Comparative Indices ................................................. 18
Lipper Rankings ..................................................... 18
Credit Rating
Guidelines ....................................................... 18
Investment Team
Leaders .......................................................... 18
Glossary ............................................................... 19
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* High-yield bonds posted impressive returns during the six months ended April
30, 1999, outpacing nearly all other types of fixed-income securities. The
DLJ High Yield Bond Index returned a noteworthy 10.04%.
* Toward the end of 1998, the global economic picture improved. That sparked
increased interest in economically sensitive securities such as cyclical
stocks and high-yield bonds.
* Global economies continued to stabilize during the first four months of
1999. As a result, "flight-to-quality" demand for Treasury bonds decreased,
while demand in the high-yield market rose.
* Signs of inflation began to appear toward the end of the first quarter. That
caused the Federal Reserve to change its stance on short-term interest
rates. Treasury bond yields rose and prices fell, but solid demand kept
high-yield bonds from experiencing similar losses.
CREDIT REVIEW
* Economic crises in emerging markets caused the global default rate on
high-yield debt to increase.
* In the U.S., the economy was largely unfazed by international developments.
As a result, domestic credit conditions remained generally sound.
* With the economy firing on all cylinders, corporate earnings remained
favorable, allowing companies to pay their debts and keeping the domestic
default rate under 3%.
* The defaults that occurred were largely a reflection of the increased
issuance of lower-quality high-yield bonds--securities that are either
unrated or rated lower than B-minus.
MANAGEMENT Q&A
* The fund performed very well, outpacing the return of the average high-yield
fund and reflecting the solid overall performance of the high-yield market.
* Our low exposure to health care and energy-related bonds and our emphasis on
telecommunications bonds were contributing factors to High-Yield's
performance.
* Although we made a few slight adjustments, the portfolio's average credit
rating remained steady at B.
* Although we continue to be impressed by the strength of the U.S. economy,
there are a number of issues that could spell trouble for the high-yield
securities market.
* Given our cautious outlook, we plan to position the portfolio defensively
for the near term.
[left margin]
HIGH-YIELD
(ABHIX)
TOTAL RETURNS: AS OF 4/30/99
6 Months 11.08%*
1 Year -1.03%
30-DAY SEC YIELD: 8.06%
INCEPTION DATE: 9/30/97
NET ASSETS: $46.4 million
* Not annualized.
See Total Returns on page 5.
Investment terms are defined in the Glossary on pages 19-20.
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
SOLID RETURNS
High-yield bonds posted impressive returns during the six months ended
April 30, 1999, outpacing nearly all other types of fixed-income securities. The
DLJ High Yield Bond Index returned a noteworthy 10.04%. Solid stock market gains
and renewed investor enthusiasm for domestic high-yield bonds were largely
responsible for that performance.
YIELD SPREADS NARROW
When the period began, high-yield bonds had just weathered a difficult
period. Global financial crises in Asia, Russia, and Latin America had sent
investors fleeing from high-yield bonds to the perceived safety of U.S. Treasury
bonds. As a result, the yield difference--or spread--between Treasurys and
high-yield bonds was at its widest level since 1991 (see the graph at right).
However, the situation improved in mid-November after the Federal Reserve
cut short-term interest rates three times. Investors realized that the U.S.
economy's eight-year expansion was still going strong, so they began to shift
into economically sensitive securities such as cyclical stocks and high-yield
bonds. This caused the yield spread between high-yield bonds and Treasurys to
shrink.
AN UPBEAT OUTLOOK
That narrowing trend continued during the first four months of 1999. Many
of the factors that had caused investors to favor Treasurys over high-yield
securities disappeared. Domestically, economic growth remained surprisingly
robust, which allowed corporate earnings to stay healthy. In addition, Asian and
Latin American economies began to improve. Although the devaluation of Brazil's
currency in January briefly resurrected concern over global credit conditions,
the effect on the high-yield market was short-lived. With global economies
stabilizing, "flight-to-quality" demand for Treasurys decreased, while demand in
the high-yield market rose.
THE FED SHIFTS ITS STANCE
Signs of inflation began to appear toward the end of the first quarter.
Satisfied that global economies had improved and concerned that economic growth
might be too strong, the Federal Reserve changed its policy toward short-term
interest rates. The Fed adopted a bias toward raising rates to slow the bustling
economy and keep inflation in check.
Treasury prices fell sharply and yields rose in the wake of that
announcement, but solid demand kept high-yield bonds from experiencing similar
losses. By the end of April, the difference in yield between high-yield bonds
and Treasurys had declined from 735 basis points (a basis point equals 0.01%) at
the start of the period to 537 basis points, much closer to where spreads have
historically been.
[right margin]
"BY THE END OF APRIL, THE DIFFERENCE IN YIELD BETWEEN HIGH-YIELD BONDS AND
TREASURYS HAD DECLINED FROM 735 BASIS POINTS AT THE START OF THE PERIOD TO 537
BASIS POINTS, MUCH CLOSER TO WHERE SPREADS HAVE HISTORICALLY BEEN."
[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
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
- --------------------------------------------------------------------------------
GLOBAL DEFAULT RATES ROSE
In spite of a solid performance by the U.S. high-yield market, credit
conditions worldwide took a turn for the worse. According to Moody's Investors
Service Inc., the global default rate on high-yield debt rose to 3.8% for the
year ended April 30, 1999, up from 3.4% in 1998 and 2% in 1997.
Much of that increase can be attributed to problems surrounding emerging
markets, which suffered last year amid a series of global crises that threatened
to choke off economic growth. To avoid the potential problems presented by
emerging-market bonds, High-Yield's portfolio remained concentrated in U.S.
holdings.
HEALTHY DOMESTIC GROWTH
In the U.S., the economy was largely unfazed by international developments
during the six months ended April 30. As a result, domestic credit conditions
remained generally sound. Buoyed by three short-term interest rate cuts by the
Federal Reserve, a historically low unemployment rate, and solid consumer
spending, the economy expanded at a surprisingly brisk 6% annual pace during the
final three months of 1998 and a robust 4.1% annual clip in the first quarter of
1999.
With the economy firing on all cylinders, corporate earnings remained
favorable, allowing companies to pay their debts and keeping the domestic
default rate under 3%.
LOWER-QUALITY ISSUERS STRUGGLED
The defaults that occurred in the U.S. were largely a reflection of the
increased issuance of lower-quality high-yield bonds--securities that are either
unrated or rated lower than B-minus.
In recent years, renewed investor enthusiasm for high-yield bonds brought a
surge of supply from small, lower-rated companies. In the past, such companies
were forced to seek financing through venture capital or other means. By the
late 1990s, however, solid U.S. economic growth and increased investor demand
made it increasingly easy for such companies to issue unrated or extremely
low-quality bonds.
In fact, over a quarter of the high-yield securities issued in 1998 were
unrated or rated lower than B-minus, the highest level since the late 1980s.
When these low-rated companies fail to meet their business plans, it is more
difficult for them to go back to the high-yield market for financing. As a
result, defaults among these riskier, lower-rated issuers increased.
CREDIT RESEARCH TEAM
We're proud to report that we've so far maintained a track record of zero
defaults for High-Yield's portfolio. We believe that's largely the result of our
credit-intensive approach to security selection--similar to the one used by
value stock managers--where we try to provide the best combination of total
return and risk. To do that, we rely on a team of seasoned credit analysts, who
we believe are able to find attractive securities in complex areas of the
market.
[left margin]
"WITH THE ECONOMY FIRING ON ALL CYLINDERS, CORPORATE EARNINGS REMAINED
FAVORABLE, ALLOWING COMPANIES TO PAY THEIR DEBTS AND KEEPING THE DOMESTIC
DEFAULT RATE UNDER 3%."
HIGH-YIELD CREDIT ANALYSIS TEAM
MICHAEL DIFLEY
LYNDA LOWRY
4 1-800-345-2021
High-Yield--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF APRIL 30, 1999
DLJ HIGH YIELD HIGH CURRENT YIELD FUNDS(2)
HIGH-YIELD INDEX AVERAGE RETURN FUND'S RANKING
6 MONTHS(1) ......... 11.08% 10.04% 10.17% --
1 YEAR .............. -1.03% 1.18% -0.03% 172 OUT OF 269
===============================================================================
AVERAGE ANNUAL RETURNS
===============================================================================
LIFE OF FUND ........ 3.84% 4.37% 3.16% 117 OUT OF 225
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 18-19 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 4/30/99
DLJ High Yield Index $10,699
High-Yield $10,615
High-Yield DLJ High Yield Index
DATE VALUE VALUE
9/30/97 $10,000 $10,000
10/31/97 $9,963 $9,987
11/30/97 $10,044 $10,073
12/31/97 $10,174 $10,173
1/31/98 $10,437 $10,330
2/28/98 $10,491 $10,412
3/31/98 $10,667 $10,529
4/30/98 $10,718 $10,574
5/31/98 $10,729 $10,583
6/30/98 $10,717 $10,595
7/31/98 $10,781 $10,678
8/31/98 $10,097 $9,953
9/30/98 $9,947 $9,929
10/31/98 $9,548 $9,723
11/30/98 $10,144 $10,269
12/31/98 $10,044 $10,228
1/31/99 $10,210 $10,368
2/28/99 $10,209 $10,313
3/31/99 $10,409 $10,452
4/30/99 $10,615 $10,699
$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
4/30/99 10/31/98
NUMBER OF SECURITIES 85 65
WEIGHTED AVERAGE
MATURITY 7.4 YRS 7.0 YRS
AVERAGE DURATION 4.8 YRS 5.5 YRS
EXPENSE RATIO 0.90%* 0.90%
YIELD AS OF APRIL 30, 1999
30-DAY SEC YIELD 8.06%
* Annualized.
Investment terms are defined in the Glossary on pages 19-20.
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 HIGH-YIELD PERFORM DURING THE SIX MONTHS ENDED APRIL 30, 1999?
The fund performed very well, outpacing the return of the average
high-yield fund and reflecting the solid overall performance of the high-yield
market. For the six months, High-Yield returned 11.08%. That's better than the
10.04% gain of the DLJ High Yield Index and the 10.17% average return of the 304
"High Current Yield Funds" tracked by Lipper Inc. (See the previous page for
other performance comparisons.)
WHAT LED TO HIGH-YIELD'S SOLID PERFORMANCE?
Our low exposure to health care and energy-related bonds and our emphasis
on telecommunications bonds were contributing factors. Nursing homes across the
nation have come under competitive pressure to cut costs because of lower
Medicare reimbursements. We largely avoided these bonds, which performed poorly.
Energy issues also struggled. Crude oil prices fell to a 12-year low toward
the end of 1998 amid increased OPEC production and shrinking demand from Asian
economies. In addition, a relatively mild winter in the Western Hemisphere
reduced energy demand. The overall result was a lackluster performance by
energy-related bonds, although that performance improved toward the end of the
six months thanks to production cuts by OPEC that boosted oil prices.
Our continued emphasis on telecommunications bonds also helped performance.
Telecommunications companies rebounded sharply during the first quarter of 1999,
benefiting from many of the same factors that have fueled the sector's solid
performance in recent years--deregulation, merger activity, and the Internet
Revolution.
BESIDES TELECOMMUNICATIONS, WERE THERE ANY OTHER AREAS OF THE MARKET THAT YOU
FAVORED?
Yes, we also liked broadcasting and media issues. Cable operators are
starting to make serious inroads toward providing digital lines. Over time,
cable companies aim to give consumers an overall package that includes Internet,
phone, and video hookups.
Those steps would allow the cable operators to compete with regional Bell
phone companies, which are developing their own packages. In this sector, we
liked Avalon Cable Television, Charter Communications, and NTL Inc. in the U.K.
[left margin]
"ALTHOUGH WE MADE A FEW SLIGHT ADJUSTMENTS, THE PORTFOLIO'S AVERAGE CREDIT
RATING REMAINED STEADY AT B."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
4/30/99 10/31/98
AAA 5% 8%
BB 17% 13%
B 59% 67%
CCC 4% 1%
UNRATED 15% 11%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 18
for more information.
6 1-800-345-2021
High-Yield--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT ABOUT HIGH-YIELD'S OVERALL CREDIT QUALITY?
Although a few slight adjustments were made, the portfolio's average credit
rating remained steady at B. We added a slight credit barbell, which means that
we put a small portion of assets in high-quality, cash-equivalent investments
and some in low-quality securities rated CCC.
The short-term cash position provided two benefits: (1) it allowed us to
add attractively priced securities when they became available while meeting the
fund's periodic liquidity needs, and (2) it cushioned the fund against market
volatility. On the opposite end of the investment spectrum, the lower-quality
securities that we added to the portfolio enhanced the fund's yield and total
return.
Adding the credit barbell also caused a slight reduction in the fund's
duration (a measure of the portfolio's sensitivity to interest rate changes),
which fell from 5.5 years at the end of October '98 to 4.8 years at the end of
April.
LOOKING FORWARD, WHAT DO YOU SEE IN STORE FOR THE HIGH-YIELD BOND MARKET?
Although we continue to be impressed by the strength of the U.S. economy,
there are a number of issues that could spell trouble for the high-yield
securities market.
The potential for inflation to accelerate is one concern. Overall consumer
prices rose 0.7% in April, the largest monthly increase in nearly nine years.
About half of the increase was attributed to soaring gasoline prices; however,
every other component of the consumer price index also rose. Even though one
month's figures don't make a trend, they do raise some concerns going forward.
Another concern is the potential computer problems associated with the year
2000. If investors begin to feel uneasy about the outlook for global economies
to safely weather the event, "flight-to-quality" demand for the relative safety
and liquidity of U.S. Treasury bonds could resurface at the expense of
lower-quality debt such as high-yield bonds.
We also believe that the slight increase in domestic defaults in the
high-yield market bears watching.
Of course, there's always a chance that inflation will remain tame,
Treasury yields will remain in a range close to current levels, and the yield
difference between high-yield securities and Treasurys will continue to
decrease; we just don't think that's the most likely scenario.
WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
Given our cautious outlook, we plan to position the portfolio defensively
until we're convinced that some of the unfavorable factors we've outlined have
worked themselves out of the market. For now, we will probably maintain a fairly
large position in telecommunications bonds, which represent the largest portion
of the high-yield market. We also intend to keep the fund's duration relatively
neutral compared with our Lipper peers and will probably keep a slight credit
barbell on the fund.
[right margin]
"ALTHOUGH WE CONTINUE TO BE IMPRESSED BY THE STRENGTH OF THE U.S. ECONOMY, THERE
ARE A NUMBER OF ISSUES THAT COULD SPELL TROUBLE FOR THE HIGH-YIELD SECURITIES
MARKET."
TOP FIVE INDUSTRIES (AS OF 4/30/99)
% OF FUND INVESTMENTS
TELEPHONE COMMUNICATIONS 13.5%
BUSINESS SERVICES & SUPPLIES 9.9%
BROADCASTING & MEDIA 6.9%
COMPUTER SOFTWARE & SERVICES 6.5%
WIRELESS COMMUNICATIONS 5.8%
TOP FIVE INDUSTRIES (AS OF 10/31/98)
% OF FUND INVESTMENTS
TELEPHONE COMMUNICATIONS 11.5%
WIRELESS COMMUNICATIONS 8.8%
ENERGY (PRODUCTION &
MARKETING) 8.2%
MACHINERY & EQUIPMENT 6.8%
PAPER & FOREST PRODUCTS 6.2%
www.americancentury.com 7
High-Yield--Schedule of Investments
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS--91.2%
AUTOMOBILES & AUTO PARTS--0.5%
$ 250,000 Dura Operating Corp., 9.00%,
5/1/09 (Acquired 4/15/99,
Cost $250,000)(1) $ 255,625
-------------
BANKING--2.8%
750,000 Bay View Capital Corp., 9.125%,
8/15/02 714,375
790,000 Ocwen Capital Trust I, 10.875%,
8/1/27 612,250
-------------
1,326,625
-------------
BROADCASTING & MEDIA--6.9%
250,000 Avalon Cable of Michigan, 9.375%,
12/1/08 (Acquired 12/4/98,
Cost $250,000)(1) 265,625
1,000,000 Charter Communication Holdings
LLC, 9.92%, 4/1/11 (Acquired
3/12/99, Cost $613,940)(1)(2) 660,000
750,000 Imax Corp., 7.875%, 12/1/05 748,125
500,000 Intermedia Capital Partners,
11.25%, 8/1/06 565,000
500,000 Intl. Cabletel Inc., 11.50%,
2/1/06(2) 440,625
750,000 RCN Corp., 11.125%,
10/15/07(2) 523,125
-------------
3,202,500
-------------
BUSINESS SERVICES & SUPPLIES--9.9%
500,000 Diamond Triumph Auto, 9.25%,
4/1/08 (Acquired
3/25/98-11/9/98, Cost
$498,125)(1) 505,000
500,000 Donnelly (R.H.) Corp., 9.125%,
6/1/08 531,875
500,000 Group Maintenance America,
9.75%, 1/15/09 (Acquired
1/19/99, Cost $500,000)(1) 511,250
500,000 Integrated Electric Services,
9.375%, 2/1/09 (Acquired
1/25/99, Cost $496,000)(1) 507,500
500,000 Intertek Finance PLC, Series B,
10.25%, 11/1/06 496,250
500,000 NationsRents, Inc., 10.375%,
12/15/08 522,500
500,000 Unicco Service/Finance,
Series B, 9.875%, 10/15/07 501,250
1,000,000 United Rentals, Inc., Series B,
9.50%, 6/1/08 1,025,000
-------------
4,600,625
-------------
CHEMICALS & RESINS--3.9%
500,000 Borden Chemicals & Plastics
Limited Partnership, 9.50%,
5/1/05 505,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 500,000 Octel Developments PLC,
10.00%, 5/1/06 $ 524,375
750,000 Scotts Company, 8.675%,
1/15/09 (Acquired 1/14/99,
Cost $750,000)(1) 780,000
-------------
1,809,375
-------------
COMMUNICATIONS EQUIPMENT--0.8%
500,000 Telehub Communications Corp.,
13.875%, 7/31/05(2) 360,000
-------------
COMPUTER SOFTWARE & SERVICES--5.8%
1,000,000 ICG Services Inc., 10.00%,
2/15/08(2) 635,000
500,000 PSINet Inc., Series B, 10.00%,
2/15/05 (Acquired 4/15/99,
Cost $535,000)(1) 525,000
1,000,000 Rhythms NetConnections,
12.75%, 4/15/09 (Acquired
4/16/99, Cost $1,000,000)(1) 1,000,000
500,000 Verio Inc., 10.375%, 4/1/05 536,250
-------------
2,696,250
-------------
CONSTRUCTION & PROPERTY
DEVELOPMENT--2.1%
1,000,000 Toll Corp., 8.00%, 5/1/09 1,000,000
-------------
ELECTRICAL & ELECTRONIC
COMPONENTS--3.9%
500,000 Flextronics Intl. Ltd., Series B,
8.75%, 10/15/07 520,000
250,000 International Utility Structures Inc.,
10.75%, 2/1/08 256,250
500,000 MCMS, Inc., Series B, 9.75%,
3/1/08 310,000
750,000 Trench Electric & Trench Inc.,
10.25%, 12/15/07 723,750
-------------
1,810,000
-------------
ENERGY (PRODUCTION &
MARKETING)--3.8%
320,000 Belco Oil & Gas Corp., Series B,
10.50%, 4/1/06 331,200
500,000 Ocean Energy, Inc., Series B,
8.875%, 7/15/07 516,250
500,000 Range Resources Corp., 8.75%,
1/15/07 420,000
500,000 Snyder Oil Corp., 8.75%,
6/15/07 506,250
-------------
1,773,700
-------------
ENERGY (SERVICES)--1.1%
250,000 Trico Marine Services, Inc.,
Series G, 8.50%, 8/1/05 220,625
500,000 Universal Compression Inc.,
9.875%, 2/15/08(2) 315,000
-------------
535,625
-------------
See Notes to Financial Statements
8 1-800-345-2021
High-Yield--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES--1.2%
$1,000,000 Envirosource, Inc., 9.75%,
6/15/03 $ 580,000
-------------
FINANCIAL SERVICES--3.5%
750,000 AMRESCO, INC., Series 1998 A,
9.875%, 3/15/05 615,000
750,000 Metris Companies Inc., 10.00%,
11/1/04 772,500
500,000 Nationwide Credit, Inc., Series A,
10.25%, 1/15/08 267,500
-------------
1,655,000
-------------
HEALTHCARE--0.5%
250,000 Magellan Health Services, 9.00%,
2/15/08 211,250
-------------
INDUSTRIAL--1.7%
750,000 Park-Ohio Industries, Inc., 9.25%,
12/1/07 776,250
-------------
LEISURE--5.3%
500,000 Circus Circus Enterprises, Inc.,
7.625%, 7/15/13 476,250
1,000,000 Isle of Capri Casinos, Inc., 8.75%,
4/15/09 (Acquired 4/20/99,
cost $1,000,000)(1) 997,500
500,000 Park Place Entertainment, 7.875%,
12/15/05 493,750
500,000 SFX Entertainment, Inc., 9.125%,
12/1/08 (Acquired 4/28/99,
Cost $517,500)(1) 518,750
-------------
2,486,250
-------------
MACHINERY & EQUIPMENT--1.0%
500,000 Key Components, Inc., 10.50%,
6/1/08 481,250
-------------
METALS & MINING--1.1%
500,000 Golden Northwest Aluminum,
12.00%, 12/15/06 (Acquired
12/14/98, Cost $500,000)(1) 516,250
-------------
PACKAGING & CONTAINERS--2.2%
750,000 Graham Packaging Co., Series B,
10.75%, 1/15/09(2) 525,000
500,000 Stone Container, 10.75%, 10/1/02 523,750
-------------
1,048,750
-------------
PAPER & FOREST PRODUCTS--4.8%
750,000 Ainsworth Lumber Co. Ltd., PIK,
12.50%, 7/15/07 834,375
500,000 Gaylord Container Corp., Series B,
9.75%, 6/15/07 482,500
500,000 Grupo Industrial Durango, S.A. de
C.V., 12.625%, 8/1/03 507,500
500,000 Repap New Brunswick, 10.625%,
4/15/05 415,000
-------------
2,239,375
-------------
Principal Amount Value
- --------------------------------------------------------------------------------
RESTAURANTS--1.1%
$ 500,000 Apple South Inc., 9.75%, 6/1/06 $ 502,500
-------------
RETAIL (GENERAL MERCHANDISE)--1.1%
500,000 Tuesday Morning Corp., Series B,
11.00%, 12/15/07 532,500
-------------
RETAIL (SPECIALTY)--3.2%
500,000 Musicland Group, 9.00%,
6/15/03 505,000
1,000,000 Sonic Automotive, Inc., Series B,
11.00%, 8/1/08 997,500
-------------
1,502,500
-------------
STEEL--1.1%
500,000 California Steel Industries, 8.50%,
4/1/09 (Acquired 3/31/99,
Cost $500,000)(1) 512,500
-------------
TELEPHONE COMMUNICATIONS--12.2%
750,000 21st Century Telecom Group,
12.25%, 2/15/08(2) 352,500
1,000,000 Allegiance Telecom Inc., Series B,
11.75%, 2/15/08(2) 673,750
1,000,000 DTI Holdings Inc., Series B,
12.50%, 3/1/08(2) 390,000
500,000 Global Crossing Holdings Ltd.,
9.625%, 5/15/08 560,000
1,000,000 GST USA, Inc., 10.59%,
12/15/05(2) 840,000
750,000 IDT Corp., 8.75%, 2/15/06 765,000
250,000 Intermedia Communications Inc.,
9.56%, 7/15/02(2) 189,375
250,000 Intermedia Communications Inc.,
9.50%, 3/1/09 (Acquired
2/19/99, Cost $248,878)(1) 260,000
500,000 Jazztel PLC, 14.00%, 4/1/09
(Acquired 3/31/99, Cost
$500,000)(1) 511,250
250,000 Microcell Telecommunications Inc.,
12.52%, 6/1/06(2) 211,875
500,000 Qwest Communications
International Inc., Series B,
7.44%, 2/1/03(2) 401,250
500,000 RSL Communications PLC,
10.50%, 11/15/08 522,500
-------------
5,677,500
-------------
TEXTILES & APPAREL--2.2%
500,000 Delta Mills, Inc., Series B, 9.625%,
9/1/07 503,750
500,000 Supreme International Corp.,
12.25%, 4/1/06 (Acquired
3/31/99, Cost $494,260)(1) 507,500
-------------
1,011,250
-------------
TRANSPORTATION--1.7%
750,000 Atlas Air, Inc., 10.75%, 8/1/05 789,375
-------------
See Notes to Financial Statements
www.americancentury.com 9
High-Yield--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
Principal Amount/Shares Value
- --------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS--5.8%
$ 250,000 Metrocall, Inc., 10.375%,
10/1/07 $ 216,875
1,000,000 NEXTEL Communications, Inc.,
10.11%, 8/15/04(2) 1,045,000
750,000 Orange plc, 8.00%, 8/1/08 772,500
500,000 Paging Network, Inc., 10.00%,
10/15/08 410,000
500,000 Telesystem International Wireless
Inc., Series C, 10.50%,
11/1/07(2) 275,000
-------------
2,719,375
-------------
TOTAL CORPORATE BONDS 42,612,200
-------------
(Cost $43,830,711)
PREFERRED STOCKS & WARRANTS--2.0%
COMPUTER SOFTWARE & SERVICES--0.7%
282 Concentric Network Corp., PIK,
13.50% 320,775
-------------
Principal Amount/Shares Value
- --------------------------------------------------------------------------------
TELEPHONE COMMUNICATIONS--1.3%
1,000 Allegiance Telecom Inc. Warrants $ 38,126
5,000 DTI Holdings Inc. Warrants 600
5,000 Global Crossing Holdings Ltd.,
PIK, 10.50% 581,250
-------------
619,976
-------------
TOTAL PREFERRED STOCKS & WARRANTS 940,751
-------------
(Cost $738,562)
TEMPORARY CASH INVESTMENTS--6.8%
$ 864,000 FHLB Discount Notes, 4.90%,
5/3/99(3) 864,000
Repurchse Agreement, BA Security Services,
Inc., (U.S. Treasury obligations), in a joint
trading account at 4.80%, dated 4/30/99,
due 5/3/99 (Delivery value $2,300,920) 2,300,000
-------------
TOTAL TEMPORARY CASH INVESTMENTS 3,164,000
-------------
(Cost $3,163,765)
TOTAL INVESTMENT SECURITIES--100.0% $46,716,951
=============
(Cost $47,733,038)
NOTES TO SCHEDULE OF INVESTMENTS
PIK = Payment in Kind. Coupon payments may be in the form of additional
securities.
FHLB = Federal Home Loan Bank
(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 April 30, 1999, was $8,833,750,
which represented 19.0% of net assets. None of these securities are
considered to be illiquid.
(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) Rate disclosed is the yield to maturity at purchase.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments the fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal (dollar) amount of each bond or the number of shares of each
stock
* the market value of each investment
* the percentage of total investments in each industry
* the percent and dollar breakdown of each investment category
See Notes to Financial Statements
10 1-800-345-2021
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $47,733,038)
(Note 3) .............................................. $ 46,716,951
Interest receivable ..................................... 893,655
-------------
47,610,606
-------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................................ 88,149
Payable for investments purchased ....................... 1,042,920
Accrued management fees (Note 2) ........................ 34,002
Dividends payable ....................................... 4,405
Other liabilities ....................................... 84
-------------
1,169,560
-------------
Net Assets .............................................. $ 46,441,046
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized -- Investor Class ............................ 200,000,000
=============
Outstanding -- Investor Class ........................... 5,006,630
=============
Net Asset Value Per Share ............................... $ 9.28
=============
NET ASSETS CONSIST OF:
Capital (par value and paid in surplus) ................. $ 48,832,008
Accumulated net realized loss on
investment transactions ............................... (1,374,875)
Net unrealized depreciation
on investments (Note 3) ............................... (1,016,087)
-------------
$ 46,441,046
=============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
gains earned but not yet paid out to shareholders or net losses on investment
activity (known as realized gains or losses); and gains or losses on securities
still owned by the fund (known as unrealized appreciation or depreciation). This
breakdown tells you the value of net assets that are performance-related, such
as investment gains or losses, and the value of net assets that are not related
to performance, such as shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 11
Statement of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ................................................. $ 1,922,886
-----------
Expenses (Note 2):
Management fees .......................................... 180,257
Directors' fees and expenses ............................. 146
-----------
180,403
-----------
Net investment income .................................... 1,742,483
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized loss on investments ......................... (1,368,217)
Change in net unrealized
depreciation on investments ............................ 3,774,763
-----------
Net realized and unrealized
gain on investments .................................... 2,406,546
-----------
Net Increase in Net Assets
Resulting from Operations .............................. $ 4,149,029
===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENT OF OPERATIONS--This statement breaks down how the
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* interest income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
12 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED) AND YEAR ENDED OCTOBER 31, 1998
Increase in Net Assets: 1999 1998
OPERATIONS
Net investment income ...................... $ 1,742,483 $ 2,291,261
Net realized gain (loss) on investments .... (1,368,217) 29,979
Change in net unrealized
depreciation on investments .............. 3,774,763 (4,679,178)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................ 4,149,029 (2,357,938)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (1,742,483) (2,291,261)
From net realized gains on
investment transactions .................. (36,637) --
------------ ------------
Decrease in net assets
from distributions ....................... (1,779,120) (2,291,261)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 37,903,694 59,205,875
Proceeds from reinvestment
of distributions ......................... 1,432,925 1,965,445
Payments for shares redeemed ............... (27,494,415) (35,365,180)
------------ ------------
Net increase in net assets
from capital share transactions .......... 11,842,204 25,806,140
------------ ------------
Net increase in net assets ................. 14,212,113 21,156,941
NET ASSETS
Beginning of period ........................ 32,228,933 11,071,992
------------ ------------
End of period .............................. $ 46,441,046 $ 32,228,933
============ ============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ....................................... 4,169,558 5,938,245
Issued in reinvestment of distributions .... 156,757 200,982
Redeemed ................................... (3,012,015) (3,564,707)
------------ ------------
Net increase ............................... 1,314,300 2,574,520
============ ============
- --------------------------------------------------------------------------------
UNDERSTANDING THE 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--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 13
Notes to Financial Statements
- --------------------------------------------------------------------------------
APRIL 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- American Century Mutual Funds, Inc. (the corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. High-Yield Fund (the fund) is one of the thirteen
series of funds issued by the corporation. 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 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 the report
date. The following significant accounting policies are in accordance with
generally accepted accounting principles; these principles may require the use
of estimates by fund management.
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 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.
14 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM that
provides the fund with investment advisory and management services in exchange
for a single, unified management fee per class. The Agreement provides that all
expenses of the fund, except brokerage commissions, taxes, interest, expenses of
those directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will 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%.
The Board of Directors 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 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.
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, were
$24,008,003 and $11,861,760, respectively.
As of April 30, 1999, accumulated net unrealized depreciation was
$1,022,012, based on the aggregate cost of investments for federal income tax
purposes of $47,738,963, which consisted of unrealized appreciation of
$1,102,534 and unrealized depreciation of $2,124,546.
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the fund, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The fund may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The fund did
not borrow from the line during the period December 18, 1998 through April 30,
1999.
- --------------------------------------------------------------------------------
5. FUND EVENTS
The following name change became effective March 1, 1999:
==================================================================
NEW NAME FORMER NAME
==================================================================
Fund: High-Yield Fund American Century - Benham
High-Yield Fund
www.americancentury.com 15
High-Yield--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
1999(1) 1998 1997(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period ...$ 8.73 $ 9.91 $ 10.00
---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................ 0.40 0.83 0.06
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... 0.56 (1.18) (0.09)
---------- ---------- ----------
Total From Investment Operations ....... 0.96 (0.35) (0.03)
---------- ---------- ----------
Distributions
From Net Investment Income ........... (0.40) (0.83) (0.06)
From Net Realized Gains on
Investment Transactions .............. (0.01) -- --
---------- ---------- ----------
Total Distributions .................. (0.41) (0.83) (0.06)
---------- ---------- ----------
Net Asset Value, End of Period .........$ 9.28 $ 8.73 $ 9.91
========== ========== ==========
Total Return(3) ...................... 11.08% (4.09)% (0.27)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.90%(4) 0.90% 0.90%(4)
Ratio of Net Investment Income
to Average Net Assets .................. 8.70%(4) 8.41% 7.39%(4)
Portfolio Turnover Rate ................ 33% 85% --
Net Assets, End of Period
(in thousands) .........................$ 46,441 $ 32,229 $ 11,072
(1) Six months ended April 30, 1999 (unaudited).
(2) September 30, 1997 (inception) through October 31, 1997.
(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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years (or less, if the fund is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* distributions of income and capital gains paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced
See Notes to Financial Statements
16 1-800-345-2021
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)]
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 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 17
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 fund 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 fund's 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.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGER
THERESA FENNELL
HIGH-YIELD ANALYSTS
MICHAEL DIFLEY
LYNDA LOWRY
18 1-800-345-2021
Glossary
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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.
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.
www.americancentury.com 19
Glossary
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(Continued)
* 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,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* 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.
20 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 -- Equity Income
Conservative
===============================================================================
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
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 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]
[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
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
9906 Funds Distributor, Inc.
SH-BKT-16756 (c)1999 American Century Services Corporation
