[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
Select
Heritage
Growth
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American
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[left margin]
SELECT
(TWCIX)
--------------------------
HERITAGE
(TWHIX)
--------------------------
GROWTH
(TWCGX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr., and James E. Stowers III}
James E. Stowers, Jr., standing, with James E. Stowers III
The year covered in this report was among the more remarkable in the
market's recent history. Investors witnessed a stunning advance during the first
half, followed by a swift and dramatic retreat from record-breaking heights. The
reversal was the result of a convergence of several factors, among them concern
about a slowing economy, rising interest rates and richly priced technology
stocks. As our portfolio managers discuss in their investment reviews, we
believe that stock prices ultimately depend on earnings, and our growth funds
steadfastly follow a disciplined approach to find successful, growing companies.
We believe investors in our growth funds are best served by that philosophy, no
matter how volatile the market.
Turning to corporate matters, we are pleased to announce that senior vice
president and lead portfolio manager C. Kim Goodwin has been named co-chief
investment officer for American Century's domestic growth equity discipline. An
investment professional with 13 years of portfolio management experience,
Goodwin shares this chief investment officer position with Jim Stowers III. She
will continue to serve on the investment team for American Century Growth, a
fund she's co- managed since 1997.
In her new role, Goodwin manages the teams responsible for the Growth,
Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life Sciences and
Technology funds. She also joins the Investment Oversight Committee, a group of
senior executives who monitor the performance of the company's equity and fixed
income disciplines.
In other corporate news, we chose to share the chairman of the board
responsibilities and also named American Century President William M. Lyons
chief executive officer, giving him ultimate management responsibility for the
entire company.
These changes strengthen the leadership of our investment management area
and allow us to pursue additional worthwhile endeavors. For example, Jim Stowers
III will focus more on product innovation (in particular, our
earnings-acceleration screening system to build the next generation of portfolio
management technologies). However, his first priority will be continuing
involvement on the investment teams responsible for Ultra and Veedot Funds.
We appreciate your continued confidence in American Century.
Sincerely,
/signature/ /signature/
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman Co-Chairman of the Board
[right margin]
TABLE OF CONTENTS
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
SELECT
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Schedule of Investments ................................................ 8
HERITAGE
Performance Information ................................................ 11
Management Q&A ......................................................... 12
Schedule of Investments ................................................ 15
GROWTH
Performance Information ................................................ 18
Management Q&A ......................................................... 19
Schedule of Investments ................................................ 22
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 24
Statement of Operations ................................................ 25
Statement of Changes
in Net Assets ....................................................... 26
Notes to Financial
Statements .......................................................... 27
Financial Highlights ................................................... 31
Independent Auditors'
Report .............................................................. 40
Proxy Voting Results ................................................... 41
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 42
Background Information
Investment Philosophy
and Policies ..................................................... 43
Comparative Indices ................................................. 43
Portfolio Managers .................................................. 43
Glossary ............................................................... 44
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* 2000 has presented investors with two very different stock markets. Until
March 10, investors seemed interested only in "TMT" stocks--those of
technology, media, and telecommunications companies. Nasdaq sprinted ahead
24%, buoyed by corporate technology spending, a wave of foreign money
moving into U.S. stocks, and investor enthusiasm for any company with a
".com" at the end of its name.
* Since then, investors have been painfully reminded that earnings matter.
Equity valuations across technology have fallen, as evidenced by the
Nasdaq's 33% decline from its March high. A newfound focus on valuations
and earnings has resulted in a broadening of the market across company
size, style, and sector. That broadening, though, has been accompanied by
rising volatility.
SELECT
* Select returned 7.64% for the year ended October 31, 2000, outperforming its
benchmark, the S&P 500 Index, which gained 6.09%.
* The year was turbulent for large-cap growth funds. Volatility in the
technology sector, which accounts for approximately 30% of Select's
investments, was especially acute over the last half of the period.
* Despite tech volatility, the fund's holdings in Internet communications
equipment manufacturers and producers of data storage hardware contributed
to performance. Select also got a boost from its health care investments.
* Performance was restrained by individual holdings such as AT&T and Procter &
Gamble and by companies caught in the technology correction.
HERITAGE
* Heritage gained 62.61% for the year, nearly doubling the performance of its
benchmark, the S&P MidCap 400 Index, which returned 31.65%.
* Disappointed small- and large-cap investors moved into the mid-cap space where
they found attractive companies with stable business models and the
ability to produce consistent earnings.
* Good stock selection and timely decisions on industry weightings drove
Heritage's performance. Before the technology correction, the fund reduced
its tech position and increased its stakes in defensive oil services,
health care and financial stocks.
* Heritage was held back by a few technology and telecommunications equipment
holdings.
GROWTH
* Growth posted an 11.49% return for the period, outperforming its benchmark,
the Russell 1000 Growth Index, which gained 9.33%. The fund also outpaced
the S&P 500 Index, which returned 6.09%.
* Early in the reporting period, Growth thrived in an environment where
investors preferred technology stocks and little else. In mid-March,
investors savaged technology and then remained extremely sensitive to
earnings shortfalls.
* A tilt toward "enabler" companies -- firms whose products or services are
essential to the success of technology firms -- helped the fund weather the
technology storm. Property and casualty insurance providers also boosted
performance.
* Telecommunications firms -- particularly those with wireless capabilities --
dampened Growth's return.
[left margin]
SELECT(1)
(TWCIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months ....................................... -1.92%(2)
1 Year ......................................... 7.64%
INCEPTION DATE: 6/30/71(3)
NET ASSETS: $7.4 billion(4)
HERITAGE(1)
(TWHIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months ....................................... 12.22%(2)
1 Year ......................................... 62.61%
INCEPTION DATE: 11/10/87
NET ASSETS: $2.0 billion(4)
GROWTH(1)
(TWCGX)
TOTAL RETURNS: AS OF 10/31/00
6 Months ....................................... -7.85%(2)
1 Year ......................................... 11.49%
INCEPTION DATE: 6/30/71(3)
NET ASSETS: $9.7 billion(4)
(1) Investor Class.
(2) Not annualized.
(3) Although the original inception date was 10/31/58, this inception date
corresponds with the management company's implementation of its current
investment practices.
(4) Includes Investor, Advisor, and Institutional classes.
Investment terms are defined in the Glossary on pages 44-45.
2 1-800-345-2021
Market Perspective from James E. Stowers III and C. Kim Goodwin
--------------------------------------------------------------------------------
[photo of C. Kim Goodwin and James E. Stowers III}
C. Kim Goodwin and James E. Stowers III, co-chief investment officers, U.S.
growth equities
2000 has challenged equity investors with two very different stock markets.
Until March 10, we had what amounted to a one-sector economy as investors heard
only the siren song of technology. The Nasdaq sprinted ahead 24%, buoyed by
corporate tech spending, a continuing flood of foreign money attracted by a
strong U.S. economy, and what could only be called a speculative bubble. Many
said we had crossed into a new economy, one highlighted by technology, media,
and telecommunications firms. If you had anything to do with the Internet, no
price was too high for your shares. Earnings didn't seem to matter either in
this new era. You could succeed simply by putting ".com" at the end of your
name.
But bubbles puncture easily. In the face of rising short-term interest
rates, skyrocketing energy costs, and a weak euro, the economy and corporate
earnings began to slow. From mid-March forward, investors have been reminded
that earnings do matter, and it's been a punishing lesson. Equity valuations
have fallen, as evidenced by the Nasdaq's more than 33% tumble from its March
high--a decline more severe than its drop, as well as those of the Dow Jones
Industrial Average, the S&P 500 or the NYSE Composite, during the October 1987
market crash.
A newfound focus on valuation and earnings has resulted in a broadening of
the market across company size, style, and sector. Albeit modestly, smaller
companies have outperformed larger companies year-to-date. In addition, value
equities have outperformed growth equities so far in 2000 for the first time in
six calendar years. Finally, since mid-year, twice as many sectors of the S&P
500 have outperformed the index than in the previous 18 months.
The trade-off to the market's broadening might be the perpetuation of
rising volatility--volatility in the S&P 500 and Nasdaq that is almost twice and
more than three times their historical averages, respectively. Combine nearly
instant dissemination of information, declining commission costs, recent
regulations regarding the flow of information and more than $1.7 trillion in
401(k) and other investor-controlled assets, and you have a recipe for "ready,
fire, aim" investing.
All of this, we think, puts us in a market where the best results will be
earned by investors who can identify companies that can sustain their growth.
This is the foundation of the investment strategy that drives our domestic
growth equity funds.
[right margin]
"A NEWFOUND FOCUS ON VALUATION AND EARNINGS HAS RESULTED IN A BROADENING OF
THE MARKET ACROSS COMPANY SIZE, STYLE, AND SECTOR."
MARKET RETURNS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
S&P 500 6.09%
S&P MIDCAP 400 31.65%
RUSSELL 2000 17.41%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
[line chart - data below]
S&P 500 S&P Mid-Cap 400 Russell 2000
10/31/1999 $1.00 $1.00 $1.00
11/30/1999 $1.02 $1.05 $1.06
12/31/1999 $1.08 $1.12 $1.18
1/31/2000 $1.03 $1.08 $1.16
2/29/2000 $1.01 $1.16 $1.35
3/31/2000 $1.11 $1.26 $1.26
4/30/2000 $1.07 $1.21 $1.19
5/31/2000 $1.05 $1.20 $1.12
6/30/2000 $1.08 $1.22 $1.22
7/31/2000 $1.06 $1.23 $1.18
8/31/2000 $1.12 $1.37 $1.27
9/30/2000 $1.07 $1.36 $1.23
10/31/2000 $1.06 $1.32 $1.17
Value on 10/31/00
S&P 500 $1.06
S&P MIDCAP 400 $1.32
RUSSELL 2000 $1.17
www.americancentury.com 3
Select--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 6/30/71)(1) (INCEPTION 8/8/97) (INCEPTION 3/13/97)
SELECT S&P 500 SELECT S&P 500 SELECT S&P 500
<S> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(2) .... -1.92% -1.03% -1.96% -1.03% -1.87% -1.03%
1 YEAR ......... 7.64% 6.09% 7.54% 6.09% 7.77% 6.09%
=======================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS ........ 20.20% 17.60% 19.96% 17.60% 20.41% 17.60%
5 YEARS ........ 21.61% 21.67% -- -- -- --
10 YEARS ....... 16.18% 19.44% -- -- -- --
LIFE OF FUND ... 17.31% 13.48% 17.47% 14.98% 22.26% 19.41%
</TABLE>
(1) Although the fund's actual inception date was 10/31/58, this inception date
corresponds with the management company's implementation of its current
investment philosophy and practices.
(2) Returns for periods less than one year are not annualized.
See pages 42-45 for information about share classes, the S&P 500 Index, and
returns.
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/00
S&P 500 $59,500
Select $44,785
[line chart - data below]
Select S&P 500
10/31/1990 $10,000 $10,000
10/31/1991 $12,706 $13,350
10/31/1992 $12,931 $14,680
10/31/1993 $15,803 $16,873
10/31/1994 $14,638 $17,526
10/31/1995 $16,837 $22,160
10/31/1996 $20,164 $27,500
10/31/1997 $25,787 $36,330
10/31/1998 $31,708 $44,319
10/31/1999 $41,608 $55,696
10/31/2000 $44,785 $59,088
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 S&P
500 Index is provided for comparison in each graph. Select's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the S&P 500 Index do not. The graphs
are based on Investor Class shares only; performance for other classes will vary
due to differences in fee structures (see the 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[bar chart - data below]
Select S&P 500
10/31/1991 27.05% 33.50%
10/31/1992 1.76% 9.93%
10/31/1993 22.20% 14.89%
10/31/1994 -7.37% 3.87%
10/31/1995 15.02% 26.36%
10/31/1996 19.76% 24.03%
10/31/1997 27.89% 32.10%
10/31/1998 22.96% 21.96%
10/31/1999 31.22% 25.67%
10/31/2000 7.64% 6.09%
4 1-800-345-2021
Select--Q&A
--------------------------------------------------------------------------------
[photo of Kenneth Crawford and Jerry Sullivan]
An interview with Kenneth Crawford and Jerry Sullivan, portfolio managers
on the Select investment team.
HOW DID SELECT PERFORM DURING THE FISCAL YEAR?
Select posted a 7.64% return for the year ended October 31, 2000.* It
outperformed its benchmark, the Standard & Poor's 500 Index, which gained
6.09%.
Looking longer-term, on an annualized basis Select has outperformed its
benchmark 20.20% to 17.60% over the past three years. The fund's five-year
annualized return of 21.61% is in line with the S&P 500's 21.67% figure.
In general, the last 12 months have been turbulent for growth funds
investing in larger businesses. To begin with, after having led the market for
some time, large companies entered the fiscal year richly priced, which prompted
investors to seek out more attractive values at the other end of the
capitalization range. In addition, at least until early March, investors wanted
high-octane technology stocks and little else, which also drew them to smaller
companies. During the summer, increasing signs of a slowing economy and a
declining European currency made it difficult for large-cap growth stocks to
gain much traction.
Volatility in the technology sector (which accounts for approximately 30%
of Select's investments) was especially acute over the last half of the period
as investors re-calibrated tech-company growth rates to lower levels. September
and October were particularly difficult, with the market mercilessly punishing
companies that dared to pare their earnings estimates by even a penny.
HOW DID YOUR TECHNOLOGY HOLDINGS FARE?
It was sometimes difficult to navigate through the volatility, but we stuck
with strong businesses that provide communications equipment, computer hardware
and software, and other products associated with the Internet.
One of our top contributors was Cisco Systems, the leading supplier of
Internet communications equipment -- routers and switches that move data from
point A to point B. The stock was swept-up in the volatility of the past six
months as Cisco's customers decreased their capital spending in response to a
cooling economy. We believed Cisco's dominant market position would prevail and
held on to the stock.
Another area that worked well for us was data storage. We continue to see
the proliferation of storage requirements among businesses. In addition, society
in general is becoming more digitized. For example, hospitals and other
institutions are increasingly relying on digital images, and consumers are
developing an appetite for digital photos and video. The fact that EMC is the
world's leading provider of high-end storage hardware is reflected in its
performance as Select's top contributor for the year.
In April, we described our investments in companies that manufacture
fiber-optic equipment and components. This area had experienced tremendous
growth as telecommunication companies upgrade their networks to handle
increasing Internet traffic. Fiber-optics manufacturers performed well until
late October, when industry bellwether
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"...WE STUCK WITH STRONG BUSINESSES THAT PROVIDE COMMUNICATIONS EQUIPMENT,
COMPUTER HARDWARE AND SOFTWARE, AND OTHER PRODUCTS ASSOCIATED WITH THE
INTERNET."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 89 89
P/E RATIO 37.4 38.1
MEDIAN MARKET $56.7 $59.2
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $155 $142
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 67% 130%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 44-45.
www.americancentury.com 5
Select--Q&A
--------------------------------------------------------------------------------
(Continued)
Nortel Networks reported lower-than-expected third-quarter sales. There
were also signs that telecommunications service companies would be decreasing
their capital spending in 2001. While we believe the long-term fiber-optic
growth story is intact, we have significantly reduced our stake in this area
because of its near-term earnings risk.
WHAT OTHER SECTORS OR HOLDINGS CONTRIBUTED TO THE FUND'S PERFORMANCE?
Our health care holdings, particularly pharmaceuticals, produced good
results. A top performer was Warner-Lambert, creator of the successful
cholesterol drug Lipitor. We owned a fairly large and profitable position in the
company at the beginning of the year. The stock received a substantial boost
when Pfizer, the world's largest drug maker, bought the company in June. Our
holdings in medical product manufacturers Medtronic and Abbott Laboratories
also performed well.
Select's largest holding, General Electric, has posted three phenomenal
earnings quarters in a row. Huge conglomerates like GE typically have
difficulty posting accelerating growth. However, this diversified company has
done so with double-digit earnings growth from GE Capital, growth in its power
and medical businesses, and a widespread quality improvement initiative. We
believe GE's growth story remains optimistic, but we'll watch the stock
carefully in light of GE's acquisition of Honeywell International and CEO Jack
Welch's scheduled retirement in 2001.
American International Group (AIG), another top-ten holding, was a strong
performer for the year, especially during the last six months. AIG is a leading
international insurance and financial services organization and the largest
underwriter of property-casualty insurance in the United States. The insurance
industry has struggled in recent years due to excess capacity and poor pricing
power. This year, the slowing economy put the spotlight back on companies like
AIG -- firms strong enough to restore rational pricing and improve overall
margins.
WHICH SECTORS OR HOLDINGS WERE DISAPPOINTING?
Microsoft was the fund's weakest performer. Its shares suffered under the
Justice Department's antitrust investigation and subsequent proposal to break up
the company, and from disappointing second- and third-quarter earnings.
Nevertheless, we cannot ignore Microsoft's position as the world's leading
computer software maker, and we continue to have confidence in its long-term
prospects.
Select's position in AT&T also detracted from performance. The price war
among long-distance providers hurt revenues for the industry as a whole. In
addition, investors were taken aback by AT&T's decision to split its businesses
into four companies. We sold our position before the stock hit its lows.
Rising oil and paper prices and the falling euro put household products
maker Procter & Gamble in a profit squeeze. The company also is struggling from
a new retailing model in which giant national outlets like Wal-Mart and Target
have built up so much buying power that it's difficult for manufacturers like
Procter & Gamble to pass on higher costs to consumers. We sold our position when
the P&G no longer met our growth criteria.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
GENERAL ELECTRIC
CO. (U.S.) 4.3% 5.9%
CISCO SYSTEMS INC. 3.5% 4.8%
CITIGROUP INC. 3.4% 2.4%
PFIZER, INC. 3.1% 1.8%
EXXON MOBIL CORP. 3.0% 2.4%
SBC COMMUNICATIONS
INC. 2.8% 0.9%
AMERICAN INTERNATIONAL
GROUP, INC. 2.7% 2.5%
MICROSOFT CORP. 2.6% 2.7%
EMC CORP. (MASS.) 2.6% 1.6%
SUN MICROSYSTEMS, INC. 2.2% 1.8%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
DRUGS 9.8% 7.3%
FINANCIAL SERVICES 8.1% 7.9%
BANKS 7.4% 5.3%
COMPUTER HARDWARE &
BUSINESS MACHINES 7.4% 5.8%
ENERGY RESERVES
& PRODUCTION 5.9% 5.0%
6 1-800-345-2021
Select--Q&A
--------------------------------------------------------------------------------
(Continued)
HOW DID THE MARKET'S VOLATILITY AFFECT THE INVESTMENT PROCESS?
One of the things we couldn't be in this market was reactive. If investors
chased a rumor one day, it was sure to turn on them the next.
Consider energy, a sector that experienced phenomenal volatility. The price
of oil see-sawed, as one day crude oil supply numbers were up and the next day
supplies were down; one day there was violence in the Middle East and the next
day there were peace talks. Through all of this we saw oil companies earning
record profits that they would eventually have to spend -- on developing more
oil. This trend should benefit oil services firms, such as our Schlumberger and
Transocean holdings.
WHAT AREAS ARE ATTRACTIVE TO YOU?
For quite some time, we've been forced to invest in a narrow market,
dominated by large companies in relatively few industries. We're now seeing a
broader market, and are seeking good growth opportunities in areas that
previously were ignored. The food and beverage industry is a good example.
PepsiCo has been a positive performer for us. It has less international exposure
than Coca-Cola, and is becoming less dependent on the competitive soft drink
market and more reliant on its growing snack foods business.
We're also looking for good earnings and revenue acceleration from grocery
stores benefiting from that industry's consolidation. Kroger, for example, is
effectively integrating recently-acquired food and drug retailer Fred Meyer,
Inc., enabling the company to cut costs and increase sales a year ahead of
schedule. Safeway continues to find what it calls "break-away strategies" that
improve profit margins.
During the period, we also increased our investments in financials, which
are benefiting from a benign interest rate environment.
In June, Select shareholders voted to lift a long-held requirement that 80%
of the fund's assets be invested in stocks paying regular dividends. This
broadens the range of investment opportunities for the fund because it allows us
to focus on growth-oriented stocks and to consider companies that traditionally
have not paid dividends.
WITHOUT MAKING ANY KIND OF PREDICTION, WHAT'S YOUR BEST THINKING ON SELECT AND
THE MARKET AS YOU LOOK FORWARD?
Corporate earnings growth is slowing, held back by a recent series of
interest-rate increases, higher energy costs, and a weak European currency. In
such a climate, the types of growth stocks we look for tend to become both
scarcer and more valuable. As we have done in similar periods, we are letting
our disciplined investment process guide us to individual companies that are
continuing to show strong growth.
[right margin]
"ONE OF THE THINGS WE COULDN'T BE IN THIS MARKET WAS REACTIVE. IF INVESTORS
CHASED A RUMOR ONE DAY, IT WAS SURE TO TURN ON THEM THE NEXT."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
o COMMON STOCKS AND FUTURES 96.0%
o TEMPORARY CASH INVESTMENTS 3.0%
o PREFERRED STOCKS 1.0%
[pie chart]
AS OF APRIL 30, 2000
o COMMON STOCKS AND FUTURES 96.0%
o TEMPORARY CASH INVESTMENTS 2.0%
o CONVERTIBLE PREFERRED STOCKS 1.0%
o CONVERTIBLE BONDS 1.0%
[pie chart]
www.americancentury.com 7
<TABLE>
<CAPTION>
Select--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 93.5%
<S> <C> <C>
ALCOHOL -- 1.1%
1,756,800 Anheuser-Busch Companies, Inc. $ 80,374
--------------
BANKS - 7.4%
1,095,000 Bank of America Corp. 52,628
2,194,500 Bank of New York Co., Inc. (The) 126,321
4,733,466 Citigroup Inc. 249,099
2,511,000 Wells Fargo & Co. 116,291
--------------
544,339
--------------
CHEMICALS - 1.0%
743,900 Minnesota Mining & Manufacturing Co. 71,879
--------------
COMPUTER HARDWARE
& BUSINESS MACHINES - 7.4%
75,000 Brocade Communications Systems(1) 17,053
775,000 Compaq Computer Corp. 23,568
2,129,000 EMC Corp. (Mass.)(1) 189,614
1,477,800 International Business Machines Corp. 145,563
1,486,400 Sun Microsystems, Inc.(1) 164,758
--------------
540,556
--------------
COMPUTER SOFTWARE - 5.2%
2,763,200 Microsoft Corp.(1) 190,401
3,335,200 Oracle Corp.(1) 110,062
560,000 Veritas Software Corp.(1) 78,960
--------------
379,423
--------------
DEPARTMENT STORES - 2.0%
1,517,200 Target Corp. 41,913
2,260,000 Wal-Mart Stores, Inc. 102,547
--------------
144,460
--------------
DRUGS - 9.8%
1,475,000 American Home Products Corp. 93,663
495,500 Amgen Inc.(1) 28,693
1,594,100 Bristol-Myers Squibb Co. 97,140
746,000 Lilly (Eli) & Co. 66,674
1,525,000 Merck & Co., Inc. 137,154
5,318,875 Pfizer, Inc. 229,708
1,365,000 Pharmacia Corp. 75,075
--------------
728,107
--------------
ELECTRICAL EQUIPMENT - 5.7%
95,000 Celestica Inc.(1) 6,828
4,792,200 Cisco Systems Inc.(1) 258,179
269,500 JDS Uniphase Corp.(1) 21,956
70,000 Juniper Networks, Inc.(1) 13,665
695,000 Motorola, Inc. 17,332
1,271,000 Nortel Networks Corp. 57,831
875,000 Solectron Corp.(1) 38,500
--------------
414,291
--------------
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
ELECTRICAL UTILITIES - 0.8%
276,800 Calpine Corp.(1) $ 21,850
1,000,000 Southern Co. 29,375
149,200 Southern Energy Inc.(1) 4,066
--------------
55,291
--------------
ENERGY RESERVES & PRODUCTION - 5.9%
365,900 Chevron Corp. 30,050
930,000 Enron Corp. 76,318
2,444,599 Exxon Mobil Corp. 218,028
1,882,500 Royal Dutch Petroleum Co.
New York Shares 111,773
--------------
436,169
--------------
ENTERTAINMENT - 0.9%
1,889,200 Disney (Walt) Co. 67,657
--------------
FINANCIAL SERVICES - 8.1%
1,357,800 American Express Co. 81,468
575,400 Fannie Mae 44,306
710,000 Federal Home Loan Mortgage
Corporation 42,600
5,689,400 General Electric Co. (U.S.) 311,850
886,000 Marsh & McLennan Companies, Inc. 115,845
--------------
596,069
--------------
FOOD & BEVERAGE - 2.3%
725,900 Coca-Cola Company (The) 43,826
2,644,900 PepsiCo, Inc. 128,113
--------------
171,939
--------------
FOREST PRODUCTS & PAPER - 0.7%
775,700 Kimberly-Clark Corp. 51,196
--------------
GROCERY STORES - 1.3%
1,945,000 Kroger Co. (The)(1) 43,884
995,000 Safeway Inc.(1) 54,414
--------------
98,298
--------------
HEAVY ELECTRICAL EQUIPMENT - 1.3%
1,290,000 Emerson Electric Co. 94,734
--------------
HOME PRODUCTS - 1.0%
712,800 Colgate-Palmolive Co. 41,884
655,000 Estee Lauder Companies, Inc. 30,417
--------------
72,301
--------------
INDUSTRIAL PARTS - 1.0%
1,016,400 United Technologies Corp. 70,957
--------------
INFORMATION SERVICES - 2.3%
817,200 Automatic Data Processing, Inc. 53,373
1,602,000 First Data Corp. 80,301
408,000 Omnicom Group Inc. 37,638
--------------
171,312
--------------
INTERNET - 1.5%
2,185,000 America Online, Inc.(1) 110,190
--------------
8 1-800-345-2021 See Notes to Financial Statements
Select--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
LEISURE - 0.2%
1,307,800 Mattel, Inc. $ 16,920
--------------
LIFE & HEALTH INSURANCE - 0.4%
185,000 American General Corp. 14,893
95,000 CIGNA Corp. 11,585
--------------
26,478
--------------
MEDIA - 2.5%
311,900 Cox Communications, Inc. Cl A(1) 13,743
230,000 Infinity Broadcasting Corp. Cl A(1) 7,648
950,300 Time Warner Inc. 72,137
1,599,917 Viacom, Inc. Cl B(1) 90,995
--------------
184,523
--------------
MEDICAL PRODUCTS & SUPPLIES - 4.7%
2,885,000 Abbott Laboratories 152,364
394,900 Johnson & Johnson 36,380
2,362,600 Medtronic, Inc. 128,319
465,000 St. Jude Medical, Inc.(1) 25,575
--------------
342,638
--------------
MULTI-INDUSTRY - 1.5%
1,915,600 Tyco International Ltd. 108,591
--------------
OIL SERVICES - 2.0%
1,035,300 Schlumberger Ltd. 78,812
1,241,250 Transocean Sedco Forex, Inc. 65,786
--------------
144,598
--------------
PROPERTY & CASUALTY INSURANCE - 2.7%
1,995,625 American International Group, Inc. 195,571
--------------
PUBLISHING - 0.5%
633,900 Gannett Co., Inc. 36,766
--------------
SECURITIES & ASSET MANAGEMENT - 1.1%
680,200 AXA Financial, Inc. 36,773
568,000 Morgan Stanley Dean Witter & Co. 45,618
--------------
82,391
--------------
SEMICONDUCTOR - 4.0%
80,000 Applied Micro Circuits Corp.(1) 6,115
35,000 Broadcom Corp.(1) 7,782
3,495,400 Intel Corp. 157,074
1,199,200 Linear Technology Corp. 77,386
50,000 SDL, Inc.(1) 12,955
601,000 Texas Instruments Inc. 29,487
--------------
290,799
--------------
SPECIALTY STORES - 1.2%
1,104,600 Home Depot, Inc. 47,498
952,000 Walgreen Co. 43,435
--------------
90,933
--------------
Shares/Principal Amount ($ in Thousands) Value
-------------------------------------------------------------------------------
TELEPHONE - 5.0%
2,605,901 Qwest Communications
International Inc.(1) $ 126,712
3,586,316 SBC Communications Inc. 206,886
910,300 Tycom Ltd.(1) 30,495
--------------
364,093
--------------
WIRELESS TELECOMMUNICATIONS - 1.0%
1,020,000 Sprint PCS(1) 38,887
819,500 Vodafone Group PLC ADR 34,880
--------------
73,767
--------------
TOTAL COMMON STOCKS 6,857,610
--------------
(Cost $4,656,702)
PREFERRED STOCK - 0.8%
ELECTRICAL UTILITIES
830,000 AES Trust VII (Acquired
5/12/00,
Cost $41,500)(2) 58,878
--------------
(Cost $41,500)
CONVERTIBLE BONDS - 0.2%
ELECTRICAL EQUIPMENT
$24,000 Celestica Inc., 3.75%, 8/1/20(3) 12,105
--------------
(Cost $11,523)
TEMPORARY CASH INVESTMENTS*- 5.5%
50,000 FHLB Discount Notes,
6.42%, 11/24/00(4) 49,793
50,000 FHLMC Discount Notes,
6.43%, 11/14/00(4) 49,883
100,000 FHLMC Discount Notes,
6.43%, 11/17/00(4) 99,713
50,000 FHLMC Discount Notes,
6.40%, 11/21/00(4) 49,821
111,400 FNMA Discount Notes,
6.45%, 11/1/00(4) 111,400
Repurchase Agreement, Morgan Stanley
Group, Inc., (U.S. Treasury obligations),
in a joint trading account at 6.47%,
dated 10/31/00, due 11/1/00
(Delivery value $42,408) 42,400
--------------
403,010
--------------
(Cost $402,995)
TOTAL INVESTMENT SECURITIES - 100.0% $7,331,603
==============
(Cost $5,112,720)
</TABLE>
See Notes to Financial Statements www.americancentury.com 9
Select--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
FUTURES CONTRACTS
($ in Thousands)
Expiration Underlying Face Unrealized
Purchased Date at Value Gain
-------------------------------------------------------------------------------
520 S&P 500 December
Futures 2000 $187,226 $6,427
=========================================
*Futures contracts typically are based on a stock index, such as the S&P 500,
and tend to track the performance of the index while remaining very liquid (easy
to buy and sell). By investing its cash assets in index futures, the fund can
have full exposure to stocks and have easy access to the money. Temporary cash
investments, less the required reserves for futures contracts, are 2.9%.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was $58,878, which
represented 0.8% of net assets.
(3) Security is a zero-coupon bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial discount
from their value at maturiry.
(4) Rate disclosed is the yield to maturity at purchase.
10 1-800-345-2021 See Notes to Financial Statements
Heritage--Performance
--------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 11/10/87) (INCEPTION 7/11/97) (INCEPTION 6/16/97)
HERITAGE S&P MIDCAP 400 HERITAGE S&P MIDCAP 400 HERITAGE S&P MIDCAP 400
<S> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 12.22% 8.56% 12.06% 8.56% 12.26% 8.56%
1 YEAR 62.61% 31.65% 62.26% 31.65% 63.00% 31.65%
====================================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 21.38% 19.37% 21.11% 19.37% 21.63% 19.37%
5 YEARS 20.67% 21.50% -- -- -- --
10 YEARS 19.13% 21.70% -- -- -- --
LIFE OF FUND 17.92% 19.18%(2) 20.52% 19.94%(3) 22.20% 20.21%(3)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 10/31/87, the date nearest the class's inception for which data are
available.
(3) Since 6/19/97, the date nearest the class's inception for which data are
available.
See pages 42-45 for information about share classes, the S&P MidCap 400 Index,
and returns.
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/00
S&P MidCap 400 $71,292
Heritage $57,558
[line chart - data below]
Heritage S&P MidCap 400 Index
10/31/1990 $10,000 $10,000
10/31/1991 $13,326 $16,345
10/31/1992 $14,612 $17,852
10/31/1993 $18,798 $21,696
10/31/1994 $18,586 $22,212
10/31/1995 $22,496 $26,923
10/31/1996 $24,845 $31,594
10/31/1997 $32,189 $41,916
10/31/1998 $27,081 $44,729
10/31/1999 $35,397 $54,153
10/31/2000 $57,558 $71,292
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 S&P
MidCap 400 Index is provided for comparison in each graph. Heritage's total
returns include operating expenses (such as transaction costs and management
fees) that reduce returns, while the total returns of the S&P MidCap 400 Index
do not. The graphs are based on Investor Class shares only; performance for
other classes will vary due to differences in fee structures (see the 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[bar chart - data below]
Heritage S&P MidCap 400 Index
10/31/1991 33.25% 63.45%
10/31/1992 9.65% 9.22%
10/31/1993 28.64% 21.53%
10/31/1994 -1.13% 2.38%
10/31/1995 21.04% 21.21%
10/31/1996 10.44% 17.35%
10/31/1997 29.56% 32.67%
10/31/1998 -15.87% 6.71%
10/31/1999 30.71% 21.07%
10/31/2000 62.61% 31.65%
www.americancentury.com 11
Heritage--Q&A
--------------------------------------------------------------------------------
[photo of Kurt Stalzer and Linda Peterson]
An interview with Kurt Stalzer and Linda Peterson, portfolio managers on
the Heritage investment team.
HOW DID HERITAGE PERFORM DURING THE 12 MONTHS ENDED OCTOBER 31, 2000?
Heritage gained 62.61%, nearly doubling the performance of its benchmark,
the S&P MidCap 400 Index, which returned 31.65% during the period.*
On a three-year basis, the fund has outperformed its benchmark with an
annualized return of 21.38%, compared to 19.37% for the S&P MidCap 400. Over the
last five years, Heritage has generated an annualized return of 20.67%, versus
21.50% for the benchmark.
HERITAGE PRIMARILY INVESTS IN MID-CAP STOCKS, WHICH PERFORMED VERY WELL DURING
THE PERIOD. WHAT IS DRIVING MID-CAP PERFORMANCE?
We're seeing investors gravitate to mid-caps from both ends of the
capitalization spectrum. First, the meltdown by small, unproven companies,
combined with their inherent illiquidity and high valuations, opened a lot of
eyes earlier this year. This resulted in many small-cap investors considering
the mid-cap space where they have found attractive companies whose stable
business models may contribute to consistent earnings.
At the same time, large-cap investors have begun moving down the
capitalization range. With the exception of last year's technology run-up, the
late-1990s market was characterized by a "nifty 50" mentality -- a focus on big,
blue-chip growth companies. This pushed up valuations among the largest domestic
stocks. In 2000, a greater number of earnings disappointments from big companies
shattered the perception that the large-cap space is the only place to find
relative safety and growth. This also caused new investors to consider the
mid-cap realm.
HERITAGE NEARLY DOUBLED THE PERFORMANCE OF ITS BENCHMARK DURING THE LAST 12
MONTHS. WHY WAS THE FUND'S RELATIVE PERFORMANCE SO STRONG?
The keys were good stock selection and timely decisions on industry
weightings. We started the fiscal year with a strong stake in technology issues
and a solid weighting in oil services companies. The technology sector was
exceptionally strong in the first six months of the period, and our holdings in
this area drove performance. Our oil services investments also performed very
well.
The decision to trim our technology position earlier this year was equally
important. It looked like the market was broadening beyond technology, and our
earnings acceleration model had identified opportunities in some other areas. We
still had a healthy technology weighting when the sector imploded last spring,
but we had scaled-back our position and increased our stakes in health care and
financials. Our oil services stocks provided great ballast in the technology
storm, and the defensive nature of our health care and financial investments
drove performance later in the period.
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"WE'RE SEEING INVESTORS GRAVITATE TO MID-CAPS FROM BOTH ENDS OF THE
CAPITALIZATION SPECTRUM."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 75 87
P/E RATIO 41.6 30.7
MEDIAN MARKET $4.40 $3.51
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $6.24 $5.26
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 119% 134%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 44-45.
12 1-800-345-2021
Heritage--Q&A
--------------------------------------------------------------------------------
(Continued)
WHICH COMPANIES PROVIDED THE BEST RESULTS IN THE LAST 12 MONTHS?
One of Heritage's biggest contributors was Qualcomm. As we told you in a
previous report, Qualcomm holds the patent for the dominant technology used in
wireless phones. We built our stake in this stock early, enjoyed its
appreciation in the hot technology market and sold it earlier this year. The
stock's dramatic decline in subsequent months illustrates the value of selling
at the right time.
Concord EFS, a more recent contributor to the fund's performance, is a good
example of how being patient with a stock can pay off. One of our biggest
disappointments early in the period, this processor of debit and credit card
payments has come on strong in the last six months. Despite temporary negative
market sentiment due to an acquisition, we held onto the stock because Concord's
earnings never faltered. Our patience was rewarded because the stock's price
performance has improved significantly, and the company has benefited from
increased use of debit and credit cards for routine purchases.
UNCERTAINTY HAS MADE "VISIBLE EARNINGS" AN IMPORTANT FACTOR IN THE MARKET.
PLEASE EXPLAIN THIS CONCEPT AND HOW IT AFFECTS INVESTORS.
Earnings visibility refers to sources of future revenue that investors can
count on. For example, a company that holds long-term contracts to provide data
processing services to businesses has visible revenues that should translate
into a predictable earnings stream. A department store, on the other hand,
doesn't have visible earnings. Sales vary from day-to-day and can be affected by
everything from macroeconomic factors to bad weather.
A factor that is making visible earnings important is Regulation FD --
"full disclosure." This rule affects how and when companies release financial
information. To avoid running afoul of the new rule, some companies have
severely cut back their communication with investors. This often leaves the
market in the dark about future prospects.
We think earnings visibility also is important because investors get
nervous in earnings release season. During the last year in particular, the
market has dealt harshly with companies that don't achieve their earnings goals.
Under these conditions, many investors are willing to pay premium prices for
dependable and visible earnings.
HAS HERITAGE TAKEN ADVANTAGE OF THIS SITUATION?
Yes. The team's focus on visible earnings produced one of the fund's
biggest winners during the period, National Computer Systems, Inc. One of our
largest holdings just six months ago, National Computer is the nation's largest
processor of student assessment tests. The company had consistent earnings
growth over the years due to its long-term contracts with school districts
throughout the United States. We sold our position in National Computer when it
was purchased by British publisher Pearson Education.
WHICH OTHER SECTORS OR INDUSTRIES HAVE CONTRIBUTED TO HERITAGE'S PERFORMANCE?
Our health care holdings have performed well. In the first six months of
the period, manufacturers of medical instruments and equipment used to develop
drugs provided solid returns. In addition, our investments in companies involved
with mass spectrometry -- a process that speeds the development of new drugs --
have done particularly well.
[right margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
AVOCENT CORP. 3.0% --
AMBAC FINANCIAL
GROUP, INC. 2.7% 1.0%
HENRY (JACK) &
ASSOCIATES, INC. 2.4% 2.1%
HARLEY-DAVIDSON, INC. 2.4% 2.1%
PERKINELMER, INC. 2.4% 1.3%
WATERS CORP. 2.4% 2.3%
MACROVISION CORP. 2.4% 0.8%
TEKTRONIX, INC. 2.3% --
HEALTH MANAGEMENT
ASSOCIATES, INC. 2.3% 1.7%
CIRRUS LOGIC, INC. 2.3% --
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
COMPUTER SOFTWARE 10.7% 13.2%
OIL SERVICES 7.7% 10.1%
ELECTRICAL EQUIPMENT 7.6% 12.6%
INFORMATION SERVICES 7.5% 5.0%
MEDICAL PRODUCTS
& SUPPLIES 7.0% 5.8%
www.americancentury.com 13
Heritage--Q&A
--------------------------------------------------------------------------------
(Continued)
We also have been happy with our investments in drug companies. This is due
in part to the defensive nature of pharmaceuticals and to changes in Food and
Drug Administration procedures that speed-up the approval of generic drugs. Teva
Pharmaceuticals benefited from these factors and from a rise in brand-name drugs
losing patent protection. Teva specializes in generic drugs and has a track
record of being first to market with new generics.
WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
We were disappointed by Antec Corporation. This company manufactures
telecommunications equipment used by cable companies to provide broadband
transmission of video, telephony, and data. We sold our position due to Antec's
growing reliance on a single customer and uncertainty in the rate of spending by
cable companies.
Also, although we did a good job of trimming our technology holdings before
the meltdown, we didn't get away unscathed. Sagent Technology, a small firm that
develops software for managing and analyzing data warehouses, was punished
severely for failing to hit its quarterly target. Sagent, which we sold,
typifies the perils of owning small software companies -- a few missed sales can
make a big difference. Generally speaking, we've been effective at avoiding
situations like this.
SO, WHAT ARE YOU LOOKING FOR IN PORTFOLIO CANDIDATES?
Accelerating earnings and revenue growth are the key attributes. Though we
have discussed industry weightings in this report, we build our portfolio from
the bottom up. We evaluate candidates based on their strength and growth
characteristics using a proprietary database that tracks the earnings
information of thousands of companies.
Our goal is to catch rising stars. Ideally, we want to identify companies
that are evolving from small-cap to large-cap. We want to catch them just as
they're breaking out of the small-cap arena and ride them all the way through
the mid-cap range.
HAS HERITAGE UNDERGONE ANY SIGNIFICANT CHANGES IN THE LAST SIX MONTHS?
We reduced our positions in capital goods and electrical equipment. At the
same time, we've increased our stakes in financial services, information
services, and property and casualty insurance companies.
In June, Heritage shareholders voted to lift a long-held requirement that
60% of the fund's assets be invested in stocks paying regular dividends. This
broadens the range of investment opportunities for the fund because it allows us
to strengthen our focus on growth-oriented stocks and to consider companies that
traditionally have not paid dividends.
WHAT IS YOUR OUTLOOK FOR HERITAGE AND FOR MID-CAP STOCKS?
As we mentioned earlier, investors are uncomfortable with uncertainty, and
corporate executives are still uncomfortable with Regulation FD. Therefore, we
think visible earnings will continue to be a theme in the months ahead.
We also think that volatility among large-cap and small-cap stocks bodes
well for mid-cap equities. Though this area has recently enjoyed outstanding
performance, we think it still holds some hidden gems.
[left margin]
"OUR GOAL IS TO CATCH RISING STARS...WE WANT TO CATCH THEM JUST AS THEY'RE
BREAKING OUT OF THE SMALL-CAP ARENA AND RIDE THEM ALL THE WAY THROUGH THE
MID-CAP RANGE."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
o COMMON STOCKS AND FUTURES 91.0%
o TEMPORARY CASH INVESTMENTS 6.0%
o CONVERTIBLE PREFERRED STOCK 3.0%
[pie chart}
AS OF APRIL 30, 2000
o COMMON STOCKS AND FUTURES 86.0%
o TEMPORARY CASH INVESTMENTS 4.0%
o CONVERTIBLE PREFERRED STOCK 5.0%
o CONVERTIBLE BONDS 5.0%
[pie chart}
14 1-800-345-2021
<TABLE>
<CAPTION>
Heritage--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
================================================================================
COMMON STOCKS - 88.2%
<S> <C> <C> <C>
ALCOHOL - 1.1%
333,800 Coors (Adolph) Co. Cl B $ 21,259
--------------
APPAREL & TEXTILES - 1.1%
994,700 Reebok International Ltd.(1) 21,448
--------------
BANKS - 1.5%
487,000 TCF Financial Corp. 19,693
371,500 Toronto-Dominion Bank (The) ORD 10,243
--------------
29,936
--------------
CHEMICALS - 0.3%
262,600 Cabot Corp. 5,777
--------------
CLOTHING STORES - 2.1%
338,800 Talbots, Inc. 26,787
1,156,200 Venator Group Inc.(1) 16,331
--------------
43,118
--------------
COMPUTER HARDWARE
& BUSINESS MACHINES - 3.0%
849,200 Avocent Corp.(1) 60,267
--------------
COMPUTER SOFTWARE - 8.9%
166,200 Aware, Inc.(1) 5,121
612,300 Gemstar International Group Ltd.(1) 41,962
887,600 Henry (Jack) & Associates, Inc. 48,789
654,800 Macrovision Corp.(1) 47,698
619,800 Rational Software Corp.(1) 37,014
--------------
180,584
--------------
CONSTRUCTION & REAL PROPERTY - 0.1%
101,900 Granite Construction Inc. 2,325
--------------
DEFENSE/AEROSPACE -- 1.2%
648,100 Precision Castparts Corp. 24,466
--------------
DEPARTMENT STORES -- 1.3%
529,300 Family Dollar Stores, Inc. 10,288
294,600 Kohl's Corp.(1) 15,964
--------------
26,252
--------------
DRUGS -- 5.7%
446,700 Allergan, Inc. 37,551
205,483 Alpharma Inc. 7,975
166,000 Enzon, Inc.(1) 11,822
315,500 Shire Pharmaceuticals Group
PLC ADR(1) 19,837
627,200 Teva Pharmaceutical Industries
Ltd. ADR 37,103
--------------
114,288
--------------
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 7.6%
161,500 Anaren Microwave, Inc.(1) $ 16,877
196,369 Cabot Microelectronics Corp.(1) 8,689
125,200 Kent Electronics Corp.(1) 2,332
234,000 Newport Corp. 26,625
553,700 Powerwave Technologies, Inc.(1) 26,681
238,900 Technitrol, Inc. 26,488
643,700 Tektronix, Inc. 45,864
--------------
153,556
--------------
ELECTRICAL UTILITIES - 1.1%
228,400 Constellation Energy Group 9,521
264,000 PP&L Resources, Inc. 10,874
46,700 Southern Energy Inc.(1) 1,273
--------------
21,668
--------------
ENERGY RESERVES & PRODUCTION - 2.8%
704,700 Alberta Energy Co. Ltd. ORD 26,053
776,500 EOG Resources Inc. 30,575
--------------
56,628
--------------
FINANCIAL SERVICES - 6.9%
338,400 BISYS Group, Inc. (The)(1) 15,937
1,071,200 Concord EFS, Inc.(1) 44,219
2,805 Julius Baer Holding AG ORD 13,888
461,700 MBIA Inc. 33,560
863,000 MBNA Corp. 32,416
--------------
140,020
--------------
HOTELS - 0.5%
356,800 Starwood Hotels & Resorts
Worldwide, Inc. 10,570
--------------
INDUSTRIAL SERVICES - 1.8%
1,171,400 Robert Half International Inc.(1) 35,728
--------------
INFORMATION SERVICES - 7.5%
175,900 Affiliated Computer Services Inc.(1) 9,795
450,600 DST Systems, Inc.(1) 27,768
688,200 Fiserv, Inc.(1) 36,066
849,000 SunGard Data Systems Inc.(1) 43,406
486,300 TMP Worldwide Inc.(1) 33,904
--------------
150,939
--------------
INTERNET - 0.3%
176,700 Digex, Inc.(1) 6,924
--------------
LEISURE - 3.4%
275,500 Four Seasons Hotels Inc. 20,112
1,003,500 Harley-Davidson, Inc. 48,356
--------------
68,468
--------------
See Notes to Financial Statements www.americancentury.com 15
Heritage--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES - 7.0%
277,600 Bruker Daltronics Inc.(1) $ 9,499
490,600 MiniMed Inc.(1) 35,798
401,000 PerkinElmer, Inc. 47,920
659,900 Waters Corp.(1) 47,884
--------------
141,101
--------------
MEDICAL PROVIDERS & SERVICES - 3.5%
2,297,000 Health Management Associates, Inc.(1) 45,509
2,116,300 HEALTHSOUTH Corp.(1) 25,396
--------------
70,905
--------------
OIL SERVICES - 7.7%
556,000 Diamond Offshore Drilling, Inc. 19,217
906,600 Ensco International Inc. 30,144
770,200 Helmerich & Payne, Inc. 24,213
1,042,500 Sante Fe International 38,051
839,721 Transocean Sedco Forex, Inc. 44,506
--------------
156,131
--------------
PROPERTY & CASUALTY INSURANCE - 5.5%
687,100 Ambac Financial Group, Inc. 54,839
662,800 AON Corp. 27,465
271,100 Gallagher (Arthur J.) & Co. 17,113
213,000 St. Paul Companies, Inc. 10,916
--------------
110,333
--------------
SEMICONDUCTOR - 5.3%
220,400 Analog Devices, Inc.(1) 14,326
1,055,900 Cirrus Logic, Inc.(1) 45,502
185,900 Cree Research, Inc.(1) 18,445
327,600 Integrated Device Technology, Inc.(1) 18,458
151,400 NVIDIA Corp.(1) 9,392
--------------
106,123
--------------
TRUCKING, SHIPPING & AIR FREIGHT - 0.4%
152,200 C.H. Robinson Worldwide, Inc. 8,347
--------------
WIRELESS TELECOMMUNICATIONS - 0.7%
100,200 VoiceStream Wireless Corp.(1) 13,173
--------------
TOTAL COMMON STOCKS 1,780,334
--------------
(Cost $1,311,218)
Shares/Principal Amount ($ in Thousands) Value
-------------------------------------------------------------------------------
===============================================================================
CONVERTIBLE PREFERRED STOCKS - 2.8%
COMPUTER SOFTWARE - 1.5%
520,300 Amdocs Automatic,
6.75%, 9/11/02 29,657
--------------
ELECTRICAL UTILITIES - 1.3%
114,000 Calpine Capital
Trust,
5.75%, 11/1/04 15,946
181,900 SEI Trust I, 6.25%, 10/1/30 11,062
--------------
27,008
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS 56,665
--------------
(Cost $34,941)
CONVERTIBLE BONDS - 0.3%
COMPUTER SOFTWARE
$3,500 Rational Software Corp.,
5.00%, 2/1/07
(Acquired 1/27/00,
Cost $3,500)(2) 6,392
--------------
(Cost $3,500)
TEMPORARY CASH INVESTMENTS* - 8.7%
50,000 FHLB Discount
Notes,
6.37%, 11/3/00(3) $ 49,982
Repurchase Agreement, Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $29,105) 29,100
Repurchase Agreement, State Street Boston
Corp., (U.S. Treasury obligations), in a joint
trading account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $96,717) 96,700
--------------
TOTAL TEMPORARY CASH INVESTMENTS 175,782
--------------
(Cost $175,782)
TOTAL INVESTMENT SECURITIES - 100.0% $ 2,019,173
==============
(Cost $1,525,441)
</TABLE>
16 1-800-345-2021 See Notes to Financial Statements
Heritage--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
FUTURES CONTRACTS
($ in Thousands)
Expiration Underlying Face Unrealized
Purchased Date at Value Loss
------------------------------------------------------------------------------
251 S&P 400 December
Futures 2000 $65,417 $(1,150)
=========================================
*Futures contracts typically are based on a stock index, such as the S&P 400,
and tend to track the performance of the index while remaining very liquid (easy
to buy and sell). By investing its cash assets in index futures, the fund can
have full exposure to stocks and have easy access to the money. Temporary cash
investments, less the required reserves for futures contracts, are 5.5%.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was $6,392, which
represented 0.3% of net assets.
(3) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 17
Growth--Performance
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 6/30/71)(1) (INCEPTION 6/4/97) (INCEPTION 6/16/97)
---------------------- ------------------ -------------------
GROWTH RUSSELL S&P 500 GROWTH RUSSELL S&P 500 GROWTH RUSSELL S&P 500
1000 GROWTH 1000 GROWTH 1000 GROWTH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(2) -7.85% -7.91% -1.03% -8.01% -7.91% -1.03% -7.79% -7.91% -1.03%
1 YEAR 11.49% 9.33% 6.09% 11.23% 9.33% 6.09% 11.70% 9.33% 6.09%
====================================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 21.67% 22.30% 17.60% 21.36% 22.30% 17.60% 21.93% 22.30% 17.60%
5 YEARS 20.03% 23.84% 21.67% -- -- -- -- -- --
10 YEARS 19.17% 20.80% 19.44% -- -- -- -- -- --
LIFE OF FUND 18.81% N/A(3) 13.48% 23.32% 21.95%(4) 18.10%(4) 22.11% 21.12%(4) 17.04%(4)
</TABLE>
(1) Although the fund's actual inception date was 10/31/58, this inception date
corresponds with the management company's implementation of its current
investment philosophy and practices.
(2) Returns for periods less than one year are not annualized.
(3) Benchmark began 1/1/79.
(4) Since 6/30/97, the date nearest the class's inception for which data are
available.
See pages 42-45 for information about share classes, the indices, and returns.
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/00
Russell 1000 Growth $66,184
S&P 500 $59,088
Growth $57,764
[line chart - data below]
Growth Russell 1000 Growth Index S&P 500
10/31/1990 $10,000 $10,000 $10,000
10/31/1991 $16,064 $14,026 $13,350
10/31/1992 $17,023 $15,544 $14,680
10/31/1993 $18,467 $16,680 $16,873
10/31/1994 $18,958 $17,581 $17,526
10/31/1995 $23,187 $22,719 $22,160
10/31/1996 $25,084 $27,729 $27,500
10/31/1997 $32,070 $36,178 $36,330
10/31/1998 $38,012 $45,092 $44,319
10/31/1999 $51,815 $60,536 $55,696
10/31/2000 $57,764 $66,184 $59,088
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
indices are provided for comparison in each graph. Growth'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. The graphs are
based on Investor Class shares only; performance for other classes will vary due
to differences in fee structures (see the 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[bar chart - data below]
Growth Russell 1000 Growth Index
10/31/1991 60.64% 40.26%
10/31/1992 5.96% 10.82%
10/31/1993 8.48% 7.31%
10/31/1994 2.66% 5.40%
10/31/1995 22.31% 29.23%
10/31/1996 8.18% 22.05%
10/31/1997 27.85% 30.47%
10/31/1998 18.53% 24.64%
10/31/1999 36.31% 34.25%
10/31/2000 11.49% 9.33%
18 1-800-345-2021
Growth--Q&A
--------------------------------------------------------------------------------
[photo of C. Kim Goodwin, Prescott LeGard, and Greg Woodhams]
An interview with C. Kim Goodwin, Prescott LeGard, and Greg Woodhams,
portfolio managers on the Growth investment team.
HOW DID GROWTH PERFORM FOR THE YEAR ENDED OCTOBER 31, 2000?
Growth posted an 11.49% return for the period.* It outperformed its
benchmark, the Russell 1000 Growth Index, which returned 9.33% for the year, and
significantly outpaced the S&P 500 Index, considered to be representative of the
broad market, which gained 6.09%.
The fund posted this relative outperformance despite an increasingly
turbulent market. Our overarching goal is to provide superior long-term
performance by investing in companies whose revenues and earnings are growing
at an accelerating pace. Investors who have been in Growth for the past five
years have received an annualized return of 20.03%.
BEFORE ADDRESSING GROWTH'S MORE RECENT PERFORMANCE, WILL YOU PROVIDE A
REFRESHER ON THE FUND'S STRATEGY AND INVESTMENT PROCESS?
Our time-tested, bottom-up approach centers on owning large companies
demonstrating accelerating growth in their earnings, revenues, or other
relevant fundamentals; in other words, firms that are growing faster now than in
previous quarters.
Our process emphasizes research. Not only do we want to make sure that a
company is truly growing, we also need to be convinced that it can sustain its
growth into the future. We leave very few stones unturned and talk with a wide
variety of sources. They include company management, suppliers, customers,
competitors, industry analysts, consultants, and others that might improve our
chances of owning tomorrow's winners today.
Ultimately, our research-intensive approach enables us to take large,
"high-confidence" positions in companies we believe hold the most promise. These
higher concentrations have been an important factor behind Growth's long-term
results.
WHAT FACTORS CONTRIBUTED TO GROWTH'S PERFORMANCE DURING ITS FISCAL YEAR?
Growth found itself in two distinctly different markets over the 12-month
period. "Market #1" ran from the end of October until early March and could be
characterized with one word: technology. Investors preferred technology stocks
and little else. Their enthusiasm was greatest for companies providing
technology or equipment for the Internet and firms involved in wireless
communications. Positioned well, with more than 40% of its assets in a broad
swatch of high-tech firms, Growth gained 28% over the first five months of the
period.
Market #2 began in mid-March, when even the bravest investor was beginning
to think twice about the valuations technology stocks were taking on. Investors
savaged technology (the Nasdaq Composite fell 25% in one week in April) and then
remained extremely sensitive to earnings shortfalls for the rest of the period.
Though Growth had to give back some of its early gain, "NOT ONLY DO WE WANT *
All fund returns referenced in this interview are for Investor Class shares.
[right margin]
TO MAKE SURE THAT A COMPANY IS TRULY GROWING, WE ALSO NEED TO BE CONVINCED
THAT IT CAN SUSTAIN ITS GROWTH INTO THE FUTURE."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 64 60
P/E RATIO 44.0 46.0
MEDIAN MARKET $58.3 $61.8
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $161 $137
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 102% 92%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 44-45.
www.americancentury.com 19
Growth--Q&A
--------------------------------------------------------------------------------
(Continued)
effective stock selection enabled us to outperform the technology sector on
a relative basis. Much of the credit goes to our tilt toward "enabler" companies
-- technology firms whose products or services are essential to the success of
other technology firms, whether they're producing the next generation of
cellular phones, more efficient computer systems and software, or expanded
Internet access.
WHICH FUND HOLDINGS BEST ILLUSTRATE THIS APPROACH?
As mentioned earlier, a catalyst driving growth in technology is the
buildout of the Internet, and some of our best contributors were firms whose
products facilitate this growth. For example, as the Internet becomes faster and
more efficient, it carries more and different forms of data, resulting in
increased demand for communications networking equipment. One of Growth's top
performers, Cisco Systems, is the market-leading supplier of routers and
switches used to link computer networks.
In a related vein, as more companies move their operations online, their
data storage needs have grown dramatically. This has created escalating demand
for software and hardware that enhance storage capabilities. A top provider of
data storage hardware -- and Growth's top-contributing stock for the year - was
EMC Corp. A second data storage play, Veritas Software, also boosted returns.
WHICH OTHER SECTORS OR HOLDINGS CONTRIBUTED?
Property and casualty insurance providers were a source of strength for
Growth throughout the year. Consolidation among insurance providers has resulted
in an improved pricing environment, particularly as the economy has slowed. We
have trained our focus on those with the greatest pricing power. American
International Group (AIG) was our top pick in this group and was also among the
fund's best contributors during the period. AIG is the leading U.S.-based
international insurance and financial services organization and the largest
underwriter of commercial and industrial insurance in the United States.
With business activity slowing, we were selective within the financial
arena, investing primarily in firms with little exposure to decreasing credit
quality. These firms generally fared better than those whose primary business is
loans.
Food and beverage firms also contributed, particularly in the second half
of the year as investors moved away from technology firms and into more
defensive stocks. Our best pick in this group was PepsiCo, now one of the fund's
ten largest holdings. The firm continues to gain market share with profit growth
in its well-known Frito Lay snack-food business, which represents nearly
three-quarters of the firm's revenues.
WHICH SECTORS OR INDUSTRIES DETRACTED FROM PERFORMANCE?
Telecommunications firms -- particularly those with wireless capabilities
-- dampened Growth's fiscal-year return, although performance in this group was
quite strong in the first half. In that time frame, the fund benefited from its
stake in the German wireless leader Mannesmann, which was acquired by Britain's
Vodafone, the leading global mobile telecommunications provider.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
GENERAL ELECTRIC
CO. (U.S.) 5.3% 5.7%
PFIZER, INC. 4.8% 2.6%
CISCO SYSTEMS INC. 4.7% 6.4%
EMC CORP. (MASS.) 4.1% 3.6%
SUN MICROSYSTEMS,
INC. 4.1% .--
VERITAS SOFTWARE CORP. 3.0% 0.6%
AMERICAN INTERNATIONAL
GROUP, INC. 2.9% 1.3%
MICROSOFT CORP. 2.7% 3.0%
PEPSICO, INC. 2.6% 0.8%
CITIGROUP INC. 2.4% 1.2%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
DRUGS 12.6% 7.7%
FINANCIAL SERVICES 11.7% 8.4%
COMPUTER HARDWARE &
BUSINESS MACHINES 11.7% 8.2%
COMPUTER SOFTWARE 7.5% 9.3%
ELECTRICAL EQUIPMENT 7.4% 11.9%
20 1-800-345-2021
Growth--Q&A
--------------------------------------------------------------------------------
(Continued)
However, in the second half of the year, capital markets began to tighten
as concerns arose about the continued buildout of optical networks. The
perceived slowdown in service-provider spending and the general move by
investors away from anything technology-oriented were additional factors
weighing on this group. As many telecoms warned of slowing third-quarter 2000
earnings and reined in their growth forecasts, investors were quick to look for
greener pastures. Our earnings-based methodology led us to reduce holdings in
this sector early in its decline, which helped mitigate damage. We continue to
watch the telecommunications group closely.
Media also was disappointing. This group had been enjoying generous
spending by the rush of Internet startups eager to create their brand identity
via radio and billboard. This eagerness was pressured in part by the capital
markets' increased focus on the ability of many "dot-com" companies to reach
profitability before running out of cash.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO SINCE THE SEMIANNUAL REPORT?
On the sell side, we reduced our stake in electric equipment providers and
semiconductor firms as growth slowed in these areas. However, the fund maintains
a healthy exposure to selected technology firms that we believe are well
positioned to benefit from strong market demand. Growth also remains well
represented in health care companies demonstrating acceleration in their
earnings and revenues.
As mentioned earlier, we added to our position in several groups where
improving prospects beckoned -- financial services firms and food and beverage
firms.
KIM, YOU RECENTLY WERE NAMED CO-CHIEF INVESTMENT OFFICER FOR AMERICAN CENTURY'S
DOMESTIC GROWTH EQUITY DISCIPLINE, A RESPONSIBILITY YOU SHARE WITH JIM STOWERS
III. WHAT DOES THIS NEW ROLE ENTAIL, AND DOES IT AFFECT YOUR POSITION AS A
PORTFOLIO MANAGER ON THE GROWTH FUND?
As co-chief investment officers, Jim and I manage the teams responsible for
the Growth, Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life
Sciences and Technology funds. I also have joined the Investment Oversight
Committee, a group of American Century senior executives who monitor the
performance of the company's equity and fixed-income disciplines.
I will continue to be an active manager on the Growth team with co-manager
Greg Woodhams, who has been on our team since 1997, and Prescott LeGard, who was
promoted to portfolio manager earlier this year after joining the Growth team in
1999. We also have added two investment analysts this year: Justin Brown and Joe
Reiland. We believe our disciplined approach and depth of experience are
critical factors in our effort to continue providing competitive performance.
[right margin]
"A CATALYST DRIVING GROWTH IN TECHNOLOGY IS THE BUILDOUT OF THE INTERNET, AND
SOME OF OUR BEST CONTRIBUTORS WERE FIRMS WHOSE PRODUCTS FACILITATE THIS
GROWTH."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
o COMMON STOCKS AND FUTURES 94.0%
o TEMPORARY CASH INVESTMENTS 6.0%
[pie chart]
AS OF APRIL 30, 2000
o COMMON STOCKS AND FUTURES 96.0%
o TEMPORARY CASH INVESTMENTS 4.0%
[pie chart]
www.americancentury.com 21
<TABLE>
<CAPTION>
Growth--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
================================================================================
COMMON STOCKS - 91.4%
<S> <C> <C> <C>
ALCOHOL - 1.3%
2,718,200 Anheuser-Busch Companies, Inc. $ 124,358
--------------
BANKS - 4.3%
4,468,466 Citigroup Inc. 235,153
850,800 Northern Trust Corp. 72,557
920,200 State Street Corp. 114,786
--------------
422,496
--------------
COMPUTER HARDWARE
& BUSINESS MACHINES - 11.7%
602,241 Brocade Communications System(1) 136,935
4,577,900 EMC Corp. (Mass.)(1) 407,719
1,614,900 International Business Machines Corp. 159,068
323,900 Network Appliances, Inc.(1) 38,554
3,653,100 Sun Microsystems, Inc.(1) 404,923
--------------
1,147,199
--------------
COMPUTER SOFTWARE - 7.5%
25,710 Acclaim Entertainment --
498,800 Check Point Software
Technologies Ltd.(1) 79,013
3,818,900 Microsoft Corp.(1) 263,146
3,055,800 Oracle Corp.(1) 100,841
2,119,600 Veritas Software Corp.(1) 298,864
--------------
741,864
--------------
DEPARTMENT STORES - 0.6%
1,342,500 Wal-Mart Stores, Inc. 60,916
--------------
DRUGS - 12.6%
2,568,400 American Home Products Corp. 163,093
1,927,800 Amgen Inc.(1) 111,633
377,600 Genentech, Inc.(1) 31,152
535,200 Lilly (Eli) & Co. 47,834
125,554 Novartis AG ORD 190,468
10,974,250 Pfizer, Inc. 473,949
1,983,900 Pharmacia Corp. 109,115
1,090,800 Schering-Plough Corp. 56,381
1,934,800 Stratus Computer, Inc.(1) 43,775
--------------
1,227,400
--------------
ELECTRICAL EQUIPMENT - 7.4%
8,574,500 Cisco Systems Inc.(1) 461,951
533,400 GlobeSpan, Inc.(1) 40,922
736,100 JDS Uniphase Corp.(1) 59,969
840,000 Juniper Networks, Inc.(1) 163,984
--------------
726,826
--------------
ENERGY RESERVES & PRODUCTION - 3.2%
1,664,900 Chevron Corp. 136,730
2,017,800 Exxon Mobil Corp. 179,962
--------------
316,692
--------------
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
FINANCIAL SERVICES - 11.7%
3,421,300 American Express Co. 205,278
1,554,800 Fannie Mae 119,720
1,620,800 Federal Home Loan
Mortgage Corporation 97,248
9,569,600 General Electric Co. (U.S.) 524,533
1,574,000 Marsh & McLennan Companies, Inc. 205,801
--------------
1,152,580
--------------
FOOD & BEVERAGE - 5.0%
1,733,200 Heineken NV ORD 94,192
66,729 Nestle S.A. ORD 138,276
5,376,900 PepsiCo, Inc. 260,444
--------------
492,912
--------------
INFORMATION SERVICES - 1.1%
1,289,600 Automatic Data Processing, Inc. 84,227
375,200 StorageNetworks, Inc.(1) 23,813
--------------
108,040
--------------
INTERNET - 3.0%
2,728,700 America Online, Inc.(1) 137,608
1,201,700 Digital Island(1) 15,059
2,541,400 Portal Software, Inc.(1) 89,743
373,600 VeriSign, Inc.(1) 49,327
--------------
291,737
--------------
LIFE & HEALTH INSURANCE - 0.5%
635,200 American General Corp. 51,134
--------------
MEDIA - 4.1%
3,878,700 Charter Communications, Inc.(1) 75,513
1,160,000 Comcast Corp. Cl A(1) 47,234
1,405,400 General Motors Corp. Cl H(1) 45,535
2,167,600 Infinity Broadcasting Corp. Cl A(1) 72,073
2,872,338 Viacom, Inc. Cl B(1) 163,364
--------------
403,719
--------------
MEDICAL PRODUCTS & SUPPLIES - 4.2%
2,604,500 Abbott Laboratories 137,550
951,600 Guidant Corp.(1) 50,375
4,157,700 Medtronic, Inc. 225,816
--------------
413,741
--------------
OIL SERVICES - 2.5%
2,287,700 Schlumberger Ltd. 174,151
1,390,267 Transocean Sedco Forex, Inc. 73,684
--------------
247,835
--------------
PROPERTY & CASUALTY INSURANCE - 2.9%
2,895,337 American International Group, Inc. 283,743
--------------
SEMICONDUCTOR - 3.8%
1,486,400 Applied Micro Circuits Corp.(1) 113,617
3,831,200 Intel Corp. 172,165
796,000 Linear Technology Corp. 51,367
561,900 Maxim Integrated Products, Inc.(1) 37,243
--------------
374,392
--------------
22 1-800-345-2021 See Notes to Financial Statements
Growth--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares/Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TELEPHONE - 0.8%
4,291,900 McLeodUSA Inc. Cl A(1) 82,753
--------------
WIRELESS TELECOMMUNICATIONS - 3.2%
7,458 NTT Mobile Communications
Network, Inc. ORD 183,811
1,256,200 QUALCOMM Inc.(1) 81,810
10,357,267 Vodafone Group PLC ORD 43,073
144,900 Vodafone Group PLC ADR 6,167
--------------
314,861
--------------
TOTAL COMMON STOCKS 8,985,198
--------------
(Cost $6,773,092)
TEMPORARY CASH INVESTMENTS* - 8.6%
$50,000 FHLB Discount Notes,
6.40%, 11/3/00(2) 49,982
75,000 FHLB Discount Notes,
6.37%, 11/8/00(2) 74,906
100,000 FHLMC Discount Notes,
6.40%, 11/7/00(2) 99,892
153,003 FHLMC Discount Notes,
6.36%, 11/9/00(2) 52,783
50,000 FHLMC Discount Notes,
6.39%, 11/14/00(2) 49,883
150,000 FHLMC Discount Notes,
6.38%, 11/21/00(2) 49,462
46,000 FHLMC Discount Notes,
6.38%, 11/28/00(2) 45,777
76,100 FNMA Discount Notes,
6.45%, 11/1/00(2) 76,100
100,000 FNMA Discount Notes,
6.38%, 11/15/00(2) 99,749
50,000 SLMA Discount Notes,
6.36%, 11/1/00(2) 50,000
--------------
TOTAL TEMPORARY CASH INVESTMENTS 848,534
--------------
(Cost $848,541)
TOTAL INVESTMENT SECURITIES - 100.0% $ 9,833,732
==============
(Cost $7,621,633)
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
($ in Thousands)
Contracts Settlement Unrealized Gain
to Sell Date Value (Loss)
-----------------------------------------------------------------------------
325,366,599 CHF 11/30/00 $181,511 $(1,871)
54,551,391 EURO 11/30/00 46,383 (483)
15,964,005 GBP 11/30/00 23,165 (251)
11,000,550,008 JPY 11/30/00 101,311 419
-------------------------------------
$352,370 $(2,186)
=====================================
(Value on Settlement Date $350,184)
Forward foreign currency exchange contracts are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the future --
and at a prearranged exchange rate.
FUTURES CONTRACTS
($ in Thousands)
Expiration Underlying Face Unrealized
Purchased Date at Value Loss
------------------------------------------------------------------------------
625 S&P 500 December
Futures 2000 $255,031 $(2,451)
=========================================
*Futures contracts typically are based on a stock index, such as the S&P 500,
and tend to track the performance of the index while remaining very liquid (easy
to buy and sell). By investing its cash assets in index futures, the fund can
have full exposure to stocks and have easy access to the money. Temporary cash
investments, less the required reserves for futures contracts, are 6.0%.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
CHF = Swiss Franc
GBP = Great British Pound
JPY = Japanese Yen
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GBP = British Pound
JPY = Japanese Yen
ORD = Foreign Ordinary Share
SLMA = Student Loan Marketing Association
(1) Non-income producing.
(2) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 23
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
OCTOBER 31, 2000
SELECT HERITAGE GROWTH
ASSETS ($ in Thousands Except Per-Share Amounts)
<S> <C> <C> <C>
Investment securities, at value (identified cost of $5,112,720,
$1,525,441 and $7,621,633, respectively) (Note 3) ................... $7,331,603 $2,019,173 $9,833,732
Cash .................................................................. 1,763 -- 11,707
Receivable for investments sold ....................................... 123,006 20,400 140,052
Receivable for forward foreign currency contracts ..................... -- -- 419
Receivable for capital shares sold .................................... 42 5,934 486
Receivable for variation margin on futures contracts .................. 13,520 5,197 25,651
Dividends and interest receivable ..................................... 3,557 482 1,484
-------------- --------------- ---------------
7,473,491 2,051,186 10,013,531
-------------- --------------- ---------------
LIABILITIES
Disbursements in excess of demand deposit cash ........................ -- 564 --
Payable for investments purchased ..................................... 99,651 63,064 322,305
Payable for forward foreign currency contracts ........................ -- -- 2,605
Accrued management fees (Note 2) ...................................... 6,145 1,665 8,317
Distribution fees payable (Note 2) .................................... 5 -- 5
Service fees payable (Note 2) ......................................... 5 -- 5
Payable for directors' fees and expenses .............................. 2 1 3
Accrued expenses and other liabilities ................................ 1 -- 6
-------------- --------------- ---------------
105,809 65,294 333,246
-------------- --------------- ---------------
Net Assets ............................................................ $7,367,682 $1,985,892 $9,680,285
============== =============== ===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ............................... $4,773,938 $1,117,504 $6,412,712
Accumulated net investment income ..................................... -- -- 4,845
Accumulated undistributed net realized gain on investment and
foreign currency transactions ....................................... 368,434 375,817 1,055,268
Net unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies (Note 3) ...................... 2,225,310 492,571 2,207,460
-------------- --------------- ---------------
$7,367,682 $1,985,892 $9,680,285
============== =============== ===============
Investor Class, $0.01 Par Value ($ and shares in full)
Net assets ...........................................................$7,086,351,325 $1,975,462,882 $9,557,296,250
Shares outstanding .................................................... 135,762,801 103,435,814 307,419,356
Net asset value per share ............................................. $52.20 $19.10 $31.09
Advisor Class, $0.01 Par Value ($ and shares in full)
Net assets ............................................................ $22,238,520 $2,127,424 $24,749,938
Shares outstanding .................................................... 427,562 111,680 798,033
Net asset value per share ............................................. $52.01 $19.05 $31.01
Institutional Class, $0.01 Par Value ($ and shares in full)
Net assets ............................................................ $259,091,983 $8,301,831 $98,239,225
Shares outstanding .................................................... 4,948,257 433,699 3,153,911
Net asset value per share ............................................. $52.36 $19.14 $31.15
</TABLE>
24 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
SELECT HERITAGE GROWTH
INVESTMENT LOSS ($ in Thousands)
<S> <C> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $479, $121,
and $201, respectively) ..................................... $ 60,148 $ 7,757 $ 38,116
Interest ...................................................... 7,602 5,836 32,119
----------- ----------- -----------
67,750 13,593 70,235
----------- ----------- -----------
Expenses (Note 2):
Management fees ............................................... 76,100 16,406 100,728
Distribution fees - Advisor Class ............................. 37 4 50
Service fees - Advisor Class .................................. 37 4 50
Directors' fees and expenses .................................. 38 8 50
----------- ----------- -----------
76,212 16,422 100,878
----------- ----------- -----------
Net investment loss ........................................... (8,462) (2,829) (30,643)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY (NOTE 3 )
Net realized gain (loss) on:
Investments ................................................... 400,838 379,157 1,084,963
Foreign currency transactions ................................. -- (185) 35,503
----------- ----------- -----------
400,838 378,972 1,120,466
----------- ----------- -----------
Change in net unrealized appreciation on:
Investments ................................................... 170,802 272,199 (170,231)
Translation of assets and liabilities in foreign currencies ... -- (7) (2,098)
----------- ----------- -----------
170,802 272,192 (172,329)
----------- ----------- -----------
Net realized and unrealized gain on investments
and foreign currency ........................................ 571,640 651,164 948,137
----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations .......... $ 563,178 $ 648,335 $ 917,494
=========== =========== ===========
</TABLE>
See Notes to Financial Statements www.americancentury.com 25
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
SELECT HERITAGE GROWTH
Increase in Net Assets 2000 1999 2000 1999 2000 1999
OPERATIONS ($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ...............$ (8,462) $ 1,766 $ (2,829) $ 1,832 $ (30,643) $ (18,074)
Net realized gain on investments and
foreign currency transactions ............ 400,838 754,322 378,972 126,044 1,120,466 1,118,381
Change in net unrealized appreciation
(depreciation) on investments and
translation of assets
and liabilities in foreign currencies .... 170,802 987,503 272,192 138,185 (172,329) 1,113,300
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations ................ 563,178 1,743,591 648,335 266,061 917,494 2,213,607
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ........................... -- (19,060) (590) (1,950) -- (7)
Advisor Class ............................ -- (1) -- -- -- --
Institutional Class ...................... -- (1) -- -- -- --
In excess of net investment income:
Investor Class ........................... -- -- (2,849) -- -- --
Advisor Class ............................ -- -- -- -- -- --
Institutional Class ...................... -- -- (1) -- -- --
From net realized gains
on investment transactions:
Investor Class ........................... (681,129) (1,107,773) (114,651) -- (1,095,493) (1,171,233)
Advisor Class ............................ (867) (328) (122) -- (1,720) (1,110)
Institutional Class ...................... (12,251) (34) (10) -- (297) (36)
----------- ----------- ----------- ----------- ----------- -----------
Decrease in net assets from distributions .. (694,247) (1,127,197) (118,223) (1,950) (1,097,510) (1,172,386)
----------- ----------- ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets
from capital share transactions .......... 162,059 1,127,193 454,665 (242,256) 1,513,459 1,202,428
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets ................. 30,990 1,743,587 984,777 21,855 1,333,443 2,243,649
NET ASSETS
Beginning of period ........................ 7,336,692 5,593,105 1,001,115 979,260 8,346,842 6,103,193
----------- ----------- ----------- ----------- ----------- -----------
End of period ..............................$ 7,367,682 $ 7,336,692 $ 1,985,892 $ 1,001,115 $ 9,680,285 $ 8,346,842
=========== =========== =========== =========== =========== ===========
Undistributed net investment income ........ -- -- -- $ 3,419 $ 4,845 --
=========== =========== =========== =========== =========== ===========
</TABLE>
26 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
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 (the 1940 Act) as an
open-end management investment company. Select Fund (Select), Heritage Fund
(Heritage), and Growth Fund (Growth) (the funds) are three of the fourteen
series of funds issued by the corporation. The funds are diversified under the
1940 Act. The funds' investment objective is to seek capital growth by investing
primarily in equity securities. The following significant accounting policies
are in accordance with accounting principles generally accepted in the United
States of America; these policies may require the use of estimates by fund
management.
MULTIPLE CLASS -- The funds are 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 each fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last
reported sales price, depending on local convention or regulation. Debt
securities not traded on a principal securities exchange are valued through a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at
fair value as determined in accordance with procedures adopted by the Board of
Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The funds may enter into stock index futures contracts
in order to manage the funds' exposure to changes in market conditions. One of
the risks of entering into futures contracts is the possibility that the change
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the fund. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For assets
and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The funds may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the funds and
the resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The funds bear the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that the funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
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 each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each fund, along with other registered
investment companies having management agreements with ACIM, 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.
www.americancentury.com 27
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income and net
realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization
for federal income tax purposes. The 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.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides each fund with investment advisory and management services
in exchange for a single, unified management fee per class. The Agreement
provides that all expenses of the funds, except brokerage commissions, taxes,
interest, expenses of those directors who are not considered "interested
persons" as defined in the 1940 Act (including counsel fees) and extraordinary
expenses, will be paid by ACIM. 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, the Advisor Class and
Institutional Class is 1.00%, 0.75%, and 0.80%, respectively, for each of the
funds.
The Board of Directors has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the 1940 Act.
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 during the year
ended October 31, 2000 were $74,358, $8,374, and $99,672 for Select, Heritage,
and Growth, 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, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
October 31, 2000, were as follows:
SELECT HERITAGE GROWTH
(In Thousands)
Purchases .............. $4,974,458 $2,090,645 $9,699,052
===============================================================================
(In Thousands)
Proceeds from sales .... $5,705,063 $1,809,829 $9,604,855
On October 31, 2000, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
SELECT HERITAGE GROWTH
(In Thousands)
Appreciation ......... 2,288,647,844 505,847,115 2,441,740,768
Depreciation ......... (87,559,805) (13,204,846) (303,605,894)
------------- ------------- --------------
Net ..................$2,201,088,039 $492,642,269 $2,138,134,874
============= ============= =============
Federal Tax Cost ..... 5,130,514,580 1,526,530,555 7,695,596,584
============= ============= =============
28 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
SELECT HERITAGE GROWTH
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
INVESTOR CLASS (In Thousands)
Shares Authorized .................................. 360,000 354,000 710,000
=========== =========== ===========
Year ended October 31, 2000
Sold ............................................... 20,269 $1,073,533 59,899 $1,032,958 96,164 $3,174,940
Issued in reinvestment of distributions ............ 12,782 655,426 8,241 116,117 34,139 1,060,359
Redeemed ........................................... (32,635) (1,732,796) (41,522) (701,575) (86,611) (2,833,102)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) ............................ 416 $(3,837) 26,618 $447,500 43,692 $1,402,197
=========== =========== =========== =========== =========== ===========
Year ended October 31, 1999
Sold ............................................... 23,866 $1,210,467 26,961 $312,108 51,420 $1,481,679
Issued in reinvestment of distributions ............ 23,864 1,081,597 179 1,912 44,062 1,134,197
Redeemed ........................................... (25,239) (1,278,267) (48,363) (556,314) (49,284) (1,420,046)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) ............................ 22,491 $1,013,797 (21,223) $(242,294) 46,198 $1,195,830
=========== =========== =========== =========== =========== ===========
ADVISOR CLASS (In Thousands)
Shares Authorized .................................. 100,000 105,000 210,000
=========== =========== =========== ===========
Year ended October 31, 2000
Sold ............................................... 543 $29,065 51 $899 627 $20,908
Issued in reinvestment of distributions ............ 17 844 9 120 54 1,687
Redeemed ........................................... (289) (15,282) (29) (521) (288) (9,329)
----------- ----------- ----------- ----------- ----------- -----------
Net increase ....................................... 271 $14,627 31 $498 393 $13,266
=========== =========== =========== =========== =========== ===========
Year ended October 31, 1999
Sold ............................................... 193 $9,734 225 $2,737 356 $10,388
Issued in reinvestment of distributions ............ 7 314 -- -- 42 1,087
Redeemed ........................................... (75) (3,833) (218) (2,701) (192) (5,674)
----------- ----------- ----------- ----------- ----------- -----------
Net increase ....................................... 125 $6,215 7 $ 36 206 $ 5,801
=========== =========== =========== =========== =========== ===========
INSTITUTIONAL CLASS (In Thousands)
Shares Authorized .................................. 40,000 41,000 80,000
=========== =========== =========== ===========
Year ended October 31, 2000
Sold ............................................... 3,636 $194,046 789 $12,901 3,335 $105,632
Issued in reinvestment of distributions ............ 239 12,248 1 11 10 297
Redeemed ........................................... (1,029) (55,025) (363) (6,245) (237) (7,933)
----------- ----------- ----------- ----------- ----------- -----------
Net increase ....................................... 2,846 $151,269 427 $6,667 3,108 $97,996
=========== =========== =========== =========== =========== ===========
Year ended October 31, 1999
Sold ............................................... 2,398 $122,740 5 $56 117 $3,195
Issued in reinvestment of distributions ............ 1 35 -- -- 1 35
Redeemed ........................................... (300) (15,594) (5) (54) (89) (2,433)
----------- ----------- ----------- ----------- ----------- -----------
Net increase ....................................... 2,099 $107,181 0 $ 2 29 $ 797
=========== =========== =========== =========== =========== ===========
</TABLE>
www.americancentury.com 29
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
5. BANK LOANS
The funds, along with certain other funds managed by ACIM, have entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
year ended October 31, 2000.
30 1-800-345-2021
<TABLE>
<CAPTION>
Select--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .....$ 53.32 $ 49.54 $ 48.18 $ 41.52 $ 39.52
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss)(1) ........ (0.06) 0.01 0.12 0.15 0.20
Net Realized and Unrealized Gain
on Investment Transactions ........... 4.04 13.73 9.37 10.51 6.73
--------- --------- --------- --------- ---------
Total From Investment Operations ....... 3.98 13.74 9.49 10.66 6.93
--------- --------- --------- --------- ---------
Distributions
From Net Investment Income ............. -- (0.17) (0.20) (0.32) (0.27)
From Net Realized Gains
on Investment Transactions ........... (5.10) (9.79) (7.93) (3.68) (4.66)
--------- --------- --------- --------- ---------
Total Distributions .................... (5.10) (9.96) (8.13) (4.00) (4.93)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ...........$ 52.20 $ 53.32 $ 49.54 $ 48.18 $ 41.52
========= ========= ========= ========= =========
Total Return(2) ........................ 7.64% 31.22% 22.96% 27.89% 19.76%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
(Loss) to Average Net Assets ........... (0.11)% 0.03% 0.25% 0.33% 0.50%
Portfolio Turnover Rate .................. 67% 130% 165% 94% 105%
Net Assets, End of Period (in millions) ..$ 7,086 $ 7,216 $ 5,591 $ 4,769 $ 4,039
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 31
<TABLE>
<CAPTION>
Select--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .........................$ 53.19 $ 49.44 $ 48.16 $ 49.43
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss)(2) ............................ (0.21) (0.13) -- (0.02)
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............................... 4.13 13.71 9.37 (1.25)
---------- ---------- ---------- ----------
Total From Investment Operations ........................... 3.92 13.58 9.37 (1.27)
---------- ---------- ---------- ----------
Distributions
From Net Investment Income ................................. -- (0.04) (0.16) --
From Net Realized Gains on Investment Transactions ......... (5.10) (9.79) (7.93) --
---------- ---------- ---------- ----------
Total Distributions ........................................ (5.10) (9.83) (8.09) --
---------- ---------- ---------- ----------
Net Asset Value, End of Period ...............................$ 52.01 $ 53.19 $ 49.44 $ 48.16
========== ========== ========== ==========
Total Return(3) ............................................ 7.54% 30.87% 22.67% (2.57)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ............ 1.25% 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets .. (0.36)% (0.22)% -- (0.17)%(4)
Portfolio Turnover Rate ...................................... 67% 130% 165% 94%(5)
Net Assets, End of Period (in thousands) .....................$ 22,239 $ 8,369 $ 1,617 $ 1,289
</TABLE>
(1) August 8, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period August 8, 1997 through
October 31, 1997.
32 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Select--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Institutional Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............................ $ 53.41 $ 49.63 $ 48.24 $ 40.56
----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(2) ...................................... 0.04 0.02 0.22 0.13
Net Realized and Unrealized Gain on Investment Transactions ... 4.01 13.83 9.37 7.55
----------- ----------- ----------- -----------
Total From Investment Operations .............................. 4.05 13.85 9.59 7.68
----------- ----------- ----------- -----------
Distributions
From Net Investment Income .................................... -- (0.28) (0.27) --
From Net Realized Gains on Investment Transactions ............ (5.10) (9.79) (7.93) --
----------- ----------- ----------- -----------
Total Distributions ........................................... (5.10) (10.07) (8.20) --
----------- ----------- ----------- -----------
Net Asset Value, End of Period .................................. $ 52.36 $ 53.41 $ 49.63 $ 48.24
=========== =========== =========== ===========
Total Return(3) ............................................... 7.77% 31.47% 23.22% 18.93%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ............... 0.80% 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income to Average Net Assets ............ 0.09% 0.23% 0.45% 0.45%(4)
Portfolio Turnover Rate ......................................... 67% 130% 165% 94%(5)
Net Assets, End of Period (in thousands) ........................ $ 259,092 $ 112,293 $ 173 $ 11,486
</TABLE>
(1) March 13, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period March 13, 1997 through
October 31, 1997.
See Notes to Financial Statements www.americancentury.com 33
<TABLE>
<CAPTION>
Heritage--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $13.02 $9.98 $14.86 $12.24 $11.75
------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(1) ...................... (0.03) 0.02 0.03 0.01 --
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ........................ 7.63 3.04 (2.14) 3.41 1.15
------- -------- -------- -------- --------
Total From Investment Operations ..................... 7.60 3.06 (2.11) 3.42 1.15
------- -------- -------- -------- --------
Distributions
From Net Investment Income ........................... (0.01) (0.02) (0.07) (0.09) (0.05)
In Excess of Net Investment Income ................... (0.03) -- -- -- --
From Net Realized Gains on Investment Transactions ... (1.48) -- (2.70) (0.71) (0.61)
------- -------- -------- -------- --------
Total Distributions .................................. (1.52) (0.02) (2.77) (0.80) (0.66)
------- -------- -------- -------- --------
Net Asset Value, End of Period ......................... $19.10 $13.02 $9.98 $14.86 $12.24
======= ======== ======== ======== ========
Total Return(2) ...................................... 62.61% 30.71% (15.87)% 29.56% 10.44%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ...... 1.00% 1.00% 1.00% 1.00% 0.99%
Ratio of Net Investment Income
(Loss) to Average Net Assets ......................... (0.17)% 0.19% 0.29% 0.05% --
Portfolio Turnover Rate ................................ 119% 134% 148% 69% 122%
Net Assets, End of Period (in millions) ................ $1,975 $1,000 $978 $1,321 $1,083
</TABLE>
(1) Computed using average shares outstanding throughout the
period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
34 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Heritage--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $12.98 $9.96 $14.85 $14.23
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) ........................... (0.07) (0.01) 0.02 (0.01)
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .............................. 7.62 3.03 (2.14) 0.63
-------- -------- -------- --------
Total From Investment Operations .......................... 7.55 3.02 (2.12) 0.62
-------- -------- -------- --------
Distributions
From Net Investment Income ................................ --(3) --(3) (0.07) --
In Excess of Net Investment Income ........................ --(3) -- -- --
From Net Realized Gains on Investment Transactions ........ (1.48) -- (2.70) --
-------- -------- -------- --------
Total Distributions ....................................... (1.48) -- (2.77) --
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $19.05 $12.98 $9.96 $14.85
======== ======== ======== ========
Total Return(4) ........................................... 62.26% 30.37% (16.03)% 4.36%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 1.25% 1.25% 1.25% 1.25%(5)
Ratio of Net Investment Income (Loss) to Average Net Assets.. (0.42)% (0.06)% 0.04% (0.23)%(5)
Portfolio Turnover Rate ..................................... 119% 134% 148% 69%(6)
Net Assets, End of Period (in thousands) .................... $2,127 $1,060 $748 $120
</TABLE>
(1) July 11, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(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.
(6) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period July 11, 1997 through
October 31, 1997.
See Notes to Financial Statements www.americancentury.com 35
<TABLE>
<CAPTION>
Heritage--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Institutional Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $13.04 $10.00 $14.87 $13.60
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) ........................... --(3) 0.04 0.06 0.01
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .............................. 7.65 3.04 (2.14) 1.26
-------- -------- -------- --------
Total From Investment Operations .......................... 7.65 3.08 (2.08) 1.27
-------- -------- -------- --------
Distributions
From Net Investment Income ................................ (0.01) (0.04) (0.09) --
In Excess of Net Investment Income ........................ (0.06) -- -- --
From Net Realized Gains on Investment Transactions ........ (1.48) -- (2.70) --
-------- -------- -------- --------
Total Distributions ....................................... (1.55) (0.04) (2.79) --
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $19.14 $13.04 $10.00 $14.87
======== ======== ======== ========
Total Return(4) ........................................... 63.00% 30.92% (15.67)% 9.34%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 0.80% 0.80% 0.80% 0.80%(5)
Ratio of Net Investment Income to Average Net Assets ........ 0.03% 0.39% 0.49% 0.21%(5)
Portfolio Turnover Rate ..................................... 119% 134% 148% 69%(6)
Net Assets, End of Period (in thousands) .................... $8,302 $92 $70 $129
</TABLE>
(1) June 16, 1997 (commencement of sale) through October 31,
1997.
(2) Computed using average shares outstanding throughout the
period.
(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.
(6) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period June 16, 1997 through
October 31,
1997.
36 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Growth--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $31.60 $28.03 $27.86 $22.21 $23.88
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(1) ........................... (0.10) (0.07) (0.01) 0.01 (0.01)
Net Realized and Unrealized Gain
on Investment Transactions .............................. 3.73 9.03 4.35 6.07 1.47
-------- -------- -------- -------- --------
Total From Investment Operations .......................... 3.63 8.96 4.34 6.08 1.46
-------- -------- -------- -------- --------
Distributions
From Net Investment Income ................................ -- -- -- (0.18) (0.07)
From Net Realized Gains on Investment Transactions ........ (4.14) (5.39) (4.17) (0.25) (2.98)
In Excess of Net Realized Gains
on Investment Transactions .............................. -- -- -- -- (0.08)
-------- -------- -------- -------- --------
Total Distributions ....................................... (4.14) (5.39) (4.17) (0.43) (3.13)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $31.09 $31.60 $28.03 $27.86 $22.21
======== ======== ======== ======== ========
Total Return(2) ........................................... 11.49% 36.31% 18.53% 27.85% 8.18%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income (Loss) to Average Net Assets.. (0.30)% (0.24)% (0.02)% 0.02% (0.10)%
Portfolio Turnover Rate ..................................... 102% 92% 126% 75% 122%
Net Assets, End of Period (in millions) ..................... $9,557 $8,333 $6,097 $5,113 $4,765
</TABLE>
(1) Computed using average shares outstanding throughout the
period.
(2) Total return assumes reinvestment of dividends and capital
gains distributions, if any.
See Notes to Financial Statements www.americancentury.com 37
<TABLE>
<CAPTION>
Growth--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $31.52 $27.97 $27.84 $24.36
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) ........................... (0.19) (0.15) (0.08) (0.06)
Net Realized and Unrealized Gain
on Investment Transactions .............................. 3.73 9.02 4.35 3.54
-------- -------- -------- --------
Total From Investment Operations .......................... 3.54 8.87 4.27 3.48
-------- -------- -------- --------
Distributions
From Net Realized Gains on Investment Transactions ........ (4.05) (5.32) (4.14) --
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $31.01 $31.52 $27.97 $27.84
======== ======== ======== ========
Total Return(3) ........................................... 11.23% 35.93% 18.23% 14.29%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 1.25% 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Loss to Average Net Assets .......... (0.55)% (0.49)% (0.27)% (0.47)%(4)
Portfolio Turnover Rate ..................................... 102% 92% 126% 75%(5)
Net Assets, End of Period (in thousands) .................... $24,750 $12,759 $5,520 $2,200
</TABLE>
(1) June 4, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
(5) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period June 4, 1997 through
October 31, 1997.
38 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Growth--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Institutional Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $31.66 $28.08 $27.88 $25.75
-------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss)(2) ........................... (0.03) (0.03) 0.05 0.01
Net Realized and Unrealized Gain
on Investment Transactions .............................. 3.72 9.07 4.34 2.12
-------- -------- -------- --------
Total From Investment Operations .......................... 3.69 9.04 4.39 2.13
-------- -------- -------- --------
Distributions
From Net Realized Gains on Investment Transactions ........ (4.20) (5.46) (4.19) --
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $31.15 $31.66 $28.08 $27.88
======== ======== ======== ========
Total Return(3) ........................................... 11.70% 36.62% 18.77% 8.27%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ........... 0.80% 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income (Loss) to Average Net Assets.. (0.10)% (0.04)% 0.18% 0.07%(4)
Portfolio Turnover Rate ..................................... 102% 92% 126% 75%(5)
Net Assets, End of Period (in thousands) .................... $98,239 $1,453 $465 $171
</TABLE>
(1) June 16, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital
gains distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio Turnover is calculated at the fund level. Percentage
indicated was calculated for the period June 16, 1997 through
October 31, 1997.
See Notes to Financial Statements www.americancentury.com 39
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Select Fund, Heritage Fund and Growth
Fund, (collectively the "Funds"), three of the funds comprising American Century
Mutual Funds, Inc., as of October 31, 2000, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and the financial highlights are the responsibility of the Funds' management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Select Fund, Heritage Fund and Growth Fund as of October 31, 2000, the results
of their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
40 1-800-345-2021
Proxy Voting Results
--------------------------------------------------------------------------------
A special meeting of shareholders for the Select Fund and Heritage Fund, was
held on June 16, 2000, to vote on the following proposal. The proposal received
the required majority of votes and was adopted.
A summary of voting results is listed below the proposal.
PROPOSAL:
To eliminate the fundamental investment policy that eighty percent (80%) of
Select Fund's and sixty percent (60%) of Heritage Fund's assets must be invested
in securities of companies that pay regular dividends, or have committed to pay
dividends, or otherwise produce income.
SELECT HERITAGE
For: 88,545,908 72,721,114
Against: 10,155,097 3,420,629
Abstain: 3,387,687 778,345
www.americancentury.com 41
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Three classes of shares are authorized for sale by the funds: Investor
Class, Advisor Class and Institutional 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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
INSTITUTIONAL CLASS shares are available to endowments, foundations, defined
benefit pension plans or financial intermediaries serving these investors. This
class recognizes the relatively lower cost of serving institutional customers
and others who invest at least $5 million in an American Century fund or at
least $10 million in multiple funds. In recognition of the larger investments
and account balances and comparatively lower transaction costs, the total
expense ratio of the Institutional Class shares is 0.20% less than the total
expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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.
42 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers more than a dozen growth funds, including domestic
equity, specialty, international, and global. The philosophy behind these growth
funds focuses on three important principles. First, the funds seek to own
successful companies, which we define as those with growing earnings and
revenues. Second, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit the potential for gain. Third, the funds are managed by teams, rather than
by one "star." We believe this allows us to make better, more consistent
management decisions.
In addition to these principles, each fund has its own investment policies:
AMERICAN CENTURY SELECT seeks large, established companies that show
accelerating growth rates. The established nature of the companies in which
Select invests helps lessen the fund's short-term price fluctuations.
AMERICAN CENTURY HERITAGE seeks smaller and midsized firms showing
accelerating growth rates. With this investment approach, Heritage should
display somewhat more price variability -- and greater long-term growth
potential -- than Select. Historically, small-cap stocks have been more volatile
than the stocks of larger, more established companies.
AMERICAN CENTURY GROWTH invests in larger, more established firms that
exhibit accelerating growth. Because the value of established firms tends to
change relatively slowly, Growth can ordinarily be expected to show more
moderate price fluctuations than growth funds that invest in smaller or midsized
firms.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded Blue Chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
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, it is considered to be a
broad measure of U.S. stock market performance.
The S&P MIDCAP 400 is the medium capitalization sector of the U.S. market.
Created by Standard & Poor's, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2000
Index represents approximately 10% of the total market capitalization of the top
3,000 companies. The average market capitalization of the index is approximately
$420 million.
The RUSSELL 1000 INDEX, created by the Frank Russell Company, measures the
performance of the 1,000 largest companies in the Russell 3000 Index (the 3,000
largest publicly traded U.S. companies, based on total market capitalization).
The RUSSELL 1000 GROWTH INDEX measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted growth
rates.
PORTFOLIO MANAGERS
Select
JERRY SULLIVAN
KENNETH CRAWFORD
Heritage
LINDA PETERSON, CFA
KURT STALZER
Growth
C. KIM GOODWIN
GREG WOODHAMS, CFA
PRESCOTT LEGARD, CFA
www.americancentury.com 43
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 total returns, please refer to the "Financial
Highlights" on pages 31-39.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION--
average market capitalization represents the average value of the companies held
in a portfolio. When that figure is weighted, the impact of each company's
capitalization on the overall average is proportional to the total market value
of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $9 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the
S&P 500 Index generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.3 billion and $9 billion. This is
Lipper's market capitalization breakpoint as of October 31, 2000, although it
may be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
44 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.3 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
www.americancentury.com 45
Notes
--------------------------------------------------------------------------------
46 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 47
Notes
--------------------------------------------------------------------------------
48 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
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INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
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1-800-345-8765
FAX: 816-340-7962
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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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23033 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
ANNUAL REPORT
[graphic of runners]
[graphic of person looking at computer screen]
Ultra(reg.sm)
Vista
[american century logo and text logo(reg.sm)]
American
Century
[inside front cover]
REVIEW THE DAY'S MARKET ACTIVITY AT WWW.AMERICANCENTURY.COM
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
INFORMATION AND ADVANCE NOTICE
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
REVIEW THE WEEK
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
EASY TO FIND
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the Wrap
you're looking for in the left column.
[Dalbar seal]
American Century's reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
ULTRA
(TWCUX)
--------------------------
VISTA
(TWCVX)
--------------------------
Turn to the inside back cover to see a list of American Century funds classified
by objective and risk.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The year covered in this report was among the more remarkable in the
market's recent history. Investors witnessed a stunning advance during the first
half, followed by a swift and dramatic retreat from record-breaking heights. The
reversal was the result of a convergence of several factors, among them concern
about a slowing economy, rising interest rates and richly priced technology
stocks. As our portfolio managers discuss in their investment reviews, we
believe that stock prices ultimately depend on earnings, and our growth funds
steadfastly follow a disciplined approach to find successful, growing companies.
We think investors in our growth funds are best served by that philosophy, no
matter how volatile the market.
Turning to corporate matters, we are pleased to announce that senior vice
president and lead portfolio manager C. Kim Goodwin has been named co-chief
investment officer for American Century's domestic growth equity discipline. An
investment professional with 13 years of portfolio management experience,
Goodwin shares this position with Jim Stowers III. She will continue to serve on
the investment team for American Century Growth, a fund she's co-managed since
1997.
In her new role, Goodwin manages the teams responsible for the Growth,
Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life Sciences and
Technology funds. She also joins the Investment Oversight Committee, a group of
senior executives who monitor the performance of the company's equity and fixed
income disciplines.
In other corporate news, we chose to share the chairman of the board
responsibilities and also named American Century President William M. Lyons
chief executive officer, giving him ultimate management responsibility for the
entire company.
These changes strengthen the leadership of our investment management area
and allow us to pursue additional worthwhile endeavors. For example, Jim Stowers
III will focus more on product innovation (in particular, our
earnings-acceleration screening system to build the next generation of portfolio
management technologies). However, his first priority will be continuing
involvement on the investment teams responsible for the Ultra and Veedot Funds.
We appreciate your continued confidence in American Century.
/signature/ /signature/
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman of the Board Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
ULTRA
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Schedule of Investments ................................................ 8
VISTA
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Portfolio at a Glance .................................................. 11
Top Ten Holdings ....................................................... 12
Top Five Industries .................................................... 12
Types of Investments ................................................... 13
Schedule of Investments ................................................ 14
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 16
Statement of Operations ................................................ 17
Statement of Changes
in Net Assets ....................................................... 18
Notes to Financial
Statements .......................................................... 19
Financial Highlights ................................................... 23
Independent Auditors'
Report .............................................................. 29
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 30
Background Information
Investment Philosophy
and Policies ..................................................... 31
Comparative Indices ................................................. 31
Portfolio Managers .................................................. 31
Glossary ............................................................... 32
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* 2000 has presented investors with two very different stock markets. Until
March 10, investors seemed interested only in "TMT" stocks--those of
technology, media, and telecommunications companies. The Nasdaq sprinted
ahead 24%, buoyed by corporate technology spending, a wave of foreign money
moving into U.S. stocks, and investor enthusiasm for any company with a
".com" at the end of its name. If you had anything to do with the Internet,
it seemed, no price was too high for your shares.
* Since then, though, investors have been painfully reminded that earnings do
matter. Equity valuations across technology have fallen, as evidenced by
the Nasdaq's 33% decline from its March 10 high. A newfound focus on
valuations and earnings has resulted in a broadening of the market across
company size, style, and sector. That broadening, though, has been
accompanied by rising volatility that is well above the historical averages
for the S&P 500 and the Nasdaq.
ULTRA
* Ultra gained 9.81% for the 12 months ended October 31, 2000, outperforming
its benchmark, the S&P 500, which was up 6.09%.
* Ultra seeks high-quality companies that are growing at an accelerating rate.
Over the year, its strongest contributors included financial services
firms, growth companies involved in computer hardware and software
(especially for high-capacity data storage), pharmaceuticals, and
businesses in the energy field.
* On the minus side, the fund's progress was slowed by individual securities
in technology, led by Qualcomm, the wireless communications company, Dell
Computer, and Intel. Core holding Time Warner, the entertainment
conglomerate, also detracted from performance, as investors weighed its
planned merger with America Online.
VISTA
* Vista gained 66.16% during the year, more than double the increase posted by
its benchmark, the Russell 2500 Growth Index, which was up 29.71%.
* Technology stocks drove the market during the first six months of the year,
before faltering during the second half. Vista benefited from technology's
advance, and was able to protect its early gains, thanks partly to avoiding
speculative Internet companies that fell the hardest.
* Vista trimmed its technology holdings during the period, but tech remained
the fund's largest sector weighting. The health care, energy and financial
sectors took on larger roles and were among the fund's strongest
contributors.
[left margin]
ULTRA(1)
(TWCUX)
TOTAL RETURNS: AS OF 10/31/00
6 Months -8.13%(2)
1 Year 9.81%
INCEPTION DATE: 11/2/81
NET ASSETS: $39.7 billion(3)
VISTA(1)
(TWCVX)
TOTAL RETURNS: AS OF 10/31/00
6 Months -0.45%(2)
1 Year 66.16%
INCEPTION DATE: 11/25/83
NET ASSETS: $2.4 billion(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor, and Institutional classes.
Investment terms are defined in the Glossary on pages 32-33.
2 1-800-345-2021
Market Perspective from James E. Stowers III and C. Kim Goodwin
--------------------------------------------------------------------------------
[photo of C. Kim Goodwin and James E. Stowers III]
C. Kim Goodwin and James E. Stowers III, co-chief investment officers, U.S.
growth equities
2000 has challenged equity investors with two very different stock markets.
Until March 10, we had what amounted to a one-sector economy as investors heard
only the siren song of technology. The Nasdaq sprinted ahead 24%, buoyed by
corporate tech spending, a continuing flood of foreign money attracted by a
strong U.S. economy, and what could only be called a speculative bubble. Many
said we had crossed into a new economy, one highlighted by technology, media,
and telecommunications firms. If you had anything to do with the Internet, no
price was too high for your shares. Earnings didn't seem to matter either in
this new era. You could succeed simply by putting ".com" at the end of your
name.
But bubbles puncture easily. In the face of rising short-term interest
rates, skyrocketing energy costs, and a weak euro, the economy and corporate
earnings began to slow. From mid-March forward, investors have been reminded
that earnings do matter, and it's been a punishing lesson. Equity valuations
have fallen, as evidenced by the Nasdaq's more than 33% tumble from its March
high--a decline more severe than its drop (as well as those of the Dow Jones
Industrial Average, the S&P 500 or the NYSE Composite) during the October 1987
market crash.
A newfound focus on valuation and earnings has resulted in a broadening of
the market across company size, style, and sector. Albeit modestly, smaller
companies have outperformed larger companies year-to-date. In addition, value
equities have outperformed growth equities so far in 2000 for the first time in
six calendar years. Finally, since mid-year, twice as many sectors of the S&P
500 have outperformed the index than in the previous 18 months.
The trade-off to the market's broadening might be the perpetuation of
rising volatility--volatility in the S&P 500 and Nasdaq that is almost twice and
more than three times their historical averages, respectively. Combine nearly
instant dissemination of information, declining commission costs, recent
regulations regarding the flow of information and more than $1.7 trillion in
401(k) and other investor-controlled assets, and you have a recipe for "ready,
fire, aim" investing.
All of this, we think, puts us in a market where the best results will be
earned by investors who can identify companies that can sustain their growth.
This is the foundation of the investment strategy that drives our domestic
growth equity funds.
[right margin]
"A NEWFOUND FOCUS ON VALUATION AND EARNINGS HAS RESULTED IN A BROADENING OF THE
MARKET ACROSS COMPANY SIZE, STYLE, AND SECTOR."
MARKET RETURNS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
S&P 500 6.09%
S&P MIDCAP 400 31.65%
RUSSELL 2000 17.41%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
[data for line chart below]
S&P 500 S&P Mid-Cap 400 Russell 2000
10/31/1999 $1.00 $1.00 $1.00
11/30/1999 $1.02 $1.05 $1.06
12/31/1999 $1.08 $1.12 $1.18
1/31/2000 $1.03 $1.08 $1.16
2/29/2000 $1.01 $1.16 $1.35
3/31/2000 $1.11 $1.26 $1.26
4/30/2000 $1.07 $1.21 $1.19
5/31/2000 $1.05 $1.20 $1.12
6/30/2000 $1.08 $1.22 $1.22
7/31/2000 $1.06 $1.23 $1.18
8/31/2000 $1.12 $1.37 $1.27
9/30/2000 $1.07 $1.36 $1.23
10/31/2000 $1.06 $1.32 $1.17
Value on 10/31/00
S&P 500 $1.06
S&P Mid-Cap 400 $1.32
Russell 2000 $1.17
Investment terms are defined in the Glossary on pages 31-33.
www.americancentury.com 3
<TABLE>
Ultra--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 11/2/81) (INCEPTION 10/2/96) (INCEPTION 11/14/96)
ULTRA S&P 500 ULTRA S&P 500 ULTRA S&P 500
<S> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) .............. -8.13% -1.03% -8.21% -1.03% -8.08% -1.03%
1 YEAR ................... 9.81% 6.09% 9.72% 6.09% 9.87% 6.09%
AVERAGE ANNUAL RETURNS
3 YEARS .................. 21.22% 17.60% 21.01% 17.60% 21.41% 17.60%
5 YEARS .................. 18.81% 21.67% -- -- -- --
10 YEARS ................. 24.43% 19.44% -- -- -- --
LIFE OF FUND ............. 18.36% 17.45% 20.19% 21.41%(2) 20.06% 19.97%
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 9/30/96, the date nearest the class's inception for which data
are available.
See pages 30-33 for information about share classes, the S&P 500 Index, and
returns.
GROWTH OF $10,000 OVER 10 YEARS
[data for mountain chart below]
Ultra S&P 500
Date Value Value
10/31/1990 $10,000 $10,000
10/31/1991 $20,152 $13,350
10/31/1992 $20,061 $14,680
10/31/1993 $28,042 $16,873
10/31/1994 $27,458 $17,526
10/31/1995 $37,588 $22,160
10/31/1996 $41,644 $27,500
10/31/1997 $49,951 $36,330
10/31/1998 $58,748 $44,319
10/31/1999 $81,037 $55,696
10/31/2000 $88,974 $59,088
$10,000 investment made 10/31/90
Value on 10/31/00
Ultra $88,974
S&P 500 $59,088
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 S&P
500 Index is provided for comparison in each graph. Ultra's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the S&P 500 Index do not. The graphs
are based on Investor Class shares only; performance for other classes will vary
due to differences in fee structures (see the 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[data for bar chart below]
Ultra S&P 500 Index
Date Return Return
10/31/1991 101.51% 33.50%
10/31/1992 -0.45% 9.93%
10/31/1993 39.78% 14.89%
10/31/1994 -2.08% 3.87%
10/31/1995 36.89% 26.36%
10/31/1996 10.79% 24.03%
10/31/1997 19.95% 32.10%
10/31/1998 17.61% 21.96%
10/31/1999 37.94% 25.67%
10/31/2000 9.81% 6.09%
4 1-800-345-2021
Ultra--Q&A
--------------------------------------------------------------------------------
[photo of John Sykora, Jim Stowers III, and Bruce Wimberly]
An interview with John Sykora, Jim Stowers III, and Bruce Wimberly,
portfolio managers on the Ultra investment team.
HOW DID ULTRA PERFORM FOR THE 12 MONTHS ENDED OCTOBER 31, 2000?
Ultra gained 9.81% for the period, outperforming its benchmark, the
Standard & Poor's 500 Index, which was up 6.09%.*
In the six months since our last report--a period that saw investors
retreat from growth stocks in general and technology companies in
particular--Ultra was down 8.13%, while the S&P 500 fell 1.03%.
Looking longer-term, investors who have been in Ultra for the past three
years have received an annualized return on their investment of 21.22%, versus
17.60% for the S&P 500. Over the past ten years, Ultra has provided an
annualized return of 24.43%, while the S&P 500 has averaged 19.44%.
BEFORE YOU DISCUSS ULTRA'S PORTFOLIO, COULD YOU BRIEFLY OUTLINE THE GROWTH
STRATEGY YOU FOLLOW?
Our investment philosophy centers on owning growing businesses. In fact,
our proprietary database is designed to identify companies whose earnings and
revenues are growing at an accelerating rate. We'll only own a company, though,
if we're convinced that it can sustain its growth into the future, and we do a
tremendous amount of analysis to arrive at that conclusion.
Our disciplined investment process leads us to companies whose businesses
are steadily improving. (Incidentally, a company whose earnings are negative but
improving is also attractive to us.) Companies showing the business momentum we
require often have other common characteristics as well. For example, demand for
their products, services, or technology tends to be strong (or is just beginning
to show strength). In addition, they often show a growing dominance in their
respective industries, and their market shares tend to be rising as they
continue to grow their businesses at faster rates.
A look at our top-ten holdings on the next page shows that Ultra's
investments are concentrated in companies we believe have the best chance of
continuing their strong earnings growth. We think that taking large positions in
decidedly successful companies is the best way to generate superior returns over
time.
TURNING TO ULTRA'S PORTFOLIO, CAN YOU ELABORATE ON THE CURRENT THEMES
SURROUNDING YOUR INVESTMENTS?
While no one can predict the future, we think the long-term promise that
the Internet holds for equity investors is still very real. One must look hard
to find a major business not doing business on the Internet. That's why three of
our high-confidence holdings are America Online (AOL), Time Warner, and EMC
Corp.
If you're one of AOL's 25 million subscribers, you've probably stayed with
this country's largest Internet provider because it continually introduces new
and better services. The
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"WE THINK THAT TAKING LARGE POSITIONS IN DECIDEDLY SUCCESSFUL COMPANIES IS THE
BEST WAY TO GENERATE SUPERIOR RETURNS OVER TIME."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 88 68
P/E RATIO 49.1 48.6
MEDIAN MARKET $30.4 $65.2
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $140 $145
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 62% 42%
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.99% 1.00%
Investment terms are defined in the Glossary on pages 32-33.
www.americancentury.com 5
Ultra--Q&A
--------------------------------------------------------------------------------
(Continued)
latest innovations are AOL by Phone, which enables cell phone users to hear
their email, and new multimedia software that lets consumers listen to music or
watch video clips on their mobile phones.
AOL is in the process of acquiring another successful company, Time Warner,
the world's largest media and entertainment company. Both firms lead their
respective industries. Together, their combination would form a content-rich
Internet provider with a high-capacity communications path to and from millions
of cable households in the United States. With the technology and distribution
points in place, it's our view that content is going to play a major role in
many companies' future success on the Internet.
EMC, another long-time member of Ultra's portfolio, is the acknowledged
leader in high-capacity computer hardware and software that store the huge
amounts of data being generated and carried on the Internet. EMC's accelerating
growth stems from business after business setting up e-commerce operations. Its
third-quarter profits rose by 55%, and the future for storage equipment
continues to look promising. EMC recently sponsored a study at the University of
California at Berkeley to analyze trends in digital data generation. According
to the study, over the past 300,000 years, humanity has accumulated 12 exabytes
of information. An exabyte is a 1 followed by 18 zeroes. The next 12 exabytes of
information will be created in three years!
Unfortunately, not all technology stories have been positive. The last half
of the period was not kind to one of our largest holdings, Qualcomm Inc., the
wireless communications company whose strong performance highlighted our last
report to you. Qualcomm owns patents for CDMA technology, the dominant digital
technology used in cell phones. The stock, the top-performer in the S&P 500 for
1999, declined in the spring when the Korean government banned cellular phone
discounts--in one of the largest markets for cellular handsets. Right afterward,
China announced it was delaying plans to use Qualcomm's technology in a new
wireless network. Qualcomm's problems were a factor in Ultra's underperformance
during the past six months.
FINANCIALS REPRESENT ANOTHER BROAD THEME. WHERE ARE YOU FINDING STRONG GROWTH IN
THAT SECTOR?
Helped by a stabilizing interest rate environment, our complement of
financial holdings, which has changed little since our last report, contributed
the most to performance over the recent six-month period. They were led by
American International Group (AIG), our second-largest holding and a long-time
contributor for Ultra shareholders. AIG is the largest insurer in the United
States and has a strong and profitable global presence. The company's shares
rose 38% over the last six months, helped by rising property and casualty rates
and increased sales of retirement savings products, primarily annuities.
Elsewhere in financial services, we were rewarded for our patience with
mortgage market participants Fannie Mae and Federal Home Loan Mortgage Corp.
(Freddie Mac). The two government-chartered businesses had been slowed by a
series of Federal Reserve interest rate hikes. They blossomed over the last six
months, however, as Freddie Mac rose 30% and Fannie Mae 27% during a period when
many stock market indices declined.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
PFIZER, INC. 7.2% 3.0%
AMERICAN
INTERNATIONAL
GROUP, INC. 6.6% 4.7%
TIME WARNER INC. 6.4% 6.1%
QUALCOMM INC. 4.3% 6.1%
EMC CORP. (MASS.) 4.2% 4.6%
GENERAL ELECTRIC
CO. (U.S.) 3.7% 3.1%
CITIGROUP INC. 3.6% 2.3%
GEMSTAR INTERNATIONAL
GROUP LTD. 3.4% 1.1%
AMERICA ONLINE, INC. 3.4% 3.3%
CISCO SYSTEMS INC. 3.1% 3.8%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
COMPUTER SOFTWARE 13.0% 7.9%
DRUGS 10.4% 7.4%
MEDIA 9.8% 11.2%
PROPERTY AND
CASUALTY INSURANCE 7.3% 5.0%
FINANCIAL SERVICES 7.3% 7.3%
6 1-800-345-2021
Ultra--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT OTHER MOVES DID YOU MAKE OVER THE RECENT PERIOD?
A combination of additional investments and good performance lifted our
health care stake, which was concentrated in pharmaceuticals. When it comes to
drug companies, we look for strong firms with active product pipelines--drugs in
advanced testing stages. We have the majority of our health care investments in
two companies, Pfizer Inc., the fund's largest holding, and Amgen.
Pfizer, the world's largest drug maker, bought competitor Warner-Lambert in
June, gaining Warner-Lambert's successful cholesterol drug, Lipitor, in the
process. Pfizer's drug stable includes the impotence drug, Viagra; Norvesc,
which treats blood pressure; and Celebrex, an arthritis medicine. The company is
in final testing for a drug to treat schizophrenia.
Amgen is the world's biggest biotechnology company. It is best known for
oncology drugs, such as Epogen, which treats anemia resulting from chemotherapy,
and Neupogen, which stimulates white blood cells. The company has a strong new
product pipeline and plans to introduce four new drugs in the next two years.
WITHOUT MAKING A PREDICTION, WHAT'S YOUR BEST THINKING ABOUT ULTRA AND THE
MARKET AS YOU LOOK FORWARD?
The economy is slowing down. We're seeing revenue growth decline in a
number of industries, and most observers look for single-digit corporate
earnings growth for the S&P 500 Index in 2001.
In such an environment, companies with predictable earnings growth are
likely to become both more scarce and more valued. We think this would play to
Ultra's strength--a portfolio of strong, well-managed companies with sustainable
growth prospects.
[right margin]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
* U.S. STOCKS 95.3%
* TEMPORARY CASH INVESTMENTS 3.8%
* FOREIGN STOCKS 0.9%
[pie chart]
AS OF APRIL 30, 2000
* U.S. STOCKS 94.9%
* TEMPORARY CASH INVESTMENTS 0.9%
* FOREIGN STOCKS 4.2%
[pie chart]
www.americancentury.com 7
Ultra--Schedule of Investments
-------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS -- 96.2%
BANKS -- 4.3%
4,840,000 Bank of New York Co., Inc. (The) $ 278,603
27,021,499 Citigroup Inc. 1,422,006
--------------------
1,700,609
--------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 6.1%
120,000 Brocade Communications System(1) 27,285
7,058,900 Dell Computer Corp.(1) 208,017
18,607,600 EMC Corp. (Mass.)(1) 1,657,239
2,900,000 Palm Inc.(1) 155,422
2,565,000 Research In Motion Ltd.(1) 256,821
1,225,000 Sun Microsystems, Inc.(1) 135,784
--------------------
2,440,568
--------------------
COMPUTER SOFTWARE -- 13.0%
3,624,000 Adobe Systems Inc. 275,537
1,200,200 Check Point Software
Technologies Ltd.(1) 190,119
11,413,400 Electronic Arts Inc.(1)(2) 570,313
19,983,500 Gemstar International Group Ltd.(1)(2) 1,369,495
1,798,600 i2 Technologies, Inc.(1) 305,706
105,000 Mercury Interactive Corp.(1) 11,652
13,059,500 Microsoft Corp.(1) 899,881
11,545,200 Oracle Corp.(1) 380,992
34,642 Per-Se Technologies, Inc. Warrants(1) --
1,158,000 Rational Software Corp.(1) 69,154
80,000 Va Linux Inc.(1) 2,323
7,657,600 Veritas Software Corp.(1) 1,079,722
--------------------
5,154,894
--------------------
DEPARTMENT STORES -- 0.6%
2,165,000 Target Corp. 59,808
3,776,600 Wal-Mart Stores, Inc. 171,363
--------------------
231,171
--------------------
DRUGS -- 10.4%
1,915,000 American Home Products Corp. 121,603
11,414,700 Amgen Inc.(1) 660,982
218,000 Genentech, Inc.(1) 17,985
2,958,400 Immunex Corp.(1) 125,824
60,000 Millennium Pharmaceuticals, Inc.(1) 4,354
66,145,275 Pfizer, Inc. 2,856,649
3,500,000 Pharmacia Corp. 192,500
334,200 Protein Design Labs, Inc.(1) 44,981
4,172,800 Stratus Computer, Inc.(1) 94,410
--------------------
4,119,288
--------------------
ELECTRICAL EQUIPMENT -- 5.6%
1,675,000 ADC Telecommunications Inc.(1) 35,751
2,210,000 Celestica Inc.(1) 158,844
22,826,600 Cisco Systems Inc.(1) 1,229,782
1,585,000 Flextronics International Ltd. ADR(1) 60,180
1,965,000 Jabil Circuit, Inc.(1) 112,128
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
3,670,000 JDS Uniphase Corp.(1) $ 298,990
1,915,000 Nortel Networks Corp. 87,133
890,000 Sanmina Corp.(1) 101,766
3,470,000 Solectron Corp.(1) 152,680
--------------------
2,237,254
--------------------
ELECTRICAL UTILITIES -- 0.1%
470,000 Duke Energy Corp. 40,626
--------------------
ENERGY RESERVES & PRODUCTION -- 2.7%
13,211,000 Enron Corp. 1,084,128
--------------------
FINANCIAL SERVICES -- 7.3%
8,292,600 American Express Co. 497,556
8,971,600 Fannie Mae 690,813
4,205,500 Federal Home Loan
Mortgage Corporation 252,330
26,567,500 General Electric Co. (U.S.) 1,456,231
--------------------
2,896,930
--------------------
FOOD & BEVERAGE -- 0.6%
4,045,000 Coca-Cola Company (The) 244,217
--------------------
INFORMATION SERVICES -- 0.8%
1,455,000 CBT Group Public Limited
Co. ADR(1) 73,023
2,008,600 Convergys Corp.(1) 87,500
1,985,000 Paychex, Inc. 112,586
1,240,100 Wireless Facilities, Inc.(1) 61,966
--------------------
335,075
--------------------
INTERNET -- 4.4%
26,840,200 America Online, Inc.(1) 1,353,552
30,000 Ariba, Inc.(1) 3,790
2,105,000 Portal Software, Inc.(1) 74,333
8,865,955 Terra Networks, S.A. ADR 214,168
105,000 VeriSign, Inc.(1) 13,863
1,823,800 Yahoo! Inc.(1) 106,863
--------------------
1,766,569
--------------------
MEDIA -- 9.8%
7,993,160 Clear Channel
Communications, Inc.(1) 480,089
33,420,000 Time Warner Inc. 2,536,912
2,668,200 Univision Communications Inc. Cl A(1) 102,059
196,000 Viacom, Inc. Cl A(1) 11,221
13,373,000 Viacom, Inc. Cl B(1) 760,589
--------------------
3,890,870
--------------------
MEDICAL PRODUCTS & SUPPLIES -- 4.1%
3,965,000 Abbott Laboratories 209,402
9,101,100 Guidant Corp.(1) 481,789
17,088,400 Medtronic, Inc. 928,114
--------------------
1,619,305
--------------------
MULTI-INDUSTRY -- 2.2%
15,313,920 Tyco International Ltd. 868,108
--------------------
8 1-800-345-2021 See Notes to Financial Statements
Ultra--Schedule of Investments
-------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
OIL SERVICES -- 1.5%
2,280,000 Baker Hughes Inc. $ 78,375
1,190,000 Global Marine Inc.(1) 31,535
960,000 R&B Falcon Corp.(1) 24,000
790,000 Rowan Companies, Inc.(1) 19,898
5,705,000 Schlumberger Ltd. 434,293
--------------------
588,101
--------------------
PROPERTY & CASUALTY INSURANCE -- 7.3%
26,834,371 American International Group, Inc. 2,629,769
4,546 Berkshire Hathaway Inc. Cl A(1) 289,580
--------------------
2,919,349
--------------------
SECURITIES & ASSET MANAGEMENT -- 3.3%
3,065,000 Morgan Stanley Dean Witter & Co. 246,158
27,940,000 Schwab (Charles) Corp. 981,392
2,405,000 Stilwell Financial Inc. 107,774
--------------------
1,335,324
--------------------
SEMICONDUCTOR -- 3.3%
320,000 Applied Micro Circuits Corp.(1) 24,460
90,000 Broadcom Corp.(1) 20,011
14,035,200 Intel Corp. 630,707
2,662,200 Linear Technology Corp. 171,795
5,442,200 Maxim Integrated Products, Inc.(1) 360,716
605,000 SanDisk Corp.(1)(2) 32,500
455,800 Texas Instruments Inc. 22,363
555,000 Xilinx, Inc.(1) 40,185
--------------------
1,302,737
--------------------
SPECIALTY STORES -- 0.6%
5,824,000 Home Depot, Inc. 250,432
--------------------
TELEPHONE -- 2.7%
58,863,800 AT&T Corp.-Liberty Media
Group Cl A(1) 1,059,548
--------------------
WIRELESS TELECOMMUNICATIONS -- 5.5%
8,450,000 American Tower Corp. Cl A(1)(2) 345,922
4,405,500 Crown Castle International Corp.(1) 133,679
26,229,200 QUALCOMM Inc.(1) 1,708,177
--------------------
2,187,778
--------------------
TOTAL COMMON STOCKS & WARRANTS 38,272,881
--------------------
(Cost $24,193,029)
Principal Amount ($ in Thousands) Value
-------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS(3) -- 3.8%
$ 50,000 FFCB Discount Notes,
6.45%, 11/1/00 $ 50,000
75,000 FHLB Discount Notes,
6.37%, 11/8/00 74,906
100,000 FHLB Discount Notes,
6.38%, 11/10/00 99,839
280,726 FHLB Discount Notes,
6.38%, 11/15/00 280,020
212,000 FHLB Discount Notes,
6.38%, 11/17/00 211,391
100,000 FHLB Discount Notes,
6.40%, 11/22/00 99,623
100,000 FHLB Discount Notes,
6.40%, 11/24/00 99,587
50,000 FHLMC Discount Notes,
6.40%, 11/7/00 49,946
50,000 FHLMC Discount Notes,
6.39%, 11/14/00 49,883
100,000 FHLMC Discount Notes,
6.37%, 11/17/00 99,713
100,000 FHLMC Discount Notes,
6.43%, 11/28/00 99,516
90,000 FHLMC Discount Notes,
6.42%, 12/19/00 89,227
52,400 FNMA Discount Notes,
6.45%, 11/1/00 52,400
142,250 SLMA Discount Notes,
6.36%, 11/1/00 142,250
--------------------
TOTAL TEMPORARY CASH INVESTMENTS 1,498,301
--------------------
(Cost $1,498,303)
TOTAL INVESTMENT SECURITIES -- 100.0% $39,771,182
====================
(Cost $25,691,332)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
($ in Thousands)
Contracts Settlement Unrealized
to Sell Date Value Loss
-------------------------------------------------------------------------------
110,208,049 EURO 11/30/00 $93,707 $(409)
=========================================
(Value at settlement date $93,298)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS are designed to protect the fund's
foreign investments against declines in foreign currencies (also known as
hedging). The contracts are called "forward" because they allow the fund to
exchange a foreign currency for U.S. dollars on a specific date in the
future--and at a prearranged exchange rate.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
SLMA = Student Loan Marketing Association
(1) Non-income producing.
(2) Affiliated Company: represents ownership of at least 5% of the voting
securities of the issuer and is, therefore, an affiliate as defined in
the Investment Company Act of 1940. (See Note 5 in Notes to Financial
Statements for a summary of transactions for each issuer which is or was
an affiliate at or during the year ended October 31, 2000.)
(3) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 9
<TABLE>
<CAPTION>
Vista--Performance
-------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 11/25/83) (INCEPTION 10/2/96) (INCEPTION 11/14/96)
RUSSELL 2500 RUSSELL 2500 RUSSELL 2500
VISTA GROWTH INDEX VISTA GROWTH INDEX VISTA GROWTH INDEX
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) ............. -0.45% -6.08% -0.62% -6.08% -0.28% -6.08%
1 YEAR .................. 66.16% 29.71% 65.98% 29.71% 66.28% 29.71%
AVERAGE ANNUAL RETURNS
3 YEARS ................. 23.42% 15.36% 23.20% 15.36% 23.62% 15.36%
5 YEARS ................. 15.06% 16.86% -- -- -- --
10 YEARS ................ 20.12% 19.25% -- -- -- --
LIFE OF FUND ............ 14.72% N/A(2) 14.54% 15.67%(3) 17.47% 16.95%(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Benchmark began 1/1/86.
(3) Since 9/30/96, the date nearest the class's inception for which data
are available.
(4) Since 11/30/96, the date nearest the class's inception for which data
are available.
See pages 30-33 for information about share classes, the Russell 2500 Growth
Index, and returns.
GROWTH OF $10,000 OVER 10 YEARS
[data for mountain chart below]
Vista Russell 2500 Growth
Date Value Value
10/31/1990 $10,000 $10,000
10/31/1991 $16,768 $16,734
10/31/1992 $17,533 $17,109
10/31/1993 $20,639 $21,212
10/31/1994 $21,498 $21,607
10/31/1995 $31,000 $26,676
10/31/1996 $33,158 $31,079
10/31/1997 $33,254 $37,868
10/31/1998 $22,633 $32,621
10/31/1999 $37,624 $44,817
10/31/2000 $62,513 $58,133
$10,000 investment made 10/31/90
Value on 10/31/00
Vista $62,513
Russell 2500 Growth $58,133
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
Russell 2500 Growth Index is provided for comparison in each graph. Vista's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the Russell
2500 Growth Index do not. The graphs are based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[data for bar chart]
Vista Russell 2500 Growth Index
Date Return Return
10/31/1991 67.67% 67.34%
10/31/1992 4.55% 2.24%
10/31/1993 17.72% 23.98%
10/31/1994 4.16% 1.86%
10/31/1995 44.20% 23.46%
10/31/1996 6.96% 16.51%
10/31/1997 0.29% 21.85%
10/31/1998 -31.94% -13.85%
10/31/1999 66.24% 37.39%
10/31/2000 66.16% 29.71%
10 1-800-345-2021
Vista--Q&A
--------------------------------------------------------------------------------
[photo of Arnie Douville and Glenn Fogle]
An interview with Arnie Douville and Glenn Fogle, portfolio managers on the
Vista investment team.
HOW DID VISTA PERFORM FOR THE YEAR ENDED OCTOBER 31, 2000?
Vista had a remarkably successful year. The fund gained 66.16%--more than
double the increase posted by its benchmark, the Russell 2500 Growth Index,
which was up 29.71%.*
HOW DID VISTA OUTPERFORM ITS BENCHMARK DURING A YEAR MARKED BY SUCH VOLATILITY
AND UNCERTAINTY?
At the risk of oversimplifying, in 1999 investors essentially bought
technology and avoided everything else. However, we knew that eventually the
market would have to properly discriminate between companies with strong
earnings prospects and those without. Two things seemed bound to happen: other
neglected sectors would outperform technology and, within technology, there
would be a similar division between the strong and the weak. Those processes
began in March, as formerly unbridled enthusiasm for technology stocks turned
into manic selling.
Despite losing ground in March and April, Vista had a terrific run during
the first half of the period--up 66.91%. During the second half, we protected
that performance, declining just 0.45%, while our benchmark fell 6.08%. Part of
that protection came from the fact that we avoided the Internet speculative
bubble. We were very skeptical of Internet start-ups with ambitious business
plans that never bothered to show how the company would ever generate profits.
Our earnings-driven discipline kept us out of such companies, many of which fell
the hardest.
Other sectors began showing signs of life, and our discipline led us to
areas outside of technology as market sentiment shifted. When we closed our
12-month books, technology was still the fund's biggest sector at 34%, but this
was down from 47% on April 30.
WHERE DID YOU FIND OPPORTUNITIES WITHIN TECHNOLOGY?
Regardless of market conditions, we try to buy companies with accelerating
earnings growth that are outperforming the general market. For the past six
months, it has been apparent that investors were paying increasing attention to
valuations and rotating out of the biggest momentum names, so we paid particular
attention to finding stocks which appeared to be less vulnerable to that
rotation. This meant that during the spring and summer, we purchased very little
in technology.
More recently, we have been selectively buying stocks with strong prospects
that appear to be recovering from periods of underperformance. Our investment in
PeopleSoft, which designs and develops software products, is a good example of
this. After four years of terrific performance, the company's growth abruptly
slowed in late 1998, and the stock plunged. Now, new products are driving
growth, and the stock has been reacting positively.
Over the past six months, our most profitable investments within technology
have been Ciena Corp. and several
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"REGARDLESS OF MARKET CONDITIONS, WE TRY TO BUY COMPANIES WITH ACCELERATING
EARNINGS GROWTH THAT ARE OUTPERFORMING THE GENERAL MARKET."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 75 63
P/E RATIO 35.2 35.3
MEDIAN MARKET $3.37 $3.93
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $9.96 $11.4
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 135% 187%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 32-33.
www.americancentury.com 11
Vista--Q&A
--------------------------------------------------------------------------------
(Continued)
contract manufacturers, like Sanmina Corp. and Jabil Circuit. We held these
companies because they continued to deliver accelerating earnings growth.
WHERE DID YOU FIND OPPORTUNITIES OUTSIDE OF TECHNOLOGY?
During the second half of the year, we found opportunities in the health
care sector--mostly drug companies and medical providers--and our stake here
increased to about 22% of the fund. We also increased our holdings in the
financial sector.
Within health care, the biotech realm is maturing and we're finding a
number of companies that are evolving from being development laboratories to
actually having products. Businesses that have drugs finishing clinical trials
are most attractive to us. At that point, the science risk is essentially behind
the company. While there may still be some regulatory uncertainty, the most
significant issues for the stock will be ordinary business risks--does the
company have a viable business model, and will management be able to
execute--and we feel better equipped to analyze that.
That brings us to the fund's largest holding, Protein Design Labs, Inc., of
California. PDL is a leader in developing humanized monoclonal antibodies used
to fight autoimmune diseases, cancer, and other conditions. The stock gained
more than 45% during the third quarter as investors recognized the breadth of
its product portfolio. PDL has more drugs in the latter stages of clinical
testing than many of its competitors, and other firms licensing PDL's
proprietary technology have an additional 40 drugs in clinical trials. PDL will
receive royalty payments on drugs developed by others using their technology.
Elsewhere in health care, Oxford Health Plans, Inc., became one of the
largest positions in Vista. Oxford is a health maintenance organization in the
New York City area. Oxford is enjoying the benefits of a significant investment
in new information systems at a time when pricing in its industry is finally
improving. Earnings began to accelerate six months ago, and Vista began building
a position at prices significantly below the stock's peak price in 1997.
Vista's exposure to the financial sector--mostly insurance companies and
firms that provided financial services--rose to 13% of the fund. That's up from
a position of less than 1% a year ago.
Financials turned in a solid performance for Vista, and most of the credit
goes to companies in the property and casualty insurance industry, including
mortgage insurance firms and providers of specialty insurance. For several
years, companies had been willing to write policies at a loss in order to gain
or protect market share. These losses eventually led to a wave of consolidation,
as weaker competitors were bought by more disciplined ones, and pricing is
showing early signs of improvement.
For much of the past year and a half, rising interest rates have penalized
the financial sector. But the market now appears to believe that the Federal
Reserve's interest rate stance will be either neutral or biased toward lower
rates in the months ahead. We would expect the financial companies in Vista to
benefit from better credit conditions and a stable interest rate environment.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
PROTEIN DESIGN
LABS, INC. 8.7% 3.5%
JDS UNIPHASE CORP. 7.0% 12.4%
INTEGRATED DEVICE
TECHNOLOGY, INC. 2.9% --
CALPINE CORP. 2.8% --
OXFORD HEALTH
PLANS, INC. 2.7% 0.5%
ENZON, INC. 2.7% 0.2%
SANMINA CORP. 2.5% 1.3%
NABORS
INDUSTRIES, INC. 2.5% --
TEKTRONIX, INC. 2.4% --
ABERCROMBIE &
FITCH CO. CL A 2.1% --
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
ELECTRICAL EQUIPMENT 21.8% 23.9%
DRUGS 15.4% 7.3%
OIL SERVICES 9.8% 11.0%
SEMICONDUCTOR 8.5% 13.6%
MEDICAL PROVIDERS
& SERVICES 6.5% 1.0%
12 1-800-345-2021
Vista--Q&A
--------------------------------------------------------------------------------
(Continued)
WHAT OTHER SECTORS OFFERED OPPORTUNITY?
Vista's energy holdings increased to about 15% of the fund, mostly due to
enhanced positions in the oil services industry. The energy sector contributed
positively in both the first and second half of the year. As might be expected
during a period of rising oil prices, investors were drawn to energy production
companies and the firms that provide them with services and equipment.
The utility sector was another positive, with Vista's investments in
electric power generating strong results. The burgeoning use of information
technology brings with it the demand for high-quality, dependable electricity.
But in most countries around the world, the electric power grid is too
antiquated to meet that demand. Foreign governments are turning to deregulation
and privatization to improve their electric systems, a trend that's benefiting
AES Corp. This global company is building and acquiring generation and
distribution systems around the world. Electric utilities are also being
deregulated in the U.S., but here a bigger issue is sheer capacity. Calpine
Corp. is helping the nation address that issue. Calpine is the nation's fastest
growing independent power company with the largest power development program in
the country.
WHICH INVESTMENTS DIDN'T LIVE UP TO YOUR EXPECTATIONS?
While the majority of our technology holdings fared well, Vista was
hampered toward the end of the period by positions in electrical equipment
companies. The largest of these was JDS Uniphase, a leading maker of optical
fiber components for communications systems carrying data across the Internet.
JDS Uniphase is to fiber optics what Intel is to personal computers--a core,
mainstream supplier. In addition to being caught in the general malaise
surrounding technology stocks, JDS Uniphase and similar firms were hurt when
communications equipment makers like Lucent and Nortel warned of lower than
anticipated earnings. We've trimmed our position, but the company remains a
significant holding.
We were also weighed down by a holding in the semiconductor industry, Lam
Research Corp., a provider of complex equipment used to make semiconductors. Lam
declined when investors downgraded "semis" as a whole, concluding that after two
years of phenomenal growth, the current cycle was likely to slow.
WHAT ARE YOUR THOUGHTS GOING FORWARD?
We plan to continue our "bottom-up" approach of investing in successful
midsized companies that appear best able to sustain their accelerating growth,
though it may be in a changing environment. Many observers expect corporate
earnings growth to slow further in 2001, which will put a premium on
selectivity. Since the technology correction, investors seem to have become much
more earnings-conscious regarding that sector, and others. That dovetails nicely
with the core of our investment approach--seeking growing, successful
companies.
[right margin]
"THE UTILITY SECTOR WAS ANOTHER POSITIVE, WITH VISTA'S INVESTMENTS IN ELECTRIC
POWER GENERATING STRONG RESULTS."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
* U.S. STOCKS 90.0%
* TEMPORARY CASH INVESTMENTS 5.7%
* FOREIGN STOCKS 4.3%
[pie chart]
AS OF APRIL 30, 2000
* U.S. STOCKS 96.9%
* TEMPORARY CASH INVESTMENTS 0.8%
* FOREIGN STOCKS 2.3%
[pie chart]
www.americancentury.com 13
Vista--Schedule of Investments
-------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS -- 94.3%
BANKS -- 1.7%
600,000 North Fork Bancorporation, Inc. $ 12,113
370,000 TCF Financial Corp. 14,961
245,000 Zions Bancorporation 14,088
-------------------
41,162
-------------------
CLOTHING STORES -- 2.1%
2,250,000 Abercrombie & Fitch Co. Cl A(1) 53,016
-------------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 0.9%
190,000 Avocent Corp.(1) 13,485
171,300 Symbol Technologies, Inc. 7,783
-------------------
21,268
-------------------
COMPUTER SOFTWARE -- 2.0%
325,000 Acxiom Corp.(1) 13,091
500,000 PeopleSoft, Inc.(1) 21,813
21,838 Per-Se Technologies, Inc. Warrants(1) --
235,000 Rational Software Corp.(1) 14,034
-------------------
48,938
-------------------
CONSUMER DURABLES -- 0.7%
1,300,000 Pier 1 Imports, Inc. 17,225
-------------------
DRUGS -- 15.4%
941,400 Enzon, Inc.(1) 67,045
360,000 ILEX Oncology, Inc.(1) 13,140
1,600,000 Protein Design Labs, Inc.(1) 215,351
475,000 QLT PhotoTherapeutics Inc.(1) 23,616
425,000 Shire Pharmaceuticals
Group PLC ADR(1) 26,722
825,000 Titan Pharmaceuticals, Inc.(1) 34,716
-------------------
380,590
-------------------
ELECTRICAL EQUIPMENT -- 21.8%
827,500 Aeroflex Inc.(1) 48,823
125,000 Anaren Microwave, Inc.(1) 13,063
404,800 Artesyn Technologies Inc.(1) 16,420
620,000 Ddi CORP.(1) 24,703
1,200,000 Flextronics International Ltd. ADR(1) 45,563
37,900 Ixia(1) 889
850,000 Jabil Circuit, Inc.(1) 48,503
2,130,000 JDS Uniphase Corp.(1) 173,527
456,200 POWER-ONE INC.(1) 32,376
550,000 Sanmina Corp.(1) 62,888
820,400 Tektronix, Inc. 58,454
247,700 Vicor Corp.(1) 13,368
-------------------
538,577
-------------------
ELECTRICAL UTILITIES -- 4.7%
820,000 AES Corp. (The)(1) 46,330
880,000 Calpine Corp.(1) 69,465
-------------------
115,795
-------------------
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
ENERGY RESERVES & PRODUCTION -- 5.1%
600,000 Alberta Energy Co. Ltd. ORD $ 22,182
430,000 Apache Corp. 23,784
1,175,000 EOG Resources Inc. 46,266
500,000 Mitchell Energy & Development Corp. 23,000
271,000 Newfield Exploration Company(1) 10,230
--------------------
125,462
--------------------
FINANCIAL SERVICES -- 4.3%
475,000 AmeriCredit Corp.(1) 12,766
860,700 CompuCredit Corp.(1) 26,278
480,000 MBIA Inc. 34,889
330,000 Metris Companies Inc. 10,684
300,000 MGIC Investment Corp. 20,438
--------------------
105,055
--------------------
INFORMATION SERVICES -- 1.7%
1,000,000 PurchasePro.com Inc.(1) 27,062
200,000 TMP Worldwide Inc.(1) 13,944
--------------------
41,006
--------------------
INTERNET -- 0.6%
221,500 EXE Technologies Inc.(1) 3,945
125,000 Internet Security Systems(1) 11,047
--------------------
14,992
--------------------
MEDIA -- 0.5%
1,440,000 KDG Investments Ltd. ADR
(Acquired 7/7/00,
Cost $14,400)(1)(2) 12,960
--------------------
MEDICAL PROVIDERS & SERVICES -- 6.5%
1,000,000 Coventry Health Care Inc.(1) 18,188
295,000 First Health Group Corp.(1) 11,496
1,525,000 HEALTHSOUTH Corp.(1) 18,300
195,000 Laboratory Corporation
of America Holdings(1) 26,301
175,000 Lincare Holdings Inc.(1) 7,366
2,000,000 Oxford Health Plans, Inc.(1) 67,437
105,000 Wellpoint Health Networks Inc.(1) 12,278
--------------------
161,366
--------------------
OIL SERVICES -- 9.8%
1,345,000 Global Marine Inc.(1) 35,643
1,200,000 Nabors Industries, Inc.(1) 61,080
1,250,000 Noble Drilling Corp.(1) 51,953
425,000 Patterson Energy, Inc.(1) 11,913
1,835,000 R&B Falcon Corp.(1) 45,875
500,000 Tidewater Inc. 23,094
250,000 Transocean Sedco Forex, Inc. 13,250
--------------------
242,808
--------------------
14 1-800-345-2021 See Notes to Financial Statements
Vista--Schedule of Investments
-------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
-------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE -- 5.2%
600,000 Ace, Ltd. $ 23,550
650,000 Ambac Financial Group, Inc. 51,878
560,000 Everest Reinsurance Holdings, Inc. 32,830
240,000 PartnerRe Ltd. 13,080
85,000 Renaissancere Holdings Ltd. 6,168
--------------------
127,506
--------------------
SEMICONDUCTOR -- 8.5%
408,540 Applied Micro Circuits Corp.(1) 31,228
265,000 Cirrus Logic, Inc.(1) 11,420
1,250,000 Integrated Device Technology, Inc.(1) 70,430
1,175,000 Microchip Technology Inc.(1) 37,196
190,000 NVIDIA Corp.(1) 11,786
260,000 Sawtek Inc.(1) 13,260
535,600 Veeco Instruments Inc.(1) 35,500
--------------------
210,820
--------------------
TELEPHONE -- 1.1%
1,450,000 McLeodUSA Inc. Cl A(1) 27,958
--------------------
THRIFTS -- 1.7%
600,000 Dime Bancorp, Inc.(1) 14,663
500,000 Golden West Financial Corp. (Del.) 28,031
--------------------
42,694
--------------------
TRUCKING, SHIPPING & AIR FREIGHT(3)
27,200 Trico Marine Services, Inc.(1) 453
--------------------
TOTAL COMMON STOCKS & WARRANTS 2,329,651
--------------------
(Cost $1,771,687)
($ in Thousands) Value
-------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS -- 5.7%
Repurchase Agreement, Goldman Sachs & Co.,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $77,714) $ 77,700
Repurchase Agreement, State Street Bank &
Trust, Co., (U.S. Treasury obligations), in a joint
trading account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $62,911) 62,900
--------------------
TOTAL TEMPORARY CASH INVESTMENTS 140,600
--------------------
(Cost $140,600)
TOTAL INVESTMENT SECURITIES -- 100.0% $2,470,251
====================
(Cost $1,912,287)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
ORD = Foreign Ordinary Share
(1) Non-income producing.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or
is a private placement and, unless registered under the Act or exempted
from registration, may only be sold to qualified institutional investors.
The aggregate value of restricted securities at October 31, 2000, was
$12,960 which represented 0.5% of net assets.
(3) Industry is less than 0.05% of total investment securities.
See Notes to Financial Statements www.americancentury.com 15
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting period.
Subtracting the liabilities from the assets results in the fund's NET ASSETS.
For each class of shares, the net assets divided by shares outstanding is the
share price, or NET ASSET VALUE PER SHARE. This statement also breaks down the
fund's net assets into capital (shareholder investments) and performance
(investment income and gains/losses).
OCTOBER 31, 2000
ULTRA VISTA
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities -- unaffiliated,
at value (identified cost
of $23,848,546 and $1,912,287,
respectively) (Note 3) .................. $37,452,952 $2,470,251
Investment securities -- affiliated,
at value (identified cost of
$1,842,786 for Ultra) (Note 3 and 5) .... 2,318,230 --
Receivable for investments sold ............ 331,772 44,309
Receivable for capital shares sold ......... 2,952 4,475
Dividends and interest receivable .......... 4,738 185
------------------ ------------------
40,110,644 2,519,220
------------------ ------------------
LIABILITIES
Disbursements in excess of
demand deposit cash ..................... 20,408 6,001
Payable for investments purchased .......... 310,939 87,792
Payable for forward foreign currency
exchange contracts ...................... 409 --
Accrued management fees (Note 2) ........... 32,807 2,050
Distribution fees payable (Note 2) ......... 110 5
Service fees payable (Note 2) .............. 110 5
Payable for directors' fees and expenses ... 13 1
Accrued expenses and other liabilities ..... 5 1
------------------ ------------------
364,801 95,855
------------------ ------------------
NET ASSETS $39,745,843 $2,423,365
================== ==================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .... $21,560,336 $1,251,113
Undistributed net investment income ........ 409 --
Accumulated undistributed net
realized gain on investment and
foreign currency transactions ........... 4,105,660 614,289
Net unrealized appreciation
on investments and translation
of assets and liabilities in
foreign currencies (Note 3) ............. 14,079,438 557,963
------------------ ------------------
$39,745,843 $2,423,365
================== ==================
INVESTOR CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets ...............................$38,461,352,608 $2,345,266,101
Shares outstanding ......................... 927,813,162 96,241,722
Net asset value per share .................. $41.45 $24.37
ADVISOR CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets ................................. $521,186,647 $22,077,371
Shares outstanding ......................... 12,640,908 910,669
Net asset value per share .................. $41.23 $24.24
INSTITUTIONAL CLASS, $0.01 PAR VALUE
($ AND SHARES IN FULL)
Net assets ................................. $763,303,973 $56,021,715
Shares outstanding ......................... 18,325,581 2,286,868
Net asset value per share .................. $41.65 $24.50
16 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
ULTRA VISTA
INVESTMENT LOSS (In Thousands)
INCOME:
Dividends (net of foreign
taxes withheld of $836
and $5, respectively) .................. $ 121,651 $ 1,722
Interest .................................. 25,871 5,958
------------------ ------------------
147,522 7,680
------------------ ------------------
EXPENSES: (Note 2)
Management fees ........................... 418,063 22,050
Distribution fees -- Advisor Class ........ 1,064 43
Service fees -- Advisor Class ............. 1,064 43
Directors' fees and expenses .............. 211 10
------------------ ------------------
420,402 22,146
------------------ ------------------
NET INVESTMENT LOSS ....................... (272,880) (14,466)
------------------ ------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
(NOTE 3)
NET REALIZED GAIN (LOSS) ON:
Investments (includes $(343,116)
and $(37,313), respectively,
from affiliates) ....................... 4,409,519 630,011
Foreign currency transactions ............. 49,548 (4)
------------------ ------------------
.......................................... 4,459,067 630,007
------------------ ------------------
CHANGE IN NET UNREALIZED APPRECIATION ON:
Investments ............................... (668,582) 131,872
Translation of assets and
liabilities in foreign currencies ...... (47) --
------------------ ------------------
(668,629) 131,872
------------------ ------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY .... 3,790,438 761,879
------------------ ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............. $3,517,558 $747,413
================== ==================
See Notes to Financial Statements www.americancentury.com 17
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
ULTRA VISTA
INCREASE IN NET ASSETS 2000 1999 2000 1999
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C>
Net investment loss .......................... $ (272,880) $ (125,574) $ (14,466) $ (3,832)
Net realized gain on investments and
foreign currency transactions .............. 4,459,067 1,330,054 630,007 107,173
Change in net unrealized appreciation
on investments and translation of assets
and liabilities in foreign currencies ...... (668,629) 8,568,738 131,872 394,280
--------------- --------------- --------------- ---------------
Net increase in net assets
resulting from operations .................. 3,517,558 9,773,218 747,413 497,621
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains
on investment transactions:
Investor Class ............................. (1,259,980) (2,558,619) (72,222) --
Advisor Class .............................. (9,302) (10,096) (464) --
Institutional Class ........................ (6,990) (1,995) (11) --
--------------- --------------- --------------- ---------------
Decrease in net assets from distributions .... (1,276,272) (2,570,710) (72,697) --
--------------- --------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS (Note 4)
Net increase (decrease) in net assets
from capital share transactions ............ 1,318,645 3,452,155 594,695 (242,960)
--------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS ................... 3,559,931 10,654,663 1,269,411 254,661
NET ASSETS
Beginning of period .......................... 36,185,912 25,531,249 1,153,954 899,293
--------------- --------------- --------------- ---------------
End of period ................................ $39,745,843 $36,185,912 $2,423,365 $1,153,954
=============== =============== =============== ===============
Undistributed net investment income .......... $409 -- -- --
=============== =============== =============== ===============
</TABLE>
18 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. Ultra Fund (Ultra) and Vista Fund
(Vista) (the funds) are two of the fourteen series of funds issued by the
corporation. The funds are diversified under the 1940 Act. The funds' investment
objective is to seek capital growth by investing primarily in equity securities.
Ultra generally invests in companies with medium to large size market
capitalization while Vista invests in companies with small to medium market
capitalization. The following significant accounting policies are in accordance
with accounting principles generally accepted in the United States of America;
these policies may require the use of estimates by fund management.
MULTIPLE CLASS -- The funds are authorized to issue three classes of shares:
Investor Class, Advisor Class, and Institutional Class. The three classes of
shares differ principally in their respective shareholder servicing and
distribution expenses and arrangements. All shares of each fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Discount notes are
valued through a commercial pricing service. 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.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For assets
and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component of
realized gain (loss) on investments and unrealized appreciation (depreciation)
on investments, respectively.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The funds may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to hedge the fund's exposure to
foreign currency exchange rate fluctuations. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the funds and
the resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The funds bear the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions that the funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. Each fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable each fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
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 each fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, each fund, along with other registered
investment companies having management agreements with ACIM, 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 to shareholders are recorded
on the ex-dividend date. Distributions from net investment income and net
realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences 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.
www.americancentury.com 19
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the funds with investment advisory and management services
in exchange for a single, unified management fee per class. The Agreement
provides that all expenses of the funds, except brokerage commissions, taxes,
interest, expenses of those directors who are not considered "interested
persons" as defined in the 1940 Act (including counsel fees) and extraordinary
expenses, will be paid by ACIM. 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 Vista is 1.00%, 0.75% and 0.80% for the Investor,
Advisor, and Institutional Classes, respectively. The annual management fee for
Ultra for the period November 1, 1999 through July 31, 2000 was 1.00%, 0.75% and
0.80% for the Investor, Advisor, and Institutional Classes, respectively.
Effective August 1, 2000, the annual management fee for each class of shares of
Ultra is as follows:
INVESTOR ADVISOR INSTITUTIONAL
CLASS CLASS CLASS
FUND AVERAGE NET ASSETS
First $20 billion .............. 1.00% 0.75% 0.80%
Over $20 billion ............... 0.95% 0.70% 0.75%
The Board of Directors has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the 1940 Act.
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 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 by the funds under the plan during the year ended
October 31, 2000, were approximately $2,128,000 for Ultra and $86,000 for
Vista.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the year ended October 31, 2000, for Ultra and Vista were $25,932,798,418 and
$3,268,979,199, respectively. Sales of investment securities, excluding
short-term investments, for the year ended October 31, 2000, were
$27,381,320,813 and $2,837,213,049, respectively.
At October 31, 2000, accumulated net unrealized appreciation for Ultra and
Vista was $13,969,004,783 and $550,072,475, respectively, based on the aggregate
cost of investments for federal income tax purposes of $25,802,177,042 and
$1,920,178,149, respectively. Accumulated net unrealized appreciation consisted
of unrealized appreciation of $14,433,520,523 and $633,122,442 for Ultra and
Vista, respectively, and unrealized depreciation of $464,515,740 and
$83,049,967, respectively.
20 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of the funds were as follows:
ULTRA VISTA
SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS (In Thousands)
<S> <C> <C> <C> <C>
SHARES AUTHORIZED ........................ 3,500,000 710,000
============== ==============
YEAR ENDED OCTOBER 31, 2000
Sold ..................................... 446,378 $19,223,885 85,694 $2,055,102
Issued in reinvestment of distributions .. 29,187 1,240,143 3,748 70,007
Redeemed ................................. (465,217) (20,036,065) (67,571) (1,592,642)
-------------- -------------- -------------- --------------
Net increase ............................. 10,348 $ 427,963 21,871 $ 532,467
============== ============== ============== ==============
YEAR ENDED OCTOBER 31, 1999
Sold ..................................... 224,914 $8,003,665 57,121 $ 670,261
Issued in reinvestment of distributions .. 80,171 2,515,534 -- --
Redeemed ................................. (205,318) (7,309,515) (79,279) (913,989)
-------------- -------------- -------------- --------------
Net increase (decrease) .................. 99,767 $3,209,684 (22,158) $(243,728)
============== ============== ============== ==============
ADVISOR CLASS (In Thousands)
SHARES AUTHORIZED ........................ 300,000 210,000
============== ==============
YEAR ENDED OCTOBER 31, 2000
Sold ..................................... 14,051 $614,252 1,240 $29,937
Issued in reinvestment of distributions .. 215 9,087 25 457
Redeemed ................................. (8,012) (344,490) (861) (20,736)
-------------- -------------- -------------- --------------
Net increase ............................. 6,254 $278,849 404 $ 9,658
============== ============== ============== ==============
YEAR ENDED OCTOBER 31, 1999
Sold ..................................... 6,738 $241,379 346 $4,163
Issued in reinvestment of distributions .. 318 9,982 -- --
Redeemed ................................. (3,862) (139,274) (278) (3,338)
-------------- -------------- -------------- --------------
Net increase ............................. 3,194 $112,087 68 $ 825
============== ============== ============== ==============
INSTITUTIONAL CLASS (In Thousands)
SHARES AUTHORIZED ........................ 200,000 80,000
============== ==============
YEAR ENDED OCTOBER 31, 2000
Sold ..................................... 17,094 $764,020 2,828 $66,739
Issued in reinvestment of distributions .. 164 6,990 1 11
Redeemed ................................. (3,685) (159,177) (550) (14,180)
-------------- -------------- -------------- --------------
Net increase ............................. 13,573 $611,833 2,279 $52,570
============== ============== ============== ==============
YEAR ENDED OCTOBER 31, 1999
Sold ..................................... 5,148 $184,926 295 $3,219
Issued in reinvestment of distributions .. 63 1,985 -- --
Redeemed ................................. (1,616) (56,527) (294) (3,276)
-------------- -------------- -------------- --------------
Net increase (decrease) .................. 3,595 $130,384 1 $ (57)
============== ============== ============== ==============
</TABLE>
www.americancentury.com 21
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. AFFILIATED COMPANY TRANSACTIONS
A summary of transactions for each issuer which is or was an affiliate at or
during the year ended October 31, 2000, follows:
SHARE BALANCE PURCHASE SALES REALIZED OCTOBER 31, 2000
FUND/ISSUER(1) 10/31/99 COST COST GAIN (LOSS) SHARE BALANCE MARKET VALUE
Ultra ($ In Thousands)
<S> <C> <C> <C> <C> <C>
American Tower Corp. Cl A -- $ 340,692 -- -- 8,450,000 $ 345,922
Doubleclick Inc. -- 492,454 492,454 (396,189) -- --
Electronics Arts Inc. -- 430,154 -- -- 11,413,400(2) 570,313
Gemstar International Group Ltd. 3,525,000 758,958 -- -- 19,983,500(2) 1,369,495
Lycos, Inc. -- 444,876 444,876 (75,926) -- --
SanDisk Corp. -- 158,968 110,719 128,999 605,000(2) 32,500
------------ ------------ ------------ ------------
$2,626,102 $1,048,049 $(343,116) $2,318,230
============ ============ ============ ============
Vista ($ In Thousands)
Ames Department Stores, Inc. 740,000 $ 38,725 $ 66,969 $(50,160) -- --
Gadzooks Inc. -- 11,740 11,740 (7,019) -- --
Triton Energy Ltd.(3) -- 51,606 51,606 19,866 -- --
------------ ------------ ------------ ------------
$102,071 $130,315 $(37,313) --
============ ============ ============ ============
</TABLE>
(1) None of the securities produced income during the period held.
(2) Includes adjustments for shares received from stock split and/or stock
spinoff during the period.
(3) Formerly known as Trinity Energy Ltd.
--------------------------------------------------------------------------------
6. BANK LOANS
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
year ended October 31, 2000.
22 1-800-345-2021
<TABLE>
<CAPTION>
Ultra--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $38.97 $31.06 $33.46 $29.52 $28.03
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss)(1) ..... (0.28) (0.14) (0.02) 0.01 (0.05)
Net Realized and Unrealized Gain
on Investment Transactions .......... 4.14 11.17 4.70 5.62 2.84
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 3.86 11.03 4.68 5.63 2.79
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... -- -- (0.01) -- --
From Net Realized Gains
on Investment Transactions .......... (1.38) (3.12) (7.07) (1.69) (1.19)
In Excess of Net Realized
Gains on Investment Transactions .... -- -- -- -- (0.11)
---------- ---------- ---------- ---------- ----------
Total Distributions ................. (1.38) (3.12) (7.08) (1.69) (1.30)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $41.45 $38.97 $31.06 $33.46 $29.52
========== ========== ========== ========== ==========
TOTAL RETURN(2) ..................... 9.81% 37.94% 17.61% 19.95% 10.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.99% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets ................. (0.64)% (0.39)% (0.08)% 0.03% (0.20)%
Portfolio Turnover Rate ............... 62% 42% 128% 107% 87%
Net Assets, End of Period
(in millions) ......................... $38,461 $35,752 $25,396 $21,695 $18,266
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 23
<TABLE>
<CAPTION>
Ultra--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997 1996(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $38.80 $31.00 $33.36 $29.52 $29.55
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Loss(2) .............. (0.40) (0.23) (0.11) (0.07) (0.02)
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ............. 4.21 11.15 4.73 5.60 (0.01)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 3.81 10.92 4.62 2.43 (0.03)
---------- ---------- ---------- ---------- ----------
Distributions
From Net Realized Gains
on Investment Transactions .......... (1.38) (3.12) (6.98) (1.69) --
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $41.23 $38.80 $31.00 $33.36 $29.52
========== ========== ========== ========== ==========
TOTAL RETURN(3) ..................... 9.72% 37.63% 17.36% 19.59% (0.10)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.24% 1.25% 1.25% 1.25% 1.25%(4)
Ratio of Net Investment
Income to Average Net Assets .......... (0.89)% (0.64)% (0.33)% (0.22)% (0.80)%(4)
Portfolio Turnover Rate ............... 62% 42% 128% 107% 87%(5)
Net Assets, End of Period
(in thousands) ........................ $521,187 $247,814 $98,965 $30,827 $13,051
</TABLE>
(1) October 2, 1996 (commencement of sale) through October 31, 1996.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for the year ended October 31, 1996.
24 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Ultra--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Institutional Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $39.13 $31.12 $33.53 $30.78
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss)(2) ..... (0.20) (0.09) 0.03 0.06
Net Realized and Unrealized Gain
on Investment Transactions .......... 4.10 11.22 4.72 4.38
---------- ---------- ---------- ----------
Total From Investment Operations .... 3.90 11.13 4.75 4.44
---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... -- -- (0.09) --
From Net Realized Gains
on Investment Transactions .......... (1.38) (3.12) (7.07) (1.69)
---------- ---------- ---------- ----------
Total Distributions ................. (1.38) (3.12) (7.16) (1.69)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $41.65 $39.13 $31.12 $33.53
========== ========== ========== ==========
TOTAL RETURN(3) ..................... 9.87% 38.21% 17.85% 15.28%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.79% 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income
to Average Net Assets ................. (0.44)% (0.19)% 0.12% 0.23%(4)
Portfolio Turnover Rate ............... 62% 42% 128% 107%(5)
Net Assets, End of Period
(in thousands) ........................ $763,304 $186,025 $36,065 $334
</TABLE>
(1) November 14, 1996 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for the year ended October 31, 1997.
See Notes to Financial Statements www.americancentury.com 25
<TABLE>
<CAPTION>
Vista--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $15.41 $9.27 $14.53 $15.68 $15.73
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Loss(1) .............. (0.16) (0.05) (0.05) (0.10) (0.11)
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ........................ 10.07 6.19 (4.41) 0.13 1.09
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 9.91 6.14 (4.49) 0.03 0.98
---------- ---------- ---------- ---------- ----------
Distributions
From Net Realized Gains
on Investment Transactions .......... (0.95) -- (0.80) (1.18) (1.02)
In Excess of Net Realized Gains
on Investment Transactions .......... -- -- -- -- (0.01)
---------- ---------- ---------- ---------- ----------
Total Distributions ................. (0.95) -- (0.80) (1.18) (1.03)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $24.37 $15.41 $9.27 $14.53 $15.68
========== ========== ========== ========== ==========
TOTAL RETURN(2) ..................... 66.16% 66.24% (31.94)% 0.29% 6.96%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets ................. (0.65)% (0.40)% (0.42)% (0.73)% (0.70)%
Portfolio Turnover Rate ............... 135% 187% 229% 96% 91%
Net Assets, End of Period
(in millions) ......................... $2,345 $1,146 $895 $1,828 $2,276
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
26 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Vista--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997 1996(1)
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $15.31 $9.23 $14.50 $15.67 $16.87
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Loss(2) .............. (0.22) (0.08) (0.08) (0.14) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ........................ 10.05 6.16 (4.39) 0.15 (1.18)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 9.83 6.08 (4.47) 0.01 (1.20)
---------- ---------- ---------- ---------- ----------
Distributions
From Net Realized Gains
on Investment Transactions .......... (0.90) -- (0.80) (1.18) --
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $24.24 $15.31 $9.23 $14.50 $15.67
========== ========== ========== ========== ==========
TOTAL RETURN(3) ..................... 65.98% 65.87% (32.08)% 0.15% (7.11)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 1.25% 1.25% 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Income
to Average Net Assets ................. (0.90)% (0.65)% (0.67)% (0.98)% (1.20)%(4)
Portfolio Turnover Rate ............... 135% 187% 229% 96% 91%(5)
Net Assets, End of Period
(in thousands) ........................ $22,077 $7,755 $4,052 $6,553 $5,646
</TABLE>
(1) October 2, 1996 (commencement of sale) through October 31, 1996.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for the year ended October 31, 1996.
See Notes to Financial Statements www.americancentury.com 27
<TABLE>
<CAPTION>
Vista--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Institutional Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $15.51 $9.32 $14.56 $15.73
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Loss(2) .............. (0.11) (0.04) (0.01) (0.07)
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ... 10.09 6.23 (4.43) 0.08
---------- ---------- ---------- ----------
Total From Investment Operations .... 9.98 6.19 (4.44) 0.01
---------- ---------- ---------- ----------
Distributions
From Net Realized Gains
on Investment Transactions .......... (0.99) -- (0.80) (1.18)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $24.50 $15.51 $9.32 $14.56
========== ========== ========== ==========
TOTAL RETURN(3) ..................... 66.28% 66.42% (31.72)% 0.17%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.80% 0.80% 0.80% 0.80%(4)
Ratio of Net Investment Income
to Average Net Assets ................. (0.45)% (0.20)% (0.22)% (0.53)%(4)
Portfolio Turnover Rate ............... 135% 187% 229% 96%(5)
Net Assets, End of Period
(in thousands) ........................ $56,022 $122 $60 $13,581
</TABLE>
(1) November 14, 1996 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for the year ended October 31, 1997.
28 1-800-345-2021 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Ultra Fund and Vista Fund,
(collectively the "Funds"), two of the funds comprising American Century Mutual
Funds, Inc., as of October 31, 2000, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
Ultra Fund and Vista Fund as of October 31, 2000, the results of their
operations for the year then ended, the changes in their net assets for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
www.americancentury.com 29
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Three classes of shares are authorized for sale by the fund: Investor Class,
Advisor Class and Institutional 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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
INSTITUTIONAL CLASS shares are available to endowments, foundations, defined
benefit pension plans or financial intermediaries serving these investors. This
class recognizes the relatively lower cost of serving institutional customers
and others who invest at least $5 million in an American Century fund or at
least $10 million in multiple funds. In recognition of the larger investments
and account balances and comparatively lower transaction costs, the total
expense ratio of the Institutional Class shares is 0.20% less than the total
expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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.
30 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers more than a dozen growth funds, including domestic
equity, specialty, international, and global. The philosophy behind these growth
funds focuses on three important principles. First, the funds seek to own
successful companies, which we define as those with growing earnings and
revenues. Second, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit the potential for gain. Third, the funds are managed by teams, rather than
by one "star." We believe this allows us to make better, more consistent
management decisions.
In addition to these principles, each fund has its own investment
policies:
AMERICAN CENTURY ULTRA generally invests in the securities of larger
companies that exhibit growth. It typically will have significant price
fluctuations.
AMERICAN CENTURY VISTA invests mainly in the securities of smaller and
medium-sized firms that exhibit growth. The fund is subject to significant price
volatility but offers high long-term growth potential. Historically, small- and
mid-cap stocks have been more volatile than the stocks of larger, more
established companies.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded Blue Chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
The S&P 500 INDEX 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, it is considered to be a
broad measure of U.S. stock market performance.
The S&P 500/BARRA INDEX is a capitalization-weighted index consisting of S&
P 500 stocks. S&P 500/BARRA VALUE consists of stocks with lower price-to-book
ratios, and S&P 500/BARRA GROWTH consists of stocks with higher price-to-book
ratios. In general, both share other characteristics with value- or growth-style
stocks.
The S&P MIDCAP 400 is the medium capitalization sector of the U.S. market.
Created by Standard & Poor's, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2000
represents approximately 10% of the total market capitalization of the top 3,000
companies. The average market capitalization of the index is approximately $420
million.
The RUSSELL 2500 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,500 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2500
represents approximately 23% of the total market capitalization of the top 3,000
companies. The average market capitalization of the index is approximately $650
million. The RUSSELL 2500 GROWTH INDEX measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted growth
rates.
[right margin]
PORTFOLIO MANAGERS
Ultra
--------------------------------------
JIM STOWERS III
BRUCE WIMBERLY
JOHN SYKORA, CFA
Vista
--------------------------------------
GLENN FOGLE, CFA
ARNIE DOUVILLE
www.americancentury.com 31
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 total returns, please refer to the "Financial
Highlights" on pages 23-28.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION-- average market capitalization
represents the average value of the companies held in a portfolio. When that
figure is weighted, the impact of each company's capitalization on the overall
average is proportional to the total market value of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of more
than $9 billion. This is Lipper's market capitalization breakpoint as of
October 31, 2000, although it may be subject to change based on market
fluctuations. The Dow Jones Industrial Average and the S&P 500 Index generally
consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of
between $2.3 billion and $9 billion. This is Lipper's market capitalization
breakpoint as of October 31, 2000, although it may be subject to change based
on market fluctuations. The S&P 400 Index and Russell 2500 Index generally
consist of stocks in this range.
32 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS-- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of
less than $2.3 billion. This is Lipper's market capitalization breakpoint as
of October 31, 2000, although it may be subject to change based on market
fluctuations. The S&P 600 Index and the Russell 2000 Index generally consist
of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
www.americancentury.com 33
Notes
--------------------------------------------------------------------------------
34 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 35
Notes
--------------------------------------------------------------------------------
36 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[graphic of runners]
WHO WE ARE
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have been committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo(reg.sm)]
American
Century
P.O. BOX 419200
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WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
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FAX: 816-340-7962
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RETIREMENT PLANS
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FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
-------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23032 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
[graphic of runners]
[graphic of person at computer screen]
Giftrust(reg.sm)
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
Giftrust
(TWGTX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers and James E. Stowers III]
James E. Stowers, Jr., standing, with
James E. Stowers III
The year covered in this report was among the more remarkable in the market's
recent history. Investors witnessed a stunning advance during the first half,
followed by a swift and dramatic retreat from record-breaking heights. The
reversal was the result of a convergence of several factors, among them concern
about a slowing economy, rising interest rates and richly priced technology
stocks. As our portfolio managers discuss in their investment reviews, we
believe that stock prices ultimately depend on earnings, and our growth funds
steadfastly follow a disciplined approach to find successful, growing companies.
We think investors in our growth funds are best served by that philosophy, no
matter how volatile the market.
Turning to corporate matters, we are pleased to announce that senior vice
president and lead portfolio manager C. Kim Goodwin has been named co-chief
investment officer for American Century's domestic growth equity discipline. An
investment professional with 13 years of portfolio management experience,
Goodwin shares this position with Jim Stowers III. She will continue to serve on
the investment team for American Century Growth, a fund she's co-managed since
1997.
In her new role, Goodwin manages the teams responsible for the Growth,
Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life Sciences and
Technology funds. She also joins the Investment Oversight Committee, a group of
senior executives who monitor the performance of the company's equity and fixed
income disciplines.
In other corporate news, we chose to share the chairman of the board
responsibilities and also named American Century President William M. Lyons
chief executive officer, giving him ultimate management responsibility for the
entire company.
These changes strengthen the leadership of our investment management area and
allow us to pursue additional worthwhile endeavors. For example, Jim Stowers III
will focus more on product innovation (in particular, our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will be continuing involvement on the
investment teams responsible for the Ultra and Veedot Funds.
We appreciate your continued confidence in American Century.
Sincerely,
/*/James E. Stowers, Jr. /*/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ......................................................... 2
Market Perspective ........................................................ 3
GIFTRUST
Performance Information ................................................... 4
Management Q&A ............................................................ 5
Portfolio at a Glance ..................................................... 5
Top Ten Holdings .......................................................... 6
Top Five Industries ....................................................... 6
Types of Investments ...................................................... 7
Schedule of Investments ................................................... 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statement of Changes in Net Assets ........................................ 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 15
Independent Auditors' Report .............................................. 16
OTHER INFORMATION
Background Information
Portfolio Managers ........................................................ 17
Investment Philosophy Statements .......................................... 17
Comparative Indices ....................................................... 17
Glossary .................................................................. 18
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* 2000 has presented investors with two very different stock markets. Until
March 10, investors seemed interested only in "TMT" stocks--those of
technology, media, and telecommunications companies. The Nasdaq sprinted
ahead 24%, buoyed by corporate technology spending, a wave of foreign money
moving into U.S. stocks, and investor enthusiasm for any company with a
".com" at the end of its name. If you had anything to do with the Internet,
it seemed, no price was too high for your shares.
* Since then, though, investors have been painfully reminded that earnings do
matter. Equity valuations across technology have fallen, as evidenced by the
Nasdaq's 33% decline from its March high. A newfound focus on valuations and
earnings has resulted in a broadening of the market across company size,
style, and sector. That broadening, though, has been accompanied by rising
volatility that is well above the historical averages for the S&P 500 and
the Nasdaq.
GIFTRUST
* Giftrust turned in a remarkable gain of 63.10% for the 12 months ended
October 31, 2000, as shareholders benefited from extraordinary results
during the first few months of the period. Between October 31, 1999, and the
Nasdaq Composite's high on March 10 of this year, Giftrust rose 114%. A
portion of that outsized gain was surrendered during the steep technology
correction that followed.
* Giftrust had more than half of its assets in technology-oriented companies
throughout the year and was well-rewarded for that posture. Many of the
fund's best-performing investments were companies connected with the
Internet. They included businesses involved in communications equipment,
software and semiconductors. In general, their products enable consumers and
businesses to access and use the Internet or help keep the Internet running.
* Not all Internet stories were positive, however. Giftrust was slowed by
companies involved in e-business consulting and development, along with
selected companies that provide fiber-optic equipment for communications and
cable networks.
[left margin]
GIFTRUST
(TWGTX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 3.92%(*)
1 Year 63.10%
INCEPTION DATE: 11/25/83
NET ASSETS: $2.1 billion
*Not annualized
Investment terms are defined in the Glossary on pages 18-19.
2 1-800-345-2021
Market Perspective from James E. Stowers III and C. Kim Goodwin
--------------------------------------------------------------------------------
[photo of C. Kim Goodwin and James E. Stowers III]
C. Kim Goodwin and James E. Stowers III,
co-chief investment officers, U.S. growth equities
2000 has challenged equity investors with two very different stock markets.
Until March 10, we had what amounted to a one-sector economy as investors heard
only the siren song of technology. The Nasdaq sprinted ahead 24%, buoyed by
corporate tech spending, a continuing flood of foreign money attracted by a
strong U.S. economy, and what could only be called a speculative bubble. Many
said we had crossed into a new economy, one highlighted by technology, media,
and telecommunications firms. If you had anything to do with the Internet, no
price was too high for your shares. Earnings didn't seem to matter either in
this new era. You could succeed simply by putting ".com" at the end of your
name.
But bubbles puncture easily. In the face of rising short-term interest
rates, skyrocketing energy costs, and a weak euro, the economy and corporate
earnings began to slow. From mid-March forward, investors have been reminded
that earnings do matter, and it's been a punishing lesson. Equity valuations
have fallen, as evidenced by the Nasdaq's more than 33% tumble from its March
high--a decline more severe than its earlier drop, as well as those of the Dow
Jones Industrial Average, the S&P 500 or the NYSE Composite, during the October
1987 market crash.
A newfound focus on valuation and earnings has resulted in a broadening of
the market across company size, style, and sector. Albeit modestly, smaller
companies have outperformed larger companies year-to-date. In addition, value
equities have outperformed growth equities so far in 2000 for the first time in
six calendar years. Finally, since mid-year, twice as many sectors of the S&P
500 have outperformed the index than in the previous 18 months.
The trade-off to the market's broadening might be the perpetuation of
rising volatility--volatility in the S&P 500 and Nasdaq that is almost twice and
more than three times their historical averages, respectively. Combine nearly
instant dissemination of information, declining commission costs, recent
regulations regarding the flow of information and more than $1.7 trillion in
401(k) and other investor-controlled assets, and you have a recipe for "ready,
fire, aim" investing.
All of this, we think, puts us in a market where the best results will be
earned by investors who can identify companies that can sustain their growth.
This is the foundation of the investment strategy that drives our domestic
growth equity funds.
[right margin]
"A NEWFOUND FOCUS ON VALUATION AND EARNINGS HAS RESULTED IN A BROADENING OF THE
MARKET ACROSS COMPANY SIZE, STYLE, AND SECTOR."
MARKET RETURNS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
S&P 500 6.09%
S&P MIDCAP 400 6.09%
RUSSELL 2000 17.41%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
[line chart - data below]
S&P 500 S&P Mid-Cap 400 Russell 2000
10/31/1999 $1.00 $1.00 $1.00
11/30/1999 $1.02 $1.05 $1.06
12/31/1999 $1.08 $1.12 $1.18
1/31/2000 $1.03 $1.08 $1.16
2/29/2000 $1.01 $1.16 $1.35
3/31/2000 $1.11 $1.26 $1.26
4/30/2000 $1.07 $1.21 $1.19
5/31/2000 $1.05 $1.20 $1.12
6/30/2000 $1.08 $1.22 $1.22
7/31/2000 $1.06 $1.23 $1.18
8/31/2000 $1.12 $1.37 $1.27
9/30/2000 $1.07 $1.36 $1.23
10/31/2000 $1.06 $1.32 $1.17
Value on 10/31/00
S&P 500 $1.06
S&P MIDCAP 400 $1.32
RUSSELL 2000 $1.17
www.americancentury.com 3
Giftrust-Performance
TOTAL RETURNS AS OF OCTOBER 31, 2000
GIFTRUST RUSSELL 2000
GROWTH
6 MONTHS(1) ............................. 3.92% -9.09%
1 YEAR .................................. 63.10% 16.16%
AVERAGE ANNUAL RETURNS
3 YEARS ................................. 21.09% 8.11%
5 YEARS ................................. 14.71% 11.65%
10 YEARS ................................ 25.41% 15.95%
LIFE OF FUND(2) ......................... 19.99% 9.35%(3)
(1) Returns for periods less than one year are not annualized.
(2) Inception was 11/25/83.
(3) Since 11/30/83, the date nearest the fund's inception for which data are
available.
See pages 17-19 for information about the Russell 2000 Growth Index and returns
GROWTH OF $10,000 OVER 10 YEARS
[line chart -- data below]
Giftrust Russell 2000 Growth Index
Date Value Value
10/31/1990 $10,000 $10,000
10/31/1991 $17,905 $16,653
10/31/1992 $19,755 $16,593
10/31/1993 $30,788 $21,184
10/31/1994 $36,560 $20,992
10/31/1995 $48,450 $25,314
10/31/1996 $53,159 $28,688
10/31/1997 $54,195 $34,761
10/31/1998 $37,097 $29,248
10/31/1999 $59,002 $37,812
10/31/2000 $96,220 $43,922
Value on 10/31/00
Giftrust $96,220
Russell 2000 $43,922
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
Russell 2000 Growth Index is provided for comparison in each graph. Giftrust's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the Russell
2000 Growth Index do 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.
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
[bar chart - data below]
Giftrust Russell 2000 Growth Index
Date Return Return
10/31/1991 79.04 66.53
10/31/1992 10.32 -0.36
10/31/1993 55.84 27.67
10/31/1994 18.75 -0.91
10/31/1995 32.52 20.59
10/31/1996 9.72 13.33
10/31/1997 1.95 21.08
10/31/1998 -31.55 -15.86
10/31/1999 59.05 29.28
10/31/2000 63.10 16.16
4 1-800-345-2021
Giftrust-Q&A
--------------------------------------------------------------------------------
[photo of Tom Telford, Chris Boyd and John Seitzer]
An interview with Tom Telford, Chris Boyd, and John Seitzer, portfolio
managers on the Giftrust investment team.
WHAT WAS GIFTRUST'S RETURN FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000?
Giftrust had a remarkable year. The fund's 63.10% gain was almost four
times greater than that of its benchmark, the Russell 2000 Growth Index, which
was up 16.16%.
In the six months since our last report--a period that saw investors
retreat from growth stocks in general and technology companies in
particular--Giftrust was up 3.92%, versus a 9.09% drop in its benchmark.
Looking longer-term, the fund has provided an annualized return of 25.41%
for the past 10 years, which is the minimum investment period for a Giftrust
account.
WHAT FACTORS CONTRIBUTED TO GIFTRUST'S FAVORABLE 12-MONTH RESULTS?
We posted extraordinary results during the first few months of the period.
Growth stocks led the market early on, and within that realm, technology stocks
provided the best results. In fact, between October 31, 1999, and the Nasdaq
Composite's high on March 10 of this year, Giftrust rose 114%.
Unfortunately, the steep technology correction that followed shaved off 25%
of that gain over the next seven months. For comparison, the tech-heavy Nasdaq
fell 33% over the same time frame.
BEFORE REVIEWING YOUR PORTFOLIO, COULD YOU DESCRIBE THE INVESTMENT APPROACH YOU
FOLLOW?
Since its introduction in 1983, Giftrust has been managed using a
disciplined equity investment approach developed by American Century's founder,
James E. Stowers, Jr. This system centers on identifying and owning successful
companies, which we define as firms whose earnings and revenues are growing at
an accelerating rate.
Before we invest in a business, however, we must be confident that it can
sustain its growth into the future. To arrive at that conclusion, we carefully
evaluate a company from all sides, examining its strategy, management team, its
position within its industry, risks associated with its business, and
competitive advantages such as marketing prowess, patents, or technology.
As you examine Giftrust's top-10 holdings, you'll see that we concentrate
our investments in companies we believe have the best chance of continuing their
growth. We think that taking large positions in decidedly successful businesses
is the best way to generate superior returns over time.
WHAT SECTOR OR INDUSTRIES CONTRIBUTED THE MOST TO PERFORMANCE?
Giftrust had more than half of its assets in technology-oriented companies
throughout the year and was well-rewarded for that stance.
Many of our best-performing investments were businesses connected to a
tremendous growth driver-- the Internet. In just a few years, the Internet has
revolutionized the way we communicate and do business. The next tidal wave of
change is going to come in the
[right margin]
"WE THINK THAT TAKING LARGE POSITIONS IN DECIDEDLY SUCCESSFUL BUSINESSES IS THE
BEST WAY TO GENERATE SUPERIOR RETURNS OVER TIME."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 79 76
P/E RATIO 54.7 40.9
MEDIAN MARKET $4.23 $3.16
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $9.91 $5.76
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 92% 117%
EXPENSE RATIO (FOR INVESTOR CLASS) 1.00% 1.00%
Investment terms are defined in the Glossary on pages 18-19.
www.americancentury.com 5
Giftrust--Q&A
--------------------------------------------------------------------------------
(Continued)
form of anytime-anywhere access to the Web via cell phones or palm computers.
With that in mind, we have tilted Giftrust toward companies involved in
communications equipment, software and semiconductors. In general, their
products enable consumers and businesses to access and use the Internet or help
keep the Internet running and electronic devices for the telecommunications,
computer, consumer, and data networking industries.
We've held Jabil Circuit for a number of years. Its customers are
businesses like Cisco Systems, Dell Computer and Hewlett-Packard, who are
outsourcing their production to reduce costs and bring new products to market
more swiftly. Shares of Sanmina Corp., a position we initiated over the last
half of the period, have gained 90% since we bought them. We've also been
pleased with Singapore's Flextronics International. Last May, Flextronics was
awarded a five-year, $30-billion contract to make cell phones and related
devices for Motorola.
In the semiconductor realm, Elantec Semiconductor is a top-10 holding. The
catalyst driving this company's earnings acceleration is a computer chip for CD
read/write drives for personal computers. Elantec has a 70% share of the market
in that area. Only about 40% of PCs being shipped this holiday season have a CD
read/write drive, so there appears to be room for future growth.
In software, we continue to receive strong results from BEA Systems, our
top contributor over the last six months. BEA is benefiting from the continuing
build-out of Internet sites by Fortune 1000 companies. Its main product is a
software platform upon which companies build e-commerce solutions.
In a related vein, we've invested in Mercury Interactive Corp., which makes
software used to test software applications. For example, companies can use one
of Mercury's products to test the capacity of their Web sites. Businesses are
constantly changing and upgrading their Web sites; every change must be tested.
According to a recent study by the University of California at Berkeley, 4.4
million new Web pages are added every day, and the average lifespan of a Web
page is 44 days. Another Mercury product tests for errors after changes are made
in software applications.
Our largest holding, Gemstar International Group, is listed under computer
software, but it almost defies classification. Gemstar provides on-screen,
interactive TV program guides. Most cable systems provide as many as 100
channels or more, and Gemstar's technology enables consumers to navigate, sort,
select, and record TV programming. The company's stock rose more than 58% during
the period, which saw Gemstar complete its acquisition of TV Guide, another
provider of interactive program guides. Gemstar is a long-time holding in
Giftrust.
GIFTRUST INCREASED ITS HEALTH CARE HOLDINGS DURING THE PERIOD. WHAT ARE EXAMPLES
OF YOUR INVESTMENTS THERE?
We decided to increase our stake in health care because of the potential of
biotechnology firms involved in genomics--the analysis and manipulation of
genetic information. This is a fascinating new field that could cause a huge
surge in the number of drugs that can be developed. In fact, as more companies
began going to clinical trials with their products, we increased our holdings.
Firms begin clinical trials when they have a drug they believe is going to work.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
GEMSTAR INTERNATIONAL GROUP LTD. 6.0% 4.1%
PROTEIN DESIGN LABS, INC. 3.6% 0.5%
JABIL CIRCUIT, INC. 2.9% 2.1%
MILLENNIUM PHARMACEUTICALS, INC. 2.8% 1.4%
CALPINE CORP. 2.8% 2.4%
ELANTEC SEMICONDUCTOR INC. 2.6% --
BEA SYSTEMS, INC. 2.6% 6.5%
SANMINA CORP. 2.5% --
PMC-SIERRA, INC. 2.0% 5.4%
FLEXTRONICS INTERNATIONAL LTD. ADR 1.9% 2.6%
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
ELECTRICAL EQUIPMENT 20.6% 18.9%
SEMICONDUCTOR 18.9% 22.1%
COMPUTER SOFTWARE 18.8% 24.8%
DRUGS 16.3% 4.7%
OIL SERVICES 5.2% 5.2%
6 1-800-345-2021
Giftrust-Q&A
--------------------------------------------------------------------------------
(Continued)
Because of the potential for acceleration in this field, Protein Design
Labs, Inc., (PDL) of California is one of the fund's biggest holdings. The firm
develops humanized monoclonal antibodies used to prevent and treat autoimmune
diseases, inflammatory diseases, cancers, and other conditions.
Millennium Pharmaceuticals also became one of our biggest stakes. Research
shows that disease is the result of a chain reaction, a cascade of events in the
body. Millennium looks for the genetic basis of a disease and the subsequent
chain reaction it causes to identify various points in the cascade where the
disease can be stopped. It develops treatments for such conditions as asthma,
stroke, and colitis.
Both companies are being driven by genomics accelerating the drug discovery
process. As each drug is developed, they will either partner with a large
pharmaceutical company or market their drugs themselves.
Because this is a volatile area, we look for companies that have multiple
products in the drug pipeline. We're wary of one-product companies where one
misstep could put them out of business. We carefully seek out the leaders in
this sector, companies that have long-term viability and management teams we
feel comfortable with. We put a premium on quality.
WHICH INVESTMENTS DIDN'T LIVE UP TO YOUR EXPECTATIONS?
We were disappointed mostly by companies involved in e-business consulting
and development. In the frenzy to build out Web sites to compete with dot-coms,
brick-and-mortar companies hired consultants to create sites. For many, it was
putting the cart ahead of the horse--they didn't really have a cohesive
strategy. More recently, when dot-coms started to stall, established companies
were able to slow their pace of investment and allow themselves time to readjust
their strategies. This slowdown in Web investment hurt Proxicom, a company in
our portfolio that integrates computer systems in corporate Web sites.
Finally, we didn't get the boost we'd hoped for from Harmonic, Inc. This
company makes fiber-optic equipment for communications and cable networks. It
had been benefiting from the billions being spent by cable companies to upgrade
their systems to carry Internet traffic. Among its largest customers, however,
was AT&T, which has slowed its cable spending in recent months.
WITHOUT MAKING ANY KIND OF PREDICTION, WHAT IS YOUR BEST THINKING ABOUT GIFTRUST
AND THE MARKET AS YOU LOOK FORWARD?
One of few things we can say with certainty is that we plan to stick with
our disciplined investment approach.
Corporate earnings have been slowing throughout 2000, a trend many
observers expect to continue in 2001. In such an environment, companies with
predictable earnings growth are likely to become both more scarce and more
valued. That outcome would play to Giftrust's strength -- taking concentrated
positions in businesses that appear best able to sustain their accelerating
growth.
[right margin]
"ONE OF FEW THINGS WE CAN SAY WITH CERTAINTY IS THAT WE WILL CONTINUE TO STICK
WITH OUR DISCIPLINED INVESTMENT APPROACH."
[right margin]
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
* COMMON STOCKS 91.0%
* TEMPORARY CASH INVESTMENTS 9.0%
AS OF APRIL 30, 2000
* COMMON STOCKS 97.0%
* TEMPORARY CASH INVESTMENTS 3.0%
www.americancentury.com 7
Giftrust--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
COMMON STOCKS - 90.6%
COMPUTER HARDWARE
& BUSINESS MACHINES - 0.5%
164,400 Avocent Corp.(1) $11,668
------------
COMPUTER SOFTWARE - 18.8%
286,300 Acxiom Corp.(1) 11,533
764,300 BEA Systems, Inc.(1) 54,815
555,300 Cognos, Inc.(1) 23,166
1,859,275 Gemstar International Group Ltd.(1) 127,418
167,400 i2 Technologies, Inc.(1) 28,453
117,200 Informatica Corp.(1) 11,079
299,100 Mercury Interactive Corp.(1) 33,191
188,100 NETIQ Corp.(1) 16,206
572,100 Rational Software Corp.(1) 34,165
189,800 Siebel Systems, Inc.(1) 19,917
632,700 TIBCO Software Inc.(1) 39,840
------------
399,783
------------
DEPARTMENT STORES - 0.4%
415,600 Family Dollar Stores, Inc. 8,078
------------
DRUGS - 16.3%
382,700 Abgenix, Inc.(1) 30,245
858,400 Biovail Corp. International(1) 36,106
394,700 Celgene Corp.(1) 25,396
481,300 COR Therapeutics, Inc.(1) 27,178
283,200 Enzon, Inc.(1) 20,169
335,200 Human Genome Sciences, Inc.(1) 29,623
820,400 Millennium Pharmaceuticals, Inc.(1) 59,531
566,000 Protein Design Labs, Inc.(1) 76,181
395,600 QLT PhotoTherapeutics Inc.(1) 19,669
258,500 Shire Pharmaceuticals Group PLC ADR(1) 16,253
206,100 Tanox, Inc.(1) 7,703
------------
348,054
------------
ELECTRICAL EQUIPMENT - 20.6%
31,200 ADC Telecommunications Inc.(1) 11,338
186,100 Advanced Fibre Communications, Inc.(1) 6,054
36,600 Aeroflex Inc.(1) 2,159
505,000 American Tower Corp. Cl A(1) 20,673
712,700 Andrew Corp.(1) 18,731
275,700 Artesyn Technologies Inc.(1) 11,183
540,300 C-Mac Industries Inc.,(1) 29,987
254,400 Comverse Technology, Inc.(1) 28,421
510,900 DMC Stratex Networks Inc.(1) 11,799
1,088,900 Flextronics International Ltd. ADR(1) 41,344
224,200 GlobeSpan, Inc.(1) 17,200
33,400 Ixia(1) 784
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
1,065,300 Jabil Circuit, Inc.(1) $60,789
267,436 JDS Uniphase Corp.(1) 21,788
166,300 Mcdata Corp(1) 13,844
213,100 Natural MicroSystems Corp.(1) 9,616
475,200 POWER-ONE INC.(1) 33,724
445,000 Powerwave Technologies, Inc.(1) 21,443
387,600 Proxim, Inc.(1) 23,486
460,600 Sanmina Corp.(1) 52,668
-------------
437,031
-------------
ELECTRICAL UTILITIES - 2.8%
750,400 Calpine Corp.(1) 59,235
-------------
INDUSTRIAL PARTS - 0.6%
46,200 Emcore Corp.(1) 1,890
140,000 Shaw Group Inc. (The)(1) 11,410
-------------
13,300
-------------
INFORMATION SERVICES - 3.0%
700,200 CBT Group Public
Limited Co. ADR(1) 35,142
300,000 Diamond Technology Partners Inc.(1) 13,434
504,900 Proxicom, Inc.(1) 6,832
155,400 Wireless Facilities, Inc.(1) 7,765
-------------
63,173
-------------
INTERNET - 1.2%
99,200 Ariba, Inc.(1) 12,533
208,300 Art Technology Group, Inc.(1) 13,078
-------------
25,611
-------------
MEDICAL PRODUCTS & SUPPLIES - 0.3%
384,900 Aclara BioSciences, Inc.(1) 6,916
-------------
MEDICAL PROVIDERS & SERVICES - 1.5%
1,652,500 Health Management Associates, Inc.(1) 32,740
-------------
OIL SERVICES - 5.2%
561,800 Ensco International Inc. 18,679
700,700 Global Marine Inc.(1) 18,569
563,400 Grant Prideco, Inc(1) 10,458
606,300 R&B Falcon Corp.(1) 15,158
352,900 Sante Fe International 12,881
284,500 Transocean Sedco Forex, Inc. 15,079
563,400 Weatherford International, Inc.(1) 20,563
--------------
111,387
--------------
SEMICONDUCTOR - 18.9%
385,600 Alpha Industries, Inc.(1) 15,364
407,627 Applied Micro Circuits Corp.(1) 31,158
228,700 Avanex Corp.(1) 23,177
228,000 Cree Research, Inc.(1) 22,622
499,800 Elantec Semiconductor Inc.(1) 55,650
8 1-800-345-2021 See Notes to Financial Statements
Giftrust-Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
468,300 Exar Corp.(1) $20,942
430,100 Finisar Corporation(1) 12,406
463,500 Intersil Holding Corp.(1) 22,219
157,800 Marvell Technology Group Ltd.(1) 8,802
98,600 Oplink Communications Inc.(1) 2,406
249,400 PMC-Sierra, Inc.(1) 42,359
275,300 Qlogic Corp.(1) 26,627
817,800 REMEC, Inc.(1) 24,253
291,000 Sawtek Inc.(1) 14,841
691,200 Transwitch Corporation(1) 39,938
564,100 Vitesse Semiconductor Corp.(1) 39,434
-------------
402,198
-------------
WIRELESS TELECOMMUNICATIONS - 0.5%
518,300 Spectrasite Holdings Inc.(1) 10,220
-------------
TOTAL COMMON STOCKS 1,929,394
--------------
(Cost: $1,199,608)
TEMPORARY CASH INVESTMENTS - 9.4%
50,000 FHLB Discount Notes, 6.37%, 11/3/00(2) $49,982
Repurchase Agreement, Merrill Lynch, Inc.,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00, due 11/1/00
(Delivery value $21,804) 21,800
Repurchase Agreement, State Street Boston
Corp.,(U.S. Treasury obligations), in a joint
trading account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $97,418) 97,400
Repurchase Agreement, Goldman Sachs & Co.,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $30,405) 30,400
--------------
TOTAL TEMPORARY CASH INVESTMENTS 199,582
--------------
(Cost: $199,582)
TOTAL INVESTMENT SECURITIES - 100.0% $2,128,976
==============
(Cost $1,399,190)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLB = Federal Home Loan Bank
(1) Non-income producing.
(2) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting period.
Subtracting the liabilities from the assets results in the fund's NET ASSETS.
The net assets divided by shares outstanding is the share price, or NET ASSET
VALUE PER SHARE. This statement also breaks down the fund's net assets into
capital (shareholder investments) and performance (investment income and
gains/losses).
OCTOBER 31, 2000
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $1,399,190) (Note 3) ....................... $2,128,976
Cash ........................................................... 172
Receivable for investments sold ................................ 37,385
Dividends and interest receivable .............................. 27
----------
2,166,560
----------
LIABILITIES
Payable for investments purchased .............................. 78,683
Accrued management fees (Note 2) ............................... 1,789
Payable for directors' fees and expenses ....................... 1
Accrued expenses and other liabilities ......................... 14
----------
80,487
----------
Net Assets ..................................................... $2,086,073
==========
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ..................................................... 200,000
==========
Outstanding .................................................... 47,726
==========
Net Asset Value Per Share ...................................... $ 43.71
==========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ........................ $ 949,178
Accumulated net investment income .............................. --
Accumulated undistributed net realized gain on
investment transactions ........................................ 407,109
NNet unrealized appreciation on investments (Note 3) ........... 729,786
----------
$2,086,073
==========
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
INVESTMENT LOSS (In Thousands)
Income:
Interest ....................................................... $ 4,466
Dividends ...................................................... 496
---------
4,962
---------
Expenses (Note 2):
Management fees ................................................ 19,960
Directors' fees and expenses ................................... 10
---------
19,970
---------
Net investment loss ............................................ (15,008)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............................... 531,228
Change in net unrealized appreciation on investments ........... 275,993
---------
Net realized and unrealized gain on investments ................ 807,221
---------
Net Increase in Net Assets Resulting from Operations ........... $ 792,213
=========
See Notes to Financial Statements www.americancentury.com 11
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
Increase in Net Assets
2000 1999
OPERATIONS (In Thousands)
<S> <C> <C>
Net investment loss ................................... $ (15,008) $ (6,317)
Net realized gain on investments ...................... 531,228 24,582
Change in net unrealized appreciation on investments .. 275,993 440,765
----------- -----------
Net increase in net assets resulting from operations .. 792,213 459,030
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 103,094 49,917
Payments for shares redeemed .......................... (59,503) (16,082)
----------- -----------
Net increase in net assets from capital
share transactions .................................... 43,591 33,835
----------- -----------
Net increase in net assets ............................ 835,804 492,865
=========== ===========
NET ASSETS
Beginning of period ................................... 1,250,269 757,404
----------- -----------
End of period ......................................... $ 2,086,073 $ 1,250,269
=========== ===========
TRANSACTIONS IN SHARES OF THE FUND
Sold .................................................. 2,487 2,452
Redeemed .............................................. (1,409) (765)
----------- -----------
Net increase .......................................... 1,078 1,687
=========== ===========
</TABLE>
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
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 (the 1940 Act) as an
open-end management investment company. Giftrust (the fund) is one of the
fourteen series of funds issued by the corporation. The fund is diversified
under the 1940 Act. The fund's investment objective is to seek capital growth by
investing primarily in common stocks. The following significant accounting
policies are in accordance with accounting principles generally accepted in the
United States of America; these policies 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 at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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.
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 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 and net
realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences 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.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee. 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
1940 Act (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the fund's average
daily closing net assets during the previous month. The annual management fee
for the fund is 1.00%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2000, totaled $1,747,739,593 and
$1,853,898,505, respectively.
At October 31, 2000, accumulated net unrealized appreciation on investments
was $726,074,347, based on the aggregate cost of investments for federal income
tax purposes of $1,402,901,297, which consisted of unrealized appreciation of
$786,307,184 and unrealized depreciation of $60,232,837.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, has entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended October 31, 2000.
14 1-800-345-2021
<TABLE>
<CAPTION>
Giftrust--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....$26.80 $16.85 $25.46 $25.79 $25.63
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Loss(1) .............. (0.32) (0.14) (0.12) (0.18) (0.20)
Net Realized and Unrealized Gain
on Investment Transaction .......... 17.23 10.09 (7.74) 0.63 2.46
--------- --------- --------- --------- ---------
Total From Investment Operations ..... 16.91 9.95 (7.86) 0.45 2.26
--------- --------- --------- --------- ---------
Distributions
From Net Investment Income .......... - - (0.75) (0.78) (2.10)
From Net Realized Gains on
Investment Transactions ............ - - -(2) - -
--------- --------- --------- --------- ---------
Total Distributions ................... - - (0.75) (0.78) (2.10)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ......$43.71 $26.80 $16.85 $25.46 $25.79
========== ========== ========== ========== ==========
Total Return(3) ......................... 63.10% 59.05% (31.55)% 1.95% 9.72%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ...................... 1.00% 1.00% 1.00% 1.00% 0.98%
Ratio of Net Investment Loss to
Average Net Assets ...................... (0.75) (0.66)% (0.54)% (0.74)% (0.80)%
Portfolio Turnover Rate ................. 92% 117% 147% 118% 121%
Net Assets, End of Period (in millions).. $2,086 $1,250 $757 $1,024 $866
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 15
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, Giftrust Fund (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 2000,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Giftrust Fund as of October 31, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
16 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers more than a dozen growth funds, including domestic
equity, specialty, international, and global. The philosophy behind these growth
funds focuses on three important principles. First, the funds seek to own
successful companies, which we define as those with growing earnings and
revenues. Second, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit the potential for gain. Third, the funds are managed by teams, rather than
by one "star." We believe this allows us to make better, more consistent
management decisions.
In addition to these principles, each fund has its own investment policies
AMERICAN CENTURY GIFTRUST generally invests in the securities of small and
medium-sized companies that exhibit accelerating growth. Shares of Giftrust can
be given only as a gift to someone other than yourself or your spouse, and all
investments must remain in the fund for a minimum of 10 years or until the
recipient reaches the age of majority, whichever is later. Historically,
small-cap stocks have been more volatile than the stocks of larger,
more-established companies. Therefore, the fund is subject to significant price
volatility but offers high long-term growth potential.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
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, it is considered to be a
broad measure of U.S. stock market performance.
The S&P MIDCAP 400 is the medium capitalization sector of the U.S. market.
Created by Standard & Poor's, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 GROWTH INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2000
represents approximately 10% of the total market capitalization of the top 3,000
companies. The average market capitalization of the index is approximately $420
million.
The RUSSELL 2500 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,500 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2500
represents approximately 23% of the total market capitalization of the top 3,000
companies. The average market capitalization of the index is approximately $650
million. The RUSSELL 2500 GROWTH INDEX measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted growth
rates.
[right margin]
PORTFOLIO MANAGERS
Giftrust
CHRIS BOYD, CFA
JOHN SEITZER, CFA
TOM TELFORD, CFA
www.americancentury.com 17
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 total returns, please refer to the "Financial
Highlights" on pages 15.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION-- average market capitalization
represents the average value of the companies held in a portfolio. When that
figure is weighted, the impact of each company's capitalization on the overall
average is proportional to the total market value of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS-
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $9 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the S&
P 500 Index generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.3 billion and $9 billion. This is
Lipper's market capitalization breakpoint as of October 31, 2000, although it
may be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
18 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.3 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
* Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
www.americancentury.com 19
Notes
--------------------------------------------------------------------------------
20 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23034 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
Balanced
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century's reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
BALANCED
(TWBIX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The year ended October 31, 2000, was an unusual one in the U.S. financial
markets. Volatility stemming from high valuations and weakening corporate
profits roiled the stock market, while bonds benefited from the federal budget
surplus and a slowing economy.
As a result, bonds (as represented by the Lehman Aggregate Bond Index)
outperformed stocks (as represented by the S&P 500), the first time that's
happened in a decade. American Century Balanced fund shareholders were rewarded
for investing in a diversified portfolio of bonds and stocks.
Balanced shareholders were also recently rewarded with lower expenses--as
of August 1, 2000, fund expenses were reduced by 10 basis points (0.10%). For
example, the expense ratio for Investor Class shares fell from 1.00% to 0.90%,
compared with 1.28% for the average balanced fund (according to Lipper Inc.).
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century is not
affected by this transaction. We will be exploring ways to partner with J.P.
Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to share the chairman of
the board position and named American Century President William M. Lyons chief
executive officer, giving him ultimate management responsibility for the entire
company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will continue to be his active
participation on the investment teams responsible for the Ultra and Veedot
funds.
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 Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
BALANCED
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Types of Investments ................................................... 5
Top Ten Stock Holdings ................................................. 6
Top Five Stock Industries .............................................. 6
Fixed-Income Portfolio ................................................. 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 14
Statement of Operations ................................................ 15
Statement of Changes
in Net Assets ....................................................... 16
Notes to Financial
Statements .......................................................... 17
Financial Highlights ................................................... 20
Independent Auditors'
Report .............................................................. 23
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 24
Background Information
Investment Philosophy
and Policies ..................................................... 25
Comparative Indices ................................................. 25
Investment Team
Leaders .......................................................... 25
Bond Credit Rating
Guidelines ....................................................... 25
Glossary ............................................................... 26
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Bonds outperformed stocks during the year ended October 31, 2000.
* Stocks rallied in late 1999 and early 2000, led by technology shares.
* A slowing economy and concerns about weakening profits led to increased
volatility and a general stock market decline throughout much of 2000.
* Small- and mid-cap stocks, along with value shares, performed best.
* Bonds struggled in late 1999 and early 2000 as strong economic growth led
the Federal Reserve to raise short-term interest rates several times.
* However, a slowing economy and demand from investors fleeing the volatile
stock market gave bonds a boost later in the year.
* Treasury bonds performed best, followed by mortgage-backed and government
agency bonds. Corporate bonds lagged the rest of the market.
FUND PERFORMANCE
* Balanced trailed its benchmark index (60% S&P 500 and 40% Lehman Aggregate
Bond Index) for the one-year period.
* The fund's bond portfolio essentially matched the return of the Lehman
index, but the stock portfolio's emphasis on growth stocks caused it to
underperform the S&P 500.
BALANCED'S STOCK PORTFOLIO
* The portfolio benefited from the strong performance of its health care
stocks--including pharmaceutical and biotechnology shares--as well as
electric utilities stocks.
* Technology stocks were a mixed bag--an emphasis on equipment and component
manufacturers enhanced performance, but software and Internet companies
were negative contributors.
* Other poor-performing fund holdings included banks, retailers, and telephone
stocks.
BALANCED'S BOND PORTFOLIO
* We added to the portfolio's holdings of mortgage-backed securities, which we
felt offered the most attractive investment opportunities.
* We maintained an overweight in corporate bonds and an underweight in
Treasury bonds.
OUTLOOK
* The markets hate uncertainty, and the current litany of uncertain factors
will likely lead to further stock market volatility.
* We believe that the U.S. economy is on track for a "soft landing" (slowing
to a moderate, sustainable growth rate), which would be good news for both
the stock and bond markets.
* In the stock portfolio, we plan to focus on industry leaders and beaten-down
stocks with strong recovery prospects.
* In the bond portfolio, we don't intend to make any major changes unless we
see compelling evidence that the economy is experiencing a significantly
harder landing than originally expected.
[left margin]
BALANCED(1)
(TWBIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 0.04%(2)
1 Year 5.90%
30-DAY SEC YIELD: 2.79%
INCEPTION DATE: 10/20/88
NET ASSETS: $875.7 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor, Advisor, and Institutional classes.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 26-27.
2 1-800-345-2021
Market Perspective from Mark Mallon
--------------------------------------------------------------------------------
[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
OVERVIEW
The U.S. financial markets fared well during the year ended October 31,
2000. Stocks were generally higher in a rapidly changing and volatile
environment. Although bonds initially struggled as the Federal Reserve raised
interest rates, they ultimately benefited from the success of the Fed's efforts
to slow the economy.
U.S. STOCKS
Stocks ended 1999 with a strong rally, led by large-cap and technology
shares. Tech stocks continued to surge in early 2000, but investors began to
rotate away from the larger stocks that dominated the market in 1998 and 1999.
Instead, they focused their attention on small- and mid-cap companies.
Mid-cap stocks were especially popular among aggressive investors because they
had the high growth potential of smaller companies and the ease of trading
associated with larger stocks.
By springtime, the market's attitude began to change. A series of interest
rate increases by the Fed threatened to cool the hot U.S. economy. In addition,
concerns surfaced about sustainability and profitability among Internet and
electronic-commerce companies.
As a result, many investors turned away from high-flying growth
stocks--sending them sharply lower--and looked for opportunities in undervalued
sectors of the market, such as utilities, energy, and health care stocks.
The major indexes fluctuated wildly throughout the summer and then finished
the period on a down note. The slowing economy caused a number of high-profile
companies to issue profit warnings in September and October. Investors showed
little patience, punishing these stocks in the days following the warnings.
U.S. BONDS
Changing economic conditions proved to be good news for the bond market. In
late 1999 and early 2000, the U.S. economy's strong growth, coupled with fears
of rising inflation, led the Fed to raise interest rates several times.
By summer, however, the manufacturing sector and consumer spending showed
signs of slowing. Rising oil prices and a declining euro (the European currency)
further threatened global demand for U.S. goods and services. With stocks
staggering, bonds got a boost from a combination of increased demand and the
absence of further Fed rate hikes.
Treasury bonds performed best, largely because of declining supply early in
the period. The federal budget surplus enabled the U.S. Treasury to reduce new
issuance and buy back some of its own bonds.
The higher yields of mortgage-backed, government agency, and asset-backed
bonds attracted investor demand late in the period. Fed inactivity helped,
too--these securities tend to outperform Treasurys when interest rates are
relatively stable.
Corporate bonds lagged the rest of the bond market. Heavy issuance put
pressure on bond prices, and demand waned as investors feared the slowing
economy would weaken the financial health of corporate bond issuers.
[right margin]
"WITH STOCKS STAGGERING, BONDS GOT A BOOST FROM A COMBINATION OF INCREASED
DEMAND AND THE ABSENCE OF FURTHER FED RATE HIKES."
U.S. STOCK MARKET PERFORMANCE
FOR THE YEAR ENDED OCTOBER 31, 2000
S&P 500 6.09%
S&P MIDCAP 400 31.65%
S&P SMALLCAP 600 25.26%
U.S. BOND MARKET PERFORMANCE
FOR THE YEAR ENDED OCTOBER 31, 2000
LEHMAN AGGREGATE BOND INDEX 7.30%
Lehman Treasury Bond Index 8.22%
Lehman Mortgage-Backed 7.57%
Securities Index
Lehman Corporate Bond Index 5.38%
Source: Russell/Mellon Analytical, Lipper Inc., and Bloomberg.
www.americancentury.com 3
Balanced--Performance
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
(INCEPTION 10/20/88) (INCEPTION 1/6/97) (INCEPTION 5/1/00)
BLENDED LEHMAN AGGREGATE BLENDED BLENDED
BALANCED INDEX S&P 500 BOND INDEX BALANCED INDEX BALANCED INDEX
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 0.04% 1.70% -1.03% 5.80% -0.08% 1.70% -- --
1 YEAR 5.90% 6.58% 6.09% 7.30% 5.63% 6.58% -- --
=======================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 9.43% 12.82% 17.60% 5.66% 9.14% 12.82% -- --
5 YEARS 11.70% 15.54% 21.67% 6.33% -- -- -- --
10 YEARS 12.60% 14.86% 19.44% 7.98% -- -- -- --
LIFE OF FUND 11.85% 13.75%(2) 17.48%(2) 8.16%(2) 10.71% 14.86%(3) -0.63%(1) 1.70%(1)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Index data since 10/31/88, the date nearest the class's inception for
which data are available.
(3) Index data since 12/31/96, the date nearest the class's inception for
which data are available.
See pages 24-26 for information about share classes, indices, and returns.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/00
S&P 500 $59,088
Blended Index $40,218
Balanced $32,771
Lehman Aggregate
Bond Index $21,550
Lehman Aggregate
Balanced Blended Index S&P 500 Bond Index
DATE VALUE VALUE VALUE VALUE
10/31/1990 $10,000 $10,000 $10,000 $10,000
10/31/1991 $14,293 $12,642 $13,350 $11,581
10/31/1992 $14,384 $13,895 $14,680 $12,719
10/31/1993 $16,348 $15,800 $16,873 $14,229
10/31/1994 $16,196 $15,934 $17,526 $13,707
10/31/1995 $18,846 $19,459 $22,160 $15,852
10/31/1996 $21,491 $22,728 $27,500 $16,779
10/31/1997 $25,003 $27,914 $36,330 $18,271
10/31/1998 $27,619 $32,640 $44,319 $19,978
10/31/1999 $30,941 $37,735 $55,696 $20,084
10/31/2000 $32,771 $40,218 $59,088 $21,550
$10,000 investment made 10/31/90
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 S&P
500, Lehman Aggregate Bond, and blended index are provided in the graph at left,
while the blended index is provided in the graph below. Balanced's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the indices do not. These graphs are
based on Investor Class shares only; performance for other classes will vary due
to differences in fee structures (see Total Returns table above). Past
performance does not guarantee future results. Investment return and principal
value will fluctuate, and redemption value may be more or less than original
cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
Balanced Blended Index
DATE RETURN RETURN
10/31/1991 42.92% 26.42%
10/31/1992 0.63% 9.91%
10/31/1993 13.64% 13.71%
10/31/1994 -0.93% 0.85%
10/31/1995 16.36% 22.12%
10/31/1996 14.04% 16.80%
10/31/1997 16.34% 22.82%
10/31/1998 10.46% 16.93%
10/31/1999 12.03% 15.61%
10/31/2000 5.90% 6.58%
4 1-800-345-2021
Balanced--Q&A
--------------------------------------------------------------------------------
[photo of Jeff Tyler] [photo of Jeff Houston]
Equity team leader (left): Jeff Tyler
Fixed-income team leader (right): Jeff Houston
Based on interviews with Jeff Tyler and Jeff Houston, portfolio managers on
the Balanced fund investment team.
HOW DID THE FUND PERFORM?
Balanced posted a modest return, reflecting the broad performance of the
U.S. stock and bond markets. For the fiscal year ended October 31, 2000,
Balanced returned 5.90%, trailing the 6.58% return of its benchmark, a blended
index that is 60% U.S. stocks, represented by the S&P 500, and 40% U.S. bonds,
represented by the Lehman Aggregate Bond Index.* (See the previous page for
other fund performance comparisons.)
WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
The fixed-income portion of the portfolio essentially matched the
performance of the Lehman Aggregate Bond Index, so the stock portion was
responsible for the underperformance. The equity portion of the portfolio
returned 4.54% for the fiscal year, compared with the 6.09% return of the S&P
500. In contrast to the first six months of the period, when it comfortably beat
the S&P 500, the fund's stock portfolio lost significant ground during the last
half.
OK, LET'S START THERE. WHAT HAPPENED WITH BALANCED'S EQUITY PORTFOLIO IN THE
LAST SIX MONTHS?
The portfolio's orientation toward growth contributed to its lagging
performance. Our stock selection process emphasizes growth measures, such as
earnings growth and earnings surprises. We take this a step further when it
comes to technology stocks--we use growth measures almost exclusively when
evaluating companies in this sector.
This approach was beneficial in the first half of the period, when growth
stocks were the market leaders, but much less successful in the last six months,
when growth shares fell out of favor and value stocks outperformed. For the
fiscal year, the S&P 500/BARRA Value Index returned 9.68%, while the S&P
500/BARRA Growth Index returned 2.07%.
The good news is that our stock-picking approach also incorporates value
measures, such as price/earnings and price/book ratios, so the portfolio had
some exposure to value stocks.
CAN YOU TALK ABOUT SOME OF THE PORTFOLIO'S BETTER-PERFORMING STOCKS?
Health care stocks were by far the best performers in the portfolio. The
fund held overweight positions in drug and biotechnology stocks, which
contributed favorably to fund performance.
The portfolio's largest overweights in this sector were two big
pharmaceutical stocks, Pfizer and Warner-Lambert. Pfizer, which makes five of
the world's 20 top-selling medicines, completed its acquisition of
Warner-Lambert in June. At the time of the acquisition, Warner-Lambert shares
had risen 60% since the beginning of 2000.
We also had several biotech holdings that performed very well. The
near-completion of the human genome project generated enormous excitement in
these stocks. Although we've recently taken profits by reducing or eliminating
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 2000
COMMON STOCKS & FUTURES 61%
MORTGAGE- & ASSET-BACKED
SECURITIES 17%
CORPORATE BONDS 13%
U.S. TREASURY SECURITIES 4%
TEMPORARY CASH INVESTMENTS 3%
U.S. GOVERNMENT AGENCY
SECURITIES 2%
AS OF APRIL 30, 2000
COMMON STOCKS & FUTURES 60%
MORTGAGE- & ASSET-BACKED
SECURITIES 15%
CORPORATE BONDS 11%
U.S. TREASURY SECURITIES 8%
TEMPORARY CASH INVESTMENTS 3%
U.S. GOVERNMENT AGENCY
SECURITIES 3%
Investment terms are defined in the Glossary on pages 26-27.
www.americancentury.com 5
Balanced--Q&A
--------------------------------------------------------------------------------
(Continued)
some of our holdings, small positions in Ivax (up 270% in the past year), Andrx
(up 200%), and Idec Pharmaceuticals (up 235%) enhanced fund performance.
Another good area for the portfolio was utilities stocks, especially
electric utilities. Electric companies benefited from growing profit margins and
strong consumer demand. With demand for electricity outstripping supply,
companies that generate and sell power were in a better competitive position
than those that needed to buy power. We built overweight positions in several
power generation firms, including Reliant Energy (up 50%) and Calpine (up 175%).
WHAT ABOUT THE VOLATILE TECHNOLOGY SECTOR?
Technology giveth, and it taketh away. The downturn in tech stocks over the
past six months contributed to the portfolio's underperformance, but some of
these stocks were still among the best performers for the fiscal year.
One of the themes in the technology sector was a shift away from
manufacturers and toward companies that build infrastructure or provide supplies
and components to these manufacturers. Stocks like Corning (up 190%), which
produces glass fibers for telecommunications networks, and Cisco Systems (up 18%
), a top-ten holding and the dominant maker of Internet routers and switches,
were among the biggest positive contributors to fund performance.
On the negative side, Microsoft was one of the portfolio's weaker
performers, weighed down by antitrust violations and a possible break-up by the
Justice Department. Although we reduced our holdings by half during the fiscal
year, it was still a top-ten holding.
WHAT OTHER AREAS HURT FUND PERFORMANCE?
The portfolio's banking stocks, such as Chase Manhattan (down 22%) and Bank
of America (down 25%), performed poorly thanks to weaker-than-expected earnings
and concerns about mounting loan losses.
Retailers were also somewhat of a disaster area, hurt by worries of a
slowdown in consumer spending. The portfolio was overweight in Home Depot (down
15%) and Wal-Mart (down 20%), a top-ten holding for much of the period. We also
held small positions in clothing stores like Abercrombie & Fitch (down 14%),
American Eagle Outfitters (down 20%), and Ann Taylor (down 30%), although these
stocks are no longer in the portfolio.
One other weak area was telephone stocks, especially the long-distance
carriers. Long-distance providers struggled with increased competition and a
lack of pricing power. Although we were underweight the long-distance companies,
AT&T (down 50%) and MCI WorldCom (down 60%) were still among the portfolio's
worst performers.
LET'S SHIFT TO BALANCED'S BOND PORTFOLIO. HOW DID IT PERFORM?
The fixed-income portfolio returned 7.22%, just short of the 7.30% return
of the Lehman Aggregate Bond Index. This narrow underperformance was probably
because of our sector allocation--compared with the index, the portfolio was
underweight Treasury bonds and overweight corporate bonds, and Treasurys
outperformed corporates.
WHAT WERE THE BIGGEST CHANGES YOU MADE TO THE BOND PORTFOLIO?
We moved more of the portfolio's assets into mortgage-backed securities,
including those issued by government-sponsored home loan programs (such as
Ginnie Mae, Fannie Mae, and Freddie Mac) and commercial mortgage-backed
securities issued by banks and other financial institutions.
[left margin]
TOP TEN STOCK HOLDINGS
% OF EQUITY PORTFOLIO
AS OF AS OF
10/31/00 4/30/00
GENERAL ELECTRIC CO.
(U.S.) 4.5% 3.4%
CITIGROUP INC. 3.5% 1.9%
CISCO SYSTEMS INC. 3.2% 4.0%
PFIZER, INC. 2.2% 1.4%
MICROSOFT CORP. 2.1% 3.0%
INTEL CORP. 2.1% 2.1%
SUN MICROSYSTEMS,
INC. 2.1% 1.3%
SBC COMMUNICATIONS
INC. 2.0% 1.4%
ORACLE CORP. 1.9% 1.9%
BELLSOUTH CORP. 1.8% 1.3%
TOP FIVE STOCK INDUSTRIES
% OF EQUITY PORTFOLIO
AS OF AS OF
10/31/00 4/30/00
DRUGS 7.8% 7.2%
FINANCIAL SERVICES 7.6% 6.1%
BANKS 7.6% 6.4%
COMPUTER SOFTWARE 7.4% 7.0%
ELECTRICAL EQUIPMENT 7.4% 10.3%
Investment terms are defined in the Glossary on pages 26-27.
6 1-800-345-2021
Balanced--Q&A
--------------------------------------------------------------------------------
(Continued)
This change was consistent with our investment philosophy--to look for
relative value among the different sectors of the taxable bond market. The
yields on mortgage-backed securities looked relatively attractive after Treasury
bond yields declined, and mortgages appeared poised to benefit from a stable
interest rate environment.
We also trimmed the portfolio's Treasury position, believing that other
bond sectors had more upside potential going forward.
HOW DO YOU EVALUATE THE SECTORS SO YOU CAN MAKE THOSE ADJUSTMENTS?
We have a quantitative fixed-income analysis team that helps us choose
where to concentrate the portfolio's holdings and where to limit its exposure.
For example, the quantitative team uses proprietary models to closely
examine bond performance, which helps us determine which maturities and sectors
look most attractive. We can also use this information to project how they will
perform in different market scenarios, allowing us to better understand how the
overall portfolio will perform as conditions change. We then position the
portfolio based on what we think is the most likely scenario.
LOOKING AHEAD, WHAT DO YOU SEE IN STORE FOR THE U.S. ECONOMY AND THE FINANCIAL
MARKETS?
The markets hate uncertainty, and there's quite a bit of it right now.
Uncertainty about several factors--the strength of the economy, the price of
oil and its effect on inflation, the sustainability of corporate profit growth,
and the outcome of the presidential election--will likely contribute to further
stock market volatility.
In our view, though, the economy appears to be on track for a so-called
"soft landing"--slowing to a moderate, sustainable growth rate. This would be
good news for both stocks and bonds.
In particular, we think this situation would provide a favorable
environment for corporate bonds. A lot of pessimism about the outlook for
corporate profits and credit quality has already been factored into corporate
bond prices and yields. We think corporate bonds will perform quite well if that
pessimism subsides.
The Treasury market also seems to be overly pessimistic about the economy.
With the two-year note yielding less than the overnight federal funds rate, the
market seems to be pricing in a hard landing, including interest rate cuts by
the Federal Reserve. We think those assumptions are premature.
WHAT ARE YOUR PLANS FOR BALANCED GOING FORWARD?
At the most basic level, we expect to continue following our investment
objective, maintaining a roughly 60% position in stocks and 40% in bonds.
In the stock portfolio, we'll continue to rely on our quantitative computer
models to guide our investment decisions. With the market in turmoil, we're
focusing on industry leaders among growth stocks, and turnaround
stories--beaten-down stocks with strong recovery prospects--among value shares.
On the bond side, we don't plan to make any major changes unless we see
compelling evidence that the economy is experiencing a significantly harder
landing than originally expected. We will continue to monitor inflation, the
economy, and interest rates closely, taking advantage of relative value
opportunities as they arise.
[right margin]
"IN OUR VIEW, THE ECONOMY APPEARS TO BE ON TRACK FOR A SO-CALLED 'SOFT LANDING'
--SLOWING TO A MODERATE, SUSTAINABLE GROWTH RATE. THIS WOULD BE GOOD NEWS FOR
BOTH STOCKS AND BONDS."
FIXED-INCOME PORTFOLIO
AS OF AS OF
10/31/00 4/30/00
PORTFOLIO SENSITIVITY TO INTEREST RATES
WEIGHTED AVERAGE MATURITY 8.1 YEARS 8.7 YEARS
DURATION 4.9 YEARS 4.9 YEARS
PORTFOLIO CREDIT QUALITY % OF FIXED-INCOME PORTFOLIO
AAA 67% 72%
AA -- 3%
A 15% 11%
BBB 14% 11%
BB 4% 3%
www.americancentury.com 7
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
COMMON STOCKS -- 59.6%
AIRLINES -- 0.1%
4,900 AMR Corp.(1) $ 160
5,700 Delta Air Lines Inc. 270
--------
430
--------
ALCOHOL -- 0.5%
63,500 Anheuser-Busch Companies, Inc. 2,905
17,000 Coors (Adolph) Co. Cl B 1,083
--------
3,988
--------
APPAREL & TEXTILES -- 0.1%
26,700 Liz Claiborne, Inc. 1,135
--------
BANKS -- 4.5%
67,900 Bank of America Corp. 3,263
32,000 Bank of New York Co., Inc. (The) 1,842
106,900 Chase Manhattan Corp. 4,864
340,800 Citigroup Inc. 17,934
46,300 Comerica Inc. 2,792
184,900 Fleet Boston Financial Corp. 7,026
23,100 Silicon Valley Bancshares(1) 1,068
--------
38,789
--------
CHEMICALS -- 0.8%
127,700 Dow Chemical Co. 3,911
27,200 du Pont (E.I.) de Nemours & Co. 1,234
16,400 Minnesota Mining &
Manufacturing Co. 1,585
--------
6,730
--------
CLOTHING STORES -- 0.2%
32,300 Limited, Inc. (The) 816
13,700 Talbots, Inc. 1,083
--------
1,899
--------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 3.1%
3,200 Brocade Communications System(1) 728
25,600 Compaq Computer Corp. 778
91,600 EMC Corp. (Mass.)(1) 8,158
12,600 Gateway Inc.(1) 650
101,800 Hewlett-Packard Co. 4,727
6,300 Network Appliances, Inc.(1) 750
95,400 Sun Microsystems, Inc.(1) 10,575
--------
26,366
--------
COMPUTER SOFTWARE -- 4.4%
32,800 Adobe Systems Inc. 2,494
66,100 International Business Machines
Corp. 6,511
158,600 Microsoft Corp.(1) 10,928
302,600 Oracle Corp.(1) 9,985
25,600 Rational Software Corp.(1) 1,529
7,900 Siebel Systems, Inc.(1) 829
95,100 Sybase, Inc.(1) 1,988
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
35,500 Symantec Corp.(1) $ 1,386
16,800 Veritas Software Corp.(1) 2,369
--------
38,019
--------
CONSTRUCTION & REAL PROPERTY -- 0.1%
15,000 Mastec, Inc.(1) 434
--------
CONSUMER DURABLES -- 0.1%
52,700 Pier 1 Imports, Inc. 698
--------
DEFENSE/AEROSPACE -- 1.0%
103,800 Boeing Co. 7,039
16,600 Northrop Grumman Corp. 1,394
--------
8,433
--------
DEPARTMENT STORES -- 1.3%
28,400 Kohl's Corp.(1) 1,539
55,400 Sears, Roebuck & Co. 1,647
182,500 Wal-Mart Stores, Inc. 8,281
--------
11,467
--------
DRUGS -- 4.5%
16,000 Allergan, Inc. 1,345
60,000 Amgen Inc.(1) 3,474
70,600 Bristol-Myers Squibb Co. 4,302
3,700 Cardinal Health, Inc. 351
21,100 Elan Corp., plc ADR(1) 1,096
9,600 Forest Laboratories, Inc. Cl A(1) 1,272
13,200 Genentech, Inc.(1) 1,089
44,100 IVAX Corp.(1) 1,918
38,193 King Pharmaceuticals, Inc.(1) 1,712
97,300 Merck & Co., Inc. 8,750
261,200 Pfizer, Inc. 11,280
33,500 Pharmacia Corp. 1,843
26,100 Schering-Plough Corp. 1,349
--------
39,781
--------
ELECTRICAL EQUIPMENT -- 4.4%
18,300 Amphenol Corp. Cl A(1) 1,176
308,500 Cisco Systems Inc.(1) 16,621
32,600 Corning Inc. 2,494
15,300 Digital Lightwave, Inc.(1) 775
52,000 Flextronics International Ltd. ADR(1) 1,974
89,000 KEMET Corp.(1) 2,481
67,400 Nortel Networks Corp. 3,067
11,200 Polycom, Inc.(1) 728
21,000 Solectron Corp.(1) 924
30,200 Technitrol, Inc. 3,348
28,300 Tektronix, Inc. 2,016
79,400 Vishay Intertechnology, Inc.(1) 2,382
--------
37,986
--------
ELECTRICAL UTILITY -- 1.4%
31,300 AES Corp. (The)(1) 1,768
25,100 ALLETE 541
36,500 Calpine Corp.(1) 2,881
20,900 PG&E Corp. 563
8 1-800-345-2021 See Notes to Financial Statements
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
47,200 Public Service Enterprise Group
Inc. $ 1,959
71,600 Reliant Energy, Inc. 2,959
51,000 Southern Co. 1,498
10,200 Southern Energy Inc.(1) 278
--------
12,447
--------
ENERGY RESERVES & PRODUCTION -- 3.3%
137,100 Amerada Hess Corp. 8,501
64,700 Apache Corp. 3,579
53,901 Exxon Mobil Corp. 4,807
90,800 Kerr-McGee Corp. 5,930
141,100 Occidental Petroleum Corp. 2,804
43,900 Royal Dutch Petroleum Co. New
York Shares 2,607
--------
28,228
--------
ENTERTAINMENT -- 0.5%
117,700 Disney (Walt) Co. 4,215
--------
FINANCIAL SERVICES -- 4.4%
66,500 Fannie Mae 5,120
30,100 Federal Home Loan Mortgage
Corporation 1,806
8,600 Gallagher (Arthur J.) & Co. 543
420,800 General Electric Co. (U.S.) 23,064
29,700 Metris Companies Inc. 962
48,800 MGIC Investment Corp. 3,325
38,500 Providian Financial Corp. 4,004
--------
38,824
--------
FOOD & BEVERAGE -- 2.2%
115,400 Archer-Daniels-Midland Co. 1,269
48,700 Hormel Foods Corp. 819
113,300 IBP, Inc. 2,330
111,500 PepsiCo, Inc. 5,401
87,200 Quaker Oats Co. (The) 7,112
49,400 Suiza Foods Corp.(1) 2,288
--------
19,219
--------
FOREST PRODUCTS & PAPER -- 0.5%
31,600 International Paper Co. 1,157
35,600 Westvaco Corp. 1,015
53,000 Weyerhaeuser Co. 2,488
--------
4,660
--------
GAS & WATER UTILITIES -- 0.1%
10,500 Equitable Resources Inc. 609
--------
GROCERY STORES -- 0.3%
54,400 Safeway Inc.(1) 2,975
--------
HEAVY ELECTRICAL EQUIPMENT -- 0.3%
50,800 Dover Corp. 2,156
--------
HOME PRODUCTS -- 1.2%
36,600 Avon Products, Inc. 1,775
35,800 Clorox Company 1,598
46,200 Colgate-Palmolive Co. 2,714
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
26,800 Fortune Brands, Inc. $ 789
61,800 Ralston Purina Co. 1,499
95,200 Tupperware Corp. 1,630
--------
10,005
--------
HOTELS -- 0.1%
17,400 MGM Grand, Inc. 601
--------
INDUSTRIAL PARTS -- 0.6%
69,400 Illinois Tool Works Inc. 3,856
12,800 Ingersoll-Rand Co. 483
12,500 United Technologies Corp. 873
--------
5,212
--------
INFORMATION SERVICES -- 0.4%
25,600 Automatic Data Processing, Inc. 1,672
38,600 First Data Corp. 1,935
500 Omnicom Group Inc. 46
--------
3,653
--------
INTERNET -- 0.7%
113,500 America Online, Inc.(1) 5,724
--------
LEISURE -- 0.1%
15,500 Brunswick Corp. 301
19,700 International Game Technology(1) 722
--------
1,023
--------
LIFE & HEALTH INSURANCE -- 1.0%
27,800 CIGNA Corp. 3,390
104,400 Lincoln National Corp. 5,051
--------
8,441
--------
MEDIA -- 1.2%
21,100 Comcast Corp. Cl A(1) 859
35,800 Cox Communications, Inc. Cl A(1) 1,577
26,000 Infinity Broadcasting Corp. Cl A(1) 865
126,800 Viacom, Inc. Cl B(1) 7,212
--------
10,513
--------
MEDICAL PRODUCTS & SUPPLIES -- 1.7%
47,400 Bard (C.R.), Inc. 1,985
11,000 Beckman Coulter Inc. 771
87,800 Johnson & Johnson 8,088
27,100 PE Corp-PE Biosystems Group 3,171
9,400 Varian Medical Systems, Inc.(1) 459
--------
14,474
--------
MEDICAL PROVIDERS & SERVICES -- 0.5%
23,600 HCA - The Healthcare Co. 943
95,200 Oxford Health Plans, Inc.(1) 3,210
--------
4,153
--------
MINING & METALS -- 0.3%
18,200 Alcan Aluminium Ltd. 574
58,500 Alcoa Inc. 1,679
--------
2,253
--------
See Notes to Financial Statements www.americancentury.com 9
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
--------------------------------------------------------------------------------
MOTOR VEHICLES & PARTS -- 0.5%
133,036 Ford Motor Co. $ 3,476
10,800 Johnson Controls, Inc. 644
--------
4,120
--------
MULTI-INDUSTRY -- 0.5%
81,241 Tyco International Ltd. 4,605
--------
OIL SERVICES -- 0.5%
12,900 BJ Services Co.(1) 676
57,600 Ensco International Inc. 1,916
33,200 Noble Drilling Corp.(1) 1,380
--------
3,972
--------
PROPERTY & CASUALTY INSURANCE -- 0.9%
56,300 American International Group, Inc. 5,518
33,400 Radian Group Inc. 2,367
--------
7,885
--------
PUBLISHING -- 0.4%
24,400 Deluxe Corp 551
36,100 Dow Jones & Co., Inc. 2,125
9,000 McGraw-Hill Companies, Inc. (The) 578
--------
3,254
--------
RAILROADS -- 0.1%
16,900 Union Pacific Corp. 792
--------
RESTAURANTS -- 0.4%
52,200 Brinker International, Inc.(1) 2,049
65,400 Jack in the Box Inc.(1) 1,602
--------
3,651
--------
SECURITIES & ASSET MANAGEMENT -- 1.2%
30,000 Lehman Brothers Holdings Inc. 1,935
34,000 Merrill Lynch & Co., Inc. 2,380
77,700 Morgan Stanley Dean Witter & Co. 6,240
--------
10,555
--------
SEMICONDUCTOR -- 3.2%
59,900 Analog Devices, Inc.(1) 3,893
63,500 Applied Materials, Inc.(1) 3,375
84,100 Atmel Corp.(1) 1,254
39,200 Cypress Semiconductor Corp.(1) 1,468
44,700 Integrated Device Technology, Inc.(1) 2,519
237,100 Intel Corp. 10,654
17,100 International Rectifier Corp.(1) 763
33,300 KLA-Tencor Corp.(1) 1,125
58,100 Lam Research Corp.(1) 1,120
44,100 Silicon Storage Technology Inc.(1) 1,005
--------
27,176
--------
SPECIALTY STORES -- 1.2%
47,600 Best Buy Co., Inc.(1) 2,388
20,300 Dollar Tree Stores, Inc.(1) 794
75,500 Home Depot, Inc. 3,246
26,300 Insight Enterprises, Inc.(1) 855
20,300 Tiffany & Co. 867
Shares/Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
59,900 Zale Corp.(1) $ 2,029
--------
10,179
--------
TELEPHONE -- 3.8%
66,300 AT&T Corp. 1,537
189,000 BellSouth Corp. 9,131
37,500 Dycom Industries, Inc.(1) 1,411
30,000 Qwest Communications
International Inc.(1) 1,459
178,200 SBC Communications Inc. 10,280
114,654 Verizon Communications 6,628
79,000 WorldCom, Inc.(1) 1,874
--------
32,320
--------
THRIFTS -- 0.1%
22,800 Golden West Financial Corp. (Del.) 1,278
--------
TOBACCO -- 0.2%
13,900 R.J. Reynolds Tobacco Holdings,
Inc. 497
29,800 Universal Corp. 834
--------
1,331
--------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.1%
10,100 FedEx Corporation(1) 473
--------
WIRELESS TELECOMMUNICATIONS -- 0.6%
22,700 Nextel Communications, Inc.(1) 869
21,500 QUALCOMM Inc.(1) 1,400
70,600 Sprint PCS(1) 2,692
--------
4,961
--------
TOTAL COMMON STOCKS 512,092
--------
(Cost $413,675)
CORPORATE BONDS -- 12.9%
BANKS -- 1.2%
$ 3,500 Citigroup Inc., 7.25%, 10/1/10 3,478
2,000 Fleet Boston Financial Corp.,
5.75%, 1/15/09 1,780
5,000 Wells Fargo & Company, 7.25%,
8/24/05 5,037
--------
10,295
--------
DEFENSE/AEROSPACE -- 0.4%
3,000 Raytheon Co., 8.20%, 3/1/06 3,106
--------
DEPARTMENT STORES -- 0.5%
4,000 Sears, Roebuck & Co. MTN,
7.12%, 6/4/04 3,958
--------
ELECTRICAL EQUIPMENT -- 1.2%
6,000 Anixter International Inc., 8.00%,
9/15/03 5,945
4,200 Yorkshire Power Finance,
Series B, 6.15%, 2/25/03 4,055
--------
10,000
--------
10 1-800-345-2021 See Notes to Financial Statements
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
ELECTRICAL UTILITY -- 0.9%
$ 3,400 Cilcorp, Inc., 8.70%, 10/15/09 $ 3,510
2,000 Dominion Resources Inc.,
8.125%, 6/15/10 2,066
2,000 Texas Utilities Electric Co.,
8.125%, 2/1/02 2,029
--------
7,605
--------
ENERGY RESERVES & PRODUCTION -- 1.2%
4,200 Duke Energy Field Services,
7.875%, 8/16/10 4,286
3,650 EOG Resources Inc., 6.70%,
11/15/06 3,545
3,000 Kerr-McGee Corp., 7.125%,
10/15/27 2,681
--------
10,512
--------
FINANCIAL SERVICES -- 1.7%
3,500 Ford Motor Credit Co., 6.125%,
4/28/03 3,412
3,000 Ford Motor Credit Co., 7.50%,
3/15/05 3,011
2,700 Ford Motor Credit Co., 6.75%,
5/15/05 2,633
3,600 General Motors Acceptance Corp.
MTN, VRN, 6.81%, 12/11/00,
resets quarterly off the 3-month
LIBOR plus 0.15% with no caps 3,593
3,000 Money Store Inc. (The), 8.05%,
4/15/02 3,045
--------
15,694
--------
FOREST PRODUCTS & PAPER -- 0.4%
3,500 Abitibi-Consolidated Inc., 8.55%,
8/1/10 3,481
--------
GAS & WATER UTILITIES -- 0.4%
3,250 EL Paso Energy Corporation MTN,
8.05%, 10/15/30 3,292
--------
GOLD -- 0.4%
3,500 Barrick Gold Corp., 7.50%,
5/1/07 3,431
--------
HOTELS -- 0.3%
3,000 MGM Mirage, 8.50%, 9/15/10 2,950
--------
INFORMATION SERVICES -- 0.2%
2,000 KPNQwest B.V., 8.125%, 6/1/09 1,790
--------
MEDIA -- 0.7%
2,000 British SKY Broadcasting, 8.20%,
7/15/09 1,856
2,250 CSC Holdings Inc., 7.625%,
7/15/18 1,988
2,000 CSC Holdings Inc., Series B,
8.125%, 7/15/09 1,950
--------
5,794
--------
MULTI-INDUSTRY -- 0.5%
4,000 Tyco International Group SA,
6.875%, 9/5/02 3,990
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
OIL REFINING -- 0.4%
$ 3,000 Valero Energy Corp., 8.375%,
6/15/05 $ 3,111
--------
REAL ESTATE INVESTMENT TRUST -- 0.9%
3,000 EOP Operating LP, 6.75%,
2/15/08 2,812
5,000 Spieker Properties, Inc., 6.80%,
12/15/01 4,967
--------
7,779
--------
SECURITIES & ASSET MANAGEMENT -- 0.7%
3,150 AXA Financial Inc., 7.75%, 8/1/10 3,199
3,000 Lehman Brothers Holdings Inc.,
8.25%, 6/15/07 3,066
--------
6,265
--------
TELEPHONE -- 0.9%
5,000 GTE North Inc., Series H, 5.65%,
11/15/08 4,483
3,000 GTE South, 7.25%, 8/1/02 3,015
--------
7,498
--------
TOTAL CORPORATE BONDS 110,551
--------
(Cost $111,087)
MORTGAGE-BACKED SECURITIES(2) -- 12.8%
3,829 FHLMC Pool #C00578, 6.50%,
1/1/28 3,693
11,412 FHLMC Pool #C00742, 6.50%,
4/1/29 10,985
2,724 FHLMC Pool #C30060, 7.50%,
8/1/29 2,725
9,793 FHLMC Pool #C42464, 7.00%,
9/1/30 9,608
3,044 FHLMC Pool #E67887, 7.00%,
10/1/12 3,037
2,000 FHLMC REMIC, Series 77,
Class H PAC, 8.50%, 9/15/20 2,058
3,939 FNMA Pool #050985, 6.00%,
2/1/09 3,836
289 FNMA Pool #251700, 6.50%,
5/1/13 283
2,701 FNMA Pool #252211, 6.00%,
1/1/29 2,539
2,661 FNMA Pool #252212, 6.50%,
1/1/29 2,562
1,417 FNMA Pool #252213, 6.00%,
1/1/14 1,366
4,956 FNMA Pool #323980, 6.00%,
4/1/14 4,778
349 FNMA Pool #347879, 6.50%,
5/1/11 343
3,133 FNMA Pool #377656, 7.50%,
11/1/11 3,166
86 FNMA Pool #398955, 6.50%,
10/1/12 84
4,527 FNMA Pool #411821, 7.00%,
1/1/28 4,449
See Notes to Financial Statements www.americancentury.com 11
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 4,048 FNMA Pool #412562, 6.50%,
1/1/28 $ 3,903
2,755 FNMA Pool #413812, 6.50%,
1/1/28 2,656
320 FNMA Pool #421163, 6.50%,
6/1/13 314
483 FNMA Pool #421173, 6.50%,
6/1/13 475
450 FNMA Pool #421501, 6.50%,
6/1/13 441
307 FNMA Pool #429306, 6.50%,
6/1/13 301
127 FNMA Pool #429525, 6.50%,
5/1/13 125
172 FNMA Pool #433184, 6.50%,
6/1/13 169
3,522 FNMA Pool #450619, 6.00%,
12/1/28 3,311
1,870 FNMA Pool #453956, 6.00%,
12/1/28 1,758
4,278 FNMA Pool #485403, 6.00%,
2/1/29 4,021
4,051 FNMA Pool #506995, 7.50%,
7/1/29 4,049
3,000 FNMA Pool #509850, 5.25%,
1/15/09 2,733
5,531 FNMA Pool #526231, 7.50%,
12/1/29 5,529
3,981 FNMA Pool #537234, 7.00%,
5/1/30 3,904
2,000 FNMA REMIC, Series 1997-58,
Class PB PAC, 6.50%,
6/18/24 1,930
4,175 GNMA Pool #002202, 7.00%,
4/20/26 4,104
2,282 GNMA Pool #458862, 7.50%,
2/15/28 2,293
2,184 GNMA Pool #467626, 7.00%,
2/15/28 2,156
3,731 GNMA Pool #469811, 7.00%,
12/15/28 3,683
3,845 GNMA Pool #509502, 8.00%,
12/15/29 3,911
2,655 GNMA Pool #780412, 7.50%,
8/15/26 2,670
--------
TOTAL MORTGAGE-BACKED SECURITIES 109,948
--------
(Cost $111,198)
U.S. TREASURY SECURITIES -- 4.4%
19,550 STRIPS - PRINCIPAL, 5.99%,
11/15/27(3) 4,053
1,750 U.S. Treasury Bonds, 9.125%,
5/15/18 2,336
8,250 U.S. Treasury Bonds, 8.875%,
2/15/19 10,849
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 1,700 U.S. Treasury Bonds, 6.50%,
11/15/26 $ 1,818
10,200 U.S. Treasury Bonds, 6.375%,
8/16/27 10,761
3,000 U.S. Treasury Notes, 6.375%,
3/31/01 3,000
1,000 U.S. Treasury Notes, 6.00%,
8/15/04 1,004
3,500 U.S. Treasury Notes, 6.75%,
5/15/05 3,630
--------
TOTAL U.S. TREASURY SECURITIES 37,451
--------
(Cost $37,793)
ASSET-BACKED SECURITIES(2) -- 4.0%
3,000 AmeriCredit Automobile
Receivables Trust, Series
1999 D, Class A3 SEQ, 7.02%,
12/5/05 3,014
4,300 Chase Commercial Mortgage
Securities Corp., Series 1999 2,
Class A2 SEQ, 7.20%,
11/15/09 4,335
2,800 CIT RV Trust, Series 1998 A,
Class A4 SEQ, 6.09%,
2/15/12 2,762
126 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2,
6.80%, 5/15/01 126
5,199 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 5,098
1,623 FNMA Whole Loan, Series
1995 W1, Class A6, 8.10%,
4/25/25 1,625
6,500 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 6,127
3,000 Money Store (The) Home Equity
Trust, Series 1997 C,
Class AF6 SEQ, 6.67%,
2/15/25 2,981
6,200 Residential Asset Securities Corp.
Series 1999-KS3, Cl AI2,
7.08%, 9/25/20 6,185
208 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4, 6.78%,
2/15/16 207
2,100 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5, 6.92%,
10/15/18 2,093
--------
TOTAL ASSET-BACKED SECURITIES 34,553
--------
(Cost $35,053)
12 1-800-345-2021 See Notes to Financial Statements
Balanced--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 2.3%
$ 7,000 FNMA, 7.00%, 7/15/05 $ 7,134
1,500 FNMA, 7.125%, 1/15/30 1,565
3,750 FNMA MTN, 5.83%, 2/2/04 3,665
4,000 FNMA MTN, 5.74%, 1/21/09 3,726
3,350 FNMA, Series B, 7.25%,
1/15/10 3,477
--------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES 19,567
--------
(Cost $19,672)
SOVEREIGN GOVERNMENTS AND AGENCIES -- 0.2%
2,000 United Mexican States, 9.875%,
2/1/10 2,085
--------
(Cost $2,101)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS* -- 3.8%
$32,800 FNMA Discount Notes, 6.45%,
11/1/00(4) $ 32,800
--------
(Cost $32,800)
TOTAL INVESTMENT SECURITIES -- 100.0% $859,047
========
(Cost $763,379)
FUTURES CONTRACTS
($ in Thousands)
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
--------------------------------------------------------------------------------
14 S&P 500 December
Futures 2000 $5,040 $(260)
============================================
* Futures contracts typically are based on a stock index, such as the S&P 500,
and tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the
fund can have full exposure to stocks and have easy access to the money.
Temporary cash investments, less the required reserves for futures contracts,
are 3.2%.
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 2000.
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
(1) Non-income producing.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(3) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount
from their value at maturity.
(4) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 13
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
OCTOBER 31, 2000
ASSETS (In Thousands Except Per Share Amounts)
Investment securities, at value
(identified cost of $763,379)
(Note 3) ......................................... $859,047
Receivable for investments sold .................... 23,542
Receivable for variation margin
on futures contracts ............................. 367
Dividends and interest receivable .................. 4,234
-------------
................................................... 887,190
-------------
LIABILITIES
Disbursements in excess
of demand deposit cash ........................... 537
Payable for investments purchased .................. 10,315
Accrued management fees (Note 2) ................... 653
Distribution fees payable (Note 2) ................. 4
Service fees payable (Note 2) ...................... 4
Accrued expenses and other liabilities ............. 1
-------------
11,514
-------------
Net Assets ......................................... $875,676
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ............ $750,102
Undistributed net investment income ................ 1,975
Accumulated undistributed net
realized gain on investment
transactions ..................................... 28,190
Net unrealized appreciation on
investments (Note 3) ............................. 95,409
-------------
$875,676
=============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets .........................................$835,415,316
Shares outstanding ................................. 49,125,175
Net asset value per share .......................... $17.01
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ......................................... $17,046,400
Shares outstanding ................................. 1,002,808
Net asset value per share .......................... $17.00
Institutional Class, $0.01 Par Value
($ and shares in full)
Net assets ......................................... $23,214,476
Shares outstanding ................................. 1,364,893
Net asset value per share .......................... $17.01
14 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME (In Thousands)
Income:
Interest ........................................... $25,277
Dividends .......................................... 5,520
------------
30,797
------------
Expenses (Note 2):
Management fees .................................... 8,873
Distribution fees - Advisor Class .................. 33
Service fees - Advisor Class ....................... 33
Directors' fees and expenses ....................... 5
------------
8,944
------------
Net investment income .............................. 21,853
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on investments ................... 31,415
Change in net unrealized
appreciation on investments ...................... (281)
------------
Net realized and unrealized
gain on investments .............................. 31,134
------------
Net Increase in Net Assets
Resulting from Operations ........................ $52,987
============
See Notes to Financial Statements www.americancentury.com 15
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
Decrease in Net Assets 2000 1999
OPERATIONS (In Thousands)
Net investment income ........................... $21,853 $23,183
Net realized gain on investments ................ 31,415 126,427
Change in net unrealized
appreciation on investments ................... (281) (40,562)
------------ ------------
Net increase in net assets
resulting from operations ..................... 52,987 109,048
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................................ (21,560) (23,448)
Advisor Class ................................. (280) (199)
Institutional Class ........................... (264) --
From net realized gains on
investment transactions:
Investor Class ................................ (121,972) (102,260)
Advisor Class ................................. (1,446) (747)
Institutional Class ........................... -- --
------------ ------------
Decrease in net assets
from distributions ............................ (145,522) (126,654)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase (decrease) in net assets
from capital share transactions ............... 42,891 (1,938)
------------ ------------
Net decrease in net assets ...................... (49,644) (19,544)
NET ASSETS
Beginning of period ............................. 925,320 944,864
------------ ------------
End of period ................................... $875,676 $925,320
============ ============
Undistributed net investment income ............. $1,975 $2,226
============ ============
16 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. Balanced Fund (the fund) is one of the
fourteen series of funds issued by the corporation. The fund is diversified
under the 1940 Act. The fund's investment objective is to seek capital growth
and current income. The following significant accounting policies are in
accordance with accounting principles generally accepted in the United States of
America; these policies may require the use of estimates by fund management.
MULTIPLE CLASS -- The fund is authorized to issue three classes of shares:
the Investor Class, the Advisor Class, and the Institutional Class. The three
classes of shares differ principally in their respective shareholder servicing
and distribution expenses and arrangements. All shares of the fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Institutional
Class commenced on May 1, 2000.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index futures contracts
in order to manage the fund's exposure to changes in market conditions. One of
the risks of entering into futures contracts is the possibility that the change
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the fund. The
variation margin is equal to the daily change in the contract value and is
recorded as unrealized gains and losses. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that collateral, represented by securities, received in
a repurchase transaction be transferred to the custodian in a manner sufficient
to enable the fund to obtain those securities in the event of a default under
the repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
treasury or agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains are declared and paid
annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
www.americancentury.com 17
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the 1940 Act (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. For the
period November 1, 1999 through July 31, 2000, the annual management fee was
1.00% for the Investor Class and 0.75% for the Advisor Class. For the period May
1, 2000 through July 31, 2000, the annual management fee was 0.80% for the
Institutional Class. Effective August 1, 2000, the annual management fee for
each class of shares is as follows:
INVESTOR CLASS ADVISOR CLASS INSTITUTIONAL CLASS
FUND AVERAGE NET ASSETS
First $1 billion ........... 0.90% 0.65% 0.70%
Over $1 billion ............ 0.80% 0.55% 0.60%
The Board of Directors has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the plan), pursuant to Rule 12b-1 of the 1940 Act.
The plan provides that the fund will pay ACIM an annual distribution fee equal
to 0.25% and annual service fee equal to 0.25%. The fees are computed daily and
paid monthly based on the Advisor Class's average daily closing net assets
during the previous month. The distribution fee provides compensation for
distribution expenses incurred by financial intermediaries in connection with
distributing shares of the Advisor Class including, but not limited to, payments
to brokers, dealers, and financial institutions that have entered into sales
agreements with respect to shares of the fund. The service fee provides
compensation for shareholder and administrative services rendered by ACIM, its
affiliates or independent third party providers. Fees incurred by the fund under
the plan during the year ended October 31, 2000 were $64,959.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
the year ended October 31, 2000, totaled $755,569,933 of which $195,554,234
represented U.S. Treasury and Agency obligations. Sales of investment
securities, excluding short-term investments, for the year ended October 31,
2000, totaled $853,255,627, of which $221,462,665 represented U.S. Treasury and
Agency obligations.
On October 31, 2000, accumulated net unrealized appreciation was
$93,249,179, based on the aggregate cost of investments for federal income tax
purposes of $765,797,915, which consisted of unrealized appreciation of
$117,945,516 and unrealized depreciation of $24,696,337.
18 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS (In Thousands)
Shares Authorized .............................. 134,000
============
Year ended October 31, 2000
Sold ........................................... 12,079 $211,871
Issued in reinvestment of distributions ........ 8,364 140,861
Redeemed ....................................... (19,568) (340,571)
------------ ------------
Net increase ................................... 875 $12,161
============ ============
Year ended October 31, 1999
Sold ........................................... 9,402 $176,617
Issued in reinvestment of distributions ........ 6,821 122,812
Redeemed ....................................... (16,358) (305,659)
------------ ------------
Net decrease ................................... (135) $(6,230)
============ ============
ADVISOR CLASS
Shares Authorized .............................. 50,000
============
Year ended October 31, 2000
Sold ........................................... 568 $9,661
Issued in reinvestment of distributions ........ 101 1,702
Redeemed ....................................... (244) (4,187)
------------ ------------
Net increase ................................... 425 $7,176
============ ============
Year ended October 31, 1999
Sold ........................................... 575 $10,802
Issued in reinvestment of distributions ........ 52 931
Redeemed ....................................... (396) (7,441)
------------ ------------
Net increase ................................... 231 $4,292
============ ============
INSTITUTIONAL CLASS
Shares Authorized .............................. 16,000
============
Period ended October 31, 2000(1)
Sold ........................................... 2,441 $42,032
Issued in reinvestment of distributions ........ 15 264
Redeemed ....................................... (1,091) (18,742)
------------ ------------
Net increase ................................... 1,365 $23,554
============ ============
(1) May 1, 2000 (commencement of sale) through October 31, 2000.
--------------------------------------------------------------------------------
5. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended October 31, 2000.
www.americancentury.com 19
<TABLE>
<CAPTION>
Balanced--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ................. $18.95 $19.39 $19.55 $18.55 $17.70
-------- -------- --------- -------- --------
Income From Investment Operations
Net Investment Income(1) ............ 0.42 0.46 0.42 0.40 0.44
Net Realized and Unrealized Gain
on Investment Transactions .......... 0.61 1.69 1.45 2.41 1.88
-------- -------- --------- -------- --------
Total From Investment Operations .... 1.03 2.15 1.87 2.81 2.32
-------- -------- --------- -------- --------
Distributions
From Net Investment Income .......... (0.43) (0.47) (0.43) (0.43) (0.46)
From Net Realized Gains on
Investment Transactions ............. (2.54) (2.12) (1.60) (1.38) (1.01)
-------- -------- --------- -------- --------
Total Distributions ................. (2.97) (2.59) (2.03) (1.81) (1.47)
-------- -------- --------- -------- --------
Net Asset Value, End of Period ........ $17.01 $18.95 $19.39 $19.55 $18.55
======== ======== ========= ======== ========
Total Return(2) ..................... 5.90% 12.03% 10.46% 16.34% 14.04%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.97% 1.00% 1.00% 1.00% 0.99%
Ratio of Net Investment Income
to Average Net Assets ............... 2.40% 2.44% 2.16% 2.15% 2.50%
Portfolio Turnover Rate ............... 85% 128% 102% 110% 130%
Net Assets, End of Period
(in millions) ....................... $835 $914 $938 $926 $879
</TABLE>
(1) Computed using average shares outstanding throughout the period.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
20 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Balanced--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $18.94 $19.38 $19.55 $17.46
-------- -------- --------- --------
Income From Investment Operations
Net Investment Income(2) ............ 0.37 0.41 0.37 0.29
Net Realized and Unrealized
Gain on Investment Transactions ..... 0.62 1.69 1.44 2.04
-------- -------- --------- --------
Total From Investment Operations .... 0.99 2.10 1.81 2.33
-------- -------- --------- --------
Distributions
From Net Investment Income .......... (0.39) (0.42) (0.38) (0.24)
From Net Realized Gains on
Investment Transactions ............. (2.54) (2.12) (1.60) .--
-------- -------- --------- --------
Total Distributions ................. (2.93) (2.54) (1.98) (0.24)
-------- -------- --------- --------
Net Asset Value, End of Period ........ $17.00 $18.94 $19.38 $19.55
======== ======== ========= ========
Total Return(3) ..................... 5.63% 11.74% 10.15% 13.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 1.22% 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Income
to Average Net Assets ............... 2.15% 2.19% 1.91% 1.90%(4)
Portfolio Turnover Rate ............... 85% 128% 102% 110%
Net Assets, End of Period
(in thousands) ......................$17,046 $10,946 $6,723 $5,724
</TABLE>
(1) January 6, 1997 (commencement of sale) through October 31, 1997.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
See Notes to Financial Statements www.americancentury.com 21
Balanced--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional Class
2000(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ................. $17.34
----------
Income From Investment Operations
Net Investment Income(2) ........................... 0.23
Net Realized and Unrealized Loss
on Investment Transactions ......................... (0.34)
----------
Total From Investment Operations ................... (0.11)
----------
Distributions
From Net Investment Income ......................... (0.22)
----------
Net Asset Value, End of Period ....................... $17.01
==========
Total Return(3) .................................... (0.63)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............................. 0.75%(4)
Ratio of Net Investment Income
to Average Net Assets .............................. 2.66%(4)
Portfolio Turnover Rate .............................. 85%
Net Assets, End of Period
(in thousands) ..................................... $23,214
(1) May 1, 2000 (commencement of sale) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
22 1-800-345-2021 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Balanced Fund (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 2000,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Balanced Fund as of
October 31, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then ended
in conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
www.americancentury.com 23
Share Class and Retirement Account Information
--------------------------------------------------------------------------------
SHARE CLASSES
Three classes of shares are authorized for sale by the fund: Investor Class,
Advisor Class, and Institutional 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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
INSTITUTIONAL CLASS shares are available to endowments, foundations,
defined benefit pension plans or financial intermediaries serving these
investors. This class recognizes the relatively lower cost of serving
institutional customers and others who invest at least $5 million in an American
Century fund or at least $10 million in multiple funds. In recognition of the
larger investments and account balances and comparatively lower transaction
costs, the total expense ratio of the Institutional Class shares is 0.20% less
than the total expense ratio of the Investor Class shares.
All classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Visit our Web site
(www.americancentury.com) or call us 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 decision-making investment tools. One model ranks stocks based on their
expected return, using both growth and value measures such as cash flow,
earnings growth, and price/earnings ratio. Another model creates a portfolio
that balances high-ranking stocks with an overall risk level that is comparable
to the S&P 500.
The fixed-income portfolio is also index based. The management team
attempts to add value by making modest portfolio adjustments based on its
analysis of prevailing market conditions. The team typically seeks to overweight
relatively undervalued sectors of the market.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The BLENDED INDEX is considered the benchmark for Balanced. It combines two
widely known indices in proportion to the asset mix of the fund. Accordingly,
60% of the index is represented by the S&P 500, which reflects the
approximately 60% of the fund's assets invested in stocks. The remaining 40% of
the index is represented by the Lehman Brothers Aggregate Bond Index, which
reflects the roughly 40% of the fund's assets invested in fixed-income
securities.
The LEHMAN BROTHERS AGGREGATE BOND INDEX is composed primarily of the
Lehman Government/Credit Bond Index and the Lehman Fixed-Rate Mortgage-Backed
Securities Index. It reflects the price fluctuations of mostly U.S. Treasury,
government agency, corporate, and fixed-rate mortgage-backed bonds.
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
JEFF TYLER
Fixed-Income Portfolio
JEFF HOUSTON
Credit Research
GREG AFIESH
BOND 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.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans.
* U.S. GOVERNMENT AGENCY SECURITIES -- debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
* DURATION -- a measure of the sensitivity of a fixed-income portfolio to
interest rate changes. It is a time-weighted average of the interest and
principal payments of the securities in a portfolio. As the duration of a
portfolio increases, the impact of a change in interest rates on the value of
the portfolio also increases.
* WEIGHTED AVERAGE MATURITY (WAM) -- another measurement of the sensitivity of
a fixed-income portfolio to interest rate changes. WAM indicates the average
time until the securities in the portfolio mature, weighted by dollar amount.
The longer the WAM, the more interest rate exposure and interest rate
sensitivity the portfolio has.
EQUITY TERMS
* BLUE CHIP STOCKS -- generally considered to be the stocks of the most
established companies in American industry. They are generally large, fairly
stable companies that have demonstrated consistent earnings and usually have
long-term growth potential.
* COMMON STOCKS -- units of ownership of public corporations. All of the stocks
described in this section are types of common stock.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle.
* GROWTH STOCKS -- generally considered to be the stocks of companies that have
experienced above-average earnings growth and appear likely to continue such
growth.
* VALUE STOCKS -- generally considered to be stocks that are relatively
inexpensive.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS --the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of
morethan $9 billion. This is Lipper's market-capitalization breakpoint as of
October31, 2000, although it may be subject to change based on market
fluctuations. TheDow Jones Industrial Average and the S&P 500 are representative
indexes of large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock)
between$2.3 billion and $9 billion. This is Lipper's market-capitalization
breakpoint as of October 31, 2000, although it may be subject to change based on
market fluctuations. The S&P 400 and Russell 2500 are representative of mid-cap
stock performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of less
than $2.3 billion. This is Lipper's market-capitalization breakpoint as of
October 31, 2000, although it may be subject to change based on market
fluctuations. The S&P 600 and the Russell 2000 are representative of small-cap
stock performance.
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as year-by-year results.
For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on pages 20-22.
26 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
FUND CLASSIFICATIONS
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.
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.
* 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]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23502 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
Limited-Term Bond
Intermediate-Term Bond
Bond
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century's reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
LIMITED-TERM BOND
(ABLIX)
--------------------------
INTERMEDIATE-TERM BOND
(TWITX)
--------------------------
BOND
(TWLBX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
American Century's Limited-Term Bond, Intermediate-Term Bond, and Bond
funds posted solid returns for the year ended October 31, 2000. Reflecting
conditions that were better for bonds than for stocks, the funds outperformed
the broad U.S. stock market--as represented by the Wilshire 5000 and S&P 500
stock indexes--during the last six months of the period. For risk-averse
investors or those with short investment horizons, this demonstrated the value
of maintaining at least a modest fixed-income position to cushion against stock
price swings. Your team of investment professionals reviews fund performance and
the taxable investment-grade U.S. bond market beginning on page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century is not
affected by this transaction. We will be exploring ways to partner with J.P.
Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to share the chairman of
the board position and named American Century President William M. Lyons chief
executive officer, giving him ultimate management responsibility for the entire
company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will continue to be his active
participation on the investment teams responsible for the Ultra and Veedot
funds.
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 Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
LIMITED-TERM BOND
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Schedule of Investments ................................................ 8
INTERMEDIATE-TERM BOND
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 13
BOND
Performance Information ................................................ 16
Management Q&A ......................................................... 17
Schedule of Investments ................................................ 19
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 21
Statement of Operations ................................................ 22
Statement of Changes
in Net Assets ....................................................... 23
Notes to Financial
Statements .......................................................... 24
Financial Highlights ................................................... 27
Independent Auditors'
Report .............................................................. 33
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 34
Background Information
Investment Philosophy
and Policies ..................................................... 35
Comparative Indices ................................................. 35
Lipper Rankings ..................................................... 35
Investment Team
Leaders .......................................................... 35
Credit Rating
Guidelines ....................................................... 35
Glossary ............................................................... 36
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The year ended October 31, 2000, provided a generally favorable environment
for U.S. bonds. A slowing U.S. economy and stock market volatility helped
most U.S. bonds post solid returns.
* The broad taxable U.S. bond market (represented by the Lehman Brothers
Aggregate Bond Index) outperformed the broad U.S. stock market (represented
by the Wilshire 5000 stock index).
* In the taxable bond arena, Treasury securities performed best. Corporate
bonds lagged the other sectors.
* However, Treasurys trailed mortgage-backed, government agency, and
asset-backed bonds during the second half of the year.
LIMITED-TERM BOND
* The fund's total return for the year ended October 31, 2000, lagged the
average of its Lipper group, but beat the average during the final six
months.
* The fund outperformed its Lipper group average in the second half because we
shifted its sector weightings and slightly extended its duration.
* Investing in mortgage-backed securities and government agency debt boosted
performance.
* A cautious approach to corporate bonds helped the fund avoid a slew of
credit downgrades in the third quarter.
* The management team envisions a "soft landing" for the economy and plans to
keep the fund's corporate holdings in large, liquid securities.
INTERMEDIATE-TERM BOND
* The fund's total return for the year ended October 31, 2000, was higher than
the average of its Lipper group.
* Factors that helped the fund outperform the Lipper average return included
lower expenses, avoiding corporate credit downgrades during the second half
of the period, and making timely asset redeployments to sectors that
performed well in the summer and fall.
* The investment team said farewell to portfolio manager Bud Hoops, who
retired in July.
* The portfolio is positioned for an economic "soft landing" and should remain
in that position unless there's compelling evidence of a significantly
harder landing than expected.
BOND
* The fund's total return for the year ended October 31, 2000, lagged the
average of its Lipper group, but beat the average during the final six
months.
* Factors that helped Bond perform better in the last six months included
avoiding corporate credit downgrades during the second half of the period
and redeploying assets to sectors that performed well in the summer and
fall.
* The investment team said farewell to portfolio manager Bud Hoops, who
retired in July.
* The portfolio is positioned for an economic "soft landing" and should remain
in that position unless there's compelling evidence of a significantly
harder landing than expected.
[left margin]
LIMITED-TERM BOND(1)
(ABLIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 4.56%(2)
1 Year 5.59%
30-DAY SEC YIELD: 6.41%
INCEPTION DATE: 3/1/94
NET ASSETS: $10.5 million(3)
INTERMEDIATE-TERM BOND(1)
(TWITX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 5.23%(2)
1 Year 5.99%
30-DAY SEC YIELD: 6.42%
INCEPTION DATE: 3/1/94
NET ASSETS: $33.6 million(3)
BOND(1)
(TWLBX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 4.85%(2)
1 Year 5.34%
30-DAY SEC YIELD: 6.49%
INCEPTION DATE: 3/2/87
NET ASSETS: $110.6 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Advisor classes.
See Total Returns on pages 5, 10, and 16.
Investment terms are defined in the Glossary on pages 36-37.
2 1-800-345-2021
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
THE U.S. ECONOMY AND BONDS
The year ended October 31, 2000, provided a generally favorable environment
for U.S. bonds, particularly during the last six months. The Lehman Brothers
Aggregate Bond Index--which reflects the price fluctuations of over 6,000
mortgage-backed, Treasury, corporate, government agency, and asset-backed bonds
in the U.S.--gained 7.30% during the year, including 5.80% from the end of April
to the end of October. By comparison, the U.S. stock market, represented by the
Wilshire 5000 index, posted a 6.95% return for the year.
A slowing U.S. economy--primarily the result of six interest rate hikes by
the Federal Reserve since June 1999--and stock market volatility helped most
U.S. bonds post solid returns. As the threat of higher inflation faded in late
May and June, the Fed stopped raising rates, triggering a bond rally that lasted
from June until the end of the period.
The bond rally also received assistance from global events. By late summer,
rising oil prices and a declining euro (the European currency) threatened global
economic growth and international demand for U.S. goods and services, triggering
recessionary fears. With more and more U.S. companies issuing profit warnings,
particularly in the technology sector, stocks staggered and bonds were boosted
by the combination of increased demand and a more stable interest rate
environment.
A TALE OF TWO PERIODS
In the taxable bond arena (the sectors encompassed by the Lehman Brothers
Aggregate Bond Index), Treasury securities performed best for the 12-month
period (see the table at right) and corporate securities were worst. But the
numbers don't tell the whole story. After leading the other sectors
significantly through the first six months, due mostly to the strong performance
of long-term Treasury bonds, Treasurys trailed mortgage-backed, government
agency, and asset-backed bonds during the second half of the year (see the table
on the next page). Investors sought value and higher yields in non-Treasury
("spread") sectors after Treasury bond yields dropped dramatically (and prices
rose) during the first half of 2000. The Treasury rally was due primarily to
reduced supply--government surpluses allowed the Treasury to issue fewer bonds
and buy back outstanding long-term debt.
Fed inactivity helped the spread sectors, too--higher-yielding
mortgage-backed, asset-backed, and agency securities tend to outperform
Treasurys when interest rates are relatively stable. Declining Treasury buybacks
and higher oil prices also took a toll, causing the long end of the Treasury
yield curve to "disinvert" (the 30-year T-bond yielded more than the 10-year
T-note) in September for the first time since last January. This "disinversion"
gave another boost to spread-sector bonds--inverted yield curves are typically
unfavorable for those securities.
[right margin]
"A SLOWING U.S. ECONOMY AND STOCK MARKET VOLATILITY HELPED MOST U.S. BONDS POST
SOLID RETURNS."
TAXABLE U.S. BOND RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000
LEHMAN AGGREGATE BOND INDEX 7.30%
Lehman Treasury Bond Index 8.22%
Lehman Fixed-Rate Mortgage-
Backed Securities Index 7.57%
Lehman Agency Bond Index 7.30%
Lehman Asset-Backed Bond Index 7.10%
Lehman Corporate Bond Index 5.38%
Source: Bloomberg Financial Markets
[line graph - data below]
"TWISTING" TREASURY YIELD CURVE
YEARS TO
MATURITY 10/31/99 4/30/00 10/31/00
1 5.98% 6.18% 6.17%
2 5.79% 6.68% 5.92%
3 5.84% 6.63% 5.88%
4 5.89% 6.58% 5.84%
5 5.95% 6.54% 5.81%
6 5.97% 6.47% 5.80%
7 5.98% 6.42% 5.79%
8 6.00% 6.35% 5.78%
9 6.01% 6.28% 5.76%
10 6.03% 6.21% 5.75%
11 6.04% 6.18% 5.75%
12 6.04% 6.16% 5.75%
13 6.05% 6.14% 5.76%
14 6.05% 6.13% 5.76%
15 6.06% 6.12% 5.76%
16 6.06% 6.11% 5.76%
17 6.07% 6.10% 5.76%
18 6.07% 6.09% 5.77%
19 6.08% 6.08% 5.77%
20 6.09% 6.07% 5.77%
21 6.09% 6.06% 5.77%
22 6.10% 6.05% 5.77%
23 6.10% 6.04% 5.78%
24 6.11% 6.03% 5.78%
25 6.12% 6.02% 5.78%
26 6.12% 6.01% 5.78%
27 6.13% 6.00% 5.78%
28 6.14% 5.99% 5.79%
29 6.15% 5.98% 5.79%
30 6.16% 5.96% 5.79%
Source: Bloomberg Financial Markets
www.americancentury.com 3
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
(Continued)
MORTGAGE AND AGENCY SECTORS REBOUND FROM GSE DEBATE
Increased demand for mortgage-backed and government agency securities
caused the spread, or difference in yield, between Treasurys and these bonds to
narrow during the last six months. For example, the spread between a 30-year
Fannie Mae (FNMA-- the Federal National Mortgage Association) security and a
30-year Treasury bond narrowed from 126 basis points (1.26%-- a basis point
equals 0.01%) on April 28, 2000, to 97 basis points on October 31. When spreads
narrow, mortgage and agency securities outperform Treasurys.
Mortgage and agency securities were also helped when congressional action
was delayed on the Baker Bill--HR 3703--which seeks to change the oversight and
regulation of government-sponsored enterprises (GSEs) such as Fannie Mae and
eliminate their government backing. The bill's sponsor and its supporters
believe that the size and level of indebtedness of GSEs are causes for concern,
though not an immediate risk to the financial markets because of the GSEs'
current health. The bill didn't garner much support--opponents feared disrupting
the GSEs' business and the bond market by legislating a problem of questionable
proportions.
INTERMEDIATE TREASURYS AND TIIS BECOME SECTOR LEADERS
With the long end of the Treasury yield curve "disinverting" and the short
end stabilizing as the Fed stopped raising interest rates, the place to be in
the Treasury market during the last six months was the intermediate-term
maturity area. That's where yields fell (and prices rose) the most.
Treasury inflation-indexed securities (TIIS) also drew increasing
attention. Investors believed that TIIS, whose principal values are adjusted for
changes in inflation, were attractive relative to the spread sectors and nominal
(traditional) Treasury bonds. The second and third quarters of 2000 provided a
good environment for TIIS--inflation, though mild, ticked up slightly, and real
(inflation-adjusted) yields fell.
CORPORATE SUPPLY AND PROFIT CONCERNS CONSTRAIN RETURNS
Even though corporate bonds posted decent returns in the last six months,
they lagged other sectors of the bond market. Supply and demand issues were a
big part of the story. Record issuance of corporate bonds during the second
quarter, as companies tried to go to market before the Fed raised interest rates
further, put pressure on prices. Demand also weakened as investors feared that
higher interest rates would damage the financial health of corporate bond
issuers.
Later, the market's anticipation of a large wave of new corporate issuance
during the third quarter continued to stifle demand. For example, many investors
expected European telecommunications firms to rush to the market for financing
to help them build out networks and compete for new licenses. However, as
financial conditions weakened, some firms chose not to come to market, leading
to less issuance than expected.
[left margin]
"STOCKS STAGGERED, AND BONDS WERE BOOSTED BY THE COMBINATION OF INCREASED DEMAND
AND A MORE STABLE INTEREST RATE ENVIRONMENT."
TAXABLE U.S. BOND RETURNS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000
LEHMAN AGGREGATE BOND INDEX 5.80%
Lehman Treasury Bond Index 5.50%
Lehman Fixed-Rate Mortgage-
Backed Securities Index 6.24%
Lehman Agency Bond Index 6.08%
Lehman Asset-Backed Bond Index 5.53%
Lehman Corporate Bond Index 5.26%
Source: Bloomberg Financial Markets
"HIGHER-YIELDING MORTGAGE-BACKED, ASSET-BACKED, AND AGENCY SECURITIES TEND TO
OUTPERFORM TREASURYS WHEN INTEREST RATES ARE RELATIVELY STABLE."
4 1-800-345-2021
<TABLE>
<CAPTION>
Limited-Term Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 11/12/97)
MERRILL LYNCH MERRILL LYNCH
LIMITED-TERM 1-5 YR. SHORT INVESTMENT-GRADE DEBT FUNDS(2) LIMITED-TERM 1-5 YR.
BOND GOVT./CORP. INDEX AVERAGE RETURN FUND'S RANKING BOND GOVT./CORP. INDEX
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 4.56% 4.70% 3.94% -- 4.43% 4.70%
1 YEAR 5.59% 6.29% 5.76% 69 OUT OF 110 5.33% 6.29%
========================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.96% 5.63% 4.92% 53 OUT OF 96 -- --
5 YEARS 5.33% 5.94% 5.31% 34 OUT OF 70 -- --
LIFE OF FUND 5.30% 5.98% 5.45%(3) 27 OUT OF 53(3) 4.72% 5.63%(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 10/31/97, the date nearest the class's inception for which data are
available.
See pages 34-36 for information about share classes, returns, the comparative
index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 10/31/00
Merrill Lynch 1- to 5-Year
Govt./Corp. Index $14,726
Limited-Term Bond $14,108
Limited-_Term Merrill Lynch 1- to 5-Year
Bond Govt./Corp. Index
DATE VALUE VALUE
3/1/1994 $10,000 $10,000
3/31/1994 $9,933 $9,909
6/30/1994 $9,906 $9,885
9/30/1994 $9,989 $9,974
12/31/1994 $9,979 $9,961
3/31/1995 $10,291 $10,348
6/30/1995 $10,620 $10,764
9/30/1995 $10,794 $10,928
12/31/1995 $11,072 $11,253
3/31/1996 $11,094 $11,243
6/30/1996 $11,193 $11,336
9/30/1996 $11,364 $11,529
12/31/1996 $11,560 $11,772
3/31/1997 $11,638 $11,817
6/30/1997 $11,886 $12,111
9/30/1997 $12,115 $12,386
12/31/1997 $12,300 $12,614
3/31/1998 $12,463 $12,809
6/30/1998 $12,650 $13,023
9/30/1998 $13,019 $13,509
12/31/1998 $13,075 $13,583
3/31/1999 $13,180 $13,639
6/30/1999 $13,222 $13,670
9/30/1999 $13,351 $13,824
12/31/1999 $13,400 $13,880
3/31/2000 $13,566 $14,057
6/30/2000 $13,709 $14,294
9/30/2000 $14,033 $14,660
10/31/2000 $14,108 $14,726
$10,000 investment made 3/1/94
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Merrill Lynch 1- to 5-Year Government/ Corporate Index is provided for
comparison in each graph. Limited-Term Bond's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the index do not. These graphs are based on Investor
Class shares only; performance for other classes will vary due to differences in
fee structures (see Total Returns table above). Past performance does not
guarantee future results. Investment return and principal value will fluctuate,
and redemption value may be more or less than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
Limited-_Term Merrill Lynch 1- to 5-Year
Bond Govt./Corp. Index
DATE RETURN RETURN
10/31/1994* -0.08% 0.16%
10/31/1995 8.89% 10.48%
10/31/1996 5.48% 5.92%
10/31/1997 6.30% 6.93%
10/31/1998 6.58% 8.44%
10/31/1999 2.75% 2.24%
10/31/2000 5.59% 6.29%
* From 3/1/94 (the fund's inception date) to 10/31/94.
www.americancentury.com 5
Limited-Term Bond--Q&A
--------------------------------------------------------------------------------
[photo of John Walsh]
An interview with John Walsh, a portfolio manager on the Limited-Term Bond
fund investment team.
HOW DID LIMITED-TERM BOND PERFORM FOR THE YEAR ENDED OCTOBER 31?
Despite uncertainty about the economy and sharp volatility in stock and
bond markets, Limited-Term Bond provided positive returns for shareholders. The
fund returned 5.59%, slightly less than the 5.76% average return of the 110
"Short Investment-Grade Debt Funds" tracked by Lipper Inc.*
After a slow start, the fund had a great run, beating the Lipper group
average by a wide margin in the second half, though it trailed by a couple
strides at the finish line. (See the previous page for more fund performance
information.)
CAN YOU CHARACTERIZE THE FUND'S PERFORMANCE IN THE FIRST HALF OF THE FISCAL
YEAR?
As discussed in the April 30 semiannual report, the fund underperformed in
the first half of the year for two reasons. First, we sold Treasury bonds in
early January to meet significant cash outflows as investors chased the stock
market rally. Unfortunately, that left the fund with fewer Treasurys than we
would have liked at a time when Treasurys were rallying.
Second, the fund had a small holding in Conseco bonds, which were
downgraded in late March and early April, sending their price lower. When the
bonds rebounded slightly, we sold them, eliminating our exposure to Conseco.
HOW DID YOU OUTPERFORM THE LIPPER GROUP IN THE LAST SIX MONTHS?
We shifted the fund's sector weightings and slightly extended its duration
To monitor values in the different sectors of the market, we track yield
spreads, or the difference in yield between Treasurys and other types of bonds.
We put our shareholders' money to work where we find the most attractive yields,
balancing the additional return with the risks of investing in a given sector.
This approach led us to mortgage-backed securities and drove our decision to
avoid Treasurys in favor of government agency debt.
Also, we extended the portfolio's duration--a measure of how much the
fund's share price changes as interest rates fluctuate. In recent months,
short-term bonds rallied as the economy slowed and investors bet that the
Federal Reserve (the Fed) was done raising interest rates. In that environment,
having a longer duration helped boost the fund's share price.
YOU MENTIONED THAT YOU BOUGHT MORTGAGE-BACKED SECURITIES. WHAT MADE THEM
ATTRACTIVE?
Over the summer, the yields on mortgage-backed securities became
increasingly attractive compared with Treasury yields.
In addition, we were confident that the timing was right for
mortgages--they tend to perform best when interest rates are steady, and we
thought the Fed was done raising interest rates for a while, creating the ideal
environment for mortgage-backed securities.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[left margin]
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NUMBER OF SECURITIES 34 44
WEIGHTED AVERAGE
MATURITY 2.2 YRS 1.9 YRS
AVERAGE DURATION 1.9 YRS 1.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.70% 0.70%
YIELDS AS OF OCTOBER 31, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.41% 6.16%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
AAA 49% 43%
AA 2% 2%
A 22% 27%
BBB 22% 23%
BB 5% 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
Investment terms are defined in the Glossary on pages 36-37.
6 1-800-345-2021
Limited-Term Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
As a result, we started increasing our mortgage position in July and
August. That trade boosted the fund's return because the mortgage-backed sector
outperformed other sectors of the bond market through September and October.
WHAT ABOUT TREASURY AND AGENCY BONDS?
We avoided Treasurys in the second half of the fiscal year because we felt
they were overvalued--the reduction in Treasury debt and unusually high investor
demand pushed Treasury prices too high early in the year.
Instead of investing in the overpriced Treasury sector, we found attractive
yields in government agency bonds--debt issued by various arms of the federal
government. We felt that using agencys as a proxy for Treasurys was a good way
to add yield to the portfolio without sacrificing credit quality. That decision
helped the fund because agency debt performed relatively well.
DID YOU MAKE ANY CHANGES TO THE FUND'S CORPORATE BOND HOLDINGS?
We took a cautious approach to corporate bonds in the last six months. That
helped us avoid a slew of corporate credit-rating downgrades in the third
quarter. In general, we sold bonds of retail and consumer-based companies,
knowing that higher interest rates and slower economic growth were likely to
weigh on these securities.
We also made the portfolio more liquid by focusing on easily traded
"household names." As the market became increasingly critical of corporate
bonds, our liquid, high-quality names held their value better than lower-quality
bonds.
WHAT'S YOUR TAKE ON THE CORPORATE BOND MARKET?
We think some corporate bonds compare favorably with other types of bonds
because the market has painted corporates with too broad a brush. In the
corporate sector, security selection is everything, and we think our process
gives us an advantage. We team up with our credit analysts to monitor all of the
companies whose bonds are represented in the portfolio.
In the case of Comdisco, for example, our credit analysts thought the
company's credit rating was deteriorating, and we sold the bonds before they
were downgraded. In other words, our research paid off--we recognized the
changing credit prospects of several companies like Comdisco before our
competitors did. That helped us navigate the minefield of corporate bond
downgrades in the third quarter.
WHAT IS YOUR OUTLOOK FOR THE ECONOMY?
We think the Fed will steer the economy to a soft landing, which should be
a favorable environment for bonds. With inflation largely under control and the
economy cruising at more acceptable speeds, the Fed will probably leave interest
rates unchanged in the near term.
SO HOW DO YOU PLAN TO POSITION THE FUND?
In terms of sector weightings, we plan to keep our corporate bond holdings
invested in large, liquid companies with good credit ratings. In addition, the
fund has seen some solid gains in its mortgage-backed securities, so we may look
to lock in some of those gains and put the money to work in other sectors.
[right margin]
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 2000
CORPORATE BONDS 54%
MORTGAGE-BACKED SECURITIES 20%
ASSET-BACKED SECURITIES 18%
U.S. GOVT. AGENCY SECURITIES 8%
AS OF APRIL 30, 2000
CORPORATE BONDS 58%
MORTGAGE-BACKED SECURITIES 17%
U.S. TREASURY SECURITIES 12%
ASSET-BACKED SECURITIES 11%
U.S. GOVT. AGENCY SECURITIES 2%
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 7
Limited-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 53.6%
BANKS -- 6.7%
$200 Bank of America Corp., 7.125%,
9/15/06 $ 199
300 Bank One Corp., 6.40%, 8/1/02 298
200 Wells Fargo & Company, 7.25%,
8/24/05 201
-------
698
-------
DEPARTMENT STORES -- 2.9%
300 Wal-Mart Stores, Inc., 6.15%,
8/10/01 299
-------
FINANCIAL SERVICES -- 9.9%
375 Aristar Inc., 6.75%, 8/15/01 373
200 Associates Corp., N.A., 6.00%,
7/15/05 191
250 Ford Motor Credit Co., 6.125%,
4/28/03 244
215 International Lease Finance Corp.,
6.875%, 5/1/01 215
-------
1,023
-------
GAS & WATER UTILITIES -- 4.8%
500 CMS Energy Corp., 8.00%,
7/1/01 495
-------
GROCERY STORES -- 2.9%
300 Safeway Inc., 5.75%, 11/15/00 300
-------
MOTOR VEHICLES & PARTS -- 2.9%
300 General Motors Corp. Global
Notes, 9.625%, 12/1/00 301
-------
MULTI-INDUSTRY -- 4.8%
500 Tyco International Group SA,
6.875%, 9/5/02 499
-------
RAILROADS -- 4.0%
415 Norfolk Southern Corp., 6.95%,
5/1/02 414
-------
REAL ESTATE INVESTMENT TRUST -- 9.0%
430 Chelsea GCA Realty Partners,
7.75%, 1/26/01 429
200 Franchise Finance Corp., 7.00%,
11/30/00 200
300 Spieker Properties, Inc., 6.80%,
12/15/01 298
-------
927
-------
SECURITIES & ASSET MANAGEMENT -- 3.7%
385 Paine Webber Group Inc. MTN,
6.65%, 10/15/02 384
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
TELEPHONE -- 2.0%
$200 Qwest Capital Funding Inc.,
7.75%, 8/15/06 (Acquired
8/17/00, Cost $200)(1) $ 203
-------
TOTAL CORPORATE BONDS 5,543
-------
(Cost $5,567)
MORTGAGE-BACKED SECURITIES(2) -- 20.3%
709 FHLMC Pool #E73566, 7.00%,
11/1/13 708
458 FNMA Pool #252213, 6.00%,
1/1/14 441
225 FNMA Pool #378698, 8.00%,
5/1/12 229
339 FNMA Pool #411016, 6.50%,
3/1/13 334
402 FNMA Pool #433184, 6.50%,
6/1/13 395
-------
TOTAL MORTGAGE-BACKED SECURITIES 2,107
-------
(Cost $2,097)
ASSET-BACKED SECURITIES(2) -- 17.9%
200 AmeriCredit Automobile
Receivables Trust, Series
1999 D, Class A3 SEQ, 7.02%,
12/5/05 201
500 Case Equipment Loan Trust,
Series 1998 B, Class A4 SEQ,
5.92%, 10/15/05 495
423 CIT RV Trust, Series 1997 A,
Class A5 SEQ, 6.25%,
11/17/08 422
5 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2
SEQ, 6.80%, 5/15/01 5
108 FNMA Whole Loan, Series
1995 W1, Class A6 SEQ,
8.10%, 4/25/25 108
183 Money Store (The) Home Equity
Trust, Series 1994 B, Class A4
SEQ, 7.60%, 7/15/21 183
200 Residential Asset Securities Corp.
Series 1999-KS3, Cl AI2 SEQ,
7.08%, 9/25/20 200
200 Residential Asset Securities
Corporation, Series 2000 KS4,
Class AI3 SEQ, 7.36%,
1/25/26 201
29 Textron Financial Corp.
Receivables Trust, Series
1997 A, Class A SEQ, 6.05%,
3/16/09 (Acquired 9/18/97,
Cost $29)(1) 29
8 1-800-345-2021 See Notes to Financial Statements
Limited-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 7 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4 SEQ,
6.78%, 2/15/16 $ 7
-------
TOTAL ASSET-BACKED SECURITIES 1,851
-------
(Cost $1,852)
U.S. GOVERNMENT AGENCY SECURITIES -- 8.2%
850 FHLB, 6.75%, 8/15/02 854
-------
(Cost $849)
TOTAL INVESTMENT SECURITIES -- 100.0% $10,355
=======
(Cost $10,365)
NOTES TO SCHEDULE OF INVESTMENTS
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
MTN = Medium Term Note
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was $232 which
represented 2.2% of net assets.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements www.americancentury.com 9
<TABLE>
<CAPTION>
Intermediate-Term Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS (INCEPTION 3/1/94) ADVISOR CLASS (INCEPTION 8/14/97)
LEHMAN INTERM. INTERM. INVESTMENT-GRADE LEHMAN INTERM.
INTERMEDIATE-TERM GOVT./CREDIT DEBT FUNDS(3) INTERMEDIATE-TERM GOVT./CREDIT
BOND INDEX(2) AVERAGE RETURN FUND'S RANKING BOND INDEX
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 5.23% 5.33% 4.82% -- 5.09% 5.33%
1 YEAR 5.99% 6.46% 5.84% 150 OUT OF 295 5.73% 6.46%
=====================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.62% 5.47% 4.51% 101 OUT OF 215 4.35% 5.47%
5 YEARS 5.41% 5.94% 5.34% 65 OUT OF 150 -- --
LIFE OF FUND 5.64% 6.05% 6.04%(4) 61 OUT OF 111(4) 4.81% 5.60%(5)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Listed formerly as the Lehman Intermediate/Corporate Bond Index.
(3) According to Lipper Inc., an independent mutual fund ranking service.
(4) Since 3/31/94, the date nearest the class's inception for which data are
available.
(5) Since 7/31/97, the date nearest the class's inception for which data are
available.
See pages 34-36 for information about share classes, returns, the comparative
index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 10/31/00
Lehman Intermediate
Govt./Credit Bond Index(2) $14,800
Intermediate-Term Bond $14,418
Intermediate-Term Lehman Intermediate
Bond Govt./Credit Bond Index(2)
DATE VALUE VALUE
3/1/1994 $10,000 $10,000
3/31/1994 $9,856 $9,835
6/30/1994 $9,801 $9,776
9/30/1994 $9,882 $9,856
12/31/1994 $9,880 $9,845
3/31/1995 $10,265 $10,278
6/30/1995 $10,754 $10,790
9/30/1995 $10,950 $10,969
12/31/1995 $11,374 $11,356
3/31/1996 $11,217 $11,261
6/30/1996 $11,255 $11,332
9/30/1996 $11,451 $11,533
12/31/1996 $11,745 $11,815
3/31/1997 $11,714 $11,802
6/30/1997 $12,089 $12,151
9/30/1997 $12,469 $12,479
12/31/1997 $12,707 $12,746
3/31/1998 $12,906 $12,945
6/30/1998 $13,135 $13,188
9/30/1998 $13,676 $13,780
12/31/1998 $13,654 $13,821
3/31/1999 $13,647 $13,795
6/30/1999 $13,482 $13,740
9/30/1999 $13,581 $13,866
12/31/1999 $13,568 $13,873
3/31/2000 $13,851 $14,081
6/30/2000 $13,934 $14,319
9/30/2000 $14,360 $14,732
10/31/2000 $14,418 $14,800
$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/ Credit Bond Index(2) is provided for comparison
in each graph. Intermediate-Term Bond's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not. These graphs are based on Investor Class
shares only; performance for other classes will vary due to differences in fee
structures (see Total Returns table above). Past performance does not guarantee
future results. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
Intermediate-Term Lehman Intermediate
Bond Govt./Credit Bond Index(2)
DATE RETURN RETURN
10/31/1994* -1.24% -1.45%
10/31/1995 12.19% 12.54%
10/31/1996 5.36% 5.81%
10/31/1997 7.87% 7.49%
10/31/1998 7.71% 9.12%
10/31/1999 0.29% 0.99%
10/31/2000 5.99% 6.46%
* From 3/1/94 (the fund's inception date) to 10/31/94.
10 1-800-345-2021
Intermediate-Term Bond--Q&A
--------------------------------------------------------------------------------
[photo of Jeff Houston]
An interview with Jeff Houston, a portfolio manager on the
Intermediate-Term Bond fund investment team.
HOW DID THE FUND PERFORM DURING THE YEAR ENDED OCTOBER 31, 2000?
During a period when U.S. bond funds generally posted solid returns,
Intermediate-Term Bond beat its peer group average. The fund returned 5.99%,
compared with the 5.84% average return of 295 funds in the "Intermediate
Investment-Grade Debt Funds" category tracked by Lipper Inc.* (See page 10 for
more fund performance information.)
The fund significantly outperformed the peer group average during the last
six months of the period (fund: 5.23%, peers: 4.82%) after trailing the peer
group during the first six months (fund: 0.73%, peers: 0.90%).
WHAT BOOSTED THE FUND'S PERFORMANCE DURING THE LAST SIX MONTHS?
One key factor was that we avoided additional corporate credit downgrades
that could have reduced performance, like what happened earlier this year. As
you may recall from our April 30 semiannual report, we owned some Conseco bonds
that were downgraded, which was one reason why the fund lagged during the first
six months of the period.
The Conseco bonds are no longer part of the portfolio--we've taken a more
cautious approach to corporate bonds in the last six months, with an emphasis on
higher-profile companies whose securities are relatively easy to buy and sell.
We also reduced Intermediate-Term Bond's Treasury holdings and redeployed
some of those assets into higher-yielding (but still high credit quality)
mortgage- and asset-backed securities (MBS and ABS). This change was consistent
with our investment philosophy--to look for relative value among the different
sectors of the taxable bond market. The yields on MBS and ABS looked relatively
attractive after Treasury bonds rallied and their yields declined during the
first six months. MBS and ABS also appeared poised to benefit from a stable
interest rate environment.
We basically believed that other bond sectors had more upside potential
than Treasurys, and we were proved right--MBS, ABS, and government agency bonds
generally outperformed Treasurys during the last six months.
HOW DID THE FUND'S EXPENSES AND YIELD COMPARE WITH ITS LIPPER GROUP?
Intermediate-Term Bond had lower expenses than its peer group average. As
of October 31, the fund's annualized expense ratio was 0.75%, compared with the
0.93% average expense ratio of its Lipper category. All else being equal, lower
expenses translate into higher yields and better returns.
Intermediate-Term Bond also generated a higher yield than its peer group
average. As of October 31, 2000, the fund's 30-day SEC yield was 6.42%, compared
with the 6.30% average yield of its Lipper category.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NUMBER OF SECURITIES 80 82
WEIGHTED AVERAGE
MATURITY 7.7 YRS 7.7 YRS
AVERAGE DURATION 4.9 YRS 4.7 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.75% 0.75%
YIELDS AS OF OCTOBER 31, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.42% 6.17%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
AAA 57% 56%
AA 2% 4%
A 17% 17%
BBB 19% 17%
BB 5% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 11
Intermediate-Term Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
THE INVESTMENT TEAM CHANGED DURING THE PERIOD. CAN YOU EXPLAIN THE MOVE?
Yes--Bud Hoops, senior portfolio manager, retired at the end of July after
11 years with American Century, including six years as a fund manager for
Intermediate-Term Bond. He will continue to serve as a part-time consultant
through year-end to help with the transition.
As part of the transition, two of our most experienced team leaders, Dave
Schroeder and Randy Merk, are assuming new roles and responsibilities. Dave, who
has over 20 years of investment experience, is heading the investment-grade
taxable bond portfolios. Randy, chief investment officer of fixed income
(featured on page 3), will oversee the activities of the corporate credit
research team.
Though Bud will be missed, his continued participation and the depth of our
fixed-income team made for a smooth transition.
WHAT IS YOUR OUTLOOK FOR THE U.S. ECONOMY AND BOND MARKET?
We expect a "soft landing" for the U.S. economy and believe that the
Federal Reserve will refrain from further interest rate moves in the near term.
That should favor our MBS and ABS holdings and provide an environment that we
think could eventually produce attractive returns for investment-grade corporate
bonds. A lot of pessimism about the outlook for corporate profits and credit
quality has already been factored into corporate bond prices and yields. We
think corporates will perform quite well should that pessimism subside.
The Treasury market also seems to be overly pessimistic about the economy.
Treasury yields appear to be too low, given the economic data we've seen so far.
With the two-year note yielding less than the overnight federal funds rate, the
market seems to be pricing in a hard landing, including interest rate cuts by
the Fed. We think those assumptions are premature.
GIVEN THIS OUTLOOK, WHAT ARE YOUR PLANS?
We think the portfolio is positioned well for a relatively stable interest
rate environment and a soft landing. We don't plan to make any major changes
unless there's compelling evidence that the economy is experiencing a
significantly harder landing than originally expected. In that case, we would
have to re-evaluate our MBS, ABS, and corporate holdings and consider rebuilding
our Treasury position.
We wouldn't want to be overweight in corporate bonds in a recessionary
environment, when credit conditions would likely deteriorate. Similarly, we
wouldn't want to be overweight in MBS if interest rates were to fall sharply.
MBS underperform when homeowners take advantage of lower rates to refinance
their loans, causing the MBS' underlying mortgage pools to make their final
payouts to investors earlier than expected.
We will continue to monitor inflation, the economy, and interest rates
closely, taking advantage of relative value opportunities as they arise and
responding as necessary to changing market conditions.
[left margin]
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 2000
CORPORATE BONDS 43%
MORTGAGE-BACKED SECURITIES 24%
U.S. TREASURY SECURITIES 16%
ASSET-BACKED SECURITIES 8%
OTHER 9%
AS OF APRIL 30, 2000
CORPORATE BONDS 42%
MORTGAGE-BACKED SECURITIES 22%
U.S. TREASURY SECURITIES 22%
ASSET-BACKED SECURITIES 6%
OTHER 8%
Investment terms are defined in the Glossary on pages 36-37.
12 1-800-345-2021
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 42.6%
BANKS -- 4.4%
$ 500 BankAmerica Corp., 7.75%,
7/15/02 $ 505
500 Citigroup Inc., 7.25%, 10/1/10 497
500 Fleet Boston Financial Corp.,
5.75%, 1/15/09 445
-------
1,447
-------
DEFENSE/AEROSPACE -- 2.3%
350 Alliant Energy Resources Inc.,
7.375%, 11/9/09 342
400 Raytheon Co., 8.20%, 3/1/06 414
-------
756
-------
DEPARTMENT STORES -- 0.6%
200 Sears, Roebuck & Co. Inc. MTN,
8.29%, 6/10/02 202
-------
ELECTRICAL EQUIPMENT -- 1.8%
300 Anixter International Inc., 8.00%,
9/15/03 297
300 Yorkshire Power Finance, Series B,
6.15%, 2/25/03 290
-------
587
-------
ELECTRICAL UTILITIES -- 1.4%
450 Cilcorp, Inc., 8.70%, 10/15/09 465
-------
ENERGY RESERVES & PRODUCTION -- 3.1%
500 Duke Energy Field Services,
7.875%, 8/16/10 510
350 EOG Resources Inc., 6.70%,
11/15/06 340
200 Kerr-McGee Corp., 7.125%,
10/15/27 179
-------
1,029
-------
FINANCIAL SERVICES -- 5.5%
500 Associates Corp., N.A., 6.00%,
7/15/05 477
300 Capital One Bank, 5.95%,
2/15/01 299
250 Ford Motor Credit Co., 6.125%,
4/28/03 244
400 Ford Motor Credit Co., 7.50%,
3/15/05 401
400 General Motors Acceptance Corp.
MTN, VRN, 6.81%, 12/11/00,
resets quarterly off the 3-month
LIBOR plus 0.15% with no caps 399
-------
1,820
-------
FOOD & BEVERAGE -- 0.6%
200 Pepsi Bottling Group Inc.,
Series B, 7.00%, 3/1/29
(Acquired 6/9/00, Cost $179)(1) 185
-------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.1%
$ 350 Abitibi-Consolidated Inc., 8.55%,
8/1/10 $ 348
-------
GAS & WATER UTILITIES -- 1.1%
350 EL Paso Energy Corporation MTN,
8.05%, 10/15/30 355
-------
GOLD -- 1.2%
400 Barrick Gold Corp., 7.50%,
5/1/07 392
-------
GROCERY STORES -- 2.1%
700 Safeway Inc., 5.75%, 11/15/00 700
-------
HOTELS -- 1.5%
500 MGM Mirage, 8.50%, 3/15/10 492
-------
INFORMATION SERVICES -- 0.8%
290 KPNQwest B.V., 8.125%,
6/1/09 260
-------
MEDIA -- 3.5%
250 British SKY Broadcasting, 8.20%,
7/15/09 232
250 CSC Holdings Inc., 7.625%,
7/15/18 221
350 CSC Holdings Inc., Series B,
8.125%, 7/15/09 341
350 Viacom Inc., 7.70%, 7/30/10 357
-------
1,151
-------
MULTI-INDUSTRY -- 1.5%
500 Tyco International Group SA,
6.875%, 9/5/02 499
-------
REAL ESTATE INVESTMENT TRUST -- 3.2%
200 Chelsea GCA Realty Partners,
7.25%, 10/21/07 185
300 EOP Operating LP, 6.75%,
2/15/08 281
300 Franchise Finance Corp., 7.00%,
11/30/00 300
300 Spieker Properties, Inc., 6.80%,
12/15/01 298
-------
1,064
-------
SECURITIES & ASSET MANAGEMENT -- 4.0%
350 AXA Financial Inc., 7.75%,
8/1/10 355
350 Lehman Brothers Holdings Inc.,
8.25%, 6/15/07 358
600 Merrill Lynch & Co., Inc., 7.25%,
7/26/02 602
-------
1,315
-------
TELEPHONE -- 2.9%
500 GTE North Inc., Series H, 5.65%,
11/15/08 448
See Notes to Financial Statements www.americancentury.com 13
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$ 500 Qwest Capital Funding Inc.,
7.75%, 8/15/06 (Acquired
8/17/00, Cost $500)(1) $ 508
-------
956
-------
TOTAL CORPORATE BONDS 14,023
-------
(Cost $14,123)
MORTGAGE-BACKED SECURITIES(2) -- 24.5%
230 FHLMC Pool #C00578, 6.50%,
1/1/28 222
481 FHLMC Pool #C30060, 7.50%,
8/1/29 481
357 FHLMC Pool #E00279, 6.50%,
2/1/09 352
168 FHLMC Pool #G00907, 7.00%,
2/1/28 165
270 FNMA Pool #252211, 6.00%,
1/1/29 254
486 FNMA Pool #323980, 6.00%,
4/1/14 468
236 FNMA Pool #411821, 7.00%,
1/1/28 232
172 FNMA Pool #413812, 6.50%,
1/1/28 166
273 FNMA Pool #427913, 6.00%,
5/1/13 264
303 FNMA Pool #431837, 7.00%,
6/1/28 297
271 FNMA Pool #450619, 6.00%,
12/1/28 255
473 FNMA Pool #492315, 6.50%,
4/1/29 455
305 FNMA Pool #506995, 7.50%,
7/1/29 305
498 FNMA Pool #537234, 7.00%,
5/1/30 488
1,199 FNMA Pool #542599, 7.50%,
8/1/30 1,197
500 FNMA REMIC, Series 1997-58,
Class PB PAC, 6.50%,
6/18/24 483
278 GNMA Pool #002202, 7.00%,
4/20/26 274
367 GNMA Pool #436277, 6.50%,
3/15/28 355
143 GNMA Pool #458862, 7.50%,
2/15/28 143
219 GNMA Pool #467626, 7.00%,
2/15/28 216
300 GNMA Pool #469811, 7.00%,
12/15/28 296
481 GNMA Pool #509502, 8.00%,
12/15/29 489
210 GNMA Pool #780412, 7.50%,
8/15/26 211
-------
TOTAL MORTGAGE-BACKED SECURITIES 8,068
-------
(Cost $8,118)
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 16.0%
$1,650 STRIPS - PRINCIPAL, 5.99%,
11/15/27(3) $ 342
600 U.S. Treasury Bonds, 9.125%,
5/15/18 801
300 U.S. Treasury Bonds, 6.50%,
11/15/26 321
1,000 U.S. Treasury Bonds, 6.375%,
8/16/27 1,055
1,200 U.S. Treasury Notes, 6.375%,
3/31/01 1,200
300 U.S. Treasury Notes, 7.875%,
11/15/04 321
1,200 U.S. Treasury Notes, 6.75%,
5/15/05 1,245
-------
TOTAL U.S. TREASURY SECURITIES 5,285
-------
(Cost $5,289)
ASSET-BACKED SECURITIES(2) -- 7.9%
400 Chase Commercial Mortgage
Securities Corp., Series 1999 2,
Class A2 SEQ, 7.20%,
11/15/09 403
8 First Merchants Auto Receivables
Corp., Series 1996 B, Class A2
SEQ, 6.80%, 5/15/01 8
433 First Union-Lehman Brothers
Commercial Mortgage, Series
1998 C2, Class A1 SEQ,
6.28%, 6/18/07 425
600 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 565
308 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 298
500 Residential Asset Securities Corp.
Series 1999-KS3, Cl AI2 SEQ,
7.08%, 9/25/20 499
12 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A4 SEQ,
6.78%, 2/15/16 12
400 United Companies Financial Corp.,
Home Equity Loan, Series
1996 D1, Class A5 SEQ,
6.92%, 10/15/18 399
-------
TOTAL ASSET-BACKED SECURITIES 2,609
-------
(Cost $2,667)
14 1-800-345-2021 See Notes to Financial Statements
Intermediate-Term Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES -- 7.1%
$2,000 FNMA, 7.125%, 2/15/05 $ 2,045
300 FNMA, Series B, 7.25%,
1/15/10 311
-------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES 2,356
-------
(Cost $2,310)
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 1.3%
425 FNMA Discount Notes, 6.45%,
11/1/00(4) 425
-------
(Cost $425)
SOVEREIGN GOVERNMENTS AND AGENCIES -- 0.6%
200 United Mexican States, 9.875%,
2/1/10 209
-------
(Cost $210)
TOTAL INVESTMENT SECURITIES -- 100.0% $32,975
=======
(Cost $33,142)
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security resets,
the less risk the investor is taking that the coupon will vary significantly
from current market rates.
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 2000.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was $693 which
represented 2.1% of net assets.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(3) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount
from their value at maturity.
(4) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 15
<TABLE>
<CAPTION>
Bond--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
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) 4.85% 5.80% 4.70% -- 4.72% 5.80%
1 YEAR 5.34% 7.30% 5.48% 105 OUT OF 180 5.09% 7.30%
=================================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.65% 5.66% 4.05% 103 OUT OF 145 3.40% 5.66%
5 YEARS 4.87% 6.33% 5.13% 74 OUT OF 115 -- --
10 YEARS 7.28% 7.98% 7.69% 28 OUT OF 42 -- --
LIFE OF FUND 6.85% 7.87% 7.47%(3) 22 OUT OF 26(3) 4.18% 5.87%(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 7/31/97, the date nearest the class's inception for which data are
available.
See pages 34-36 for information about share classes, returns, the comparative
index, and Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 10/31/00
Lehman Aggregate
Bond Index $21,550
Bond $20,198
Lehman Aggregate
Bond Bond Index
DATE VALUE VALUE
10/31/1990 $10,000 $10,000
10/31/1991 $11,645 $11,581
10/31/1992 $12,860 $12,719
10/31/1993 $14,378 $14,229
10/31/1994 $13,592 $13,707
10/31/1995 $15,924 $15,852
10/31/1996 $16,706 $16,779
10/31/1997 $18,138 $18,271
10/31/1998 $19,369 $19,978
10/31/1999 $19,176 $20,084
10/31/2000 $20,198 $21,550
$10,000 investment made 10/31/90
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman Aggregate Bond Index is provided for comparison in each graph. Bond's
total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the index do
not. These graphs are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see Total Returns table
above). Past performance does not guarantee future results. Investment return
and principal value will fluctuate, and redemption value may be more or less
than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED OCTOBER 31)
Lehman Aggregate
Bond Bond Index
DATE RETURN RETURN
10/31/1991 16.45% 15.81%
10/31/1992 10.43% 9.83%
10/31/1993 11.81% 11.87%
10/31/1994 -5.47% -3.67%
10/31/1995 17.16% 15.65%
10/31/1996 4.91% 5.85%
10/31/1997 8.57% 8.89%
10/31/1998 6.79% 9.34%
10/31/1999 -1.00% 0.53%
10/31/2000 5.34% 7.30%
16 1-800-345-2021
Bond--Q&A
--------------------------------------------------------------------------------
An interview with Jeff Houston (pictured on page 11), a portfolio manager
on the Bond fund investment team.
HOW DID THE FUND PERFORM DURING THE YEAR ENDED OCTOBER 31, 2000?
During a period when U.S. bond funds generally posted solid returns, Bond
returned 5.34%, compared with the 5.48% average return of 180 funds in the
"A-Rated Corporate Debt Funds" category tracked by Lipper Inc.* (See page 16 for
more fund performance information.)
Bond continued to deliver more current income than its Lipper group
average. As of October 31, 2000, the fund's 30-day SEC yield was 6.49%, compared
with the 6.11% average yield of its Lipper category.
WHY DID BOND TRAIL THE AVERAGE TOTAL RETURN OF ITS PEER GROUP?
The fund fell behind the Lipper group average during the first six months
of the fiscal year, when it returned 0.47%, while the Lipper group was up 0.73%
on average. During the last six months, Bond performed better, beating the
average 4.85% to 4.70%.
The lag during the first six months was due in part to the performance of
the fund's corporate bond holdings, particularly some insurance company bonds
(Conseco--about 1.5% of the portfolio) that were downgraded. They are no longer
part of the portfolio.
WHAT BOOSTED THE FUND'S PERFORMANCE DURING THE LAST SIX MONTHS?
One key factor was that we avoided additional corporate credit downgrades.
We've taken a more cautious approach to corporate bonds in the last six months,
with an emphasis on higher-profile companies whose securities are relatively
easy to buy and sell.
We also redeployed some assets into higher-yielding (but still high credit
quality) mortgage- and asset-backed securities (MBS and ABS). The yields on MBS
and ABS looked relatively attractive, plus MBS and ABS appeared poised to
benefit from a stable interest rate environment.
We basically believed that these bond sectors had more upside potential
than Treasurys, and we were proved right--MBS and ABS generally outperformed
Treasurys during the last six months.
WHAT TOOLS DID YOU USE TO EVALUATE THE BOND SECTORS AND MAKE YOUR ADJUSTMENTS?
We have a quantitative fixed-income analysis team that helps us choose
where to concentrate the portfolio's holdings and where to limit its exposure.
The team uses proprietary models to closely examine the performance of Treasury
and non-Treasury bonds. That helps us determine which maturities and sectors
look best and how they will perform in different market scenarios, allowing us
to better understand how the fund will perform as conditions change. We then
position the portfolio based on what seems the most likely scenario.
THE INVESTMENT TEAM CHANGED DURING THE PERIOD. WHY?
Because Bud Hoops, senior portfolio manager, retired at the end of July
after 11 years with American Century and as a fund manager for Bond. He will
continue to serve as a part-time consultant through year-end to help with the
transition.
* All fund returns and yields referenced in this interview are for Investor
Class shares.
[right margin]
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NUMBER OF SECURITIES 58 61
WEIGHTED AVERAGE
MATURITY 9.3 YRS 9.7 YRS
AVERAGE DURATION 5.5 YRS 5.3 YRS
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.80% 0.80%
YIELDS AS OF OCTOBER 31, 2000
INVESTOR ADVISOR
CLASS CLASS
30-DAY SEC YIELD 6.49% 6.23%
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
AAA 52% 50%
AA 2% 4%
A 19% 19%
BBB 21% 19%
BB 6% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 17
Bond--Q&A
--------------------------------------------------------------------------------
(Continued)
As part of the transition, two of our most experienced team leaders, Dave
Schroeder and Randy Merk, are assuming new roles and responsibilities. Dave, who
has over 20 years of investment experience, is heading the investment-grade
taxable bond portfolios. Randy, chief investment officer of fixed income
(featured on page 3), will oversee the activities of the corporate credit
research team.
Bud will be missed, but his continued participation and the depth of our
fixed-income team have allowed the transition to proceed smoothly.
WHAT IS YOUR OUTLOOK FOR THE U.S. ECONOMY AND BOND MARKET?
We expect a "soft landing" for the U.S. economy and believe that the
Federal Reserve will refrain from further interest rate moves in the near term.
That should favor our MBS and ABS holdings and provide an environment that we
think could eventually produce attractive returns for investment-grade corporate
bonds. A lot of pessimism about the outlook for corporate profits and credit
quality has already been factored into corporate bond prices and yields. We
think corporates will perform quite well should that pessimism subside.
The Treasury market also seems to be overly pessimistic about the economy.
Treasury yields appear to be too low, given the economic data we've seen so far.
With the two-year note yielding less than the overnight federal funds rate, the
market seems to be pricing in a hard landing, including interest rate cuts by
the Fed. We think those assumptions are premature.
GIVEN THIS OUTLOOK, WHAT ARE YOUR PLANS?
We think the portfolio is positioned well for a relatively stable interest
rate environment and a soft landing. We don't plan to make any major changes
unless there's compelling evidence that the economy might experience a
significantly harder landing than originally expected. In that case, we would
have to re-evaluate our MBS, ABS, and corporate holdings and consider
rebuilding our Treasury position.
We wouldn't want to be overweight in corporate bonds in a recessionary
environment, when credit conditions would likely deteriorate. Similarly, we
wouldn't want to be overweight in MBS if interest rates were to fall sharply.
MBS underperform when homeowners take advantage of lower rates to refinance
their loans, causing the MBS' underlying mortgage pools to make their final
payouts to investors earlier than expected.
We will continue to monitor inflation, the economy, and interest rates
closely, taking advantage of relative value opportunities as they arise and
responding as necessary to changing market conditions.
[left margin]
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF OCTOBER 31, 2000
CORPORATE BONDS 48%
MORTGAGE-BACKED SECURITIES 26%
U.S. TREASURY SECURITIES 17%
ASSET-BACKED SECURITIES 8%
OTHER 1%
AS OF APRIL 30, 2000
CORPORATE BONDS 47%
MORTGAGE-BACKED SECURITIES 21%
U.S. TREASURY SECURITIES 16%
ASSET-BACKED SECURITIES 6%
OTHER 10%
Investment terms are defined in the Glossary on pages 36-37.
18 1-800-345-2021
Bond--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 47.5%
BANKS -- 4.1%
$1,500 Citigroup Inc., 7.25%, 10/1/10 $ 1,491
3,000 Mellon Financial Co., 6.00%,
3/1/04 2,898
--------
4,389
--------
DEFENSE/AEROSPACE -- 2.8%
1,500 Alliant Energy Resources Inc.,
7.375%, 11/9/09 1,466
1,500 Raytheon Co., 8.20%, 3/1/06 1,553
--------
3,019
--------
ELECTRICAL UTILITIES -- 1.4%
1,500 Cilcorp, Inc., 8.70%, 10/15/09 1,549
--------
ENERGY RESERVES & PRODUCTION -- 3.8%
1,500 Duke Energy Field Services,
7.875%, 8/16/10 1,531
1,600 EOG Resources Inc., 6.70%,
11/15/06 1,554
1,100 Kerr-McGee Corp., 7.125%,
10/15/27 983
--------
4,068
--------
FINANCIAL SERVICES -- 4.3%
1,200 Associates Corp., N.A., 6.00%,
7/15/05 1,146
2,000 Ford Motor Credit Co., 7.50%,
3/15/05 2,006
1,500 General Motors Acceptance Corp.
MTN, VRN, 6.81%, 12/11/00,
resets quarterly off the 3-month
LIBOR plus 0.15% with no caps 1,497
--------
4,649
--------
FOOD & BEVERAGE -- 0.9%
1,000 Pepsi Bottling Group Inc.,
Series B, 7.00%, 3/1/29
(Acquired 6/9/00, Cost $895)(1) 925
--------
FOREST PRODUCTS & PAPER -- 1.8%
1,000 Abitibi-Consolidated Inc., 8.55%,
8/1/10 994
1,000 Abitibi-Consolidated Inc., 8.85%,
8/1/30 966
--------
1,960
--------
GAS & WATER UTILITIES -- 3.7%
3,000 Columbia Energy Group, 7.42%,
11/28/15 2,731
1,250 EL Paso Energy Corporation MTN,
8.05%, 10/15/30 1,266
--------
3,997
--------
GOLD -- 1.4%
1,500 Barrick Gold Corp., 7.50%,
5/1/07 1,471
--------
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
GROCERY STORES -- 0.9%
$1,000 Safeway Inc., 5.75%, 11/15/00 $ 999
--------
HOTELS -- 1.8%
2,000 MGM Mirage, 8.50%, 3/15/10 1,966
--------
INFORMATION SERVICES -- 0.8%
1,000 KPNQwest B.V., 8.125%, 6/1/09 895
--------
LIFE & HEALTH INSURANCE -- 3.7%
1,000 Delphi Financial Group, Inc.,
9.31%, 3/25/27 750
3,000 Lincoln National Corp., 9.125%,
10/1/04 3,221
--------
3,971
--------
MEDIA -- 3.2%
600 British Sky Broadcasting, 8.20%,
7/15/09 557
2,000 CSC Holdings Inc., 7.25%,
7/15/08 1,859
1,000 Viacom Inc., 7.70%, 7/30/10 1,020
--------
3,436
--------
MULTI-INDUSTRY -- 1.8%
2,000 Tyco International Group SA,
6.875%, 9/5/02 1,995
--------
REAL ESTATE INVESTMENT TRUST -- 4.5%
1,000 Chelsea GCA Realty Partners,
7.25%, 10/21/07 925
1,000 EOP Operating LP, 6.75%,
2/15/08 937
3,000 Spieker Properties, Inc. MTN,
7.58%, 12/17/01 3,007
--------
4,869
--------
SECURITIES & ASSET MANAGEMENT -- 3.1%
1,350 Lehman Brothers Holdings Inc.,
8.25%, 6/15/07 1,380
2,000 Merrill Lynch & Co., Inc., 7.25%,
7/26/02 2,010
--------
3,390
--------
TELEPHONE -- 3.5%
2,000 GTE North Inc., Series H, 5.65%,
11/15/08 1,793
2,000 Qwest Capital Funding Inc.,
7.75%, 8/15/06 (Acquired
8/17/00, Cost $1,998)(1) 2,029
--------
3,822
--------
TOTAL CORPORATE BONDS 51,370
--------
(Cost $51,953)
MORTGAGE-BACKED SECURITIES(2) -- 26.2%
2,712 FHLMC Pool #C00731, 6.50%,
3/1/29 2,613
1,602 FHLMC Pool #C30060, 7.50%,
8/1/29 1,603
See Notes to Financial Statements www.americancentury.com 19
Bond--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$6,168 FHLMC Pool #C40679, 7.00%,
7/1/30 $ 6,051
3,245 FHLMC Pool #E68681, 6.00%,
1/1/13 3,132
2,744 FNMA Pool #250452, 6.50%,
1/1/26 2,655
2,701 FNMA Pool #252211, 6.00%,
1/1/29 2,539
1,396 FNMA Pool #453124, 6.00%,
12/1/13 1,345
2,557 FNMA Pool #484698, 6.00%,
2/1/14 2,465
1,362 FNMA Pool #503915, 7.00%,
7/1/29 1,337
441 FNMA Pool #504748, 7.00%,
7/1/29 433
1,307 FNMA Pool #506995, 7.50%,
7/1/29 1,306
2,498 FNMA Pool #542599, 7.50%,
8/1/30 2,495
335 FNMA REMIC, Series 1989-35,
Class G, 9.50%, 7/25/19 349
--------
TOTAL MORTGAGE-BACKED SECURITIES 28,323
--------
(Cost $28,690)
U.S. TREASURY SECURITIES -- 17.1%
3,225 STRIPS - PRINCIPAL, 5.99%,
11/15/27(3) 669
8,700 U.S. Treasury Bonds, 6.375%,
8/16/27 9,178
4,000 U.S. Treasury Notes, 5.625%,
5/15/01 3,985
3,950 U.S. Treasury Notes, 6.375%,
3/31/01 3,951
700 U.S. Treasury Notes, 6.75%,
5/15/05 726
--------
TOTAL U.S. TREASURY SECURITIES 18,509
--------
(Cost $18,406)
ASSET-BACKED SECURITIES(2) -- 8.3%
1,500 BMW Vehicle Owner Trust, Series
1999 A, Class A3 SEQ, 6.41%,
4/25/03 1,496
1,500 Chase Commercial Mortgage
Securities Corp., Series 1999-2,
Class A2 SEQ, 7.20%,
11/15/09 1,512
2,400 GMAC Commercial Mortgage
Securities Inc., Series 1999 C1,
Class A2 SEQ, 6.18%,
5/15/33 2,263
Principal Amount ($ in Thousands) Value
--------------------------------------------------------------------------------
$1,758 Nationslink Funding Corp., Series
1998-2, Class A1 SEQ, 6.00%,
11/20/07 $ 1,704
2,000 Residential Asset Securities Corp.
Series 1999-KS3, Cl AI2 SEQ,
7.08%, 9/25/20 1,995
--------
TOTAL ASSET-BACKED SECURITIES 8,970
--------
(Cost $9,185)
SOVEREIGN GOVERNMENTS AND AGENCIES -- 0.6%
600 United Mexican States, 9.875%,
2/1/10 626
--------
(Cost $630)
TEMPORARY CASH INVESTMENTS -- 0.3%
365 FNMA Discount Notes, 6.45%,
11/1/00(4) 365
--------
(Cost $365)
TOTAL INVESTMENT SECURITIES -- 100.0% $108,163
========
(Cost $109,229)
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
Resets = The frequency with which a security's coupon changes, based on current
market conditions or an underlying index. The more frequently a security
resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 2000.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a
private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was $2,954
which represented 2.7% of net assets.
(2) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(3) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount
from their value at maturity.
(4) Rate indicated is the yield to maturity at purchase.
20 1-800-345-2021 See Notes to Financial Statements
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares, the net assets divided by shares outstanding
is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks
down the fund's net assets into capital (shareholder investments) and
performance (investment income and gains/losses).
INTERMEDIATE-
OCTOBER 31, 2000 LIMITED-TERM TERM BOND
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $10,365,
$33,142 and $109,229,
respectively) (Note 3) .......... $10,355 $32,975 $108,163
Cash .............................. 15 -- --
Receivable for investments sold ... -- 258 1,125
Receivable for capital
shares sold ..................... -- 3 --
Interest receivable ............... 146 461 1,422
-------------- -------------- -------------
.................................. 10,516 33,697 110,710
-------------- -------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ............. -- 75 5
Accrued management fees (Note 2) .. 6 20 75
Distribution fees payable
(Note 2) ........................ -- 1 1
Service fees payable (Note 2) ..... -- 1 1
Dividends payable ................. 7 22 75
-------------- -------------- -------------
.................................. 13 119 157
-------------- -------------- -------------
Net Assets ........................ $10,503 $33,578 $110,553
============== ============== =============
NET ASSETS CONSIST OF:
Capital (par value and
paid-in surplus) ................ $10,889 $34,833 $116,902
Accumulated net realized loss
on investment transactions ...... (376) (1,088) (5,283)
Net unrealized depreciation
on investments (Note 3) ......... (10) (167) (1,066)
-------------- -------------- -------------
.................................. $10,503 $33,578 $110,553
============== ============== =============
Investor Class, $0.01 Par Value
($ and shares in full)
Net assets ........................$8,696,619 $30,574,294 $106,723,285
Shares outstanding ................ 896,530 3,178,004 11,837,678
Net asset value per share ......... $9.70 $9.62 $9.02
Advisor Class, $0.01 Par Value
($ and shares in full)
Net assets ........................$1,806,051 $3,003,858 $3,829,668
Shares outstanding ................ 186,203 312,218 424,734
Net asset value per share ......... $9.70 $9.62 $9.02
See Notes to Financial Statements www.americancentury.com 21
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of interest income, fees and expenses,
and investment gains or losses.
INTERMEDIATE-
YEAR ENDED OCTOBER 31, 2000 LIMITED-TERM TERM BOND
INVESTMENT INCOME (In Thousands)
Income:
Interest ............................ $932 $2,242 $8,131
------------- ------------- -------------
Expenses (Note 2):
Management fees ..................... 92 236 905
Distribution fees -- Advisor Class .. 8 8 9
Service fees -- Advisor Class ....... 8 8 9
Directors' fees and expenses ........ -- -- 1
------------- ------------- -------------
.................................... 108 252 924
------------- ------------- -------------
Net investment income ............... 824 1,990 7,207
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments .... (289) (810) (4,041)
Change in net unrealized
depreciation on investments ....... 203 693 2,556
------------- ------------- -------------
Net realized and unrealized
loss on investments ............... (86) (117) (1,485)
------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations ......... $738 $1,873 $5,722
============= ============= =============
22 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
Increase (Decrease) LIMITED-TERM INTERMEDIATE-TERM BOND
in Net Assets 2000 1999 2000 1999 2000 1999
OPERATIONS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net investment income ............ $824 $1,067 $1,990 $1,840 $7,207 $8,002
Net realized loss
on investments ................. (289) (87) (810) (271) (4,041) (1,195)
Change in net unrealized
depreciation on investments .... 203 (456) 693 (1,458) 2,556 (8,377)
---------- ---------- --------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting
from operations ................ 738 524 1,873 111 5,722 (1,570)
---------- ---------- --------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Investor Class ................. (653) (1,004) (1,791) (1,605) (6,986) (7,892)
Advisor Class .................. (171) (63) (199) (235) (221) (110)
From net realized gains on
investment transactions:
Investor Class ................. -- (87) -- (178) -- (68)
Advisor Class .................. -- (5) -- (22) -- (1)
---------- ---------- --------- ---------- ---------- ----------
Decrease in net assets
from distributions ............. (824) (1,159) (1,990) (2,040) (7,207) (8,071)
---------- ---------- --------- ---------- ---------- ----------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in
net assets from capital
share transactions ............. (7,724) (736) (495) 6,172 (10,779) (15,191)
---------- ---------- --------- ---------- ---------- ----------
Net increase (decrease)
in net assets .................. (7,810) (1,371) (612) 4,243 (12,264) (24,832)
NET ASSETS
Beginning of period .............. 18,313 19,684 34,190 29,947 122,817 147,649
---------- ---------- --------- ---------- ---------- ----------
End of period ....................$10,503 $18,313 $33,578 $34,190 $110,553 $122,817
========== ========== ========= ========== ========== ==========
</TABLE>
See Notes to Financial Statements www.americancentury.com 23
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. Limited-Term Bond Fund (Limited-Term),
Intermediate-Term Bond Fund (Intermediate-Term), and Bond Fund (Bond) (the
funds) are three of the fourteen series of funds issued by the corporation. The
funds are diversified under the 1940 Act. The funds' investment objective is to
seek income by investing in bonds and other debt obligations. The following
significant accounting policies are in accordance with accounting principles
generally accepted in the United States of America; these policies may require
the use of estimates by fund management.
MULTIPLE CLASS -- The funds are authorized to issue two classes of shares:
the Investor Class and the Advisor Class. The two classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the fund represent an equal pro rata interest in
the assets of the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
for class specific expenses and exclusive rights to vote on matters affecting
only individual classes.
SECURITY VALUATIONS -- Debt securities are valued through a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements with
institutions the funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The funds require that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the funds to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the funds under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
treasury or agency obligations.
INCOME TAX STATUS -- It is the funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and distributed monthly. Distributions from net realized
gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At October 31, 2000, Limited-Term, Intermediate-Term and Bond had
accumulated net realized capital loss carryovers for federal income tax purposes
of $376,775, $1,087,936, and $5,270,950 (expiring in 2007 through 2008 in each
of the funds), respectively, which may be used to offset future taxable gains.
24 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides each fund with investment advisory and management services
in exchange for a single, unified management fee per class. Expenses excluded
from the agreement are brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the 1940 Act
(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 1940 Act.
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 during the year
ended October 31, 2000 for Limited-Term, Intermediate-Term and Bond were
approximately $16,000, $16,000, and $18,000, 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, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year
ended October 31, 2000, were as follows:
LIMITED-TERM INTERMEDIATE-TERM BOND
PURCHASES (In Thousands)
U.S. Treasury &
Agency Obligations ......... $6,689 $21,285 $76,509
Other Debt Obligations ....... 3,243 17,761 70,172
PROCEEDS FROM SALES (In Thousands)
U.S. Treasury &
Agency Obligations ......... $9,932 $20,641 $70,102
Other Debt Obligations ....... 6,366 18,930 89,940
On October 31, 2000, 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 ................. $48 $225 $754
Depreciation ................. (58) (392) (1,833)
--------------- ---------------- ---------------
Net .......................... $(10) $(167) $(1,079)
=============== ================ ===============
Federal Tax Cost ............. $10,365 $33,142 $109,242
=============== ================ ===============
www.americancentury.com 25
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the funds were as follows:
LIMITED-TERM INTERMEDIATE-TERM BOND
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Shares Authorized .......... 150,000 150,000 150,000
Year ended
October 31, 2000
Sold ....................... 2,276 $21,871 1,558 $14,868 12,063 $106,780
Issued in reinvestment
of distributions ......... 59 572 166 1,583 714 6,408
Redeemed ................... (2,953) (28,433) (1,670) (15,940) (14,241) (126,351)
--------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) .... (618) $(5,990) 54 $511 (1,464) $(13,163)
========= ========== ========== ========== ========== ===========
Year ended
October 31, 1999
Sold ....................... 428 $ 4,235 1,477 $14,664 4,841 $ 46,081
Issued in reinvestment of
distributions ............ 102 1,004 161 1,599 785 7,384
Redeemed ................... (890) (8,730) (1,132) (11,234) (7,217) (68,105)
--------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) .... (360) $(3,491) 506 $5,029 (1,591) $(14,640)
========= ========== ========== ========== ========== ===========
ADVISOR CLASS (In Thousands)
Shares Authorized .......... 50,000 50,000 50,000
Year ended
October 31, 2000
Sold ....................... 327 $3,134 94 $878 6,031 $42,282
Issued in reinvestment
of distributions ......... 16 155 16 157 15 135
Redeemed ................... (523) (5,023) (217) (2,041) (5,781) (40,033)
--------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) .... (180) $(1,734) (107) $(1,006) 265 $2,384
========= ========== ========== ========== ========== ===========
Year ended
October 31, 1999
Sold ....................... 404 $3,946 699 $6,859 166 $1,552
Issued in reinvestment
of distributions ......... 6 59 22 221 11 104
Redeemed ................... (128) (1,250) (610) (5,937) (237) (2,207)
--------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) .... 282 $2,755 111 $1,143 (60) $(551)
========= ========== ========== ========== ========== ===========
</TABLE>
--------------------------------------------------------------------------------
5. BANK LOANS
The funds, along with certain other funds managed by ACIM, have entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
year ended October 31, 2000.
26 1-800-345-2021
<TABLE>
<CAPTION>
Limited-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $9.74 $10.05 $9.98 $9.93 $9.96
---------- ---------- ---------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.57 0.53 0.55 0.56 0.56
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... (0.04) (0.26) 0.08 0.05 (0.03)
---------- ---------- ---------- --------- ---------
Total From Investment Operations ... 0.53 0.27 0.63 0.61 0.53
---------- ---------- ---------- --------- ---------
Distributions
From Net Investment Income ......... (0.57) (0.53) (0.55) (0.56) (0.56)
From Net Realized Gains on
Investment Transactions ............ -- (0.05) (0.01) -- --
---------- ---------- ---------- --------- ---------
Total Distributions ................ (0.57) (0.58) (0.56) (0.56) (0.56)
---------- ---------- ---------- --------- ---------
Net Asset Value, End of Period ....... $9.70 $9.74 $10.05 $9.98 $9.93
========== ========== ========== ========= =========
Total Return(1) .................... 5.59% 2.75% 6.58% 6.30% 5.48%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.70% 0.70% 0.70% 0.69% 0.68%
Ratio of Net Investment Income
to Average Net Assets .............. 5.85% 5.38% 5.56% 5.63% 5.63%
Portfolio Turnover Rate .............. 82% 72% 97% 109% 121%
Net Assets, End of Period
(in thousands) ..................... $8,697 $14,747 $18,838 $15,269 $8,092
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains, if any.
See Notes to Financial Statements www.americancentury.com 27
Limited-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ...... $9.74 $10.05 $9.97
--------- ---------- -----------
Income From Investment Operations
Net Investment Income ................... 0.54 0.50 0.51
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ....... (0.04) (0.26) 0.09
--------- ---------- -----------
Total From Investment Operations ........ 0.50 0.24 0.60
--------- ---------- -----------
Distributions
From Net Investment Income .............. (0.54) (0.50) (0.51)
From Net Realized Gains on
Investment Transactions ................. -- (0.05) (0.01)
--------- ---------- -----------
Total Distributions ..................... (0.54) (0.55) (0.52)
--------- ---------- -----------
Net Asset Value, End of Period ............ $9.70 $9.74 $10.05
========= ========== ===========
Total Return(2) ......................... 5.33% 2.49% 6.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 0.95% 0.95% 0.95%(3)
Ratio of Net Investment Income
to Average Net Assets ................... 5.60% 5.13% 5.26%(3)
Portfolio Turnover Rate ................... 82% 72% 97%(4)
Net Assets, End of Period
(in thousands) .......................... $1,806 $3,566 $845
(1) November 12, 1997 (commencement of sale) through October 31, 1998.
(2) Total return assumes reinvestment of dividends and capital gains, if any.
Total returns for periods less than one year are not annualized.
(3) Annualized.
(4) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 1998.
28 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Intermediate-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............... $9.65 $10.24 $10.07 $9.91 $10.07
---------- ---------- ----------- ----------- ----------
Income From Investment Operations
Net Investment Income ............. 0.59 0.55 0.58 0.59 0.58
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... (0.03) (0.52) 0.17 0.16 (0.06)
---------- ---------- ----------- ----------- ----------
Total From Investment Operations .. 0.56 0.03 0.75 0.75 0.52
---------- ---------- ----------- ----------- ----------
Distributions
From Net Investment Income ........ (0.59) (0.55) (0.58) (0.59) (0.58)
From Net Realized Gains
on Investment Transactions ........ -- (0.07) -- -- (0.10)
---------- ---------- ----------- ----------- ----------
Total Distributions ................. (0.59) (0.62) (0.58) (0.59) (0.68)
---------- ---------- ----------- ----------- ----------
Net Asset Value, End of Period ...... $9.62 $9.65 $10.24 $10.07 $9.91
========== ========== =========== =========== ==========
Total Return(1) ................... 5.99% 0.29% 7.71% 7.87% 5.36%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.75% 0.75% 0.75% 0.75% 0.74%
Ratio of Net Investment Income
to Average Net Assets ............. 6.15% 5.60% 5.73% 5.99% 5.90%
Portfolio Turnover Rate ............. 129% 106% 89% 99% 87%
Net Assets, End of Period
(in thousands) .................... $30,574 $30,150 $26,797 $18,126 $15,626
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 29
<TABLE>
<CAPTION>
Intermediate-Term Bond--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ................ $9.65 $10.24 $10.07 $9.96
---------- ---------- ----------- -----------
Income From Investment Operations
Net Investment Income .............. 0.56 0.53 0.56 0.12
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.03) (0.52) 0.17 0.11
---------- ---------- ----------- -----------
Total From Investment Operations ... 0.53 0.01 0.73 0.23
---------- ---------- ----------- -----------
Distributions
From Net Investment Income ......... (0.56) (0.53) (0.56) (0.12)
From Net Realized Gains on
Investment Transactions ............ -- (0.07) -- --
---------- ---------- ----------- -----------
Total Distributions ................ (0.56) (0.60) (0.56) (0.12)
---------- ---------- ----------- -----------
Net Asset Value, End of Period ....... $9.62 $9.65 $10.24 $10.07
========== ========== =========== ===========
Total Return(2) .................... 5.73% 0.05% 7.44% 2.33%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 1.00% 1.00% 1.00% 1.00%(3)
Ratio of Net Investment Income
to Average Net Assets .............. 5.90% 5.35% 5.48% 6.05%(3)
Portfolio Turnover Rate .............. 129% 106% 89% 99%(4)
Net Assets, End of Period
(in thousands) ..................... $3,004 $4,040 $3,150 $2,017
</TABLE>
(1) August 14, 1997 (commencement of sale) through October 31, 1997.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(3) Annualized.
(4) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 1997.
30 1-800-345-2021 See Notes to Financial Statements
<TABLE>
<CAPTION>
Bond--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31
Investor Class
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............... $9.12 $9.77 $9.73 $9.63 $9.78
---------- ---------- --------- ---------- ----------
Income From Investment Operations
Net Investment Income ............. 0.57 0.55 0.57 0.60 0.60
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ...................... (0.10) (0.65) 0.07 0.19 (0.14)
---------- ---------- --------- ---------- ----------
Total From Investment Operations .. 0.47 (0.10) 0.64 0.79 0.46
---------- ---------- --------- ---------- ----------
Distributions
From Net Investment Income ........ (0.57) (0.55) (0.57) (0.60) (0.60)
From Net Realized Gains
on Investment Transactions ........ -- --(1) (0.03) (0.09) (0.01)
---------- ---------- --------- ---------- ----------
Total Distributions ............... (0.57) (0.55) (0.60) (0.69) (0.61)
---------- ---------- --------- ---------- ----------
Net Asset Value, End of Period ...... $9.02 $9.12 $9.77 $9.73 $9.63
========== ========== ========= ========== ==========
Total Return(2) ................... 5.34% (1.00)% 6.79% 8.57% 4.91%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.80% 0.80% 0.80% 0.80% 0.79%
Ratio of Net Investment Income
to Average Net Assets ............. 6.32% 5.82% 5.87% 6.25% 6.18%
Portfolio Turnover Rate ............. 138% 107% 66% 52% 100%
Net Assets, End of Period
(in thousands) .................... $106,723 $121,358 $145,496 $126,580 $142,567
</TABLE>
(1) Per-share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 31
Bond--Financial Highlights
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
Advisor Class
2000 1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period ................ $9.12 $9.77 $9.73 $9.55
---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.55 0.52 0.55 0.13
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .. (0.10) (0.65) 0.07 0.18
---------- ---------- ---------- ----------
Total From Investment Operations ... 0.45 (0.13) 0.62 0.31
---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.55) (0.52) (0.55) (0.13)
From Net Realized Gains
on Investment Transactions ......... -- --(2) (0.03) --
---------- ---------- ---------- ----------
Total Distributions ................ (0.55) (0.52) (0.58) (0.13)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $9.02 $9.12 $9.77 $9.73
========== ========== ========== ==========
Total Return(3) .................... 5.09% (1.25)% 6.52% 3.27%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 1.05% 1.05% 1.05% 1.05%(4)
Ratio of Net Investment Income
to Average Net Assets .............. 6.07% 5.57% 5.62% 5.92%(4)
Portfolio Turnover Rate .............. 138% 107% 66% 52%(5)
Net Assets, End of Period
(in thousands) ..................... $3,830 $1,459 $2,153 $462
</TABLE>
(1) August 8, 1997 (commencement of sale) through October 31, 1997.
(2) Per-share amount was less than $0.005.
(3) Total return assumes reinvestment of dividends and capital gains, if any.
Total returns for periods less than one year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended October 31, 1997.
32 1-800-345-2021 See Notes to Financial Statements
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Limited-Term Bond Fund,
Intermediate-Term Bond Fund and Bond Fund, (collectively the "Funds"), three of
the funds comprising American Century Mutual Funds, Inc., as of October 31,
2000, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
Limited-Term Bond Fund, Intermediate-Term Bond Fund and Bond Fund as of October
31, 2000, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and
their financial highlights for each of the five years in the period then ended,
in conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
www.americancentury.com 33
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
shares is 0.25% higher than the total expense ratio of the Investor Class
shares.
Both classes of shares represent a pro rata interest in the 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)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Visit our Web site
(www.americancentury.com) or call us 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.
34 1-800-345-2021
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
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 following indices 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 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/CREDIT INDEX (listed formerly as the
Lehman Intermediate Government/ Corporate Bond Index) includes the Lehman
Intermediate Government Bond Index and the Lehman Intermediate Credit Bond
Index, which reflect the price fluctuations of primarily U.S. Treasury,
government agency, and corporate bonds with maturities of 1-10 years.
The LEHMAN AGGREGATE BOND INDEX is composed primarily of the Lehman
Government/Credit Bond Index and the Lehman Fixed-Rate Mortgage-Backed
Securities Index. It reflects the price fluctuations of mostly U.S. Treasury,
government agency, corporate, and fixed-rate mortgage-backed bonds.
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.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
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.
www.americancentury.com 35
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 total returns, please refer to the "Financial
Highlights" on pages 27-32.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES --the number of different securities held by a fund on
a given date.
* WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION -- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO -- the operating expenses of the fund, expressed as a
percentage of average net assets. Shareholders pay an annual fee to the
investment manager for investment advisory and management services. The expenses
and fees are deducted from fund income, not from each shareholder account. (See
Note 2 in the Notes to Financial Statements.)
TYPES OF FIXED-INCOME SECURITIES
* ASSET-BACKED SECURITIES -- debt securities that represent ownership in a
pool of receivables, such as credit-card debt, auto loans, and commercial
mortgages.
* CORPORATE BONDS -- debt securities or instruments issued by companies and
corporations. Short-term corporate securities are typically issued to raise cash
and cover current expenses in anticipation of future revenues; long-term
corporate securities are issued to finance capital expenditures, such as new
plant construction or equipment purchases.
* MORTGAGE-BACKED SECURITIES -- debt securities that represent ownership in
pools of mortgage loans. Most mortgage-backed securities are structured as
"pass-throughs"--the monthly payments of principal and interest on the mortgages
in the pool are collected by the bank that is servicing the mortgages and are
"passed through" to investors. While the payments of principal and interest are
considered secure (many are backed by government agency guarantees), the cash
flow is less certain than in other fixed-income investments. Mortgages that are
paid off early reduce future interest payments from the pool.
* U.S. TREASURY SECURITIES -- debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years), and bonds (maturing in more than 10 years).
36 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 37
Notes
--------------------------------------------------------------------------------
38 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 39
Notes
--------------------------------------------------------------------------------
40 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
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[left margin]
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www.americancentury.com COMPANIES
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<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
New Opportunities
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century' s reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
New Opportunities
(TWNOX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
-------------------------------------------------------------------------------
[photo James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The year covered in this report was among the more remarkable in the
market's recent history. Investors witnessed a stunning advance during the first
half, followed by a swift and dramatic retreat from record-breaking heights. The
reversal was the result of a convergence of several factors, among them concern
about a slowing economy, rising interest rates and richly priced technology
stocks. As our portfolio managers discuss in their investment reviews, we
believe that stock prices ultimately depend on earnings, and our growth funds
steadfastly follow a disciplined approach to find successful, growing companies.
We think investors in our growth funds are best served by that philosophy, no
matter how volatile the market.
Turning to corporate matters, we are pleased to announce that senior vice
president and lead portfolio manager C. Kim Goodwin has been named co-chief
investment officer for American Century's domestic growth equity discipline. An
investment professional with 13 years of portfolio management experience,
Goodwin shares this position with Jim Stowers III. She will continue to serve on
the investment team for American Century Growth, a fund she's co-managed since
1997.
In her new role, Goodwin manages the teams responsible for the Growth,
Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life Sciences and
Technology funds. She also joins the Investment Oversight Committee, a group of
senior executives who monitor the performance of the company's equity and fixed
income disciplines.
In other corporate news, we chose to share the chairman of the board
responsibilities and also named American Century President William M. Lyons
chief executive officer, giving him ultimate management responsibility for the
entire company.
These changes strengthen the leadership of our investment management area
and allow us to pursue additional worthwhile endeavors. For example, Jim Stowers
III will focus more on product innovation (in particular, our
earnings-acceleration screening system to build the next generation of portfolio
management technologies). However, his first priority will be continuing
involvement on the investment teams responsible for the Ultra and Veedot Funds.
We appreciate your continued confidence in American Century.
Sincerely,
[signatures]
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman of the Board Co-Chairman of the Board
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
NEW OPPORTUNITIES
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ............................................................ 10
Statement of Operations ................................................ 11
Statements of Changes
in Net Assets .......................................................... 12
Notes to Financial
Statements ............................................................. 13
Financial Highlights ................................................... 15
OTHER INFORMATION
Independent Auditors'
Report .............................................................. 16
Retirement Account
Information ............................................................ 17
Background Information
Investment Philosophy
and Policies ........................................................... 18
Comparative Indices ................................................. 18
Portfolio Managers .................................................. 18
Glossary ............................................................... 19
www.americancentury.com 1
Report Highlights
MARKET PERSPECTIVE
-------------------------------------------------------------------------------
* 2000 has presented investors with two very different stock markets. Until
March 10, investors seemed interested only in "TMT" stocks--those of
technology, media, and telecommunications companies. The Nasdaq sprinted
ahead 24%, buoyed by corporate technology spending, a wave of foreign money
moving into U.S. stocks, and investor enthusiasm for any company with a
".com" at the end of its name. If you had anything to do with the Internet,
it seemed, no price was too high for your shares.
* Since then, though, investors have been painfully reminded that earnings do
matter. Equity valuations across technology have fallen, as evidenced by
the Nasdaq's 33% decline from its March high. A newfound focus on
valuations and earnings has resulted in a broadening of the market across
company size, style, and sector. That broadening, though, has been
accompanied by rising volatility that is well above the historical averages
for the S&P 500 and the Nasdaq.
NEW OPPORTUNITIES
* The fund gained 83.28% during the fiscal year--more than five times the
increase posted by its benchmark, the Russell 2000 Growth Index, which was
up 16.16%.
* Technology companies produced outsized gains during the first half of the
period and, despite the correction in the tech sector that began in March,
the fund dipped only slightly in the second half. Technology remained its
largest position.
* A slowdown in spending on Web site development and electronic business hurt
some holdings, but companies handling the increased flow of information
over the Internet continued to contr0ntial to produce a variety of drugs
capable of fighting cancer and other diseases.
* Keeping its pledge to investors, American Century closed New Opportunities
to new investors in November 1999 after the fund surpassed $400 million in
assets. The move allows the management team to remain nimble and maintain
the fund's emphasis on smaller and medium-sized companies.
[left margin]
NEW OPPORTUNITIES
(TWNOX)
TOTAL RETURNS: AS OF 10/31/00
6 Months -2.79%*
1 Year 83.28%
INCEPTION DATE: 12/26/96
NET ASSETS: $873 million
* Not annualized.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from James E. Stowers III and C. Kim Goodwin
-------------------------------------------------------------------------------
[photo C. Kim Goodwin and James E.Stowers III]
C. Kim Goodwin and James E. Stowers III, co-chief investment officers, U.S.
growth equities
2000 has challenged equity investors with two very different stock markets.
Until March 10, we had what amounted to a one-sector economy as investors heard
only the siren song of technology. The Nasdaq sprinted ahead 24%, buoyed by
corporate tech spending, a continuing flood of foreign money attracted by a
strong U.S. economy, and what could only be called a speculative bubble. Many
said we had crossed into a new economy, one highlighted by technology, media,
and telecommunications firms. If you had anything to do with the Internet, no
price was too high for your shares. Earnings didn't seem to matter either in
this new era. You could succeed simply by putting ".com" at the end of your
name.
But bubbles puncture easily. In the face of rising short-term interest
rates, skyrocketing energy costs, and a weak euro, the economy and corporate
earnings began to slow. From mid-March forward, investors have been reminded
that earnings do matter, and it's been a punishing lesson. Equity valuations
have fallen, as evidenced by the Nasdaq's more than 33% tumble from its March
high--a decline more severe than its earlier drop, as well as those of the Dow
Jones Industrial Average, the S&P 500 or the NYSE Composite, during the October
1987 market crash.
A newfound focus on valuation and earnings has resulted in a broadening of
the market across company size, style, and sector. Albeit modestly, smaller
companies have outperformed larger companies year-to-date. In addition, value
equities have outperformed growth equities so far in 2000 for the first time in
six calendar years. Finally, since mid-year, twice as many sectors of the S&P
500 have outperformed the index than in the previous 18 months.
The trade-off to the market's broadening might be the perpetuation of
rising volatility--volatility in the S&P 500 and Nasdaq that is almost twice and
more than three times their historical averages, respectively. Combine nearly
instant dissemination of information, declining commission costs, recent
regulations regarding the flow of information and more than $1.7 trillion in
401(k) and other investor-controlled assets, and you have a recipe for "ready,
fire, aim" investing.
All of this, we think, puts us in a market where the best results will be
earned by investors who can identify companies that can sustain their growth.
This is the foundation of the investment strategy that drives our domestic
growth equity funds.
[right margin]
"A NEWFOUND FOCUS ON VALUATION AND EARNINGS HAS RESULTED IN A BROADENING OF THE
MARKET ACROSS COMPANY SIZE, STYLE, AND SECTOR."
MARKET RETURNS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
S&P 500 6.09%
S&P MIDCAP 400 31.65%
RUSSELL 2000 17.41%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
[data from line chart]
S&P 500 S&P Mid-Cap 400 Russell 2000
10/31/1999 $1.00 $1.00 $1.00
11/30/1999 $1.02 $1.05 $1.06
12/31/1999 $1.08 $1.12 $1.18
1/31/2000 $1.03 $1.08 $1.16
2/29/2000 $1.01 $1.16 $1.35
3/31/2000 $1.11 $1.26 $1.26
4/30/2000 $1.07 $1.21 $1.19
5/31/2000 $1.05 $1.20 $1.12
6/30/2000 $1.08 $1.22 $1.22
7/31/2000 $1.06 $1.23 $1.18
8/31/2000 $1.12 $1.37 $1.27
9/30/2000 $1.07 $1.36 $1.23
10/31/2000 $1.06 $1.32 $1.17
www.americancentury.com 3
New Opportunities--Performance
-------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
RUSSELL 2000
NEW OPPORTUNITIES GROWTH INDEX
6 MONTHS(1) -2.79% -9.09%
1 YEAR 83.28% 16.16%
AVERAGE ANNUAL RETURNS
3 YEARS 46.77% 8.11%
LIFE OF FUND(2) 37.01% 10.40%(3)
(1) Returns for periods less than one year are not annualized.
(2) Inception was 12/26/96.
(3) Since 12/31/96, the date nearest the class's inception for which data are
available.
See pages 18-19 for information about the Russell 2000 Growth Index and returns
GROWTH OF $10,000 OVER LIFE OF FUND
[data from line chart]
Value as of 10/31/2000:
New Opportunities $33,576
Russell 2000 Growth Index $14,610
Date Value Value
12/26/1996 $10,000 $10,000
3/31/1997 $8,100 $8,951
6/30/1997 $10,140 $10,522
9/30/1997 $11,920 $12,302
12/31/1997 $10,500 $11,293
3/31/1998 $11,661 $12,635
6/30/1998 $11,840 $11,910
9/30/1998 $9,280 $9,247
12/31/1998 $11,900 $11,433
3/31/1999 $11,980 $11,241
6/30/1999 $14,639 $12,898
9/30/1999 $16,639 $12,263
12/31/1999 $29,506 $16,358
3/31/2000 $38,016 $17,876
6/30/2000 $36,815 $16,558
9/30/2000 $38,085 $15,901
10/31/2000 $33,576 $14,610
The graph at left shows the growth of a $10,000 investment in the fund over the
life of the fund (since 12/31/96, the date nearest the fund's inception for
which index data are available), while the graph below shows the fund's
year-by-year performance. The Russell 2000 Growth Index is provided for
comparison in each graph. New Opportunities' total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the Russell 2000 Growth Index do 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.
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
[data from bar chart]
New Opportunities Russell 2000 Growth Index
Date Return Return
10/31/1997* 6.20% 15.64%
10/31/1998 -10.17% -15.86%
10/31/1999 92.03% 29.28%
10/31/2000 83.28% 16.16%
* From 12/26/96 to 10/31/97.
4 1-800-345-2021
New Opportunities--Q&A
-------------------------------------------------------------------------------
[photo of Tom Telford, Chris Boyd, and John Seitzer]
An interview with Tom Telford, Chris Boyd, and John Seitzer, portfolio
managers on the New Opportunities investment team.
HOW DID NEW OPPORTUNITIES PERFORM FOR THE FISCAL YEAR ENDED OCT. 31, 2000?
New Opportunities had a remarkably successful year. The fund gained 83.28%
--more than five times the increase posted by its benchmark, the Russell 2000
Growth Index, which was up 16.16%.
It was especially gratifying to attain this performance during one of the
most volatile periods in the market's history. The first half of the fiscal
year resulted in outsized gains as technology stocks soared. As you know, that
sector has corrected sharply since March, shaving away some of our gains. While
New Opportunities declined during that period, we were able to take advantage of
the uncertainty to strengthen our position in several sectors.
As we detailed in our semiannual report, new issues--stock sold by
companies in their initial public offering--played a role in our portfolio.
Ultimately, the contribution from IPOs occurred mainly during the first few
months of the fiscal year; they were not a significant factor during the
second half.
BEFORE REVIEWING YOUR PORTFOLIO, COULD YOU DESCRIBE THE INVESTMENT APPROACH YOU
FOLLOW?
Since its introduction in 1996, New Opportunities has been managed using a
disciplined equity investment approach developed by American Century's founder,
James E. Stowers, Jr. This system centers on identifying and owning successful
companies, which we define as firms whose earnings and revenues are growing at
an accelerating rate.
Before we invest in a business, however, we must be confident that it can
sustain its growth into the future. To arrive at that conclusion, we carefully
evaluate a company from all sides, examining its strategy, management team, its
position within its industry, risks associated with its business, and
competitive advantages such as marketing prowess, patents, or technology.
This process led us to many small- and mid-sized technology companies. In a
world of technology, innovation can occur anywhere--at existing companies, on
college campuses, even in garages. If a company comes out with a product that's
more economical or efficient, it can take market share from the industry
leaders. Through our investment process, we work to identify those companies
that will be leaders in their market area or are leaders in an industry that,
over time, has the potential to be much larger.
As you examine New Opportunities' top-10 holdings, you'll see that we
concentrate our investments in companies we believe have the best chance of
continuing their growth. We think that taking large positions in decidedly
successful businesses is the best way to generate competitive returns over time.
[right margin]
"WE THINK THE INTERNET WILL CONTINUE TO TRANSFORM THE WAY WE COMMUNICATE AND DO
BUSINESS."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 75 87
P/E RATIO 55.4 34.4
MEDIAN MARKET $2.91 $1.13
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $7.73 $1.13
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 112% 156%
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.50% 1.50%
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
New Opportunities--Q&A
-------------------------------------------------------------------------------
(Continued)
WHAT SECTORS AND INDUSTRIES CONTRIBUTED MOST TO PERFORMANCE?
Nearly two-thirds of our fund is invested in technology companies, and they
accounted for most of the fund's performance. Many of our investments are
beneficiaries of the change and innovation resulting from the growth and impact
of the Internet on business and society. We think the Internet will continue to
transform the way we communicate and do business. That's why we have invested
approximately 60% of the fund in industries that are closely tied to those
changes--computer software, electrical equipment, and semiconductors.
If you think about the consumption of information, the flow of information
going across the Internet is not going to slow or flatten out. It's going to
keep ballooning, especially as new applications come on line. Computers are now
talking to other computers, constantly sending information from one business to
another. These increases in the levels of communication and information will
lead to innovations that will fundamentally alter how businesses operate.
As a result, we have concentrated on companies that are increasing the
Internet's ability to carry a growing amount of information. Within the
semiconductor industry, we've focused on companies that design or manufacture
silicon chips used to build faster communication networks. For example, Exar
Corp., which designs chips used in high-speed networking equipment, is one of
New Opportunities' top holdings. The company soared 270% during the period,
selling its products to companies such as Cisco Systems and Hitachi. Exar
represented more than 4% of the fund and was our second-largest holding.
Although the fund held the company for only part of the period, Exar was the
Third-biggest contributor to its performance.
We also made Elantec Semiconductor, Inc., a top holding. The company's
catalyst for acceleration was a chip for compact disc read/write drives for
personal computers. They have a 70% share of the market. As the penetration of
CD read/write drives increases in the market place, so will Elantec's revenues.
Only about 40% of all PCs being shipped this holiday season have a CD read/write
drive, so we're still early in the product cycle.
The fund took advantage of the downturn in technology stocks during the
spring to add to our positions because, even after such spectacular returns,
they met our criteria for accelerating growth.
Our biggest holding, Gemstar International Group, is listed under computer
software, but it almost defies classification. Gemstar provides on-screen,
interactive TV program guides. Most cable systems provide as many as 100
channels or more, and Gemstar's technology enables consumers to navigate, sort,
select and record TV programming. The company's stock rose more than 58% in the
period, during which Gemstar completed its acquisition of TV Guide, another
provider of interactive program guides. Gemstar is a long-time holding in New
Opportunities.
NEW OPPORTUNITIES INCREASED ITS HEALTH CARE HOLDINGS DURING THE PERIOD. WHAT
PROMPTED THAT CHANGE?
We decided to increase our stake in health care because of the potential of
biotechnology firms involved in genomics--the analysis and manipulation of
genetic information. This is a
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
GEMSTAR INTERNATIONAL GROUP LTD. 5.6% 2.8%
EXAR CORP. 4.4% 4.0%
PROTEIN DESIGN LABS, INC. 3.6% 0.5%
JABIL CIRCUIT, INC. 3.0% 1.3%
MILLENNIUM PHARMACEUTICALS, INC. 2.8% 1.2%
ELANTEC SEMICONDUCTOR INC. 2.6% --
BEA SYSTEMS, INC. 2.6% 4.3%
SANMINA CORP. 2.5% --
REMEC, INC. 2.1% 1.2%
AEROFLEX INC. 2.0% --
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
SEMICONDUCTOR 24.6% 18.3%
ELECTRICAL EQUIPMENT 20.5% 21.3%
DRUGS 17.8% 5.1%
COMPUTER SOFTWARE 14.8% 16.5%
OIL SERVICES 3.7% 4.6%
6 1-800-345-2021
New Opportunities--Q&A
-------------------------------------------------------------------------------
(Continued)
fascinating new field that could cause a huge surge in the number of drugs
that can be developed. In fact, as more companies began going to clinical trials
with their products, we increased our holdings. Firms begin clinical trials when
they have a drug they believe is going to work.
Because of the potential for acceleration in this field, Protein Design
Labs, Inc., (PDL) of California is one of the fund's biggest holdings. The firm
develops humanized monoclonal antibodies used to prevent and treat autoimmune
diseases, inflammatory diseases, cancers, and other conditions.
Millennium Pharmaceuticals also became one of our biggest stakes. Research
shows that disease is the result of a chain reaction, a cascade of events in the
body. Millennium looks for the genetic basis of a disease and the subsequent
chain reaction it causes to identify various points in the cascade where the
disease can be stopped. It develops treatments for such conditions as asthma,
stroke, and colitis.
Both companies are being driven by genomics accelerating the drug discovery
process. As each drug is developed, they will either partner with a large
pharmaceutical company or market their drugs themselves.
Because this is a volatile area, we look for companies that have multiple
products in the drug pipeline. We're wary of one-product companies where one
misstep could put them out of business. We carefully seek out the leaders in
this sector, companies that have long-term viability and management teams we
feel comfortable with. We put a premium on quality.
WHICH INVESTMENTS DIDN'T LIVE UP TO YOUR EXPECTATIONS?
We were disappointed mostly by companies involved in e-business consulting
and development. In the frenzy to build out Web sites, "bricks-and-mortar"
companies hired consultants to quickly write code and create sites for them. Not
long after many firms had a site, the dot-coms started to falter. That allowed
established companies to slow their pace of investment and give themselves time
to develop a cohesive Web strategy. Proxicom, a company that integrates the
various computer systems that make up corporate Web sites, suffered from the
resulting slowdown in spending.
Conexant Systems, Inc., a communications semiconductor company, also slowed
our progress over the second half of the period. The company was hit with a
one-two punch. Conexant makes chips that power personal computer modems, as well
as semiconductors that go into wireless handsets. Both areas suffered from a
slowdown in demand.
WHAT ARE YOUR PLANS FOR NEW OPPORTUNITIES DURING THE NEXT YEAR?
We plan to seek companies that meet our investment criteria and we're
confident that we'll be able to find successful businesses with solid earnings
and revenues. We believe we enhanced our ability to do that when we closed the
fund to new investors in November 1999. Doing so has allowed us to remain agile
enough to take advantage of new opportunities. Shareholders can count on us to
exercise the same diligence and discipline in the future.
"GENOMICS . . . IS A FASCINATING NEW FIELD THAT COULD CAUSE A HUGE SURGE IN
THE NUMBER OF DRUGS THAT CAN BE DEVELOPED."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
[data from pie chart]
COMMON STOCKS 92.0%
TEMPORARY CASH INVESTMENTS 8.0%
AS OF APRIL 30, 2000
[data from pie chart]
COMMON STOCKS 96.0%
TEMPORARY CASH INVESTMENTS 4.0%
www.americancentury.com 7
New Opportunities--Schedule of Investments
-------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares ($ in Thousands) Value
----------------------------------------------------------------------------
COMMON STOCKS - 91.7%
COMPUTER HARDWARE & BUSINESS MACHINES -- 0.5%
68,700 Avocent Corp.(1) $ 4,876
-----------
SOFTWARE - 14.8%
121,000 Acxiom Corp.(1) 4,874
321,200 BEA Systems, Inc.(1) 23,037
248,500 Cognos, Inc.(1) 10,367
726,311 Gemstar International Group Ltd.(1) 49,776
49,300 Informatica Corp.(1) 4,660
79,500 NETIQ Corp.(1) 6,849
6,400 ONYX Software Corp.(1) 101
241,900 Rational Software Corp.(1) 14,446
276,300 TIBCO Software Inc.(1) 17,398
-----------
131,508
-----------
DRUGS - 17.8%
163,100 Abgenix, Inc.(1) 12,890
277,200 Biovail Corp. International(1) 11,660
164,500 Celgene Corp.(1) 10,585
204,200 COR Therapeutics, Inc.(1) 11,531
127,300 Enzon, Inc.(1) 9,066
143,000 Human Genome Sciences, Inc.(1) 12,638
347,000 Millennium Pharmaceuticals, Inc.(1) 25,179
109,700 Neose Technologies Inc.(1) 4,014
240,600 Protein Design Labs, Inc.(1) 32,382
224,000 QIAGEN N.V.(1) 9,660
166,900 QLT PhotoTherapeutics Inc.(1) 8,298
108,400 Shire Pharmaceuticals Group PLC
ADR(1) 6,816
91,100 Tanox, Inc.(1) 3,405
-----------
158,124
-----------
ELECTRICAL EQUIPMENT - 20.5%
77,900 Advanced Fibre Communications,
Inc.(1) 2,534
305,100 Aeroflex Inc.(1) 18,001
312,200 Andrew Corp.(1) 8,205
115,400 Artesyn Technologies Inc.(1) 4,681
226,100 C-Mac Industries Inc.(1) 12,549
125,000 Celeritek, Inc.(1) 4,129
217,500 DMC Stratex Networks Inc.(1) 5,023
460,118 Flextronics International Ltd.
ADR(1) 17,470
100,700 GlobeSpan, Inc.(1) 7,726
13,700 Ixia(1) 322
471,000 Jabil Circuit, Inc.(1) 26,875
112,412 JDS Uniphase Corp.(1) 9,158
70,400 McData Corp(1) 5,861
90,400 Natural MicroSystems Corp.(1) 4,079
197,700 POWER-ONE INC.(1) 14,031
188,100 Powerwave Technologies, Inc.(1) 9,064
162,900 Proxim, Inc.(1) 9,871
Shares ($ in Thousands) Value
----------------------------------------------------------------------------
194,300 Sanmina Corp.(1) $ 22,216
-----------
181,795
-----------
ELECTRICAL UTILITIES - 1.4%
161,800 Calpine Corp.(1) 12,772
-----------
FINANCIAL SERVICES - 1.7%
321,000 BISYS Group, Inc. (The)(1) 15,117
-----------
INDUSTRIAL PARTS - 0.6%
19,500 Emcore Corp.(1) 798
58,500 Shaw Group Inc. (The)(1) 4,767
-----------
5,565
-----------
INFORMATION SERVICES - 3.2%
292,600 CBT Group Public Limited Co.
ADR(1) 14,685
168,550 Diamond Technology Partners
Inc.(1) 7,548
214,200 Proxicom, Inc.(1) 2,898
64,700 Wireless Facilities, Inc.(1) 3,233
-----------
28,364
-----------
INTERNET - 1.2%
163,600 Art Technology Group, Inc.(1) 10,271
-----------
MEDICAL PRODUCTS & SUPPLIES - 0.3%
163,300 Aclara BioSciences, Inc.(1) 2,934
-----------
OIL SERVICES - 3.7%
435,300 Marine Drilling Co., Inc.(1) 10,393
397,500 National-Oilwell, Inc.(1) 11,627
431,100 Rowan Companies, Inc.(1) 10,858
-----------
32,878
-----------
REAL ESTATE INVESTMENT TRUST - 0.3%
147,800 Pinnacle Holdings Inc.(1) 2,328
-----------
SEMICONDUCTOR - 24.6%
161,400 Alpha Industries, Inc.(1) 6,431
229,266 Applied Micro Circuits Corp.(1) 17,525
95,600 Avanex Corp.(1) 9,688
96,300 Cree Research, Inc.(1) 9,555
209,200 Elantec Semiconductor Inc.(1) 23,293
870,500 Exar Corp.(1) 38,928
179,800 Finisar Corporation(1) 5,186
182,700 Integrated Circuit Systems, Inc.(1) 2,524
197,700 Intersil Holding Corp.(1) 9,477
186,200 M-Systems Flash Disk Pioneers(1) 4,620
135,300 Marvell Technology Group Ltd.(1) 7,547
41,800 Oplink Communications Inc.(1) 1,020
227,600 Pericom Semiconductor Corp.(1) 6,039
104,800 PMC-Sierra, Inc.(1) 17,800
616,150 REMEC, Inc.(1) 18,273
121,400 Sawtek Inc.(1) 6,191
288,900 Transwitch Corporation(1) 16,693
236,100 Vitesse Semiconductor Corp.(1) 16,505
-----------
217,295
-----------
8 1-800-345-2021 See Notes to Financial Statements
New Opportunities--Schedule of Investments
-------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Shares ($ in Thousands) Value
----------------------------------------------------------------------------
TELEPHONE - 0.6%
189,200 Lexent Inc.(1) $ 5,457
-----------
WIRELESS TELECOMMUNICATIONS -- 0.5%
227,800 Spectrasite Holdings Inc.(1) 4,492
-----------
TOTAL COMMON STOCKS 813,776
-----------
(Cost $523,438)
TEMPORARY CASH INVESTMENTS -- 8.3%
Repurchase Agreement, Bank of America,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00
(Delivery value $33,406) 33,400
($ in Thousands) Value
----------------------------------------------------------------------------
Repurchase Agreement, Deutsche Bank,
(U.S. Treasury obligations), in a joint trading
account at 6.51%, dated 10/31/00,
due 11/1/00
(Delivery value $40,507) $ 40,500
-----------
TOTAL TEMPORARY CASH INVESTMENTS 73,900
-----------
(Cost $73,900)
TOTAL INVESTMENT SECURITIES - 100.0% $887,676
===========
(Cost $597,338)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
-------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
OCTOBER 31, 2000
ASSETS (In Thousands Except Per-Share Amounts)
Investment securities, at value
(identified cost of $597,338) (Note 3) ............................ $887,676
Cash .............................................................. 662
Receivable for investments sold ................................... 18,041
Dividends and interest receivable ................................. 13
---------
906,392
---------
LIABILITIES
Payable for investments purchased ................................. 31,888
Accrued management fees (Note 2) .................................. 1,128
---------
33,016
---------
Net Assets ........................................................ $873,376
---------
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ........................................................ 200,000
---------
Outstanding ....................................................... 56,908
---------
Net Asset Value Per Share ......................................... $15.35
=========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ........................... $377,308
Accumulated net investment gain ................................... --
Accumulated undistributed net realized
gain on investment transactions ................................. 205,730
Net unrealized appreciation on investments (Note 3) ............... 290,338
---------
$873,376
=========
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
-------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
INVESTMENT LOSS (In Thousands)
Income:
Interest ........................................................ $ 1,862
Dividends ....................................................... 44
-------------
1,906
-------------
Expenses (Note 2):
Management fees ................................................. 12,893
Directors' fees and expenses .................................... 4
-------------
12,897
-------------
Net investment loss ............................................. (10,991)
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ................................ 217,120
Change in net unrealized appreciation on investments ............ 160,772
-------------
Net realized and unrealized gain on investments ................. 377,892
-------------
Net Increase in Net Assets Resulting from Operations ............ $366,901
=============
See Notes to Financial Statements www.americancentury.com 11
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
FOR THE YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
Increase in Net Assets
2000 1999
OPERATIONS (In Thousands)
Net investment loss ................................... $(10,991) $(3,583)
Net realized gain on investments ...................... 217,120 74,553
Change in net unrealized appreciation on investments .. 160,772 115,193
---------- ----------
Net increase in net assets resulting from operations .. 366,901 186,163
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains on investment transactions .... (57,661) --
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 235,371 49,239
Proceeds from reinvestment of distributions ........... 56,051 --
Payments for shares redeemed .......................... (128,248) (47,931)
---------- ----------
Net increase in net assets
from capital share transactions ....................... 163,174 1,308
---------- ----------
Net increase in net assets ............................ 472,414 187,471
NET ASSETS
Beginning of period ................................... 400,962 213,491
---------- ----------
End of period ......................................... $873,376 $400,962
========== ==========
TRANSACTIONS IN SHARES OF THE FUND
Sold .................................................. 16,989 7,011
Issued in reinvestment of distributions ............... 4,591 --
Redeemed .............................................. (8,464) (8,016)
---------- ----------
Net increase (decrease) ............................... 13,116 (1,005)
========== ==========
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
-------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. New Opportunities Fund (the fund) is one
of the fourteen series of funds issued by the corporation. The fund is
diversified under the 1940 Act. The fund's investment objective is to seek
capital growth by investing primarily in common stocks that are considered by
management to have better-than-average prospects for appreciation. The following
significant accounting policies are in accordance with accounting principles
generally accepted in the United States of America; these policies 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 at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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.
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 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 and net
realized gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences 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.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee. 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
1940 Act (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the fund's average
daily closing net assets during the previous month. The annual management fee is
1.50%.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
www.americancentury.com 13
Notes to Financial Statements
-------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2000, were $942,379,390 and
$904,365,730, respectively.
At October 31, 2000, accumulated net unrealized appreciation was
$289,038,074, based on the aggregate cost of investments for federal income tax
purposes of $598,637,674, which consisted of unrealized appreciation of
$310,475,973 and unrealized depreciation of $21,437,899.
--------------------------------------------------------------------------------
4. BANK LOAN
The fund, along with certain other funds managed by ACIM, has entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended October 31, 2000.
14 1-800-345-2021
<TABLE>
<CAPTION>
New Opportunities--Financial Highlights
-------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a
percentage of average net assets), EXPENSE RATIO (operating expenses as a
percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's
trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
2000 1999 1998 1997(1)
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............................... $9.16 $4.77 $5.31 $5.00
------- ------- ------- --------
Income From Investment Operations
Net Investment Loss ................................................ (0.19) (0.08) (0.06) (0.04)
Net Realized and Unrealized Gain (Loss) on Investment Transactions.. 7.52 4.47 (0.48) 0.35
------- ------- ------- --------
Total From Investment Operations ................................... 7.33 4.39 (0.54) 0.31
------- ------- ------- --------
Distributions
From Net Realized Gains on Investment Transactions ................. (1.14) -- -- --
------- ------- ------- --------
Net Asset Value, End of Period ..................................... $15.35 $9.16 $4.77 $5.31
======== ======= ======== =========
Total Return (2) ................................................... 83.28% 92.03% (10.17)% 6.20%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .................. 1.50% 1.50% 1.50% 1.49%(3)
Ratio of Net Investment Loss to Average Net Assets ................. (1.28)% (1.29)% (1.16)% (1.09)%(3)
Portfolio Turnover Rate ............................................ 112% 156% 147% 118%(4)
Net Assets, End of Period (in thousands) ........................... $873,376 $400,962 $213,491 $231,266
</TABLE>
(1) December 26, 1996 (inception) through October 31, 1997.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods of less than
one year are not annualized.
(3) Annualized.
(4) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for October 31, 1997.
See Notes to Financial Statements www.americancentury.com 15
Independent Auditors' Report
-------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of New Opportunities Fund (the "Fund"), one of the
funds comprising American Century Mutual Funds, Inc., as of October 31, 2000,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the three years in the period then ended and for
the period December 26, 1996 (inception) through October 31, 1997. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Opportunities Fund as of October 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for the respective stated
periods, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
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)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid from the date of receipt at American
Century. You may revoke your election at any time by sending a written notice to
us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 17
Background Information
-------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers more than a dozen growth funds including domestic
equity, specialty, international, and global. The philosophy behind these growth
funds focuses on three important principles. First, the funds seek to invest in
successful companies, which we define as those with growing earnings and
revenues. Second, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit the potential for gain. Third, the funds are managed by teams rather than
by one "star." We believe this allows us to make better, more consistent
management decisions.
In addition to these principles, each fund has its own investment policies.
AMERICAN CENTURY NEW OPPORTUNITIES generally invests in the securities of
small companies that exhibit accelerating growth. Historically, small-cap stocks
have been more volatile than the stocks of larger, more-established companies.
Therefore, the fund is subject to significant price volatility, but offers
long-term growth potential. To enable the fund to maintain its emphasis on small
growth companies, it has always been our intention to close New Opportunities to
new investors when it reached $400 million in assets. The fund reached that
asset level in November 1999 and closed to new investors on November 22, 1999.
Current shareholders as of that date may continue to invest in the fund.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded Blue Chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
The NASDAQ COMPOSITE is a market capitalization price-only index that
reflects the aggregate performance of domestic common stocks traded on the
regular NASDAQ market, as well as national market system-traded foreign common
stocks and American Depositary Receipts. It is considered to represent the
performance of smaller-capitalization and growth-oriented U.S. stocks generally.
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, it is considered
to be a broad measure of U.S. stock market performance.
The S&P 500/BARRA VALUE INDEX is a capitalization-weighted index consisting
of S&P 500 stocks that have lower price-to-book ratios, and, in general, share
other characteristics with value-style stocks.
The S&P MIDCAP 400 is a capitalization-weighted index of the stocks of the
400 largest leading U.S. companies not included in the S&P 500. Created by
Standard & Poor's Corporation, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest publicly
traded U.S. companies based on total market capitalization. The Russell 2000
represents approximately 10% of the total market capitalization of the top 3,000
companies. The index is further broken down into two mutually exclusive value
and growth indices. The RUSSELL 2000 GROWTH INDEX, used in this report, measures
the performance of those Russell 2000 companies with higher price-to-book ratios
and higher forecasted growth rates.
[right margin]
PORTFOLIO MANAGERS
New Opportunities
CHRIS BOYD, CFA
JOHN SEITZER, CFA
TOM TELFORD, CFA
18 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 total returns, please refer to the "Financial
Highlights" on page 15.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION-- average market capitalization
represents the average value of the companies held in a portfolio. When that
figure is weighted, the impact of each company's capitalization on the overall
average is proportional to the total market value of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $9 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the S&
P 500 Index generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.3 billion and $9 billion. This is
Lipper's market capitalization breakpoint as of October 31, 2000, although it
may be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
www.americancentury.com 19
Glossary
-------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.3 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
20 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23035 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
Annual Report
High-Yield
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[Dalbar Seal]
American Century's reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
HIGH-YIELD
(ABHIX)
--------------------------
TURN TO THE INSIDE BACK COVER TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED
BY OBJECTIVE AND RISK.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The year ended October 31, 2000, was an unusual one in the U.S. financial
markets. Volatility stemming from high valuations and weakening corporate
profits roiled the stock market, while the Treasury Department's efforts to
reduce the national debt helped government bonds rally. High-yield corporate
bonds, which tend to act like a mix between stocks and bonds, performed
somewhere in between those two extremes. Our investment professionals discuss
the challenging investment environment and the fund's performance in detail
starting on page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century is not
affected by this transaction. We will be exploring ways to partner with J.P.
Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to share the chairman of
the board position and named American Century President William M. Lyons chief
executive officer, giving him ultimate management responsibility for the entire
company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, his first priority will continue to be his active
participation on the investment teams responsible for the Ultra and Veedot
funds.
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 Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Credit Review .......................................................... 4
HIGH-YIELD
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Portfolio at a Glance .................................................. 6
Yields ................................................................. 6
Portfolio Composition
by Credit Rating .................................................... 7
Top Five Industries .................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 10
Statement of Operations ................................................ 11
Statement of Changes
in Net Assets ....................................................... 12
Notes to Financial
Statements .......................................................... 13
Financial Highlights ................................................... 15
Independent Auditors'
Report .............................................................. 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 corporate bonds posted disappointing returns during the year
ended October 31, 2000.
* Six short-term interest rate hikes by the Federal Reserve from June 1999 to
May 2000 slowed economic growth.
* Slower growth raised questions about corporate earnings. As a result,
high-yield bond prices fell and yields rose.
* Lackluster investor demand led to net outflows for high-yield mutual funds.
* Corporate high-yield bonds could remain under a cloud for now, but the
longer term could hold more promise.
CREDIT REVIEW
* The period was difficult from a corporate credit standpoint.
* The default rate, which tracks high-yield bond issuers that miss an interest
or principal payment, stabilized, but only after reaching historic highs.
* Available funds, whether from the stock, bond, or bank-loan market, dried up
for weaker companies.
* With borrowing costs higher than expected and earnings generally
disappointing, most telecom firms and their high-yield bonds performed
poorly. Meanwhile energy, media-related, and gaming high-yield bonds either
performed well or held their own.
* We remain concerned that tight credit conditions and slowing economic growth
could lead to a higher default rate.
MANAGEMENT Q&A
* High-Yield's return reflected the difficult environment for high-yield
bonds.
* The fund's greater exposure to the telecommunications sector dampened
performance after helping High-Yield outperform during the previous fiscal
year.
* A smaller exposure to upper-tier bonds rated BBB or BB than either the
benchmark or Lipper group also limited fund returns.
* High-Yield's gaming and energy-related holdings performed well amid general
economic prosperity and rising oil costs.
* We increased the portfolio's diversity and reduced its holdings of non-rated
bonds to better insulate performance.
* Going forward, we plan to increase the portfolio's upper-tier holdings.
[left margin]
HIGH-YIELD
(ABHIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months -9.46%*
1 Year -7.08%
30-DAY SEC YIELD: 13.02%
INCEPTION DATE: 9/30/97
NET ASSETS: $25.1 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 at American Century
PERFORMANCE SNAPSHOT
High-yield corporate bonds posted disappointing returns during the year
ended October 31, 2000. Higher interest rates and a sell-off in the stock market
weighed on high-yield corporate securities, which typically act like a mix
between stocks and bonds. Weak demand, in spite of lower overall new issuance,
also dampened returns. For the 12 months, the DLJ High-Yield Index fell 0.99%.
SENTIMENT SHIFTED
Six short-term interest rate hikes by the Federal Reserve from June 1999 to
May 2000 had their desired effect. Economic growth moderated in line with the
Fed's desire to keep a lid on inflation, even though oil prices hit a 10-year
high in September.
The slowdown prompted investors to question the lofty valuations of some
high-flying technology stocks. That sparked a sell-off in the equity market that
hit high gear by the second quarter of 2000. As a result, the tech-laden Nasdaq
Composite Index--home to a host of companies that issue high-yield bonds--fell
almost 30% from the start of March through the end of October.
SUPPLY DECLINED
Year-to-date new security issuance was less than half of 1999's levels.
Flagging investor demand sparked that trend. Mutual funds, typically large
buyers of new high-yield bonds, watched investors withdraw roughly $8 billion
from the market during January through October. During the few months when
high-yield bonds tried to rally, companies flooded the market with new
securities, and the sudden influx of additional supply pushed prices lower
again.
SPREADS WIDENED
The Treasury Department's efforts to reduce the national debt caused
Treasury bonds to rally. Treasury bond prices rose and yields fell as government
bond buybacks continued, while prices fell and yields rose in the high-yield
market. The growing yield difference, or spread, during the 12 months is graphed
at right. When yield spreads widen, high-yield bonds typically underperform
Treasurys.
LOOKING AHEAD
A further slowing of the U.S. economy and political uncertainty would
probably keep the cloud over high-yield bonds, in spite of very high yields. If
economic growth were to rebound instead, that would likely improve the earnings
outlook for companies that issue high-yield securities. Under such a scenario,
corporate high-yield bond prices could rise, pushing yields lower.
[right margin]
"TREASURY BOND PRICES ROSE AND YIELDS FELL AS GOVERNMENT BOND BUYBACKS
CONTINUED, WHILE PRICES FELL AND YIELDS ROSE IN THE HIGH-YIELD MARKET."
[line graph - data below]
HIGH-YIELD/TREASURY YIELD SPREAD
In Basis Points
(a basis point equals 0.01%)
10/29/99 616
11/30/99 577
12/31/99 549
1/31/00 549
2/29/00 573
3/31/00 657
4/28/00 654
5/31/00 696
6/30/00 696
7/31/00 694
8/31/00 716
9/29/00 755
10/31/00 832
This chart shows the yield difference, or spread, between the bonds in the DLJ
High Yield Index and 10-year Treasury securities.
Source: Donaldson, Lufkin & Jenrette
www.americancentury.com 3
Credit Review
--------------------------------------------------------------------------------
CREDIT OVERVIEW
The year ended October 31, 2000, was difficult from a corporate credit
(financial strength) standpoint. The default rate, which tracks high-yield bond
issuers that miss an interest or principal payment, stabilized, but only after
reaching historic highs. The percentage of high-yield bonds trading at so-called
distressed levels (high-yield bonds with yields 10 percentage points or more
above 10-year Treasurys) increased markedly. That development signals a
potential increase in defaults going forward. Available funds, whether from the
stock, bond, or bank-loan market, dried up for weaker companies.
DEFAULTS MODERATED
According to Moody's Investors Service Inc., the default rate on high-yield
debt declined from a peak of 6.1% in 1999 to 4.9% for the trailing year ended
October. Though something of an improvement, this is well above the 2-3% levels
witnessed throughout the mid-1990s.
BANKS TIGHTENED THEIR STANDARDS
Economic growth moderated and turmoil in the stock market increased. As a
result, commercial banks became less willing to extend credit. With banks
enforcing higher standards, companies that failed to meet projected budgets
found the task of gaining additional funding difficult to impossible.
TROUBLE IN TELECOM LAND
Telecommunications companies were prominent victims of that scenario. The
telecom industry is capital-intensive. Most firms rely heavily on stock issuance
to generate necessary funds. But when the stock market turned down in the
spring, selling shares was no longer viable. So borrowing costs increased
dramatically. Earnings disappointments compounded the problem. With borrowing
costs higher than expected and earnings generally disappointing, investors began
to question the outlook for many telecom firms.
In addition, merger and acquisition activity, which supported telecom bond
and stock prices in 1999, slowed to a crawl in 2000. As a result, small and
large telecom companies alike performed poorly.
DIVERSIFICATION WAS KEY
Credit concerns weren't evident in all high-yield bond sectors. Surging
crude oil prices, which reached 10-year highs in September, boosted the
performance of many energy-related high-yield bonds. Media-related companies
also fared relatively well, as dot-com and election-campaign advertising helped
to boost results. That led to a solid performance by high-yield media-related
bonds. Gaming companies also held their own, thanks to ongoing economic
prosperity. With credit conditions and profits in gaming areas like Las Vegas
remaining strong, high-yield bonds issued by such companies fared well.
ON THE HORIZON
For roughly the past year, independent credit rating agency Moody's has
been predicting a sharp increase for high-yield defaults in 2001. The most
current prediction boosts the 2001 default rate to over 8%--more than three
percentage points higher than the rate at the end of October. Although we
believe that number may be a bit too high, we remain concerned that tight
credit conditions and slowing economic growth could lead to a higher default
rate.
[left margin]
"WE REMAIN CONCERNED THAT TIGHT CREDIT CONDITIONS AND SLOWING ECONOMIC GROWTH
COULD LEAD TO A HIGHER DEFAULT RATE."
HIGH-YIELD CREDIT ANALYSIS TEAM
MICHAEL DIFLEY
LYNDA LOWRY
4 1-800-345-2021
High-Yield--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000
DLJ HIGH YIELD HIGH CURRENT YIELD FUNDS(2)
HIGH-YIELD INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) -9.46% -2.17% -3.83% --
1 YEAR -7.08% -0.99% -2.77% 306 OUT OF 357
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS -1.56% 0.75% -0.56% 157 OUT OF 217
LIFE OF FUND -1.64% 0.69% -0.66% 151 OUT OF 211
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 information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
PERFORMANCE OF $10,000 OVER LIFE OF FUND
Value on 10/31/00
DLJ High Yield Index $10,213
High-Yield $9,503
High-Yield DLJ High Yield Index
DATE VALUE VALUE
9/30/1997 $10,000 $10,000
12/31/1997 $10,180 $10,173
3/31/1998 $10,675 $10,529
6/30/1998 $10,725 $10,595
9/30/1998 $9,955 $9,929
12/31/1998 $10,052 $10,228
3/31/1999 $10,417 $10,452
6/30/1999 $10,453 $10,549
9/30/1999 $10,291 $10,374
12/31/1999 $10,642 $10,596
3/31/2000 $10,511 $10,442
6/30/2000 $10,412 $10,470
9/30/2000 $10,105 $10,527
10/31/2000 $9,503 $10,213
$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.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
High-Yield DLJ High-Yield Index
DATE RETURN RETURN
10/31/1997* -0.37% -0.13%
10/31/1998 -4.09% -2.65%
10/31/1999 7.03% 6.09%
10/31/2000 -7.08% -0.99%
* From 9/30/97 (the fund's inception date) to 10/31/97.
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 YEAR ENDED OCTOBER 31, 2000?
The fund's return reflected the difficult environment for high-yield bonds.
High-Yield fell 7.08%, compared with the 2.77% average decline of the 357 "High
Current Yield Funds" tracked by Lipper Inc. High-Yield's benchmark, the DLJ High
Yield Index, lost 0.99%. (See the previous page for other performance
comparisons.)
WHY THE SIZABLE DISPARITY BETWEEN THE BENCHMARK AND FUND RETURNS?
High-Yield generally maintains a smaller concentration in top-tier names
(bonds rated BBB or BB by at least two major independent bond rating agencies)
than does the benchmark. That was a problem because most top-tier bonds held
their values better than middle-tier bonds (those rated B or CCC) or
lower-credit bonds (those rated CC or lower).
Top-tier bonds comprised 10% to 15% of High-Yield's portfolio throughout
most of the 12 months. By comparison, the benchmark held a 28% weighting in such
bonds at the end of October. So High-Yield underperformed for some of the same
reasons that it outpaced the benchmark during the year ended October 31, 1999.
HOW ABOUT COMPARED WITH THE LIPPER GROUP AVERAGE?
The portfolio's greater exposure to telecommunications bonds certainly
factored into our underperformance. After performing well during 1999 and early
2000, telecommunications bonds tumbled (see page 4). Telecom companies that
failed to meet financial and operational targets found themselves unable to
secure additional funds. Even companies that hit their targets faced tough
times as investors painted the entire industry with the same broad brush.
Our smaller exposure to upper-tier names was another reason that the fund
lagged the Lipper group. High-Yield outperformed its peer group average the
previous fiscal year by underweighting the upper-tier sector.
CAN YOU ELABORATE ON WHY HIGH-YIELD HELD FEWER UPPER-TIER BONDS DURING THE PAST
YEAR?
Net fund assets shrank from $33.5 million at the start of November 1999, to
$25.1 million at the end of October 2000. We generally sold lower-rated bonds to
meet those withdrawals. But we also sold some upper-tier bonds of companies that
we expected to perform poorly. The net result of those combined sales was that
the portfolio was underweight in higher-credit securities.
WERE THERE ANY BRIGHT SPOTS?
Yes. For example, we bought bonds issued by The Venetian--a resort/
hotel/casino in Las Vegas--that performed very well. We picked up some of the
company's bonds in April at a discounted (below face value) price. We took
advantage of the opportunity because we expected the company's earnings to
improve. And after a slow start, that's exactly what happened. In fact, we
recently sold some of those bonds at a premium (above face value).
[left margin]
"HIGH-YIELD UNDERPERFORMED FOR SOME OF THE SAME REASONS THAT IT OUTPACED THE
BENCHMARK DURING THE YEAR ENDED OCTOBER 31, 1999."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NUMBER OF SECURITIES 62 63
WEIGHTED AVERAGE
MATURITY 5.8 YRS 6.6 YRS
AVERAGE DURATION 4.5 YRS 4.9 YRS
EXPENSE RATIO 0.90% 0.90%
YIELD AS OF OCTOBER 31, 2000
30-DAY SEC YIELD 13.02%
Investment terms are defined in the Glossary on pages 19-20.
6 1-800-345-2021
High-Yield--Q&A
--------------------------------------------------------------------------------
(Continued)
Most of our energy-related holdings performed well, too. For example, we
held bonds and preferred stock (shares that pay dividends and take preference
over common stock in the event of bankruptcy) of R&B Falcon Corp., an offshore
oil and natural gas drilling company. As we anticipated, rising oil costs
boosted the securities' performance. Returns for R&B Falcon securities were
further enhanced when the world's largest offshore drilling contractor agreed to
purchase the company in August.
WHAT OTHER STRATEGIES DID YOU EMPLOY?
We increased the portfolio's diversity and reduced its holdings of
non-rated bonds. In other words, we trimmed the number of bonds from each of the
companies we held to less than 2% of fund assets. We used the proceeds to add a
few additional names and sold some non-rated bonds at the same time. That
strategy decreased the portfolio's potential exposure to credit risk from
individual companies. The difficult market environment made those steps seem
like prudent ones.
SPEAKING OF THE MARKET ENVIRONMENT, WHAT'S YOUR OUTLOOK FOR HIGH-YIELD BONDS?
The near-term outlook is rather gloomy. Economic growth is slowing, as was
amply demonstrated by the latest wave of corporate earnings reports. Corporate
profit growth may continue to slow going forward. In addition, banks continue to
tighten their lending standards. That makes it more difficult for high-yield
companies to obtain financing. Plus, the increased percentage of high-yield
bonds trading at so-called distressed levels (bonds yielding 10 percentage
points or more above 10-year Treasurys) could be a harbinger of a higher default
rate.
However, there are some potential factors that could lead to improved
performance down the road. Yields on many high-yield bonds currently exceed 13%.
We think that's an extremely competitive yield that offers stock-like return
potential. Plus, if economic growth continues to moderate into 2001, the Federal
Reserve might reduce short-term interest rates. That would likely decrease
borrowing costs for high-yield bond issuers and could translate into better
performance.
WITH THOSE POINTS IN MIND, WHAT ARE YOUR PLANS FOR THE PORTFOLIO?
We plan to increase our upper-tier holdings. We believe upper-tier bonds
will hold their values better if concerns about corporate profits persist in
light of slower economic growth. These securities should also be some of the
first to benefit if market sentiment shifts and high-yield securities come back
into favor.
We expect to trim our positions in middle-tier securities when attractive
opportunities present themselves to accomplish that objective. That should help
mitigate exposure to any individual company and help reduce the fund's overall
volatility.
[right margin]
"THE NEAR-TERM OUTLOOK IS RATHER GLOOMY. HOWEVER, THERE ARE SOME POTENTIAL
FACTORS THAT COULD LEAD TO IMPROVED PERFORMANCE FOR HIGH-YIELD BONDS DOWN THE
ROAD."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
AAA -- 7%
BBB 4% 1%
BB 11% 8%
B 74% 67%
CCC 9% 12%
UNRATED 2% 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 18
for more information.
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
TELEPHONE 17.2% 18.3%
WIRELESS
TELECOMMUNICATIONS 10.6% 7.2%
MEDIA 10.5% 12.0%
FOREST PRODUCTS &
PAPER 7.7% 7.7%
INDUSTRIAL PARTS 5.4% 2.8%
www.americancentury.com 7
High-Yield--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
CORPORATE BONDS -- 84.9%
AIRLINES -- 3.2%
$ 750,000 Atlas Air, Inc., 10.75%, 8/1/05 $ 776,250
-----------
APPAREL & TEXTILES -- 1.6%
500,000 Supreme International Corp.,
12.25%, 4/1/06 385,000
-----------
CHEMICALS -- 2.1%
1,000,000 Huntsman ICI Chemicals,
11.80%, 12/31/09(1) 300,000
500,000 United Industries Corp., Series B,
9.875%, 4/1/09 (Acquired
8/16/99, Cost $440,000)(2) 220,000
-----------
520,000
-----------
CONSTRUCTION & REAL PROPERTY -- 1.9%
500,000 Omega Cabinets, 10.50%,
6/15/07 467,500
-----------
ELECTRICAL EQUIPMENT -- 0.7%
250,000 International Utility Structures Inc.,
10.75%, 2/1/08 181,250
-----------
ENERGY RESERVES & PRODUCTION -- 5.1%
750,000 Belco Oil & Gas Corp., Series B,
10.50%, 4/1/06 768,750
500,000 Pogo Producing Co., 8.75%,
5/15/07 487,500
-----------
1,256,250
-----------
ENTERTAINMENT -- 1.7%
750,000 Imax Corp., 7.875%, 12/1/05 423,750
-----------
ENVIRONMENTAL SERVICES -- 1.7%
500,000 Allied Waste Industries, Inc.,
Series B, 10.00%, 8/1/09 430,000
-----------
FOREST PRODUCTS & PAPER -- 7.7%
500,000 Ainsworth Lumber Co. Ltd., PIK,
12.50%, 7/15/07 422,500
750,000 Gaylord Container Corp., Series B,
9.875%, 2/15/08 228,750
250,000 Riverwood International,
10.875%, 4/1/08 226,875
500,000 Stone Container Corp., 10.75%,
10/1/02 510,000
500,000 Tembec Finance Corp., 9.875%,
9/30/05 512,500
-----------
1,900,625
-----------
INDUSTRIAL PARTS -- 5.4%
500,000 Flextronics International Ltd.,
9.875%, 7/1/10 (Acquired
6/26/00, Cost $496,100)(2) 507,500
1,000,000 Graham Packaging Co., Series B,
10.13%, 1/15/03(3) 385,000
500,000 Key Components, Inc., 10.50%,
6/1/08 450,000
-----------
1,342,500
-----------
Principal Amount Value
--------------------------------------------------------------------------------
INTERNET -- 4.8%
$ 750,000 Amazon.com, Inc., 10.47%,
5/1/03(3) $ 380,625
500,000 Exodus Communications, Inc.,
10.75%, 12/15/09 455,000
750,000 PSINet Inc., Series B, 10.00%,
2/15/05 361,875
-----------
1,197,500
-----------
LEISURE -- 5.4%
500,000 Hollywood Casino Corp., 11.25%,
5/1/07 516,250
300,000 Station Casinos Inc., 9.75%,
4/15/07 301,500
500,000 Venetian Casino/Las Vegas
Sands, 12.25%, 11/15/04 508,750
-----------
1,326,500
-----------
MEDIA -- 8.1%
500,000 Adelphia Communications Corp.,
9.25%, 10/1/02 492,500
500,000 Adelphia Communications Corp.,
9.375%, 11/15/09 430,000
500,000 AMFM Inc., 8.00%, 11/1/08 502,500
1,000,000 Charter Communication Holdings
LLC, 8.64%, 4/1/04(3) 583,750
-----------
2,008,750
-----------
MOTOR VEHICLES & PARTS -- 1.6%
500,000 Oxford Automotive Inc., Series D,
10.125%, 6/15/07 (Acquired
2/15/00, Cost $473,750)(2) 397,500
-----------
MULTI-INDUSTRY -- 0.8%
750,000 Metallurg Holdings Inc., Series B,
20.51%, 7/15/03(3) 195,000
-----------
OIL SERVICES -- 2.2%
500,000 R & B Falcon Corp., 9.50%,
12/15/08 536,250
-----------
PROPERTY & CASUALTY INSURANCE -- 0.8%
750,000 Nationwide Credit, Inc., Series A,
10.25%, 1/15/08 191,250
-----------
SPECIALTY STORES -- 1.9%
500,000 Musicland Group, 9.00%,
6/15/03 457,500
-----------
TELEPHONE -- 14.3%
750,000 Allegiance Telecom Inc., Series B,
10.64%, 2/15/03(3) 521,250
250,000 Caprock Communications Corp.,
12.00%, 7/15/08 244,375
750,000 Covad Communications Group
Inc., 12.50%, 2/15/09 360,000
1,000,000 ICG Services Inc., 9.14%,
2/15/03(3) 115,000
500,000 Jazztel PLC, 14.00%, 4/1/09 367,500
250,000 McLeodUSA Inc., 9.50%,
11/1/08 233,750
750,000 NTL Inc., 9.13%, 2/1/01(3) 663,750
8 1-800-345-2021 See Notes to Financial Statements
High-Yield--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 500,000 Rhythms NetConnections Inc.,
12.75%, 4/15/09 $ 235,000
750,000 Viatel, Inc., 11.25%, 4/15/08 378,750
500,000 Williams Communication Group
Inc., 10.875%, 10/1/09 423,750
-----------
3,543,125
-----------
THRIFTS -- 3.3%
500,000 Bay View Capital Corp., 9.125%,
8/15/07 351,250
790,000 Ocwen Capital Trust I, 10.875%,
8/1/27 454,250
-----------
805,500
-----------
WIRELESS TELECOMMUNICATIONS -- 10.6%
500,000 AT&T Canada Inc., 7.76%,
6/15/03(3) 406,010
250,000 Crown Castle International Corp.,
9.00%, 5/15/11 237,500
250,000 Crown Castle International Corp.,
10.75%, 8/1/11 257,500
250,000 Metrocall, Inc., 10.375%,
10/1/07 103,750
500,000 Microcell Telecommunications Inc.,
9.63%, 12/1/01(3) 483,750
500,000 Nextel Partners Inc., 11.00%,
3/15/10 498,750
500,000 RSL Communications, Ltd.,
12.25%, 11/15/06 92,500
500,000 Telecorp PCS Inc., 10.48%,
4/15/04(3) 325,000
500,000 Teligent Inc., 11.50%, 12/1/07 217,500
-----------
2,622,260
-----------
TOTAL CORPORATE BONDS 20,964,260
-----------
(Cost $27,011,148)
Shares/Principal Amount Value
--------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS & WARRANTS -- 7.8%
INFORMATION SERVICES -- 0.2%
875 Jazztel PLC Warrants(4) $ 52,938
-----------
INTERNET -- 0.3%
5,000 PSINet Inc., Series D, 7.00%,
12/31/49 (Acquired 3/24/00,
Cost $239,375)(2) 70,000
-----------
MEDIA -- 2.4%
5,579 CSC Holdings Inc., Series M, PIK,
11.125%, 4/1/08 595,558
-----------
OIL SERVICES -- 2.0%
376 R&B Falcon Corp., PIK, 13.875%,
5/1/09 488,800
-----------
TELEPHONE -- 2.9%
1,000 Allegiance Telecom, Inc. Warrants(4) 68,000
878 XO Communications Inc., Series B,
PIK, 13.50%, 6/1/10 660,695
-----------
728,695
-----------
WIRELESS TELECOMMUNICATIONS(5)
500 Telehub Communications Corp.
Warrants(4) --
-----------
TOTAL CONVERTIBLE PREFERRED
STOCKS & WARRANTS 1,935,991
-----------
(Cost $2,036,732)
TEMPORARY CASH INVESTMENTS -- 7.3%
$1,800,000 FNMA Discount Notes, 6.45%,
11/1/00(6) 1,800,000
-----------
(Cost $1,800,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $24,700,251
===========
(Cost $30,847,880)
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = Federal National Mortgage Association
PIK = Payment in Kind. Coupon payments may be in the form of additional
securities.
(1) Security is a zero-coupon bond. The yield to maturity at purchase is
indicated. Zero coupon securities are purchased at a substantial discount
from their value at maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at October 31, 2000, was
$1,195,000 which represented 4.8% of net assets.
(3) 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.
(4) Non-income producing.
(5) Industry is less than 0.05% of total investment securities.
(6) Rate indicated is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
OCTOBER 31, 2000
ASSETS
Investment securities, at value
(identified cost of $30,847,880) (Note 3) .............. $ 24,700,251
Receivable for investments sold .......................... 171,875
Dividends and interest receivable ........................ 613,842
-------------
25,485,968
-------------
LIABILITIES
Disbursements in excess of
demand deposit cash .................................... 6,105
Payable for investments purchased ........................ 301,463
Accrued management fees (Note 2) ......................... 20,884
Dividends payable ........................................ 31,129
Payable for directors' fees and expenses ................. 9
Accrued expenses and other liabilities ................... 38
-------------
359,628
-------------
Net Assets ............................................... $ 25,126,340
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized -- Investor Class ............................. 100,000,000
=============
Outstanding -- Investor Class ............................ 3,487,777
=============
Net Asset Value Per Share ................................ $ 7.20
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .................. $ 35,914,698
Undistributed net investment income ...................... 173,212
Accumulated net realized loss
on investment transactions ............................. (4,813,941)
Net unrealized depreciation
on investments (Note 3) ................................ (6,147,629)
-------------
$ 25,126,340
=============
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME
Income:
Interest ..................................................... $ 3,487,847
Dividends .................................................... 199,274
-----------
3,687,121
-----------
Expenses (Note 2):
Management fees .............................................. 302,034
Directors' fees and expenses ................................. 166
-----------
302,200
-----------
Net investment income ........................................ 3,384,921
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................. (2,428,722)
Change in net unrealized
depreciation on investments ................................ (2,896,952)
-----------
Net realized and unrealized
loss on investments ........................................ (5,325,674)
-----------
Net Decrease in Net Assets
Resulting from Operations .................................. $(1,940,753)
===========
See Notes to Financial Statements www.americancentury.com 11
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED OCTOBER 31, 2000 AND OCTOBER 31, 1999
Increase (Decrease) in Net Assets 2000 1999
OPERATIONS
Net investment income ........................ $3,384,921 $3,564,954
Net realized loss on investments ............. (2,428,722) (2,378,561)
Change in net unrealized appreciation
(depreciation) on investments .............. (2,896,952) 1,540,173
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations .................. (1,940,753) 2,726,566
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (3,211,016) (3,564,954)
From net realized gains on
investment transactions .................... -- (36,637)
--------------- ---------------
Decrease in net assets
from distributions ......................... (3,211,016) (3,601,591)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 50,507,532 54,275,762
Proceeds from reinvestment of distributions .. 2,350,479 2,823,755
Payments for shares redeemed ................. (56,116,504) (54,916,823)
--------------- ---------------
Net increase (decrease) in net assets
from capital share transactions ............ (3,258,493) 2,182,694
--------------- ---------------
Net increase (decrease) in net assets ........ (8,410,262) 1,307,669
NET ASSETS
Beginning of period .......................... 33,536,602 32,228,933
--------------- ---------------
End of period ................................ $25,126,340 $33,536,602
=============== ===============
Undistributed net investment income .......... $173,212 --
=============== ===============
TRANSACTIONS IN SHARES
OF THE FUND
Sold ......................................... 6,033,560 5,993,456
Issued in reinvestment of distributions ...... 285,200 313,678
Redeemed ..................................... (6,758,581) (6,071,866)
--------------- ---------------
Net increase (decrease) ...................... (439,821) 235,268
=============== ===============
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. High-Yield Fund (the fund) is one of the
fourteen series of funds issued by the corporation. The fund is diversified
under the 1940 Act. The fund's investment objective is to seek high current
income by investing in a diversified portfolio of high-yielding corporate bonds,
debentures and notes. The fund invests primarily in lower-rated debt securities,
which are subject to greater credit risk and consequently offer higher yield.
Securities of this type are subject to substantial risks including price
volatility, liquidity risk and default risk. The following significant
accounting policies are in accordance with accounting principles generally
accepted in the United States of America; these policies may require the use of
estimates by fund management.
MULTIPLE CLASS -- The fund is authorized to issue two classes of shares: the
Investor Class and the Advisor Class. The two classes of shares differ
principally in their respective shareholder servicing and distribution expenses
and arrangements. All shares of the fund represent an equal pro rata interest in
the assets of the class to which such shares belong, and have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
for class specific expenses and exclusive rights to vote on matters affecting
only individual classes. Sale of the Advisor Class had not commenced as of
October 31, 2000.
SECURITY VALUATIONS -- Debt securities are valued through a commercial
pricing service or at the mean of the most recent bid and asked prices.
Portfolio securities traded primarily on a principal securities exchange are
valued at the last reported sales price, or at the mean of the latest bid and
asked prices where no last sales price is available. When valuations are not
readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily and distributed monthly. Distributions from net realized
gains are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At October 31, 2000, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $4,813,642 (expiring in 2007
through 2008) which may be used to offset future taxable gains.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the 1940 Act (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 1940 Act.
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, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, for the
year ended October 31, 2000 were $23,118,773 and $25,214,755, respectively.
On October 31, 2000, accumulated net unrealized depreciation was $6,147,629,
based on the aggregate cost of investments for federal income tax purposes of
$30,847,880, which consisted of unrealized appreciation of $280,295 and
unrealized depreciation of $6,427,924.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, has entered into
an unsecured $620,000,000 bank line of credit agreement with Chase Manhattan
Bank. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended October 31, 2000.
14 1-800-345-2021
High-Yield--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net investment
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
2000 1999 1998 1997(1)
PER-SHARE DATA
Net Asset Value,
Beginning of Period ............... $8.54 $8.73 $9.91 $10.00
--------- --------- -------- --------
Income From Investment Operations
Net Investment Income ............. 0.85 0.80 0.83 0.06
Net Realized and Unrealized Loss
on Investment Transactions ........ (1.39) (0.18) (1.18) (0.09)
--------- --------- -------- --------
Total From Investment Operations .. (0.54) 0.62 (0.35) (0.03)
--------- --------- -------- --------
Distributions
From Net Investment Income ........ (0.80) (0.80) (0.83) (0.06)
From Net Realized Gains on
Investment Transactions ........... -- (0.01) -- --
--------- --------- -------- --------
Total Distributions ............... (0.80) (0.81) (0.83) (0.06)
--------- --------- -------- --------
Net Asset Value, End of Period ...... $7.20 $8.54 $8.73 $9.91
========= ========= ======== ========
Total Return(2) ................... (7.08)% 7.03% (4.09)% (0.27)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.90% 0.90% 0.90% 0.90%(3)
Ratio of Net Investment Income
to Average Net Assets ............. 10.09% 8.90% 8.41% 7.39%(3)
Portfolio Turnover Rate ............. 77% 95% 85% --
Net Assets, End of Period
(in thousands) .................... $25,126 $33,537 $32,229 $11,072
(1) September 30, 1997 (inception) through October 31, 1997.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(3) Annualized.
See Notes to Financial Statements www.americancentury.com 15
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of High-Yield Fund (the "Fund"), one of
the funds comprising American Century Mutual Funds, Inc., as of October 31,
2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the three years in the period then ended
and for the period September 30, 1997 (inception) through October 31, 1997.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
High-Yield Fund as of October 31, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the respective stated
periods, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
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)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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. Visit our Web site
(www.americancentury.com) or call us 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 is managed to provide a "pure play" on a specific sector of the
fixed-income market.
To ensure adherence to this principle, the basic structure of each
portfolio is tied to a specific market index. Fund managers attempt to add value
by making modest portfolio adjustments based on their analysis of prevailing
market conditions.
Investment decisions are made by management teams, which meet regularly to
discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
AMERICAN CENTURY HIGH-YIELD seeks to provide a high level of interest
income by investing in a diversified portfolio of high-yielding fixed-income
securities. As a secondary objective, the fund seeks capital appreciation. The
fund invests primarily in lower-quality corporate bonds, with an emphasis on
securities rated BB or B. The fund has no average maturity limitations, but it
typically invests in intermediate- and long-term bonds.
Lower-rated bonds may be subject to greater default risk, liquidity risk,
and price volatility.
COMPARATIVE INDICES
The following index 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 eight 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 HIGH CURRENT YIELD FUNDS category includes 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
--------------------------------------------------------------------------------
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 total returns, please refer to the "Financial
Highlights" on page 15.
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.
www.americancentury.com 19
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
Who We Are
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service
and innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over
the Internet, we have been committed to building long-term relationships and
to helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo (reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
--------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23501 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
ANNUAL REPORT
[graphic of runners]
[graphic of person looking at computer screen]
Tax-Managed Value
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Review the day's market activity at www.americancentury.com
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
Information and advance notice
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
Review the week
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
Easy to find
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the
Wrap you're looking for in the left column.
[logo of the Dalbar Seal]
American Century' s reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
TAX-MANAGED VALUE
(ACTIX)
Turn to the inside back cover to see a list of American Century funds classified
by objective and risk.
Our Message to You
[photo of James E. Stowers, Jr., standing, with James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
A steep correction in technology and telecommunications stocks, a steadily
broadening stock market, and increasing signs of a slowing economy led to
improved returns for value-oriented investors over the 12-month period covered
in this report. American Century's Tax-Managed Value Fund performed solidly in
this environment.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., a substantial minority shareholder in
American Century Companies, Inc. since 1998. If the transaction is completed as
expected, J.P. Morgan Chase, the new enterprise, will own the shares of American
Century currently held by Morgan. Corporate control of American Century will not
be affected by this transaction. We will be exploring ways to partner with
J.P. Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to share chairman of the
board responsibilities, and also named American Century President William M.
Lyons chief executive officer, giving him ultimate management responsibility for
the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue additional worthwhile endeavors. For example, Jim Stowers III will focus
more on product innovation (in particular, our earnings-acceleration screening
system to build the next generation of portfolio management technologies).
However, his first priority will be continuing involvement on the investment
teams responsible for Ultra and Veedot Funds.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/signature/ James E. Stowers, Jr. /signature/ James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman of the Board Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
TAX-MANAGED VALUE
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets
and Liabilities ........................................................ 10
Statement of Operations ................................................ 11
Statement of Changes
in Net Assets .......................................................... 12
Notes to Financial
Statements ............................................................. 13
Financial Highlights ................................................... 15
Independent
Auditors' Report ....................................................... 16
OTHER INFORMATION
Retirement Account
Information ......................................................... 17
Background Information
Investment Philosophy
and Policies ........................................................... 18
Comparative Indices ................................................. 18
Portfolio Managers .................................................. 18
Glossary ............................................................... 19
www.americancentury.com 1
Report Highlights
MARKET PERSPECTIVE
* The 12-month period ended October 31, 2000, finally saw the tables turn in
value investors' favor. For the fiscal year, the S&P 500/BARRA Value Index
returned 9.68%, while the broader market, represented by the S&P 500,
gained only 6.09%. The shift in sentiment was most evident during the last
six months of the period, with the S&P 500/BARRA Value rising 6.80%, but
the S&P 500 declining 1.03%.
* From late 1999 through early 2000, we witnessed the astounding share-price
growth of nearly every technology-oriented stock at the expense of nearly
every other segment of the market. Beginning in March, however, investors
began to question the "growth at any price" mentality. By May, the Federal
Reserve's series of interest rate increases ultimately put the vitality of
future corporate earnings in doubt, propelling investors away from the rich
valuations in the technology sector and into the more predictable earnings
of many "Old Economy" companies. At the close of the fiscal year, value
investing was back in style.
TAX-MANAGED VALUE
* Tax-Managed Value returned 7.23% for the 12 months ended October 31, 2000. It
underperformed its benchmark, the S&P 500/BARRA Value Index, which returned
9.68%. The S&P 500 gained 6.09% during that time frame. From April through
October the fund gained 8.06%, compared to the benchmark's 6.80% return
and the S&P 500's 1.03% decline.
* "New Economy" technology
stocks led the market at the beginning of the period. Generally, these
were stocks with high price- to-earnings ratios, which placed them outside
Tax-Managed Value's investment parameters.
* Performance also was dampened by the fund's holdings in "traditional"
telephone companies such as Sprint, WorldCom, and AT&T, as well as by its
bank holdings, which struggled during the first six months of the fiscal
year.
* Tax-Managed Value carries more of a value bias than its benchmark, which
contributed to the fund's outperformance during the second half of its
fiscal year. Tax-Managed Value benefited from its investments in select
financial, energy, and health care stocks.
[left margin]
TAX-MANAGED VALUE
(ACTIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months 8.06%*
1 Year 7.23%
INCEPTION DATE: 3/31/99
NET ASSETS: $39.1 million
*Not annualized.
Investment terms are defined in the Glossary on pages 19-20.
2 1-800-345-2021
Market Perspective from Mark Mallon
[photo of Mark Mallon]
Mark Mallon, chief investment officer, specialty, asset allocation, and growth
and income equities
A RENAISSANCE FOR VALUE STOCKS
After a long, long wait, value investors finally saw the tables turn in
their favor during the 12-month period ended October 31, 2000. After
underperforming for most of the first half of the fiscal year, value stocks
proved to be among the market leaders for the last six months of the period. For
the year, the Standard & Poor's 500/BARRA Value Index returned 9.68%, while the
S&P 500 gained 6.09%. During the second half of the period, the S&P 500/BARRA
Value Index posted a 6.80% return, but the S&P 500 declined 1.03%.
VALUE BACK IN VOGUE
From November through March, the market maintained its focus on "New
Economy" technology companies. In March, however, investors began to question
the "growth at any price" mentality. By May, the Federal Reserve's series of
interest rate increases ultimately put the vitality of future corporate
earnings in doubt, propelling investors away from the rich valuations in the
technology sector and into other sectors of the market.
This shift played to value-oriented funds, as "Old Economy" companies
became beacons for defensive-minded investors. Investors briefly regressed to
their old ways late in the second quarter as they moved back into technology
stocks--albeit with a greater degree of discrimination--when concerns about
interest rates and inflation cooled. In the third quarter, though, value was
firmly back in style with investors once again doubting the sustainability of
earnings implicit in many technology company share prices.
Looking for alternatives, they found solid fundamentals in three areas that
populated the value universe during the tech run-up. First, in the energy
sector, rising oil and natural gas prices lifted most stocks. Secondly, the
perception that the Fed had finished raising rates boosted the previously
downtrodden financial sector. Thirdly, the utility sector benefited from the
stabilized interest rate environment, as well as from its reputation as a
conservative investment alternative.
OPPORTUNITIES STILL REMAIN
Many attractively priced companies beckon in the aftermath of the narrow
market advance we saw in late 1999 and early 2000. The question going forward is
whether the market's appetite for value stocks will continue. If the market
continues to reward those companies that are rebounding from temporary
difficulties, or that have fallen out of favor, it's our goal to be positioned
so that fund shareholders can fully participate.
[right margin]
"AFTER UNDERPERFORMING FOR MOST OF THE FIRST HALF OF THE FISCAL YEAR, VALUE
STOCKS PROVED TO BE AMONG THE MARKET LEADERS FOR THE LAST SIX MONTHS OF THE
PERIOD."
MARKET RETURNS
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
S&P 500/BARRA VALUE 9.68%
S&P 500 6.09%
Source: Lipper Inc.
These indices represent performance of large-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 12 MONTHS ENDED OCTOBER 31, 2000
[mountain chart data below]
S&P 500/ BARRA Value S&P 500
10/31/99 $1.00 $1.00
11/30/99 $0.99 $1.02
12/31/99 $1.03 $1.08
1/31/00 $1.00 $1.03
2/29/00 $0.94 $1.01
3/31/00 $1.03 $1.11
4/30/00 $1.03 $1.07
5/31/00 $1.03 $1.05
6/30/00 $0.99 $1.08
7/31/00 $1.01 $1.06
8/31/00 $1.08 $1.12
9/30/00 $1.08 $1.07
10/31/00 $1.10 $1.06
www.americancentury.com 3
Tax-Managed Value--Performance
TOTAL RETURNS AS OF OCTOBER 31, 2000
INVESTOR CLASS (INCEPTION 3/31/99)
TAX-MANAGED S&P 500/
VALUE BARRA VALUE
6 MONTHS* ........... 8.06% 6.80%
1 YEAR .............. 7.23% 9.68%
LIFE OF FUND ........ 6.85% 10.15%
* Returns for periods less than one year are not annualized.
See pages 18-20 for information about the S&P 500/BARRA Value Index and returns
GROWTH OF $10,000 OVER LIFE OF FUND
[mountain chart data below]
Tax-Managed Value S&P 500/ BARRA Value
3/31/99 $10,000 $10,000
4/30/99 $11,020 $10,862
5/31/99 $10,940 $10,670
6/30/99 $11,299 $11,079
7/31/99 $10,780 $10,738
8/31/99 $10,359 $10,467
9/30/99 $9,919 $10,057
10/31/99 $10,359 $10,625
11/30/99 $10,340 $10,562
12/31/99 $10,260 $10,959
1/31/00 $9,997 $10,610
2/29/00 $9,150 $9,947
3/31/00 $10,200 $10,985
4/30/00 $10,281 $10,911
5/31/00 $10,423 $10,945
6/30/00 $9,979 $10,513
7/31/00 $10,018 $10,723
8/31/00 $10,665 $11,442
9/30/00 $10,624 $11,440
10/31/00 $11,109 $11,654
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 S&P
500/BARRA Value Index is provided for comparison in each graph. Tax-Managed
Value's total returns include operating expenses (such as transaction costs and
management fees) that reduce returns, while the total returns of the S&P
500/BARRA Value Index do 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.
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED OCTOBER 31)
[bar chart data below]
Tax-Managed Value S&P/Barra Value
10/31/99 3.60% 6.25%
10/31/00 7.23% 9.68%
*From 3/31/99 to 10/31/99
4 1-800-345-2021
Tax-Managed Value--Q&A
[photo of Mark Mallon and Chuck Ritter]
An interview with Mark Mallon and Chuck Ritter, portfolio managers on the
Tax-Managed Value investment team.
HOW DID TAX-MANAGED VALUE PERFORM DURING THE 12 MONTHS ENDED OCTOBER 31, 2000
Tax-Managed Value gained 7.23%, compared to a return of 9.68% for its
benchmark, the Standard & Poor's 500/BARRA Value Index. The S&P 500 Index,
considered to be representative of the broad market, returned 6.09%.
The second half of the year was rewarding for the fund: it returned 8.06%
from April through October versus the benchmark's 6.80% gain and the S&P 500's
1.03% decline.
WHAT FACTORS AFFECTED TAX-MANAGED VALUE'S PERFORMANCE?
Value stocks generally outperformed most other categories during
Tax-Managed Value's fiscal year. Their resurgence took place primarily in the
second half of the period, reflecting investors' concerns about the effects of
an economic slowdown on corporate earnings. These concerns appeared to be
justified in the third quarter, when several well-known consumer products
companies and technology firms warned that their earnings would be lower than
expected. This news sent money out of growth and technology stocks and into the
types of businesses found in Tax-Managed Value--quality companies selling at
reasonable prices.
Nevertheless, the S&P 500/BARRA Value's larger stake in technology stocks
when tech was king pushed the index ahead of the fund for the year. For the most
part, these were stocks with high price-to-earnings ratios. Tax-Managed Value
carries more of a value bias than its benchmark, and thus many technology stocks
fell outside our investment parameters. However, when value is in favor, the
fund typically outperforms its index, which was demonstrated by its stronger
performance toward the end of the year.
FINANCIAL STOCKS REPRESENTED TAX-MANAGED VALUE'S LARGEST SECTOR WEIGHTING. WHAT
WAS THEIR APPEAL?
The financial sector encompasses banks, brokerages, credit card companies,
financial services firms, and insurance providers. The group struggled in the
beginning of the year, pressured by the Federal Reserve's series of interest
rates hikes. (Higher interest rates reduce the margins between the rates lending
institutions pay depositors and those they charge for loans.) As investors
shunned the sector in favor of faster growing areas of the market, a number of
financial firms became attractively valued.
During the summer, signs of slowing growth emerged and the market grew
increasingly convinced that the Fed had reached the end of its rate-hike
program. Financial stocks--bank shares in particular--were the primary
beneficiaries. With roughly one-quarter of its assets in financials, the fund
was well positioned to gain from this shift in sentiment.
[right margin]
"DURING THE SUMMER, SIGNS OF SLOWING GROWTH EMERGED AND THE MARKET GREW
INCREASINGLY CONVINCED THAT THE FED HAD REACHED THE END OF ITS RATE-HIKE
PROGRAM."
PORTFOLIO AT A GLANCE
10/31/00 10/31/99
NO. OF COMPANIES 84 90
P/E RATIO 19.4 18.5
MEDIAN MARKET $12.7 $19.5
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $63.0 $58.8
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 73% 41%(1)
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.10% 1.10%(2)
(1) Period From 3/31/99 to 10/31/99.
(2) Annualized.
Investment terms are defined in the Glossary on pages 19-20.
www.americancentury.com 5
Tax-Managed Value--Q&A
(Continued)
WHICH FINANCIAL STOCKS HAD THE BIGGEST IMPACT?
The fund profited from investments in property and casualty insurance
companies. One top contributor was Allstate. Like many insurers, Allstate was
hurt by intensive rate competition and the costs of spring storms in the
Midwest. When insurance rates began to increase during the third quarter,
however, the company rebounded strongly.
Additionally, the rising interest rate environment of the first six months
resulted in a negative return for the fund's bank holdings for the fiscal year.
But the 12-month numbers hide the positive story of the second half of the year:
as rates stabilized, confidence in the industry's prospects grew and bank share
prices responded. Citigroup, one of the country's largest financial services
companies, was a top performer for the fund as it benefited from the change in
sentiment and from the broad diversity of its business portfolio, which kept it
somewhat insulated from the pressures of rising interest rates.
ENERGY STOCKS REPRESENTED A SUBSTANTIAL PORTION OF INVESTMENTS. WHAT ATTRACTED
YOU TO THIS SECTOR?
Energy holdings contributed to our results as rising energy prices lifted
many stocks in that realm. Although we did well in this group, we were
relatively cautious and stayed underweight compared to the index. Our
investments remained focused on integrated oil firms with more stable earnings
outlooks. A good example is ExxonMobil, which proved to be a strong performer.
WHAT OTHER AREAS CONTRIBUTED TO PERFORMANCE?
Health care was a particularly fertile area for us. Pharmaceutical stocks
Eli Lilly, Bristol-Myers Squibb, and Merck all performed well when investors
sought their more predictable earnings in an uncertain environment. Health care
providers HCA-The Healthcare Company and Healthsouth rose on optimism that
Medicare reimbursements would improve.
WHAT ABOUT DISAPPOINTMENTS?
Tax-Managed Value's investments in "traditional" telephone companies, such
as Sprint, WorldCom and AT&T, detracted most from performance. This area of the
telecommunications industry suffered from weakening pricing in consumer
long-distance (a situation many observers believe could continue for some time),
as well as from "guilt by association" during the downturn in technology.
There also were company-specific issues. Sprint's and WorldCom's problems
were compounded when their proposed merger was disallowed by federal regulators
who believed that the combined organization would reduce competition. AT&T's
stock price declined after the company surprised investors and many industry
analysts with its difficulties in executing on its business plan. We continue to
hold the stock, however, believing the market has overreacted to AT&T's recent
struggles.
A technology holding, mainframe software maker Computer Associates, also
slowed our progress. The company saw revenue growth slacken when IBM, the leader
in mainframes, announced a
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
EXXON MOBIL CORP. 4.4% 4.9%
CITIGROUP INC. 3.9% 3.3%
VERIZON
COMMUNICATIONS* 3.2% 3.6%
LOEWS CORP. 2.6% 1.3%
PHILIP MORRIS
COMPANIES INC. 2.5% 2.0%
ROYAL DUTCH
PETROLEUM CO.
NEW YORK SHARES 2.3% 2.2%
ALLSTATE CORP. 2.1% 1.3%
AT&T CORP. 1.9% 2.5%
FORD MOTOR CORP. 1.8% 2.1%
FPL GROUP, INC. 1.8% 1.2%
* Bell Atlantic Corp. acquired GTE Corp. on 7/3/00. On that date, Bell
Atlantic Corp. changed its name to Verizon Communications. The percentage as of
4/30/00 represents Bell Atlantic Corp. and GTE Corp. shares owned by the fund.
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
BANKS 12.2% 11.1%
ENERGY RESERVES &
PRODUCTION 8.5% 7.9%
TELEPHONE 7.9% 8.7%
FINANCIAL SERVICES 5.3% 3.1%
PROPERTY & CASUALTY
INSURANCE 4.7% 5.4%
6 1-800-345-2021
Tax-Managed Value--Q&A
(Continued)
major upgrade cycle, causing many companies to delay software purchases. Because
we think Computer Associates' current troubles are transitory and the firm
remains a solid value opportunity, we purchased additional shares.
WHAT WERE SOME OF THE STRATEGIES YOU EMPLOYED TO KEEP THE FUND TAX EFFICIENT?
The struggle value stocks went through during the first half of the fiscal
year actually provided us with great opportunities. For example, when banks were
experiencing significant sell-offs, we harvested losses by cutting selected
positions. After waiting a month to comply with IRS rules, we reversed the
process, returning to our original posture. Each of the sales allowed us to
realize some losses, which were used to offset gains. Throughout the process, we
remained strongly positioned in banks we thought were attractive, so we were
prepared when the area rebounded.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
We anticipate a relatively benign interest-rate environment over the short
term. We also expect economic growth to remain healthy, but to proceed at a
slower rate. As a result, we're not positioned for an imminent economic
downturn. Instead, we continue to look for fundamentally sound firms that appear
to be undervalued.
Our cause is helped by the fact that many "Old Economy" stocks came down
severely over the past year, and as a result, the marketplace is offering a
diverse menu of value opportunities. We hold substantial positions in
economically sensitive sectors, such as consumer cyclicals and industrials,
whose stock prices appear to have been driven down too far.
WHAT IS YOUR OUTLOOK AS WE APPROACH 2001?
We've seen indications in recent months that investors have begun to pay
more attention to the price they're paying for a company's business prospects.
Needless to say, this is a profound change in sentiment from the past several
years, when price momentum, rather than relative value or fundamentals, drove
the market. This development is an encouraging sign for investors pursuing a
value strategy.
[right margin]
"...MANY 'OLD ECONOMY' STOCKS CAME DOWN SEVERELY OVER THE PAST YEAR, AND AS A
RESULT, THE MARKETPLACE IS OFFERING A DIVERSE MENU OF VALUE OPPORTUNITIES."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
COMMON STOCKS 95.9%
TEMPORARY CASH INVESTMENTS 4.1%
AS OF APRIL 30, 2000
COMMON STOCKS 96.2%
TEMPORARY CASH INVESTMENTS 3.8%
www.americancentury.com 7
Tax-Managed Value--Schedule of Investments
OCTOBER 31, 2000
Shares Value
COMMON STOCKS -- 95.9%
APPAREL & TEXTILES -- 1.8%
5,600 Liz Claiborne, Inc. $ 238,000
16,700 VF Corp. 456,119
------------------
694,119
------------------
BANKS -- 12.2%
9,500 Bank of America Corp. 456,594
16,700 Bank One Corp. 609,549
7,950 Chase Manhattan Corp. 361,725
29,333 Citigroup Inc. 1,543,648
13,400 First Union Corp. 406,188
3,500 Fleet Boston Financial Corp. 133,000
12,600 KeyCorp 311,063
17,000 National City Corp. 363,375
7,500 Summit Bancorp. 281,250
13,500 U.S. Bancorp 326,531
------------------
4,792,923
------------------
CHEMICALS - 2.9%
5,400 FMC Corp.(1) 410,400
9,100 Praxair, Inc. 338,975
18,000 Sherwin-Williams Co. 390,375
------------------
1,139,750
------------------
COMPUTER HARDWARE &
BUSINESS MACHINES - 4.0%
16,400 Compaq Computer Corp. 498,724
8,600 Hewlett-Packard Co. 399,363
6,800 International Business Machines Corp. 669,800
------------------
1,567,887
------------------
COMPUTER SOFTWARE - 2.5%
20,500 Computer Associates International, Inc. 653,438
5,000 Microsoft Corp.(1) 344,531
------------------
997,969
------------------
CONSUMER DURABLES - 0.9%
8,100 Whirlpool Corp. 352,350
------------------
DEFENSE/AEROSPACE - 2.2%
3,000 Boeing Co. 203,438
10,600 Raytheon Co. Cl A 339,200
7,900 TRW Inc. 331,800
------------------
874,438
------------------
DEPARTMENT STORES - 2.6%
63,000 Kmart Corp.(1) 374,063
17,700 May Department Stores Co. (The) 464,625
6,000 Sears, Roebuck & Co. 178,380
------------------
1,017,068
------------------
Shares Value
DRUGS - 2.5%
8,100 Bristol-Myers Squibb Co. $ 493,594
5,600 Merck & Co., Inc. 503,650
------------------
997,244
------------------
ELECTRICAL EQUIPMENT - 1.1%
8,900 Lucent Technologies Inc. 207,481
8,400 Motorola, Inc. 209,475
------------------
416,956
------------------
ELECTRICAL UTILITIES - 3.1%
21,500 Edison International 513,313
10,500 FPL Group, Inc. 693,000
------------------
1,206,313
------------------
ENERGY RESERVES & PRODUCTION - 8.5%
4,300 Chevron Corp. 353,138
19,305 Exxon Mobil Corp. 1,721,764
19,000 Occidental Petroleum Corp. 377,625
15,100 Royal Dutch Petroleum Co.
New York Shares 896,562
------------------
3,349,089
------------------
ENTERTAINMENT - 0.7%
7,700 Disney (Walt) Co. 275,756
------------------
ENVIRONMENTAL SERVICES - 0.9%
17,000 Waste Management, Inc. 340,000
------------------
FINANCIAL SERVICES - 5.3%
7,400 Block (H & R), Inc. 264,088
7,400 Countrywide Credit Industries, Inc. 277,038
5,200 Fannie Mae 400,399
8,200 Household International, Inc. 412,562
4,000 MBIA Inc. 290,750
6,500 MGIC Investment Corp. 442,812
------------------
2,087,649
------------------
FOOD & BEVERAGE - 2.1%
19,500 ConAgra, Inc. 416,813
9,500 Heinz (H.J.) Co. 398,406
------------------
815,219
------------------
FOREST PRODUCTS & PAPER - 1.5%
6,000 Fort James Corp. 197,625
11,000 International Paper Co. 402,875
------------------
600,500
------------------
GROCERY STORES - 0.7%
12,200 Albertson's Inc. 288,988
------------------
HEAVY ELECTRICAL EQUIPMENT - 2.1%
8,100 Cooper Industries, Inc. 309,825
6,900 Emerson Electric Co. 506,719
------------------
816,544
------------------
8 1-800-345-2021 See Notes to Financial Statements
Tax-Managed Value--Schedule of Investments
(Continued)
OCTOBER 31, 2000
Shares Value
HOME PRODUCTS - 1.8%
5,700 Avon Products, Inc. $ 276,450
15,200 Fortune Brands, Inc. 447,450
------------------
723,900
------------------
INDUSTRIAL PARTS - 2.2%
11,000 ITT Industries, Inc. 358,188
10,100 Parker-Hannifin Corp. 417,887
3,000 Snap-on Inc. 76,688
------------------
852,763
------------------
INFORMATION SERVICES - 1.3%
5,700 Electronic Data Systems Corp. 267,543
4,900 First Data Corp. 245,613
------------------
513,156
------------------
INVESTMENT TRUSTS - 2.3%
7,300 Equity Residential Properties Trust 343,556
4,000 Standard and Poor's 500
Depositary Receipt 572,250
------------------
915,806
------------------
LEISURE - 1.6%
8,800 Eastman Kodak Co. 394,900
18,862 Mattel, Inc. 244,027
------------------
638,927
------------------
LIFE & HEALTH INSURANCE - 0.9%
11,200 Torchmark Corp. 373,100
------------------
MEDICAL PRODUCTS & SUPPLIES - 1.2%
13,500 Becton Dickinson & Co. 452,250
------------------
MEDICAL PROVIDERS & SERVICES - 2.2%
9,700 HCA - The Healthcare Co. 387,394
40,000 HEALTHSOUTH Corp.(1) 480,000
------------------
867,394
------------------
MOTOR VEHICLES & PARTS - 2.8%
27,096 Ford Motor Co. 707,883
6,500 General Motors Corp. 403,813
------------------
1,111,696
------------------
OIL REFINING - 2.0%
10,000 Tosco Corp. 286,250
18,500 USX-Marathon Group 502,969
789,219
Shares/Principal Amount Value
PROPERTY & CASUALTY INSURANCE - 4.7%
20,300 Allstate Corp. $ 817,075
11,300 Loews Corp. 1,027,593
------------------
1,844,668
------------------
PUBLISHING - 2.5%
13,000 American Greetings Corp. Cl A 236,438
15,600 Deluxe Corp. 351,975
7,500 Knight-Ridder, Inc. 376,875
------------------
965,288
------------------
RAILROADS - 0.6%
8,900 Burlington Northern Santa Fe Corp. 236,406
------------------
RESTAURANTS - 0.6%
10,300 Wendy's International, Inc. 224,025
------------------
TELEPHONE - 7.9%
33,000 AT&T Corp. 765,187
14,000 Sprint Corp. 357,000
22,080 Verizon Communications 1,276,499
29,000 WorldCom, Inc.(1) 687,844
------------------
3,086,530
------------------
THRIFTS - 1.2%
11,100 Washington Mutual, Inc. 488,400
------------------
TOBACCO - 2.5%
26,700 Philip Morris Companies Inc. 977,888
------------------
TOTAL COMMON STOCKS 37,692,178
------------------
(Cost $33,988,980)
TEMPORARY CASH INVESTMENTS - 4.1%
$1,600,000 FNMA Discount Notes,
6.45%, 11/1/00(2) 1,600,000
------------------
(Cost $1,600,000)
TOTAL INVESTMENT SECURITIES - 100.0% $39,292,178
==================
(Cost $35,588,980)
NOTES TO SCHEDULE OF INVESTMENTS
FNMA = Federal National Mortgage Association
(1) Non-income producing.
(2) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
OCTOBER 31, 2000
ASSETS
Investment securities, at value
(identified cost of $35,588,980) (Note 3) ................... $39,292,178
Cash .......................................................... 69,741
Receivable for investments sold ............................... 282,871
Dividends and interest receivable ............................. 52,684
------------------
39,697,474
------------------
LIABILITIES
Payable for investments purchased ............................. 527,977
Accrued management fees (Note 2) .............................. 34,500
Payable for directors' fees and expenses ...................... 12
Accrued expenses and other liabilities ........................ 40
------------------
562,529
------------------
Net Assets .................................................... $39,134,945
==================
CAPITAL SHARES, $0.01 PAR VALUE
Authorized -- Investor Class .................................. 134,000,00
==================
Outstanding -- Investor Class ................................. 7,110,259
==================
Net Asset Value Per Share ..................................... $5.50
==================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ....................... $36,562,69
Accumulated undistributed net investment income ............... 434,528
Accumulated net realized loss on investment transactions ...... (1,565,476
Net unrealized appreciation on investments (Note 3) ........... 3,703,198
------------------
$39,134,945
==================
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME
Income:
Dividends ..................................................... $ 952,915
Interest ...................................................... 77,365
------------------
1,030,280
------------------
Expenses (Note 2):
Management fees ............................................... 445,431
Directors' fees and expenses .................................. 178
------------------
445,609
------------------
Net investment income ......................................... 584,671
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments .............................. (1,395,301)
Change in net unrealized appreciation on investments .......... 3,195,258
------------------
Net realized and unrealized gain on investments ............... 1,799,957
------------------
Net Increase in Net Assets Resulting from Operations .......... $2,384,628
==================
See Notes to Financial Statements www.americancentury.com 11
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEAR ENDED OCTOBER 31, 2000 AND PERIOD ENDED OCTOBER 31, 1999
Increase (Decrease) in Net Assets
2000 1999(1)
OPERATIONS
<S> <C> <C>
Net investment income ................................. $ 584,671 $ 286,032
Net realized loss on investment transactions .......... (1,395,301) (172,911)
Change in net unrealized appreciation on investments .. 3,195,258 507,940
--------------- ----------------
Net increase in net assets resulting from operations .. 2,384,628 621,061
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................ (433,439) --
--------------- ----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 5,278,808 47,330,405
Proceeds from reinvestment of distributions ........... 428,437 --
Payments for shares redeemed .......................... (14,655,657) (1,819,298)
--------------- ----------------
Net increase (decrease) in net assets
from capital share transactions ....................... (8,948,412) 45,511,107
--------------- ----------------
Net increase (decrease) in net assets ................. (6,997,223) 46,132,168
NET ASSETS
Beginning of period ................................... 46,132,168 --
--------------- ----------------
End of period ......................................... $39,134,945 $46,132,168
=============== ================
Undistributed net investment income ................... $434,528 $286,032
=============== ================
TRANSACTIONS IN SHARES OF THE FUND
Sold .................................................. 1,050,478 9,255,286
Issued in reinvestment of distributions ............... 85,687 --
Redeemed .............................................. (2,928,955) (352,237)
--------------- ----------------
Net increase (decrease) ............................... (1,792,790) 8,903,049
=============== ================
</TABLE>
(1) March 31, 1999 (inception) through October 31, 1999.
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. Tax-Managed Value Fund (the fund) is one
of the fourteen series of funds issued by the corporation. The fund is
diversified under the 1940 Act. The fund's investment objective is to seek
long-term capital growth by investing primarily in common stocks that
management believes to be undervalued at the time of purchase while attempting
to minimize the impact of federal taxes on shareholder returns. The following
significant accounting policies are in accordance with accounting principles
generally accepted in the United States of America; these policies may require
the use of estimates by fund management.
MULTIPLE CLASS -- The fund is authorized to issue three classes of shares:
the Investor Class, the Advisor Class, and the Institutional Class. The three
classes of shares differ principally in their respective shareholder servicing
and distribution expenses and arrangements. All shares of the fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Advisor Class and
Institutional Class had not commenced as of October 31, 2000.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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.
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 and net
realized gains are generally declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization
for federal income tax purposes. These differences reflect the differing
character of certain income items and net realized gains and losses for
financial statement and tax purposes and may result in reclassification among
certain capital accounts.
At October 31, 2000, accumulated net realized capital loss carryovers for
federal income tax purposes of $1,535,337 (expiring in 2007 through 2008) may be
used to offset future taxable gains.
www.americancentury.com 13
Notes to Financial Statements
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the 1940 Act (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 annualized fee schedule for the Investor Class based on fund average net
assets is as follows:
1.10% on the first $500 million
1.00% on the next $500 million
0.90% over $1 billion
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the year ended October 31, 2000, were $28,551,436 and
$38,779,578, respectively.
On October 31, 2000, accumulated net unrealized appreciation was $3,671,546,
based on the aggregate cost of investments for federal income tax purposes of
$35,620,632, which consisted of unrealized appreciation of $6,219,186 and
unrealized depreciation of $2,547,640.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
year ended October 31, 2000.
14 1-800-345-2021
<TABLE>
<CAPTION>
Tax-Managed Value--Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED OCTOBER 31 (EXCEPT AS NOTED)
2000 1999(1)
PER-SHARE DATA
<S> <C> <C>
Net Asset Value, Beginning of Period ........................... $5.18 $5.00
------------ -------------
Income From Investment Operations
Net Investment Income ........................................ 0.08 0.04
Net Realized and Unrealized Gain on Investment Transactions .. 0.29 0.14
------------ -------------
Total From Investment Operations ............................. 0.37 0.18
------------ -------------
Distributions
From Net Investment Income ................................... (0.05) .--
------------ -------------
Net Asset Value, End of Period ................................. $5.50 $5.18
============ =============
Total Return(2) .............................................. 7.23% 3.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets .............. 1.10% 1.10%(3)
Ratio of Net Investment Income to Average Net Assets ........... 1.56% 1.14%(3)
Portfolio Turnover Rate ........................................ 73% 41%
Net Assets, End of Period (in thousands) ....................... $39,135 $46,132
</TABLE>
(1) March 31, 1999 (inception) through October 31, 1999.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
www.americancentury.com 15
Independent Auditors' Report
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Tax-Managed Value Fund (the "Fund"),
one of the funds comprising American Century Mutual Funds, Inc., as of October
31, 2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for the year then ended and for the period
August 1, 1999 (inception) through October 31, 1999, and the financial
highlights for the year then ended and for the period August 1, 1999 (inception)
through October 31, 1999. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Tax-Managed Value Fund as of October 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for the year then ended and
for the period March 31, 1999 (inception) through October 31, 1999, and the
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
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)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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 more than a dozen growth and income funds including
domestic equity, balanced, asset allocation, and specialty. Tax-Managed Value
is a general equity fund managed to provide growth over time with less
volatility than more aggressive growth funds.
AMERICAN CENTURY TAX-MANAGED VALUE invests primarily in common stocks of
medium to large companies that the management team believes are temporarily
undervalued. Stock purchases are based on a company-by-company analysis to
determine whether a stock is trading below what the fund management team
considers fair value. This is determined by comparing a stock's share price with
key financial measures, including earnings, book value, cash flow, and
dividends. If the stock's price relative to these measures is low relative to
where it typically has traded, it is a candidate for purchase.
The managers also will attempt to minimize the impact of federal income
taxes on shareholder returns by attempting to minimize taxable distributions to
shareholders.
Broad diversification across many industries is stressed to prevent the
performance of one sector from dominating fund returns.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30
actively traded Blue Chip stocks, primarily industrials but including
service-oriented firms. Prepared and published by Dow Jones & Co., it is the
oldest and most widely quoted of all the market indicators.
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
leading industries. Created by Standard & Poor's, it is intended to be a broad
measure of U.S. stock market performance.
The S&P 500/BARRA VALUE INDEX is a capitalization-weighted index consisting
of S&P 500 stocks that have lower price- to-book ratios, and, in general, share
other characteristics associated with value-style stocks.
[left margin]
PORTFOLIO MANAGERS
Tax-Managed Value
MARK MALLON, CFA
CHARLES RITTER, CFA
18 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 total returns, please refer to the "Financial
Highlights" on page 15.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION--
average market capitalization represents the average value of the companies held
in a portfolio. When that figure is weighted, the impact of each company's
capitalization on the overall average is proportional to the total market value
of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $9 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the S&
P 500 Index generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.3 billion and $9 billion. This is
Lipper's market capitalization breakpoint as of October 31, 2000, although it
may be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
www.americancentury.com 19
Glossary
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.3 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
20 1-800-345-2021
{inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[graphic of runners]
WHO WE ARE
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have been committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
-------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23036 (c)2000 American Century Services Corporation
<PAGE>
[front cover]
October 31, 2000
AMERICAN CENTURY
ANNUAL REPORT
[graphic of runners]
[graphic of person looking at computer screen]
Veedot(sm)
[american century logo and text logo(reg.sm)]
American
Century
[inside front cover]
REVIEW THE DAY'S MARKET ACTIVITY AT WWW.AMERICANCENTURY.COM
Now you can find more perspective on daily stock and bond market activity on
American Century's Web site.
INFORMATION AND ADVANCE NOTICE
Our Daily Market Wraps provide at-a-glance descriptions of daily news and
events that influenced the U.S. stock and bond markets. In addition, these
write-ups provide advance notice of key economic reports or figures that are
likely to affect market activity.
REVIEW THE WEEK
To put the week in perspective, look no further than our Weekly Market Wrap.
This commentary discusses the week's economic and market news, providing a
succinct review of what happened and what to look for in the week ahead.
EASY TO FIND
The Daily and Weekly Market Wraps are easy to find on our Web site. Just go
to www.americancentury.com, click on "News" in the tool bar, and locate the Wrap
you're looking for in the left column.
[Dalbar seal]
American Century's reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
[left margin]
VEEDOT
(AMVIX)
--------------------------
Turn to the inside back cover to see a list of American Century funds classified
by objective and risk.
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
The year covered in this report was among the more remarkable in the
market's recent history. Investors witnessed a stunning advance during the first
half, followed by a swift and dramatic retreat from record-breaking heights. The
reversal was the result of a convergence of several factors, among them concern
about a slowing economy, rising interest rates and richly priced technology
stocks. As our portfolio managers discuss in their investment review, we believe
that stock prices ultimately depend on earnings, and they steadfastly follow a
systematic, repeatable approach to identify companies in the early stages of
their growth. We think investors in Veedot are best served by that philosophy,
no matter how volatile the market.
Turning to corporate matters, we are pleased to announce that senior vice
president and lead portfolio manager C. Kim Goodwin has been named co-chief
investment officer for American Century's domestic growth equity discipline. An
investment professional with 13 years of portfolio management experience,
Goodwin shares this position with Jim Stowers III. She will continue to serve on
the investment team for American Century Growth, a fund she's co-managed since
1997.
In her new role, Goodwin manages the teams responsible for the Growth,
Select, Ultra, Vista, Giftrust, Heritage, New Opportunities, Life Sciences and
Technology funds. She also joins the Investment Oversight Committee, a group of
senior executives who monitor the performance of the company's equity and fixed
income disciplines.
In other corporate news, we chose to share the chairman of the board
responsibilities and also named American Century President William M. Lyons
chief executive officer, giving him ultimate management responsibility for the
entire company.
These changes strengthen the leadership of our investment management area
and allow us to pursue additional worthwhile endeavors. For example, Jim Stowers
III will focus more on product innovation (in particular, our
earnings-acceleration screening system to build the next generation of portfolio
management technologies). However, his first priority will be continuing
involvement on the investment teams responsible for the Ultra and Veedot Funds.
We appreciate your continued confidence in American Century.
Sincerely,
/signature/ /signature/
James E. Stowers, Jr. James E. Stowers III
Founder and Chairman of the Board Co-Chairman of the Board
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VEEDOT
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Industries .................................................... 6
Types of Investments ................................................... 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 10
Statement of Operations ................................................ 11
Statement of Changes
in Net Assets ....................................................... 12
Notes to Financial
Statements ............................................................. 13
Financial Highlights ................................................... 16
Independent Auditors'
Report .............................................................. 18
OTHER INFORMATION
Share Class and Retirement
Account Information ................................................. 19
Background Information
Investment Philosophy
and Policies ..................................................... 20
Comparative Indices ................................................. 20
Portfolio Managers .................................................. 20
Glossary ............................................................... 21
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* 2000 has presented investors with two very different stock markets. Until
March 10, investors seemed interested only in "TMT" stocks--those of
technology, media, and telecommunications companies. The Nasdaq sprinted
ahead 24%, buoyed by corporate technology spending, a wave of foreign money
moving into U.S. stocks, and investor enthusiasm for any company with a
".com" at the end of its name. If you had anything to do with the Internet,
it seemed, no price was too high for your shares.
* Since then, though, investors have been painfully reminded that earnings do
matter. Equity valuations across technology have fallen, as evidenced by
the Nasdaq's 33% decline from its March high. A newfound focus on
valuations and earnings has resulted in a broadening of the market across
company size, style, and sector. That broadening, though, has been
accompanied by rising volatility that is well above the historical averages
for the S&P 500 and the Nasdaq.
VEEDOT
* Veedot gained 18.40% since its inception on November 30, 1999. It outperformed
its benchmark, the Wilshire 5000 Index, which gained just 4.68% during the
same time frame.
* The fund's technology holdings contributed the most to performance. Within
this sector, Veedot's heavy weighting in electrical equipment providers proved
to be an advantage. The fund's substantial stake in semiconductor firms also
added significantly to returns.
* Veedot also benefited from its health care holdings, particularly during the
latter half of the period. Strong security selection among medical products
and suppy firms and pharmaceutical companies had a positive impact.
* Retailers detracted the most from performance, as investors grew increasingly
concerned about the effects of a slowing economy. The fund's relatively
small position in this industry helped soften the impact.
[left margin]
VEEDOT(1)
(AMVIX)
TOTAL RETURNS: AS OF 10/31/00
6 Months -12.43%(2)
Since Inception 18.40%(2)
INCEPTION DATE: 11/30/99
NET ASSETS: $364.3 million(3)
(1) Investor Class.
(2) Not annualized.
(3) Includes Investor and Institutional classes.
Investment terms are defined in the Glossary on pages 21-22.
2 1-800-345-2021
Market Perspective from James E. Stowers III and C. Kim Goodwin
--------------------------------------------------------------------------------
[photo of C. Kim Goodwin and James E. Stowers III]
C. Kim Goodwin and James E. Stowers III, co-chief investment officers, U.S.
growth equities
2000 has challenged equity investors with two very different stock markets.
Until March 10, we had what amounted to a one-sector economy as investors heard
only the siren song of technology. The Nasdaq sprinted ahead 24%, buoyed by
corporate tech spending, a continuing flood of foreign money attracted by a
strong U.S. economy, and what could only be called a speculative bubble. Many
said we had crossed into a new economy, one highlighted by technology, media,
and telecommunications firms. If you had anything to do with the Internet, no
price was too high for your shares. Earnings didn't seem to matter either in
this new era. You could succeed simply by putting ".com" at the end of your
name.
But bubbles puncture easily. In the face of rising short-term interest
rates, skyrocketing energy costs, and a weak euro, the economy and corporate
earnings began to slow. From mid-March forward, investors have been reminded
that earnings do matter, and it's been a punishing lesson. Equity valuations
have fallen, as evidenced by the Nasdaq's more than 33% tumble from its March
high--a decline more severe than its earlier drop, as well as those of the Dow
Jones Industrial Average, the S&P 500 or the NYSE Composite, during the October
1987 market crash.
A newfound focus on valuation and earnings has resulted in a broadening of
the market across company size, style, and sector. Albeit modestly, smaller
companies have outperformed larger companies year-to-date. In addition, value
equities have outperformed growth equities so far in 2000 for the first time in
six calendar years. Finally, since mid-year, twice as many sectors of the S&P
500 have outperformed the index than in the previous 18 months.
The trade-off to the market's broadening might be the perpetuation of
rising volatility--volatility in the S&P 500 and Nasdaq that is almost twice and
more than three times their historical averages, respectively. Combine nearly
instant dissemination of information, declining commission costs, recent
regulations regarding the flow of information and more than $1.7 trillion in
401(k) and other investor-controlled assets, and you have a recipe for "ready,
fire, aim" investing.
All of this, we think, puts us in a market where the best results will be
earned by investors who can identify rapidly growing firms in the early stages
of their growth. This is the foundation of the investment strategy that drives
Veedot's approach.
[right margin]
"A NEWFOUND FOCUS ON VALUATION AND EARNINGS HAS RESULTED IN A BROADENING OF THE
MARKET ACROSS COMPANY SIZE, STYLE, AND SECTOR."
MARKET RETURNS
FOR THE 11 MONTHS ENDED OCTOBER 31, 2000
S&P 500 3.96%
S&P MIDCAP 400 25.08%
RUSSELL 2000 10.79%
Source: Lipper Inc.
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE 11 MONTHS ENDED OCTOBER 31, 2000
[data for line chart below]
S&P 500 Index S&P Midcap 400 Russell 2000
11/30/99 $1.00 $1.00 $1.00
12/31/99 $1.06 $1.06 $1.11
1/31/00 $1.01 $1.03 $1.10
2/29/00 $0.99 $1.10 $1.28
3/31/00 $1.08 $1.19 $1.19
4/30/00 $1.05 $1.15 $1.12
5/31/00 $1.03 $1.14 $1.05
6/30/00 $1.05 $1.15 $1.15
7/31/00 $1.04 $1.17 $1.11
8/31/00 $1.10 $1.30 $1.19
9/30/00 $1.04 $1.29 $1.16
10/31/00 $1.04 $1.25 $1.11
Value on 10/31/00
S&P 500 $1.04
S&P MidCap 400 $1.25
Russell 2000 $1.11
www.americancentury.com 3
Veedot--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF OCTOBER 31, 2000*
INVESTOR CLASS INSTITUTIONAL CLASS
(INCEPTION 11/30/99) (INCEPTION 8/1/00)
VEEDOT WILSHIRE 5000 INDEX VEEDOT WILSHIRE 5000 INDEX
6 MONTHS ...... -12.43% -1.14% -- --
LIFE OF FUND .. 18.40% 4.68% -3.27% 0.16%
*Returns for periods less than one year are not annualized.
See pages 19-21 for information about share class, the Wilshire 5000 Index and
returns.
GROWTH OF $10,000 OVER LIFE OF FUND
[data for mountain chart below]
Veedot Wilshire 5000 Index
11/30/1999 $10,000 $10,000
12/31/1999 $11,840 $10,759
1/31/2000 $11,800 $10,313
2/29/2000 $15,320 $10,544
3/31/2000 $14,820 $11,170
4/30/2000 $13,521 $10,588
5/31/2000 $12,520 $10,218
6/30/2000 $13,360 $10,669
7/31/2000 $12,281 $10,451
8/31/2000 $13,681 $11,210
9/30/2000 $13,240 $10,694
10/31/2000 $11,840 $10,468
$10,000 investment made 11/30/99
Value on 10/31/00
Wilshire 5000 Index $10,468
Veedot $11,840
The graph at left shows the growth of a $10,000 investment in the fund over the
life of the fund. The Wilshire 5000 Index is provided for comparison in each
graph. Veedot's total returns include operating expenses (such as transaction
costs and management fees) that reduce returns, while the total returns of the
Wilshire 5000 Index do not. The graph is based on Investor Class shares only;
performance for other classes will vary due to differences in fee structures
(see the 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.
4 1-800-345-2021
Veedot--Q&A
--------------------------------------------------------------------------------
[photo of Jim Stowers III and John Small, Jr.]
An interview with Jim Stowers III and John Small, Jr., portfolio managers
on the Veedot investment team.
HOW DID VEEDOT PERFORM FOR THE 11 MONTHS ENDED OCTOBER 31, 2000?
Before addressing performance, we'd like to take this opportunity to
welcome new investors to the fund. With nearly a year of performance under
Veedot's belt, we are pleased with how well the fund's methodology and
investment approach have served investors. Since its inception on November 30,
1999, the fund has gained 18.40%, dramatically outperforming its benchmark, the
Wilshire 5000 Index, which gained just 4.68% during the same time frame.*
BEFORE DISCUSSING VEEDOT'S PERFORMANCE IN DETAIL, WILL YOU PROVIDE A REFRESHER
ON HOW THE FUND IS MANAGED?
Veedot shares the same investment objective as American Century's other
aggressive equity funds -- to seek long-term investment returns by investing in
companies whose earnings and revenues are growing at an accelerating rate.
However, the fund's investment strategy is quite different, and it's important
that investors understand our approach.
To find accelerating firms, we rely on American Century's proprietary
database that screens approximately 12,000 stocks. It tracks companies of all
sizes, without regard to sector, industry, or geographical location, and filters
out those that best meet the fund's fundamental investment criteria of
accelerating earnings and/or revenues. We then apply technical analysis--the
study of a stock's historical price pattern--to help identify companies in the
early stages of their growth. Our goal is to own companies when their growth is
the most dramatic.
What's important about this strategy is that it relies on a very
systematic, repeatable discipline. We focus only on a stock's fundamental data
and its historical response to investor behavior, so we're never influenced by
qualitative or speculative input. We're interested in a company's earnings and
revenue acceleration and its past and current stock performance. We are less
concerned with what product a company makes or how it is managed. The firm
simply has to meet our strict fundamental and technical criteria.
WHAT CONTRIBUTED TO VEEDOT'S STRONG PERFORMANCE?
Because emotion and opinion are not part of our process, no sectors or
industries are favored. However, our process automatically identifies market
trends and helps point us toward the fastest growing areas. We quickly adjust
our holdings to gain exposure to the best performing companies in the growing
areas.
Our heaviest stake was in technology stocks, which represented
approximately one-fourth of Veedot's investments as of October 31.
Within technology, electrical equipment stocks added substantial value.
* All fund returns referenced in this interview are for Investor Class shares.
[right margin]
"WE FOCUS ONLY ON A STOCK'S FUNDAMENTAL DATA AND ITS HISTORICAL RESPONSE TO
INVESTOR BEHAVIOR, SO WE'RE NEVER INFLUENCED BY QUALITATIVE OR SPECULATIVE
INPUT."
PORTFOLIO AT A GLANCE
10/31/00 4/30/00
NO. OF COMPANIES 99 173
P/E RATIO 38.8 40.6
MEDIAN MARKET $8.02 $5.33
CAPITALIZATION BILLION BILLION
WEIGHTED MARKET $33.7 $36.0
CAPITALIZATION BILLION BILLION
PORTFOLIO TURNOVER 250%(1) 84%(2)
EXPENSE RATIO (FOR
INVESTOR CLASS) 1.50%(3) 1.50%(3)
(1) For the period from 11/30/99 to 10/31/00.
(2) For the period from 11/30/99 to 4/30/00.
(3) Annualized.
Investment terms are defined in the Glossary on pages 21-22.
www.americancentury.com 5
Veedot--Q&A
--------------------------------------------------------------------------------
(Continued)
Our discipline proved particularly effective here, leading us to invest heavily
in the area which produced the highest return within the technology group.
Semiconductor firms represented a significant percentage of investments and
were top performers, as well.
Although technology stocks have been a source of strength for Veedot, the
lion's share of the sector's performance was gained during the first four months
of the fund's operation. Since March, technology stocks in general have been
correcting. As the group slowed, our disciplined process led us to rotate away
from technology and into more attractive areas with fundamental acceleration.
Technology stocks still represent a good portion of the portfolio, but Veedot's
stake in this sector is substantially smaller than it was at the time of our
last report, when technology stocks represented approximately 49% of
investments.
WHICH AREAS OUTSIDE OF TECHNOLOGY ADDED TO PERFORMANCE?
Veedot's methodology pointed us to several compelling opportunities in
health care. This sector contributed significantly, particularly during the
latter half of our reporting period. As investors fled technology stocks in
search of other opportunities, they found health care stocks attractive. Our
process identified that these companies were strengthening. This led us to
increase our exposure here. Strong security selection among medical products and
supplies firms and pharmaceutical companies, particularly specialty
pharmaceuticals and biotech companies, had a positive impact; several firms in
these industries made Veedot's list of top contributors.
Utility stocks also gained during the period. Some investors have
suggested that the use of the Internet has increased the demand for
high-quality, uninterrupted power against an insufficient supply of electricity.
While this group did not represent a large percentage of investments, our
methodology uncovered some of the most promising electrical utility companies.
The market also found favor with financial firms. This was another area
that strengthened during the latter half of our reporting period, as investors
looked outside of technology. Here, a favorable interest-rate environment and
improving fundamentals could be what investors found attractive. Again, our
discipline recognized this, and we increased our exposure to this sector.
Veedot's exposure to property and casualty insurance companies added the most
value, with additional strength from financial services firms and thrifts.
Energy companies (energy reserves and production companies and oil
services firms), which accounted for about 15% of investments at the end of the
period, also met with investor approval, particularly in the second half of
Veedot's fiscal year. The fund's investments in this group proved beneficial,
thanks to attractive commodity prices.
[left margin]
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
LOCKHEED MARTIN CORP. 2.6% --
OXFORD HEALTH
PLANS, INC. 2.0% --
FEDERAL HOME LOAN
MORTGAGE CORP. 1.8% --
ALLSTATE CORP. 1.7% --
SUN MICROSYSTEMS,
INC. 1.6% 1.2%
NETWORK APPLIANCES,
INC. 1.6% --
EQUIFAX, INC. 1.6% --
EMC CORP. (MASS.) 1.5% 0.4%
CIENA CORP. 1.5% 0.8%
PHILIP MORRIS
COMPANIES INC. 1.5% --
TOP FIVE INDUSTRIES
% OF FUND INVESTMENTS
AS OF AS OF
10/31/00 4/30/00
OIL SERVICES 11.8% 10.5%
MEDICAL PROVIDERS
& SERVICES 7.7% --
ELECTRICAL EQUIPMENT 7.5% 20.7%
DRUGS 6.8% 2.6%
FINANCIAL SERVICES 6.1% 1.8%
6 1-800-345-2021
Veedot--Q&A
--------------------------------------------------------------------------------
(Continued)
WHICH HOLDINGS WERE DISAPPOINTING?
The weakest area of Veedot's portfolio was consumer cyclicals, primarily
retailers. Our holdings in specialty, clothing and department stores declined,
as investors grew increasingly concerned about the effects of a slowing economy.
While our exposure to this sector weighed on performance, our relatively small
position helped mitigate damage.
WHAT'S YOUR OUTLOOK FOR VEEDOT?
As we've seen this year, investor preference can suddenly shift from one
sector of the market to another, from one investment style to another, and jump
between capitalization ranges. Our approach automatically leads us to
acceleration, wherever it occurs. We believe this strategy will enable Veedot to
be in the right place at the right time, in the best possible position to
benefit from the market's most exciting growth opportunities.
[right margin]
"AS WE'VE SEEN THIS YEAR, INVESTOR PREFERENCE CAN SUDDENLY SHIFT FROM ONE SECTOR
OF THE MARKET TO ANOTHER, FROM ONE INVESTMENT STYLE TO ANOTHER, AND JUMP BETWEEN
CAPITALIZATION RANGES."
TYPES OF INVESTMENTS IN THE PORTFOLIO
AS OF OCTOBER 31, 2000
* COMMON STOCKS 90.0%
* TEMPORARY CASH INVESTMENTS 10.0%
[pie chart]
AS OF APRIL 30, 2000
* COMMON STOCKS 97.0%
* TEMPORARY CASH INVESTMENTS 3.0%
[pie chart]
www.americancentury.com 7
Veedot--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS - 90.1%
ALCOHOL -- 1.0%
60,000 Brown-Forman Corp. Cl B $ 3,652,500
--------------------
APPAREL & TEXTILES -- 0.6%
120,000 Quiksilver, Inc.(1) 2,295,000
--------------------
BANKS -- 4.0%
62,000 Bank of New York Co., Inc. (The) 3,568,875
90,000 Citigroup Inc. 4,736,250
20,000 National Commerce Bancorporation 425,625
20,000 Northern Trust Corp. 1,705,625
50,000 SouthTrust Corp. 1,620,313
50,000 Zions Bancorporation 2,875,000
--------------------
14,931,688
--------------------
COMPUTER HARDWARE & BUSINESS
MACHINES -- 5.7%
65,000 EMC Corp. (Mass.)(1) 5,789,063
50,000 Network Appliances, Inc.(1) 5,951,563
70,000 Palm Inc.(1) 3,751,563
55,000 Sun Microsystems, Inc.(1) 6,096,405
--------------------
21,588,594
--------------------
COMPUTER SOFTWARE -- 1.0%
10,000 Mercury Interactive Corp.(1) 1,109,688
25,000 Siebel Systems, Inc.(1) 2,623,437
--------------------
3,733,125
--------------------
CONSTRUCTION & REAL PROPERTY -- 0.6%
125,000 Catellus Development Corp.(1) 2,273,438
--------------------
CONSUMER DURABLES -- 0.2%
70,000 Pier 1 Imports, Inc. 927,500
--------------------
DEFENSE/AEROSPACE -- 4.7%
80,000 Boeing Co. 5,425,000
270,000 Lockheed Martin Corp. 9,679,500
70,000 Precision Castparts Corp. 2,642,500
--------------------
17,747,000
--------------------
DEPARTMENT STORES -- 0.7%
50,000 Kohl's Corp.(1) 2,709,375
--------------------
DRUGS -- 6.8%
75,000 American Home Products Corp. 4,762,499
100,000 Arqule Inc.(1) 2,318,750
30,000 Enzon, Inc.(1) 2,136,563
20,000 Forest Laboratories, Inc. Cl A(1) 2,650,000
100,000 ICN Pharmaceuticals, Inc. 3,806,250
50,000 King Pharmaceuticals, Inc.(1) 2,240,625
50,000 Merck & Co., Inc. 4,496,874
55,000 Teva Pharmaceutical Industries
Ltd. ADR 3,253,594
--------------------
25,665,155
--------------------
Shares Value
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 7.5%
15,000 Amphenol Corp. Cl A(1) $ 963,750
70,000 Catapult Communications Corp.(1) 844,375
45,000 Celestica Inc.(1) 3,234,375
54,000 CIENA Corp.(1) 5,675,062
120,000 Flextronics International Ltd. ADR(1) 4,556,250
20,000 Jabil Circuit, Inc.(1) 1,141,250
85,000 Merix Corp.(1) 3,971,094
25,000 Newport Corp. 2,844,531
45,000 Sanmina Corp.(1) 5,145,468
--------------------
28,376,155
--------------------
ELECTRICAL UTILITIES -- 3.8%
105,000 American Electric Power 4,357,500
60,000 Calpine Corp.(1) 4,736,250
70,000 Dynegy Inc. Cl A 3,241,875
50,000 Reliant Energy, Inc. 2,065,625
--------------------
14,401,250
--------------------
ENERGY RESERVES & PRODUCTION -- 2.6%
40,950 Anadarko Petroleum Corp. 2,622,848
50,000 Apache Corp. 2,765,625
40,000 Enron Corp. 3,282,500
100,000 Pioneer Natural Resources Co.(1) 1,306,250
--------------------
9,977,223
--------------------
FINANCIAL SERVICES -- 6.1%
90,000 American Express Co. 5,400,000
90,000 Countrywide Credit Industries, Inc. 3,369,375
170,000 Equifax Inc. 5,865,000
115,000 Federal Home Loan Mortgage
Corporation 6,900,000
30,000 General Electric Co. (U.S.) 1,644,375
--------------------
23,178,750
--------------------
INDUSTRIAL SERVICES -- 1.6%
20,000 Cintas Corp. 926,875
90,000 Education Management
Corporation(1) 2,787,188
75,000 Hanover Compressor Company(1) 2,446,875
--------------------
6,160,938
--------------------
INFORMATION SERVICES -- 1.3%
73,000 Automatic Data Processing, Inc. 4,767,813
--------------------
INTERNET -- 1.8%
15,000 Ariba, Inc.(1) 1,895,156
25,000 Juniper Networks, Inc.(1) 4,880,469
--------------------
6,775,625
--------------------
LIFE & HEALTH INSURANCE -- 2.1%
85,000 Lincoln National Corp. 4,111,875
35,000 United HealthCare Corp. 3,828,125
--------------------
7,940,000
--------------------
MEDIA -- 1.0%
90,000 Comcast Corp. Cl A(1) 3,664,688
--------------------
8 1-800-345-2021 See Notes to Financial Statements
Veedot--Schedule of Investments
--------------------------------------------------------------------------------
OCTOBER 31, 2000
Shares Value
--------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 4.0%
100,000 Abbott Laboratories $ 5,281,250
45,000 PE Corp-PE Biosystems Group 5,265,000
100,000 STERIS Corp.(1) 1,500,000
40,000 Waters Corp.(1) 2,902,500
--------------------
14,948,750
--------------------
MEDICAL PROVIDERS & SERVICES -- 7.7%
100,000 HCA - The Healthcare Co. 3,993,750
400,000 HEALTHSOUTH Corp.(1) 4,799,999
30,000 Laboratory Corporation of America
Holdings(1) 4,046,250
75,000 LifePoint Hospitals Inc.(1) 2,920,313
225,000 Oxford Health Plans, Inc.(1) 7,586,718
100,000 Tenet Healthcare Corp. 3,931,250
15,000 Wellpoint Health Networks Inc.(1) 1,754,063
--------------------
29,032,343
--------------------
MINING & METALS -- 0.2%
30,000 Carpenter Technology Corp. 930,000
--------------------
OIL SERVICES -- 11.8%
85,000 Baker Hughes Inc. 2,921,875
130,000 Ensco International Inc. 4,322,500
110,000 Global Marine Inc.(1) 2,915,000
90,000 Nabors Industries, Inc.(1) 4,580,999
125,000 National-Oilwell, Inc.(1) 3,656,250
110,000 Noble Drilling Corp.(1) 4,571,875
85,000 Patterson Energy, Inc.(1) 2,382,656
165,000 Pride International Inc.(1) 4,176,563
180,000 R&B Falcon Corp.(1) 4,500,000
90,000 Sante Fe International 3,285,000
45,000 Schlumberger Ltd. 3,425,625
180,000 UTI Energy Corp.(1) 3,611,250
--------------------
44,349,593
--------------------
PROPERTY & CASUALTY INSURANCE -- 4.0%
104,000 Ace, Ltd. 4,082,000
160,000 Allstate Corp. 6,440,000
10,000 American International Group, Inc. 980,000
35,000 Progressive Corp. (Ohio) 3,438,750
--------------------
14,940,750
--------------------
SEMICONDUCTOR -- 4.5%
25,000 Elantec Semiconductor Inc.(1) 2,783,594
94,000 Exar Corp.(1) 4,203,562
60,000 Linear Technology Corp. 3,871,875
25,000 Maxim Integrated Products, Inc.(1) 1,657,031
35,000 NVIDIA Corp.(1) 2,171,094
5,000 SDL, Inc.(1) 1,295,469
18,000 Veeco Instruments Inc.(1) 1,193,063
--------------------
17,175,688
--------------------
Shares Value
--------------------------------------------------------------------------------
TELEPHONE -- 1.0%
100,000 CenturyTel Inc. $ 3,850,000
--------------------
THRIFTS -- 1.8%
90,000 Golden State Bancorp Inc. 2,351,250
100,000 Washington Mutual, Inc. 4,400,000
--------------------
6,751,250
--------------------
TOBACCO -- 1.5%
150,000 Philip Morris Companies Inc. 5,493,750
--------------------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.5%
275,000 OMI Corp.(1) 1,907,813
--------------------
TOTAL COMMON STOCKS 340,145,754
--------------------
(Cost $296,902,081)
===============================================================================
TEMPORARY CASH INVESTMENTS -- 9.9%
Repurchase Agreement, B.A. Security Services,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $17,603,178) 17,600,000
Repurchase Agreement, Merrill Lynch & Co., Inc.,
(U.S. Treasury obligations), in a joint trading
account at 6.50%, dated 10/31/00,
due 11/1/00 (Delivery value $2,300,415) 2,300,000
Repurchase Agreement, Deutsche Bank AG,
(U.S. Treasury obligations), in a joint trading
account at 6.51%, dated 10/31/00,
due 11/1/00 (Delivery value $17,603,183) 17,600,000
--------------------
TOTAL TEMPORARY CASH INVESTMENTS 37,500,000
--------------------
(Cost $37,500,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $377,645,754
====================
(Cost $334,402,081)
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
(1) Non-income producing.
See Notes to Financial Statements www.americancentury.com 9
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other payables) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. For each class of shares the net assets divided by shares outstanding is
the share price, or NET ASSET VALUE PER SHARE. This statement also breaks down
the fund's net assets into capital (shareholder investments) and performance
(investment income and gains/losses).
OCTOBER 31, 2000
ASSETS
Investment securities, at value
(identified cost of $334,402,081) (Note 3) .................. $377,645,754
Receivable for investments sold ................................ 16,482,170
Dividends and interest receivable .............................. 90,036
----------------
394,217,960
----------------
LIABILITIES
Disbursements in excess of demand deposit cash ................. 462,033
Payable for investments purchased .............................. 28,942,168
Accrued management fees (Note 2) ............................... 465,945
Payable for directors' fees and expenses ....................... 119
Accrued expenses and other liabilities ......................... 170
----------------
29,870,435
----------------
Net Assets ..................................................... $364,347,525
================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ........................ $402,604,623
Accumulated net realized loss on investment transactions ....... (81,500,771)
Net unrealized appreciation on investments (Note 3) ............ 43,243,673
----------------
$364,347,525
================
Investor Class, $0.01 Par Value
Net assets ..................................................... $352,129,933
Shares outstanding ............................................. 59,435,835
Net asset value per share ...................................... $5.92
Institutional Class, $0.01 Par Value
Net assets ..................................................... $12,217,592
Shares outstanding ............................................. 2,062,377
Net asset value per share ...................................... $5.92
10 1-800-345-2021 See Notes to Financial Statements
Statement of Operations
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
NOVEMBER 30, 1999 (INCEPTION) THROUGH OCTOBER 31, 2000
INVESTMENT LOSS
Income:
Interest ....................................................... $ 708,017
Dividends (net of foreign taxes withheld of $2,563) ............ 894,191
----------------
1,602,208
----------------
Expenses (Note 2):
Management fees ................................................ 4,153,858
Directors' fees and expenses ................................... 1,327
----------------
4,155,185
----------------
Net investment loss ............................................ (2,552,977)
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ............................... (81,505,097)
Change in net unrealized appreciation on investments ........... 43,243,673
----------------
Net realized and unrealized loss on investments ................ (38,261,424)
----------------
Net Decrease in Net Assets Resulting from Operations ........... $(40,814,401)
================
See Notes to Financial Statements www.americancentury.com 11
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the current
reporting period. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the period), income and
capital gain distributions, and shareholder investments and redemptions.
NOVEMBER 30, 1999 (INCEPTION) THROUGH OCTOBER 31, 2000
Increase in Net Assets:
2000
OPERATIONS
Net investment loss ............................................ $ (2,552,977)
Net realized loss on investment transactions ................... (81,505,097)
Change in net unrealized appreciation on investments ........... 43,243,673
----------------
Net decrease in net assets resulting from operations ........... (40,814,401)
----------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net increase in net assets from capital share transactions ..... 405,161,926
----------------
Net increase in net assets ..................................... 364,347,525
NET ASSETS
Beginning of period ............................................ --
----------------
End of period .................................................. $364,347,525
================
12 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 (the 1940 Act) as an
open-end management investment company. Veedot Fund (the fund) is one of the
fourteen series of funds issued by the corporation. The fund is non-diversified
under the 1940 Act. The fund's investment objective is to seek long-term
capital growth by investing primarily in common stocks that management believes
to have better than average prospects for appreciation. The fund generally
invests in companies with small, medium, and large market capitalization. The
following significant accounting policies are in accordance with accounting
principles generally accepted in the United States of America; these policies
may require the use of estimates by fund management.
MULTIPLE CLASS -- The fund is authorized to issue three classes of shares:
the Investor Class, the Advisor Class, and the Institutional Class. The three
classes of shares differ principally in their respective shareholder servicing
and distribution expenses and arrangements. All shares of the fund represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Investor Class
commenced on November 30, 1999 and sale of the Institutional Class commenced on
August 1, 2000. Sale of the Advisor Class had not commenced as of October 31,
2000.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. 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.
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 and net
realized gains are generally declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At October 31, 2000, accumulated net realized capital loss carryovers for
federal income tax purposes of $80,643,875 (expiring in 2008) may be used to
offset future taxable realized gains.
www.americancentury.com 13
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified management fee per class. The Agreement provides
that all expenses of the fund, except brokerage commissions, taxes, interest,
expenses of those directors who are not considered "interested persons" as
defined in the 1940 Act (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 schedule for each class of shares is as follows:
INVESTOR CLASS INSTITUTIONAL CLASS
FUND AVERAGE NET ASSETS
First $500 million ........................ 1.50% 1.30%
Next $500 million ......................... 1.45% 1.25%
Over $1 billion ........................... 1.40% 1.20%
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, the
distributor of the corporation, American Century Investment Services, Inc., and
the corporation's transfer agent, American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the period November 30, 1999 through October 31, 2000, were
$1,091,123,651 and $712,689,876, respectively.
On October 31, 2000, accumulated net unrealized appreciation was
$42,386,778, based on the aggregate cost of investments for federal income tax
purposes of $335,258,976, which consisted of unrealized appreciation of
$47,044,027 and unrealized depreciation of $4,657,249.
14 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
SHARES AMOUNT
INVESTOR CLASS
Shares Authorized ........................... 200,000,000
================
Period ended October 31, 2000(1)
Sold ........................................ 66,227,887 $435,831,005
Redeemed .................................... (6,792,052) (43,302,091)
--------------- ---------------
Net increase ................................ 59,435,835 $392,528,914
=============== ===============
INSTITUTIONAL CLASS
Shares Authorized ........................... 50,000,000
===============
Period ended October 31, 2000(2)
Sold ........................................ 2,371,854 $14,620,245
Redeemed .................................... (309,477) (1,987,233)
--------------- ---------------
Net increase ................................ 2,062,377 $12,633,012
=============== ===============
(1) November 30, 1999 (inception) through October 31, 2000.
(2) August 1, 2000 (commencement of sale) through October 31, 2000.
www.americancentury.com 15
Veedot--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the share class is not five years old). It also includes several key
statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net
investment income as a percentage of average net assets), EXPENSE RATIO
(operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Investor Class
2000(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................. $5.00
-------------
Income From Investment Operations
Net Investment Loss(2) ......................................... (0.06)
Net Realized and Unrealized Gain
on Investment Transactions .................................. 0.98
-------------
Total From Investment Operations ............................... 0.92
-------------
Net Asset Value, End of Period ................................... $5.92
=============
Total Return(3) ................................................ 18.40%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets ................ 1.50%(4)
Ratio of Net Investment Loss to Average Net Assets ............... (0.92)%(4)
Portfolio Turnover Rate .......................................... 250%
Net Assets, End of Period (in thousands) ......................... $352,130
(1) November 30, 1999 (inception) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
16 1-800-345-2021 See Notes to Financial Statements
Veedot--Financial Highlights
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Institutional
Class
2000(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................. $6.12
---------------
Income From Investment Operations
Net Investment Loss(2) ......................................... (0.01)
Net Realized and Unrealized
Loss on Investment Transactions ................................ (0.19)
---------------
Total From Investment Operations ............................... (0.20)
---------------
Net Asset Value, End of Period ................................... $5.92
===============
Total Return (3) ............................................... (3.27)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............................................ 1.30%(4)
Ratio of Net Investment Loss
to Average Net Assets ............................................ (0.52)%(4)
Portfolio Turnover Rate .......................................... 250%(5)
Net Assets, End of Period (in thousands) ......................... $12,218
(1) August 1, 2000 (commencement of sale) through October 31, 2000.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one
year are not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated at the fund level. Percentage
indicated was calculated for the period November 30, 1999
(inception of fund) through October 31, 2000.
See Notes to Financial Statements www.americancentury.com 17
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
American Century Mutual Funds, Inc:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Veedot Fund (the "Fund"), one of the funds
comprising American Century Mutual Funds, Inc., as of October 31, 2000, and the
related statements of operations and changes in net assets for the period
November 30, 1999 (inception) through October 31, 2000, and the financial
highlights for the period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned at October 31, 2000 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Century Veedot Fund as of October 31, 2000, the results of its
operations and the changes in its net assets for the period then ended, and the
financial highlights for the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
December 8, 2000
18 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 Institutional 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.
INSTITUTIONAL CLASS shares are available to endowments, foundations, defined
benefit pension plans or financial intermediaries serving these investors. This
class recognizes the relatively lower cost of serving institutional customers
and others who invest at least $5 million in an American Century fund or at
least $10 million in multiple funds. In recognition of the larger investments
and account balances and comparatively lower transaction costs, the total
expense ratio of the Institutional Class shares is 0.20% less than the total
expense ratio of the Investor Class shares.
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)
account] are subject to federal income tax withholding at the rate of 10% of the
total amount withdrawn, unless you elect not to have withholding apply. If you
don't want us to withhold on this amount, you may send us a written notice not
to have the federal income tax withheld. Your written notice is valid from the
date of receipt at American Century. Even if you plan to roll over the amount
you withdraw to another tax-deferred account, the withholding rate still applies
to the withdrawn amount unless we have received a written notice not to withhold
federal income 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 19
Background Information
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers more than a dozen growth funds including domestic
equity specialty, international, and global. The philosophy behind these growth
funds focuses on three important principles. First, the funds seek to own
successful companies, which we define as those with growing earnings and
revenues. Second, we attempt to keep the funds fully invested, regardless of
short-term market activity. Experience has shown that market gains can occur in
unpredictable spurts and that missing those opportunities can significantly
limit the potential for gain. Third, the funds are managed by teams, rather than
by one "star." We believe this allows us to make better, more consistent
management decisions.
In addition to these principles, each fund has its own investment policies
AMERICAN CENTURY VEEDOT is a non-diversified fund, which uses a systematic,
highly disciplined investment process, relying heavily on quantitative tools to
identify attractive investment opportunities. It is designed to identify
companies, regardless of size or industry type, whose growth is accelerating and
whose share price patterns suggest their stocks are likely to increase in value
Due to the sector focus of this fund, it may experience greater volatility
than funds with a broader investment strategy. It is not intended to serve as a
complete investment program by itself.
COMPARATIVE INDICES
The following indices are used in the report to serve as fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is a capitalization-weighted index of the stocks of 500
publicly traded U.S. companies that are considered to be leading firms in
dominant industries. Created by Standard & Poor's, it is considered to be a
broad measure of U.S. stock market performance.
The S&P MIDCAP 400 is the medium capitalization sector of the U.S. market.
Created by Standard & Poor's, it is considered to represent the performance of
mid-cap stocks generally.
The RUSSELL 2000 INDEX was created by the Frank Russell Company. It
measures the performance of the 2,000 smallest of the 3,000 largest
publicly-traded U.S. companies based on total market capitalization. The Russell
2000 represents approximately 10% of the total market capitalization of the top
3,000 companies. The average market capitalization of the index is approximately
$420 million.
The WILSHIRE 5000 TOTAL MARKET INDEX measures the performance of all U.S.
headquartered equity securities with readily available price data. Over 7,000
capitalization weighted security returns are used to adjust the index. The
Wilshire 5000 base is its December 31, 1980 capitalization of $1,404,596
billion. Therefore, the index is an excellent approximation of dollar changes in
the U.S. equity market. The Wilshire 5000 is the best measure of the entire U.S.
stock market.
[left margin]
PORTFOLIO MANAGERS
Veedot
------------------------------------
JIM STOWERS III
JOHN SMALL, JR.
20 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 total returns, please refer to the "Financial
Highlights" on pages 16-17.
INVESTMENT TERMS
* MEDIAN MARKET CAPITALIZATION-- market capitalization (market cap) is the
total value of a company's stock and is calculated by multiplying the number of
outstanding common shares by the current share price. The company whose market
cap is in the middle of the portfolio is the median market cap. Half the
companies in the portfolio have values greater than the median, and half have
values that are less. If there is an even number of companies, then the median
is the average of the two companies in the middle.
* WEIGHTED AVERAGE MARKET CAPITALIZATION--
average market capitalization represents the average value of the companies held
in a portfolio. When that figure is weighted, the impact of each company's
capitalization on the overall average is proportional to the total market value
of its shares.
* NUMBER OF COMPANIES-- the number of different companies held by a fund on a
given date.
* PORTFOLIO TURNOVER-- the percentage of a fund's investment portfolio that is
replaced during a given time period, usually a year. Actively managed portfolios
tend to have higher turnover than passively managed portfolios such as index
funds.
* PRICE/BOOK RATIO-- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
* PRICE/EARNINGS (P/E) RATIO-- a stock value measurement calculated by
dividing a company's stock price by its earnings per share, with the result
expressed as a multiple instead of as a percentage. (Earnings per share is
calculated by dividing the after-tax earnings of a corporation by its
outstanding shares.) When this figure is weighted, the impact of each company's
P/E ratio is in proportion to the percentage of the fund that the company
represents.
TYPES OF STOCKS
* BLUE CHIP STOCKS-- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS-- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers and textile
operators.
* GROWTH STOCKS-- stocks of companies that have experienced above-average
earnings growth and are expected to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech,
healthcare and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of more than $9.0 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000, although it may be subject to
change based on market fluctuations. The Dow Jones Industrial Average and the S&
P 500 Index generally consist of stocks in this range.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of between $2.3 billion and $9.0 billion. This is
Lipper's market capitalization breakpoint as of October 31, 2000, although it
may be subject to change based on market fluctuations. The S&P 400 Index and
Russell 2500 Index generally consist of stocks in this range.
www.americancentury.com 21
Glossary
--------------------------------------------------------------------------------
(Continued)
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS--
the stocks of companies with a market capitalization (the total value of a
company's outstanding stock) of less than $2.3 billion. This is Lipper's market
capitalization breakpoint as of October 31, 2000 although it may be subject to
change based on market fluctuations. The S&P 600 Index and the Russell 2000
Index generally consist of stocks in this range.
* VALUE STOCKS-- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
FUND CLASSIFICATIONS
Please be aware that a fund's category may change over time. Therefore, it
is important that you read the fund's prospectus or fund profile carefully
before investing to ensure its objectives, policies and risk potential are
consistent with your needs.
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 correspondingly 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.
* 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
correspondingly high price-fluctuation risk.
22 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 23
Notes
--------------------------------------------------------------------------------
24 1-800-345-2021
[inside back cover]
AMERICAN CENTURY FUNDS
===============================================================================
GROWTH
===============================================================================
MODERATE RISK
SPECIALTY
Global Natural Resources
AGGRESSIVE RISK
DOMESTIC EQUITY INTERNATIONAL
Veedot(reg.sm) Emerging Markets
New Opportunities International Discovery
Giftrust(reg.tm) International Growth
Vista Global Growth
Heritage
Growth SPECIALTY
Ultra(reg.tm) Global Gold
Select Technology
Life Sciences
===============================================================================
GROWTH AND INCOME
===============================================================================
MODERATE RISK
ASSET ALLOCATION DOMESTIC EQUITY
Balanced Equity Growth
Strategic Allocation: Equity Index
Aggressive Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
SPECIALTY
Utilities
Real Estate
AGGRESSIVE RISK
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
===============================================================================
INCOME
===============================================================================
CONSERVATIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term
Intermediate-Term Treasury Tax-Free
GNMA AZ Intermediate-Term
Inflation-Adjusted Treasury Municipal
Limited-Term Bond FL Intermediate-Term
Target 2000* Municipal
Short-Term Government Intermediate-Term Tax-Free
Short-Term Treasury CA Limited-Term Tax-Free
Limited-Term Tax-Free
MODERATE RISK
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
AGGRESSIVE RISK
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
===============================================================================
CAPITAL PRESERVATION
===============================================================================
CONSERVATIVE RISK
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
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. Target
2000 will close on December 15, 2000. The fund closed to new investors on
10/1/2000, and will no longer accept investments from current shareholders
beginning 11/01/2000.
Please call 1-800-345-2021 for a prospectus or profile on any American Century
fund. These documents contain important information including charges and
expenses, and you should read them carefully before you invest or send money.
[back cover]
[graphic of runners]
WHO WE ARE
American Century offers investors more than 70 mutual funds spanning the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, and offer a range of services
designed to make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have been committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their futures in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED
RETIREMENT PLANS
1-800-345-3533
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
AMERICAN CENTURY MUTUAL FUNDS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
-------------------------------------------------------------------------------
American Century Investments PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0012 American Century Investment Services, Inc.
SH-ANN-23037 (c)2000 American Century Services Corporation
